Annual report pursuant to Section 13 and 15(d)

Leases

v3.20.2
Leases
12 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Leases

8. 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, as permitted by Topic 842, the Company 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 their contractual expirations, 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 management considers it 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 June 30, 2020, the Company had 23 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.

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The following table sets forth the Company’s future minimum lease payments under operating lease liabilities recorded on the Company’s condensed consolidated balance sheet as of June 30, 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

Maturity of

Operating Lease

Liabilities

(in thousands)

 

2021

$

1,832

2022

1,609

2023

1,199

2024

392

2025

192

Thereafter

500

Total lease payments

$

5,724

Less: amounts representing interest

395

Present value of lease liabilities

$

5,329

Less: current portion

1,672

Long-term portion

$

3,657

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

Operating lease cost

Twelve months

ended June 30,

2020

 

Operating lease cost (1)

$

1,935

Short-term lease cost (1)

190

Variable lease cost (1)

177

Total lease cost

$

2,302

(1) Expenses are classified within selling, general and administrative expenses in the Company’s condensed consolidated statement of operations for the year ended June 30, 2020.

The table below presents lease-related terms and discount rates as of June 30, 2020:

June 30, 2020

Weighted average remaining lease terms

Operating leases

4.0 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 June 30, 2020 (in thousands):

Twelve months

ended

June 30,

2020

Cash paid for amounts included in the measurement of lease liabilities:

$

1,935

Operating lease right-of-use assets obtained in exchange for operating lease liabilities:

$

1,366

EVI Industries, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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,

 

2021

$

1,554

2022

1,332

2023

1,031

2024

179

Total minimum lease payments

$

4,096

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 related to the 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 to be Received

Amortization of Unearned Income

Net Investment in Sales Type Leases

 

2021

$

1,615

$

941

$

674

2022

1,190

644

546

2023

873

434

439

2024

551

256

295

2025

193

98

95

Thereafter

235

105

130

$

2,179

*

* Excludes residual values of $1.8 million.

The total net investments in sales type leases, including stated residual values, as of June 30, 2020 and June 30, 2019 was $3.9 million and $3.0 million, respectively. The current portion of $3.2 million and $0.5 million is included in other current assets in the consolidated balance sheets as of June 30, 2020 and June 30, 2019, respectively, and the long term portion of $0.7 million and $2.5 million is included in other assets in the consolidated balance sheets as of June 30, 2020 and June 30, 2019, respectively.