Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.2
Leases
3 Months Ended
Sep. 30, 2021
Leases [Abstract]  
Leases

Note (6) – Leases:

Company as Lessee

The Company leases warehouse and distribution facilities, administrative office space and service and other fleet vehicles, generally for terms of three to ten years.

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Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

The Company applies ASC Topic 842, Leases (“ASC 842” or “Topic 842”), which, among other things, requires lessees to recognize substantially all leases on their balance sheets and disclose certain additional key information about leasing arrangements. The standard established a right-of-use model that requires a lessee to recognize a right-of-use asset and liability on the balance sheet for all leases with a term longer than 12 months. Leases are required to be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company adopted this standard effective July 1, 2019 using the modified retrospective transition approach, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption without restatement of prior periods.

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 right-of-use 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 September 30, 2021, the Company had 27 facilities, consisting of warehouse facilities and administrative offices, financed under operating leases with lease term expirations between 2021 and 2030. 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 September 30, 2021. 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)

2022 (remainder of)

$

1,878

 

2023

2,182

 

2024

1,303

 

2025

834

 

2026

603

 

Thereafter

1,692

 

Total minimum lease payments

$

8,492

 

Less: amounts representing interest

601

 

Present value of minimum lease payments

$

7,891

 

Less: current portion

2,293

 

Long-term portion

$

5,598

 

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Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

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

Three months ended

September 30,

2021

2020

Operating lease cost

 

Operating lease cost (1)

$

621

 

$

474

 

Short-term lease cost (1)

-

 

12

 

Variable lease cost (1)

35

 

116

 

Total lease cost

$

656

 

$

602

 

 

(1)

 

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

The table below presents lease-related terms and discount rates as of September 30, 2021:

September 30, 2021

Weighted average remaining lease terms

Operating leases

5.1 years

Weighted average discount rate

Operating leases

2.9%

The table below presents supplemental cash flow information related to the Company’s long-term operating lease liabilities for the three months ended September 30, 2021 and 2020 (in thousands):

Three months ended

September 30, 2021

2021

2020

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

$

621

 

$

474

 

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

$

610

 

$

1,928

 

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 from 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.

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Index

EVI Industries, Inc. and Subsidiaries

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

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

2022 (remainder of)

$

2,470

$

1,489

$

981

 

2023

2,639

1,549

1,090

 

2024

2,055

1,135

920

 

2025

1,448

746

702

 

2026

928

412

516

 

Thereafter

629

279

350

 

$

4,559*

 

* Excludes residual values of $2.4 million.

The total net investments in sales type leases, including stated residual values, as of September 30, 2021 and June 30, 2021 was $7.0 million and $6.7 million, respectively. The current portion of $1.5 million and $0.9 million is included in other current assets in the consolidated balance sheets as of September 30, 2021 and June 30, 2021, respectively, and the long term portion of $5.5 million and $5.8 million is included in other assets in the consolidated balance sheets as of September 30, 2021 and June 30, 2021, respectively.