Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.20.1
Leases
9 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases

Note (6) - Leases:

 

Company as Lessee

 

The Company leases warehouse and distribution facilities and administrative office space, generally for terms of three to five years.

 

As described in Note 2, “Summary of Significant Accounting Policies” above, the Company adopted ASC Topic 842, Leases (“ASC 842” or “Topic 842”), utilizing the modified retrospective adoption method with an effective date of July 1, 2019. The Company made the election to not apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of 12 months or less). Instead, the Company, as permitted by Topic 842, recognizes the lease payments under its short-term leases in profit or loss on a straight-line basis over the lease term. The Company elected this accounting policy for all classes of underlying assets. In addition, in accordance with Topic 842, variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a lease liability or right-of-use asset.

 

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, certain of the Company’s leases do not provide a readily determinable implicit rate. For such leases, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company uses instruments with similar characteristics when calculating its incremental borrowing rates.

 

The Company has options to extend certain of its operating leases for additional periods of time and the right to terminate several of its operating leases prior to its contractual expiration, in each case, subject to the terms and conditions of the lease. The lease term consists of the non-cancellable period of the lease and the periods covered by Company options to extend the lease when it is reasonably certain that the Company will exercise such options. The Company's lease agreements do not contain residual value guarantees. The Company has elected to not separate non-lease components from the associated lease component for all underlying classes of assets with lease and non-lease components.

 

As of March 31, 2020, the Company had 26 facilities, consisting of warehouse facilities and administrative offices, financed under operating leases with lease term expirations between 2020 and 2028. Rent expense consists of monthly rental payments under the terms of the Company’s lease agreements recognized on a straight-line basis.

 

The following table provides details of the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s condensed consolidated balance sheet as of March 31, 2020. The table below does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.

 

Fiscal years ending June 30, Total Operating
Lease Obligations
(in thousands)
 
2020 (remainder of)   $ 533  
2021     1,823  
2022     1,609  
2023     1,199  
2024     392  
Thereafter     692  
Total minimum lease payments   $ 6,248  
Less: amounts representing interest     444  
Present value of minimum lease payments   $ 5,804  
Less: current portion     1,744  
Long-term portion   $ 4,060  

 

 

The table below presents additional information related to the Company’s operating leases (in thousands):

 

    Nine months ended
March 31, 2020
 
Operating lease cost        
Operating lease cost (1)   $ 1,412  
Short-term lease cost (1)     153  
Variable lease cost (1)     113  
Total lease cost   $ 1,678  

 

(1) Expenses are classified within selling, general and administrative expenses in the Company’s condensed consolidated statement of operations.

 

The table below presents lease-related terms and discount rates as of March 31, 2020:

 

    March 31, 2020  
Weighted average remaining lease terms        
Operating leases     4.1 years  
Weighted average discount rate        
Operating leases     3.5%  

 

The table below presents supplemental cash flow information related to the Company’s long-term operating lease liabilities as of March 31, 2020 (in thousands):

 

    Nine months ended
March 31, 2020
 
Cash paid for amounts included in the measurement of lease liabilities:   $ 1,412  
Operating lease right-of-use assets obtained in exchange for operating lease liabilities:   $ 1,366  

 

Minimum future rental commitments for all of the Company’s real property leases, including those with related parties, as of June 30, 2019, which continues to be presented in accordance with ASC Topic 840, Leases (“ASC 840” or “Topic 840”) approximate the following (in thousands):

 

Fiscal years ending June 30,  
2020   $ 1,922  
2021     1,554  
2022     1,332  
2023     1,031  
2024     179  
Total minimum lease payments   $ 6,018  

 

Company as Lessor

 

The Company derives a portion of its revenue from equipment leasing arrangements. Such arrangements provide for monthly payments covering the equipment provided, maintenance, and interest. These arrangements meet the criteria to be accounted for as sales type leases. Accordingly, revenue for provision of the equipment is recognized upon delivery of the equipment and its acceptance by the customer. Upon the recognition of such revenue, an asset is established for the investment in sales type leases. Maintenance revenue and interest are recognized monthly over the lease term.

 

The future minimum lease payments receivable for sales type leases are as follows (in thousands): 

 

Fiscal years ending June 30,   Total Minimum
Lease Payments
Receivable
  Amortization
of Unearned
Income
  Net Investment
in Sales Type
Leases
2020 (remainder of)   $ 599     $ 267     $ 332  
2021     1,356       856       500  
2022     1,002       584       418  
2023     734       371       363  
2024     476       196       280  
Thereafter     286       127       159  
                    $ 2,052 *

* Excludes residual values of $1.6 million.

 

The total net investments in sales type leases, including stated residual values, as of March 31, 2020 and June 30, 2019 was $3.7 million and $3.0 million, respectively. The current portion of $0.7 million and $0.5 million is included in other current assets in the consolidated balance sheets as of March 31, 2020 and June 30, 2019, respectively, and the long term portion of $3.0 million and $2.5 million is included in other assets in the consolidated balance sheets as of March 31, 2020 and June 30, 2019, respectively.