Leases

9 Months Ended

Mar. 31, 2020

Under Topic 842, the Company evaluates contracts for lease accounting at contract inception and assesses lease classification at the lease commencement date. Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities and operating lease liabilities - long-term on the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the consolidated balance sheets. The Company recognizes a ROU asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments. As most of the leases do not provide an implicit rate, the Company uses its incremental borrowing rate at lease commencement. The Company uses an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments. Operating leases are primarily related to offices, research and development facilities, sales and marketing facilities, and manufacturing facilities. In addition, long-term supply agreements to lease gas tank equipment and purchase industrial gases are accounted for as operating leases. Lease agreements frequently include renewal provisions and require the Company to pay real estate taxes, insurance and maintenance costs. For operating leases, the amortization of the ROU asset and the accretion of its lease obligation liability result in a single straight-line expense recognized over the lease term. The finance lease is related to the RMB 400.0 million of lease financing of the JV Company with YinHai Leasing Company and The Export-Import Bank of China. See Note 5 - Bank Borrowings for details. The Company does not record leases on the condensed consolidated balance sheet with a term of one year or less.

The components of the Company’s operating and finance lease expenses are as follows for the period presented (in thousands):



	Nine Months Ended March 31, 2020
Operating Leases:
Fixed rent expense	$	4,480
Variable rent expense	623
Finance Lease:
Amortization of equipment	2,304
Interest	2,142
Short-term leases
Short-term lease expenses	224
Total lease expenses	$	9,773

Supplemental balance sheet information related to the Company’s operating and finance leases is as follows (in thousands, except lease term and discount rate):



	March 31, 2020
Operating Leases:
ROU assets associated with operating leases	$	32,739
Finance Lease:
Property, plant and equipment, gross	$	104,109
Accumulated depreciation	(85,967		)
Property, plant and equipment, net	$	18,142

Weighted average remaining lease term (in years)
Operating leases	9.99
Finance lease	2.97

Weighted average discount rate
Operating leases	4.48		%
Finance lease	5.46		%

Supplemental cash flow information related to the Company’s operating and finance lease is as follows (in thousands):



	Nine Months Ended March 31, 2020
Cash paid from amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,828
Operating cash flows from finance lease	$	2,142
Financing cash flows from finance lease	$	7,213

Non-cash increase in right-of-use operating lease assets *	$	16,009

* This relates to the Company's headquarters' office lease renewal in September 2019. See below for details.

Future minimum lease payments are as follows as of March 31, 2020 (in thousands):



	Operating Leases			Finance Leases
The remainder of 2020	$	1,339		$	4,444
2021	5,090			17,229
2022	4,624			16,386
2023	4,315			11,877
2024	3,934			—
2025	3,514			—
Thereafter	20,663			—
Total minimum lease payments	43,479			49,936
Less amount representing interest	(9,392		)	(4,138		)
Total lease liabilities	$	34,087		$	45,798

Prior to the adoption of the new lease standard, future minimum lease payments as of June 30, 2019 were as follows (in thousands):



Year ending June 30,	Operating Leases		Finance Leases
2020	$	4,357	$	14,219
2021	1,741		17,799
2022	1,164		16,928
2023	894		12,269
2024	1,002		—
Thereafter	149		—
Total minimum lease payments	9,307		61,215
Less amount representing interest	—		(6,479		)
Total lease liabilities	$	9,307	$	54,736

In September 2019, the Company modified its headquarters' office lease located in Sunnyvale, California for an additional 10-year term extension from its original scheduled expiration date in April 2020. During the three months ended March 31, 2020, the Company discovered that the operating lease right-of-use assets and operating lease liabilities relating to this lease were each understated by approximately $16.0 million, which was considered immaterial to previously issued quarterly reports on Form 10-Q as of September 30, 2019 and December 31, 2019. The impact of the correction on the previously issued consolidated statements of operations and cash flows was insignificant. Non-cash disclosure of the increase in right-of-use operating lease assets for the both three months ended September 2019 and six months ended December 2019 was increased from $0 to $16.0 million. The impact of the correction on the respective balance sheets was as follows (in thousands):



	September 30, 2019						December 31, 2019
	Amounts as reported		Adjustments		Amounts as corrected		Amounts as reported		Adjustments		Amounts as corrected

Operating lease right-of-use assets	$	19,362	$	16,009	$	35,371	$	18,667	$	15,709	$	34,376
Total assets	$	749,912	$	16,009	$	765,921	$	763,140	$	15,709	$	778,849

Operating lease liabilities - Short-term	$	3,767	$	620	$	4,387	$	3,282	$	858	$	4,140
Total current liabilities	$	189,451	$	620	$	190,071	$	184,151	$	858	$	185,009
Operating lease liabilities - Long-term	$	15,815	$	16,054	$	31,869	$	15,559	$	15,778	$	31,337
Total liabilities	$	312,359	$	16,054	$	328,413	$	322,990	$	15,778	$	338,768

Leases