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FINANCING RECEIVABLES AND OPERATING LEASES | 9 Months Ended
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Dec. 31, 2021
FINANCING RECEIVABLES AND OPERATING LEASES [Abstract] |
FINANCING RECEIVABLES AND OPERATING LEASES |
3. | FINANCING RECEIVABLES AND OPERATING LEASES
Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Often, our leases provide the lessee a bargain purchase option. The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and nine months ended December 31, 2021, and 2020 (in thousands):
|  | Three months ended December 31, |  |  | Nine months ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Net sales |  | $ | 3,212 |  |  | $ | 4,182 |  |  | $ | 12,991 |  |  | $ | 22,000 |
Cost of sales |  |  | 2,645 |  |  |  | 3,362 |  |  |  | 10,936 |  |  |  | 14,091 |
Gross profit |  | $ | 567 |  |  | $ | 820 |  |  | $ | 2,055 |  |  | $ | 7,909 |
The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and nine months ended December 31, 2021, and 2020 (in thousands):
|  | Three months ended December 31, |  |  | Nine months ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Interest income on sales-type leases |  | $ | 786 |  |  | $ | 1,956 |  |  | $ | 3,076 |  |  | $ | 6,059 |
Lease income on operating leases |  | $ | 7,356 |  |  | $ | 3,623 |  |  | $ | 19,200 |  |  | $ | 11,361 |
FINANCING RECEIVABLES—NET The following tables provide a disaggregation of our financing receivables – net (in thousands):
December 31, 2021 |  | Notes Receivable |  |  | Lease Receivables |  |  | Financing Receivables |
Gross receivables |  | $ | 115,446 |  |  | $ | 46,509 |  |  | $ | 161,955 |
Unguaranteed residual value (1) |  |  | - |  |  |  | 11,522 |  |  |  | 11,522 |
Initial direct costs, net of amortization |  |  | 234 |  |  |  | - |  |  |  | 234 |
Unearned income |  |  | - |  |  |  | (5,988 | ) |  |  | (5,988 | )
Allowance for credit losses (2) |  |  | (1,160 | ) |  |  | (646 | ) |  |  | (1,806 | )
Total, net |  | $ | 114,520 |  |  | $ | 51,397 |  |  | $ | 165,917 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 78,426 |  |  | $ | 19,757 |  |  | $ | 98,183 |
Long-term |  |  | 36,094 |  |  |  | 31,640 |  |  |  | 67,734 |
Total, net |  | $ | 114,520 |  |  | $ | 51,397 |  |  | $ | 165,917 |
(1) | Includes unguaranteed residual values of $7,176 thousand that we retained after selling the related lease receivable.
(2) | Refer to Note 6, “Allowance for Credit Losses” for details.
March 31, 2021 |  | Notes Receivable |  |  | Lease Receivables |  |  | Financing Receivables |
Gross receivables |  | $ | 112,641 |  |  | $ | 68,393 |  |  | $ | 181,034 |
Unguaranteed residual value (1) |  |  | - |  |  |  | 14,876 |  |  |  | 14,876 |
Initial direct costs, net of amortization |  |  | 425 |  |  |  | - |  |  |  | 425 |
Unearned income |  |  | - |  |  |  | (8,393 | ) |  |  | (8,393 | )
Allowance for credit losses (2) |  |  | (1,212 | ) |  |  | (1,171 | ) |  |  | (2,383 | )
Total, net |  | $ | 111,854 |  |  | $ | 73,705 |  |  | $ | 185,559 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 73,175 |  |  | $ | 33,097 |  |  | $ | 106,272 |
Long-term |  |  | 38,679 |  |  |  | 40,608 |  |  |  | 79,287 |
Total, net |  | $ | 111,854 |  |  | $ | 73,705 |  |  | $ | 185,559 |
(1) | Includes unguaranteed residual values of $9,453 thousand that we retained after selling the related lease receivable.
(2) | Refer to Note 6, “Allowance for Credit Losses” for details.
OPERATING LEASES—NET Operating leases—net represents leases that do not qualify as sales-type leases. The components of the operating leases—net are as follows (in thousands):
|  | December 31, 2021 |  |  | March 31, 2021 |
Cost of equipment under operating leases |  | $ | 34,893 |  |  | $ | 18,748 |
Accumulated depreciation |  |  | (12,601 | ) |  |  | (7,870 | )
Investment in operating lease equipment—net (1) |  | $ | 22,292 |  |  | $ | 10,878 |
(1) | Amounts include estimated unguaranteed residual values of $5.0 million and $2.5 million as of December 31, 2021, and March 31, 2021, respectively.
TRANSFERS OF FINANCIAL ASSETS We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2021, and March 31, 2021, we had financing receivables of $33.3 million and $60.5 million, respectively, and operating leases of $8.6 million and $3.3 million, respectively, which were collateral for non-recourse notes payable. See Note 8, ‘‘Credit Facility and Notes Payable.’’ For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability and recognize a net gain or loss on the sale, which are presented within net sales in the consolidated statement of operations. During the three months ended December 31, 2021, and 2020, we recognized net gains of $2.3 million and $3.0 million, respectively, and total proceeds from these sales were $63.5 million and $67.5 million, respectively. For the year to date periods ended December 31, 2021, and 2020, we recognized net gains of $15.6 million and $10.1 million, respectively, and total proceeds from these sales were $753.9 million and $259.2 million, respectively. When we retain servicing obligations in transfers accounted for as sales, we allocate a portion of the proceeds to deferred revenue, which is recognized as we perform the services. As of December 31, 2021, and March 31, 2021, we had deferred revenue of $0.5 million and $0.3 million, respectively, for servicing obligations. In a limited number of transfers accounted for as sales, we indemnified the assignee if the lessee elects to early terminate the lease. As of December 31, 2021, and March 31, 2021, the total potential payments that could result from these indemnities is immaterial.

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