Leases

6 Months Ended

Dec. 31, 2021

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 Condensed Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, finance lease liabilities and finance lease liabilities-long-term on the Condensed 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 7 - Bank Borrowings for details. The Company does not record leases on the Condensed Consolidated Balance Sheets with a term of one year or less.

The Company’s unaudited Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2021 include the JV Company's results for the period through December 1, 2021, the day immediately preceding the deconsolidation. For the three and six months ended December 31, 2020, AOS's unaudited consolidated results include the JV Company's results for the full periods presented. The components of the Company’s operating and finance lease expenses are as follows for the periods presented (in thousands):


	Six Months Ended December 31,
	2021		2020
Operating leases:
Fixed rent expense	$	3,476	$	3,407
Variable rent expense	615		419
Finance lease:
Amortization of equipment	772		1,149
Interest	681		1,187
Short-term leases
Short-term lease expenses	106		107
Total lease expenses	$	5,650	$	6,269

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


	December 31, 2021			June 30, 2021
Operating Leases:
ROU assets associated with operating leases	$	22,263		$	34,660
Finance Lease:
Property, plant and equipment, gross	$	115,564		$	114,404
Accumulated depreciation	(98,038)			(96,470)
Property, plant and equipment, net	$	17,526		$	17,934

Weighted average remaining lease term (in years)
Operating leases	6.71			8.44
Finance lease	0.00			1.72

Weighted average discount rate
Operating leases	4.23		%	4.67		%
Finance lease	—		%	5.46		%

226

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


	Six Months Ended December 31,
	2021		2020
Cash paid from amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,516	$	3,341
Operating cash flows from finance lease	$	410	$	1,187
Financing cash flows from finance lease	$	4,176	$	8,119

Non-cash investing and financing information:
Operating lease right-of-use assets obtained in exchange for lease obligations	$	1,903	$	2,824

Future minimum lease payments are as follows as of December 31, 2021 (in thousands):


Year ending June 30,	Operating Leases
The remainder of fiscal 2022	$	2,990
2023	4,978
2024	3,709
2025	2,828
2026	2,780
Thereafter	10,296
Total minimum lease payments	27,581
Less amount representing interest	(3,858)
Total lease liabilities	$	23,723

Leases


	Six Months Ended December 31,
	2021		2020
Operating leases:
Fixed rent expense	$	3,476	$	3,407
Variable rent expense	615		419
Finance lease:
Amortization of equipment	772		1,149
Interest	681		1,187
Short-term leases
Short-term lease expenses	106		107
Total lease expenses	$	5,650	$	6,269

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


	December 31, 2021			June 30, 2021
Operating Leases:
ROU assets associated with operating leases	$	22,263		$	34,660
Finance Lease:
Property, plant and equipment, gross	$	115,564		$	114,404
Accumulated depreciation	(98,038)			(96,470)
Property, plant and equipment, net	$	17,526		$	17,934

Weighted average remaining lease term (in years)
Operating leases	6.71			8.44
Finance lease	0.00			1.72

Weighted average discount rate
Operating leases	4.23		%	4.67		%
Finance lease	—		%	5.46		%

226

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


	Six Months Ended December 31,
	2021		2020
Cash paid from amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,516	$	3,341
Operating cash flows from finance lease	$	410	$	1,187
Financing cash flows from finance lease	$	4,176	$	8,119

Non-cash investing and financing information:
Operating lease right-of-use assets obtained in exchange for lease obligations	$	1,903	$	2,824

Future minimum lease payments are as follows as of December 31, 2021 (in thousands):


Year ending June 30,	Operating Leases
The remainder of fiscal 2022	$	2,990
2023	4,978
2024	3,709
2025	2,828
2026	2,780
Thereafter	10,296
Total minimum lease payments	27,581
Less amount representing interest	(3,858)
Total lease liabilities	$	23,723