UNITED
STATES
SECURITIES
AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the
quarterly period ended September
30,
2008
OR
TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF
1934
For
the transition period from____ to
____ .
Commission
file number: 1-34167
ePlus
inc.
(Exact
name of registrant as specified
in its charter)
Delaware
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54-1817218
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer Identification
No.)
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13595
Dulles Technology
Drive, Herndon,
VA 20171-3413
(Address,
including zip code, of
principal executive offices)
Registrant's
telephone number, including
area code: (703)
984-8400
Indicate
by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days.
Yes
x
No o
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions
of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large
accelerated filer
o
|
Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller
reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes
o
No x
The
number of shares of common stock
outstanding as of October 31, 2008 was
8,399,598.
ePlus
inc. AND
SUBSIDIARIES
Part I. Financial
Information:
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Cautionary
Language About
Forward-Looking Statements
This
Quarterly Report on Form 10-Q
contains certain statements that are, or may be deemed to be, “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and
are made in reliance upon the protections provided by such acts for
forward-looking statements. Such statements are
not based on
historical fact, but are based upon numerous assumptions about future conditions
that may not occur. Forward-looking statements
are generally
identifiable by use of forward-looking words such as “may,” “will,” “should,”
“intend,” “estimate,” “believe,” “expect,” “anticipate,” “project” and similar
expressions. Readers
are cautioned not to place undue reliance on any forward-looking statements
made
by us or on our behalf. Any such statement
speaks only as of the
date the statement was made. We do not undertake
any obligation to
publicly update or correct any forward-looking statements to reflect events
or
circumstances that subsequently occur, or of which we hereafter become
aware. Actual events,
transactions and results may materially differ from the anticipated events,
transactions or results described in such statements. Our ability to consummate
such
transactions and achieve such events or results is subject to certain risks
and
uncertainties. Such
risks and uncertainties include, but are not limited to, the matters set
forth
below.
Although
we have been offering IT
financing since 1990 and direct marketing of IT products since 1997, our
comprehensive set of solutions—the bundling of our direct IT sales, professional
services and financing with our proprietary software—has been available since
2002. Consequently, we
may encounter some of the challenges, risks, difficulties and uncertainties
frequently faced by companies providing new and/or bundled solutions in an
evolving market. Some
of these challenges relate to our ability to:
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·
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manage
a diverse
product set of solutions in highly competitive
markets;
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·
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increase
the
total number of customers utilizing bundled solutions by up-selling
within our
customer base
and gain new customers;
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adapt
to meet
changes in markets and competitive
developments;
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maintain
and
increase advanced professional services by retaining highly skilled
personnel
and vendor certifications;
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integrate
with
external IT systems including those of our customers and vendors;
and
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continue
to
update our software and technology to enhance the features and
functionality of our
products.
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We
cannot be certain that our business
strategy will be successful or that we will successfully address these and
other
challenges, risks and uncertainties. For a further list
and description of
various risks, relevant factors and uncertainties that could
cause future results or events to
differ materially from those expressed or implied in our forward-looking
statements, see the “Risk Factors” and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” sections contained elsewhere in
this document, as well as our Annual Report on Form 10-K for the fiscal year
ended March 31, 2008, any subsequent Reports on Form 10-Q and Form 8-K and
other
filings with the SEC.
PART
I. FINANCIAL
INFORMATION
Item
1. Financial Statements
ePlus
inc. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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As
of
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As
of
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September
30, 2008
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March
31, 2008
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ASSETS
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(in
thousands)
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Cash
and cash equivalents
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$ |
75,176 |
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$ |
58,423 |
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Accounts
receivable—net
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113,359 |
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109,706 |
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Notes
receivable
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2,252 |
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726 |
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Inventories—net
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9,598 |
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9,192 |
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Investment
in leases and leased equipment—net
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141,149 |
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157,382 |
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Property
and equipment—net
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4,019 |
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4,680 |
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Other
assets
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18,591 |
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13,514 |
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Goodwill
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26,245 |
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26,125 |
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TOTAL
ASSETS
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$ |
390,389 |
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$ |
379,748 |
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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LIABILITIES
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Accounts
payable—equipment
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$ |
8,698 |
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$ |
6,744 |
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Accounts
payable—trade
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21,711 |
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22,016 |
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Accounts
payable—floor plan
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59,586 |
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55,634 |
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Salaries
and commissions payable
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4,874 |
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4,789 |
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Accrued
expenses and other liabilities
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30,571 |
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30,372 |
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Income
taxes payable
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703 |
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- |
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Non-recourse
notes payable
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86,678 |
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93,814 |
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Deferred
tax liability
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2,677 |
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2,677 |
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Total
Liabilities
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215,498 |
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216,046 |
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COMMITMENTS
AND CONTINGENCIES (Note 6)
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $.01 par value; 2,000,000 shares authorized;
none issued or
outstanding
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- |
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Common
stock, $.01 par value; 25,000,000 shares authorized;11,378,588
issued and
8,399,598 outstanding at September 30, 2008
and 11,210,731 issued and
8,231,741 outstanding at March 31, 2008
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113 |
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112 |
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Additional
paid-in capital
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78,456 |
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77,287 |
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Treasury
stock, at cost, 2,978,990 and 2,978,990 shares,
respectively
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(32,884 |
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(32,884 |
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Retained
earnings
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128,736 |
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118,623 |
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Accumulated
other comprehensive income—foreign currency translation
adjustment
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470 |
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564 |
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Total
Stockholders' Equity
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174,891 |
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163,702 |
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$ |
390,389 |
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$ |
379,748 |
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See
Notes to Unaudited Condensed
Consolidated Financial
Statements.
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ePlus
inc.
AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
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Three
Months
Ended
September
30,
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Six
Months
Ended
September
30,
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2008
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2007
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2008
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2007
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(amounts
in
thousands, except per share data)
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Sales
of product
and services
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$ |
179,491 |
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$ |
189,680 |
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$ |
345,250 |
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$ |
396,234 |
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Sales
of leased
equipment
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2,182 |
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18,218 |
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3,447 |
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26,804 |
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181,673 |
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207,898 |
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348,697 |
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423,038 |
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Lease
revenues
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12,211 |
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12,470 |
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23,836 |
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31,616 |
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Fee
and other
income
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2,974 |
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4,633 |
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6,611 |
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9,013 |
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15,185 |
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17,103 |
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30,447 |
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40,629 |
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TOTAL
REVENUES
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196,858 |
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225,001 |
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379,144 |
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463,667 |
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COSTS
AND
EXPENSES
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Cost
of sales,
product and services
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154,414 |
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166,193 |
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298,131 |
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351,400 |
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Cost
of leased
equipment
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2,034 |
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17,429 |
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3,260 |
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25,611 |
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156,448 |
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183,622 |
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301,391 |
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377,011 |
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|
Direct
lease
costs
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3,833 |
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|
5,870 |
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7,627 |
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11,893 |
|
Professional
and
other fees
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|
1,808 |
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|
3,504 |
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4,353 |
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|
7,171 |
|
Salaries
and
benefits
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|
18,672 |
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17,208 |
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|
38,136 |
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|
36,902 |
|
General
and
administrative expenses
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|
3,801 |
|
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|
3,892 |
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|
7,589 |
|
|
|
8,375 |
|
Interest
and
financing costs
|
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|
1,467 |
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|
|
2,276 |
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|
2,952 |
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|
4,772 |
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29,581 |
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|
32,750 |
|
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|
60,657 |
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69,113 |
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|
TOTAL
COSTS AND
EXPENSES (1)(2)
|
|
|
186,029 |
|
|
|
216,372 |
|
|
|
362,048 |
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|
446,124 |
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EARNINGS
BEFORE
PROVISION FOR INCOME TAXES
|
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10,829 |
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|
8,629 |
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|
17,096 |
|
|
|
17,543 |
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PROVISION
FOR
INCOME TAXES
|
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|
4,409 |
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|
3,775 |
|
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|
6,983 |
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7,679 |
|
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NET
EARNINGS
|
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$ |
6,420 |
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$ |
4,854 |
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$ |
10,113 |
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$ |
9,864 |
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NET
EARNINGS PER COMMON SHARE—BASIC
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$ |
0.77 |
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$ |
0.59 |
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$ |
1.22 |
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$ |
1.20 |
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NET
EARNINGS PER COMMON SHARE—DILUTED
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$ |
0.74 |
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$ |
0.59 |
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$ |
1.18 |
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$ |
1.18 |
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WEIGHTED
AVERAGE
SHARES OUTSTANDING—BASIC
|
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|
8,299,496 |
|
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|
8,231,741 |
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|
8,276,650 |
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|
8,231,741 |
|
WEIGHTED
AVERAGE
SHARES OUTSTANDING—DILUTED
|
|
|
8,622,562 |
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|
8,331,044 |
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|
8,597,896 |
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|
8,363,348 |
|
(1)
|
Includes
amounts to related
parties of $278 thousand and $281 thousand for the three months
ended September 30, 2008 and September 30, 2007,
respectively.
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(2)
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Includes
amounts to related
parties of $556 thousand and $524 thousand for the six months
ended September 30, 2008 and September 30, 2007,
respectively.
|
See
Notes to Unaudited Condensed
Consolidated Financial Statements.
ePlus
inc.
AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(UNAUDITED)
|
|
Six
Months Ended September
30,
|
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2008
|
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2007
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(in
thousands)
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|
Cash
Flows From Operating
Activities:
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Net
earnings
|
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$ |
10,113 |
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$ |
9,864 |
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Adjustments
to reconcile net
earnings to net cash used in operating activities:
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Depreciation
and
amortization
|
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|
8,091 |
|
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|
11,969 |
|
Reserves
for credit losses and
sales returns
|
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|
650 |
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|
552 |
|
Provision
for
inventory allowances and inventory returns
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|
559 |
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|
(52 |
) |
Impact
of stock-based
compensation
|
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|
61 |
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|
1,532 |
|
Excess
tax benefit from exercise
of stock options
|
|
|
(107 |
) |
|
|
- |
|
Tax
benefit of stock options
exercised
|
|
|
140 |
|
|
|
- |
|
Deferred
taxes
|
|
|
- |
|
|
|
(251 |
) |
Payments
from lessees directly to
lenders—operating
leases
|
|
|
(4,861 |
) |
|
|
(7,636 |
) |
Loss
on disposal of property and
equipment
|
|
|
16 |
|
|
|
4 |
|
Loss
(gain) on sales or disposal
of operating lease equipment
|
|
|
(953 |
) |
|
|
919 |
|
Excess
increase in cash value of
officers life insurance
|
|
|
(66 |
) |
|
|
(31 |
) |
Changes
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable—net
|
|
|
(4,336 |
) |
|
|
(18,123 |
) |
Notes
receivable
|
|
|
(1,526 |
) |
|
|
(1,326 |
) |
Inventories—net
|
|
|
(965 |
) |
|
|
(922 |
) |
Investment
in direct financing and
sale-type leases —net
|
|
|
(11,541 |
) |
|
|
5,484 |
|
Other
assets
|
|
|
(4,675 |
) |
|
|
(2,055 |
) |
Accounts
payable—equipment
|
|
|
2,302 |
|
|
|
1,611 |
|
Accounts
payable—trade
|
|
|
(311 |
) |
|
|
7,329 |
|
Salaries
and commissions payable,
accrued expenses and other liabilities
|
|
|
960 |
|
|
|
4,729 |
|
Net
cash provided by (used in)
operating activities
|
|
|
(6,449 |
) |
|
|
13,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing
Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale or disposal of
operating lease equipment
|
|
|
2,192 |
|
|
|
1,415 |
|
Purchases
of operating lease
equipment
|
|
|
(2,287 |
) |
|
|
(6,102 |
) |
Purchases
of property and
equipment
|
|
|
(388 |
) |
|
|
(812 |
) |
Premiums
paid on officers' life
insurance
|
|
|
(157 |
) |
|
|
(159 |
) |
Cash
used in acquisitions, net of
cash acquired
|
|
|
(364 |
) |
|
|
- |
|
Net
cash used in investing
activities
|
|
|
(1,004 |
) |
|
|
(5,658 |
) |
ePlus
inc. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF
CASH FLOWS - continued
(UNAUDITED)
|
|
Six
Months Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash
Flows From Financing
Activities:
|
|
(in
thousands)
|
|
Borrowings:
|
|
|
|
|
|
|
Non-recourse
|
|
|
22,747 |
|
|
|
12,422 |
|
Repayments:
|
|
|
|
|
|
|
|
|
Non-recourse
|
|
|
(3,474 |
) |
|
|
(10,976 |
) |
Proceeds
from issuance of capital
stock, net of expenses
|
|
|
969 |
|
|
|
- |
|
Excess
tax benefit from exercise
of stock options
|
|
|
107 |
|
|
|
- |
|
Net
borrowings on floor plan
facility
|
|
|
3,951 |
|
|
|
3,063 |
|
Net
cash provided by financing
activities
|
|
|
24,300 |
|
|
|
4,509 |
|
|
|
|
|
|
|
|
|
|
Effect
of Exchange Rate Changes on
Cash
|
|
|
(94 |
) |
|
|
268 |
|
|
|
|
|
|
|
|
|
|
Net
Increase in Cash and Cash
Equivalents
|
|
|
16,753 |
|
|
|
12,716 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents,
Beginning of Period
|
|
|
58,423 |
|
|
|
39,680 |
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents, End of
Period
|
|
$ |
75,176 |
|
|
$ |
52,396 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash
Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for
interest
|
|
$ |
267 |
|
|
$ |
727 |
|
Cash
paid for income
taxes
|
|
$ |
5,857 |
|
|
$ |
4,874 |
|
|
|
|
|
|
|
|
|
|
Schedule
of Non-cash Investing and
Financing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
included in accounts payable
|
|
$ |
52 |
|
|
$ |
39 |
|
Purchase
of operating lease
equipment included in accounts payable
|
|
$ |
21 |
|
|
$ |
42 |
|
Principal
payments from lessees
directly to lenders
|
|
$ |
26,410 |
|
|
$ |
32,576 |
|
See
Notes to Unaudited Condensed
Consolidated Financial Statements.
ePlus inc.
AND
SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
As
of and for the three and six months
ended September 30, 2008 and 2007
1.
ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The
Unaudited Condensed Consolidated
Financial Statements of ePlus
inc. and subsidiaries and Notes
thereto included herein are unaudited and have been prepared by us, pursuant
to
the rules and regulations of the Securities and Exchange Commission
(“SEC”) and reflect
all adjustments that are, in the opinion of management, necessary for a fair
statement of results for the interim periods. All adjustments made
were of a normal
recurring nature.
Certain
information and note disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States
(“U.S. GAAP”) have been condensed or
omitted pursuant to SEC rules and regulations.
These
interim financial statements
should be read in conjunction with our Consolidated Financial Statements
and
Notes thereto contained in our Annual Report on Form 10-K for the year ended
March 31, 2008. Operating results for the interim periods are not
necessarily indicative of results for an entire year.
PRINCIPLES
OF CONSOLIDATION — The
Unaudited Condensed Consolidated Financial Statements include the accounts
of
ePlus
inc. and its wholly-owned
subsidiaries. All intercompany balances and transactions have been
eliminated.
REVENUE
RECOGNITION — The majority of
our revenues is derived from three sources: sales of products and services,
lease revenues and sales of our software.
Our revenue recognition
policies vary based upon these revenue sources.
Revenue
from Technology Sales
Transactions
We
adhere to guidelines and principles
of sales recognition described in Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue
Recognition” (“SAB No.
104”), issued by the staff of the SEC. Under SAB No. 104, sales are recognized
when the title and risk of loss are passed to the customer, there is persuasive
evidence of an arrangement for sale, delivery has occurred and/or services
have
been rendered, the sales price is fixed or determinable and collectability
is
reasonably assured. Using these tests, the vast majority of our product sales
are recognized upon delivery.
We
also sell services that are performed
in conjunction with product sales, and recognize revenue for these sales
in
accordance with Emerging Issues Task Force ("EITF") 00-21, “Accounting
for
Revenue Arrangements with Multiple Deliverables.” Accordingly, we recognize
sales from
delivered items only when the delivered item(s) has value to the client on
a
stand alone basis, there is objective and reliable evidence of the fair value
of
the undelivered item(s), and delivery of the undelivered item(s) is probable
and
substantially under our control. For most of the arrangements with multiple
deliverables
(hardware and services), we generally cannot establish reliable evidence
of the
fair value of the undelivered items. Therefore, the majority of revenue from
these services, and hardware sold in conjunction with those services, is
recognized when the service is complete and we have received an acceptance
certificate. However, in some cases, we do not receive an acceptance certificate
and we determine the completion date based upon our records.
We
also sell certain third-party service
contracts and software assurance or subscription products for which we evaluate
whether the subsequent sales of such services should be recorded as gross
sales
or net sales in accordance with the sales recognition criteria outlined in
SAB
No. 104, EITF 99-19, “Reporting
Revenue
Gross as a Principal versus Net as an Agent” and Financial Accounting
Standards
Board (“FASB”) Technical Bulletin 90-1, “Accounting
for
Separately Priced Extended Warranty and Product Contracts.” We must determine whether
we act as a
principal in the transaction and assume the risks and rewards of ownership
or if
we are simply acting as an agent or broker. Under gross sales recognition,
the
entire selling price is recorded in sales of product and services and our
costs
to the third-party service provider or vendor is recorded in cost of sales,
product and services on the accompanying Unaudited Condensed Consolidated
Statements of Operations. Under net sales recognition, the cost to the
third-party service provider or vendor is recorded as a reduction to sales
resulting in net sales equal to the gross profit on the transaction and there
is
no cost of sales. In accordance with EITF 00-10, “Accounting
for
Shipping and Handling Fees and Costs,” we record freight billed
to our
customers as sales of product and services and the related freight costs
as cost
of sales, product and services on
the accompanying Unaudited Condensed
Consolidated Statements of Operations.
Revenue
from Leasing
Transactions
Our
leasing revenues are accounted for
in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 13,
“Accounting
for
Leases.” The accounting for
revenue is different depending on the type of lease. Each lease is classified
as
either a direct financing lease, sales-type lease, or operating lease,
as appropriate. If
a lease meets one or more of the
following four criteria, the lease is classified as either a sales-type or
direct financing lease, otherwise, it will be classified as an operating
lease:
|
•
|
the
lease transfers ownership of the property to the lessee by the
end of the
lease term;
|
|
•
|
the
lease contains a bargain purchase
option;
|
|
•
|
the
lease term is equal to 75 percent or more of the estimated economic
life
of the leased property; or
|
|
•
|
the
present value at the beginning of the lease term of the minimum
lease
payments equals or exceeds 90 percent of the excess of the fair
value of
the leased property at the inception of the
lease.
|
For
direct financing and sales-type
leases, we record the net investment in leases, which consists of the sum
of the
minimum lease payments, initial direct costs (direct financing leases only),
and
unguaranteed residual value (gross investment) less the unearned income.
For
direct finance leases, the difference between the gross investment and the
cost
of the leased equipment is recorded as unearned income at the inception of
the
lease. Under sales-type leases, the difference between the fair value and
cost
of the leased property plus initial direct costs (net margins) is recorded
as
unearned revenue at the inception of the lease. Revenue for both sales-type
and
direct-financing leases are recognized as the unearned income is amortized
over
the life of the lease using the interest method. For operating leases, rental
amounts are accrued on a straight-line basis over the lease term and are
recognized as lease revenue.
Sales
of leased equipment represent
revenue from the sales of equipment subject to a lease (lease schedule) in
which
we are the lessor. If the rental stream on such a lease has non-recourse
debt
associated with it, sales revenue is recorded at the amount of consideration
received, net of the amount of debt assumed by the purchaser. If there is
no
non-recourse debt associated with the rental stream, sales revenue is
recorded at the amount of gross consideration received, and costs of sales
is
recorded at the book value of the lease. Sales of leased equipment represents
revenue generated through the sale of equipment sold primarily through our
financing business unit.
Lease
revenues consist of rentals due
under operating leases, amortization of unearned income on direct financing
and
sales-type leases and sales of leased assets to lessees. Equipment under
operating leases is recorded at cost and depreciated on a straight-line basis
over the lease term to the estimated residual value.
SFAS
No. 140, “Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities” (“SFAS No.
140”), establishes criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for
as a
sale or as a pledge of collateral in a secured borrowing. Certain assignments
of
direct finance leases we make on a non-recourse basis meet the criteria for
surrender of control set forth by SFAS No. 140 and have therefore been treated
as sales for financial statement purposes. We assign all rights, title, and
interests in a number of our leases to third-party financial institutions
without recourse. These assignments are recorded as sales since we have
completed our obligations as of the assignment date, and we retain no ownership
interest in the equipment under lease.
Revenue
from Software Sales
Transactions
We
derive revenue from licensing our
proprietary software for a fixed term or for perpetuity in an enterprise
license. In addition, we receive revenues from hosting our proprietary software
for our
clients. Revenue
from hosting arrangements is recognized in accordance with EITF 00-3,
“Application
of AICPA
Statement of Position 97-2 to Arrangements That Include the Right to Use
Software Stored on Another Entity’s Hardware.” Our hosting arrangements
do not
contain a contractual right to take possession of the software. Therefore,
our
hosting arrangements are not in the scope of Statement of Position 97-2 (“SOP
97-2”), “Software
Revenue
Recognition,” and require
that the portion of the fee allocated to the hosting elements be recognized
as
the service is provided. Currently, the majority of our software revenue
is
generated through hosting agreements and is included in fee and other income
on
our Unaudited Condensed Consolidated Statements of
Operations.
Revenue
from sales of our software is
recognized in accordance with SOP 97-2, as amended by SOP 98-4, “Deferral
of the
Effective Date of a Provision of SOP 97-2,” and SOP 98-9, “Modification
of SOP
97-2 With Respect to Certain Transactions.” We recognize revenue
when all the
following criteria exist:
|
•
|
there
is persuasive evidence that
an arrangement exists;
|
|
•
|
no
significant obligations by us
related to services essential to the functionality of the software
remain
with regard to
implementation;
|
|
•
|
the
sales price is determinable;
and
|
|
•
|
it
is probable that collection
will occur.
|
Revenue
from sales of our software is
included in fee and other income on our Unaudited Condensed Consolidated
Statements of Operations.
Our
software agreements often include
implementation and consulting services that are sold separately under consulting
engagement contracts or as part of the software license arrangement. When
we
determine that such services are not essential to the functionality of the
licensed software and qualify as “service transactions” under SOP 97-2, we
record revenue separately for the license and service elements of these
agreements.
Generally,
we consider that a service is
not essential to the functionality of the software based on various factors,
including if the services may be provided by independent third parties
experienced in providing such consulting and implementation in coordination
with
dedicated customer personnel. When consulting qualifies for separate accounting,
consulting revenues under time and materials billing arrangements are recognized
as the services are performed. Consulting revenues under fixed-price contracts
are generally recognized using the percentage-of-completion method. If there
is
a significant uncertainty about the project completion or receipt of payment
for
the consulting services, revenue is deferred until the uncertainty is
sufficiently resolved. Consulting revenues are classified as fee and other
income on our Unaudited Condensed Consolidated Statements of
Operations.
If
a service arrangement is essential to
the functionality of the licensed software and therefore does not qualify
for
separate accounting of the license and service elements, then license revenue
is
recognized together with the consulting services using either the
percentage-of-completion or completed-contract method of contract accounting.
Under the percentage-of-completion method, we may estimate the stage of
completion of contracts with fixed or “not to exceed” fees based on hours or
costs incurred to date as compared with estimated total project hours or
costs
at completion. If we do not have a sufficient basis to measure progress towards
completion, revenue is recognized upon completion of the contract. When total
cost estimates exceed revenues, we accrue for the estimated losses immediately.
The use of the percentage-of-completion method of accounting requires
significant judgment relative to estimating total contract costs, including
assumptions relative to the length of time to complete the project, the nature
and complexity of the work to be performed, and anticipated changes in salaries
and other costs. When adjustments in estimated contract costs are determined,
such revisions may have the effect of adjusting, in the current period, the
earnings applicable to performance in prior periods.
For
agreements that include one or more
elements to be delivered at a future date, we generally use the residual
method
to recognize revenues when evidence of the fair value of all undelivered
elements exists. Under the residual method, the fair value of the undelivered
elements (e.g., maintenance, consulting and training services) based on
vendor-specific objective evidence (“VSOE”) is deferred and the remaining
portion of the arrangement fee is allocated to the delivered elements (i.e.,
software license). If evidence of the fair value of one or more of the
undelivered services does not exist, all revenues are deferred and recognized
when delivery of all of those services has occurred or when fair values can
be
established. We determine VSOE of the fair value of services revenue based
upon
our recent pricing for those services when sold separately. VSOE of the fair
value of maintenance services may also be determined based on a substantive
maintenance renewal clause, if any, within a customer contract. Our current
pricing practices are influenced primarily by product type, purchase volume,
maintenance term and customer location. We review services revenue sold
separately and maintenance renewal rates on a periodic basis and update our
VSOE
of fair value for such services to ensure that it reflects our recent pricing
experience, when appropriate.
Maintenance
services generally include
rights to unspecified upgrades (when and if available), telephone and
Internet-based support, updates and bug fixes. Maintenance revenue is recognized
ratably over the term of the maintenance contract (usually one year) on a
straight-line basis and is included in fee and other income on our Unaudited
Condensed Consolidated Statements of Operations. Training services include
on-site training, classroom training and computer-based training and assessment.
Training revenue is recognized as the related training services are provided
and
is included in fee and other income on our Unaudited Condensed Consolidated
Statements of Operations.
Revenue
from Other
Transactions
Other
sources of revenue are derived
from: (1) income from events that occur after the initial sale of a financial asset;
(2) remarketing fees; (3)
brokerage fees earned for the placement of financing transactions; (4) agent
fees received from various manufacturers in the IT reseller business unit;
(5)
settlement fees related to disputes or litigation; and (6) interest and other
miscellaneous income. These revenues are included in fee and other income
on our
Unaudited Condensed Consolidated Statements of Operations.
VENDOR
CONSIDERATION — We receive
payments and credits from vendors, including consideration pursuant to volume
sales incentive programs, volume purchase incentive programs and shared
marketing expense programs. Vendor consideration received pursuant to volume
sales incentive programs is recognized as a reduction to costs of sales,
product
and services on the accompanying Unaudited
Condensed
Consolidated Statements
of
Operations in
accordance with EITF Issue No. 02-16,
“Accounting
for
Consideration Received from a Vendor by a Customer (Including a Reseller
of the
Vendor’s Products).” Vendor
consideration received pursuant to volume purchase incentive programs is
allocated to inventories based on the applicable incentives from each vendor
and
is recorded in cost of sales, product and services, as the inventory is sold.
Vendor consideration received pursuant to shared marketing expense programs
is
recorded as a reduction of the related selling and administrative expenses
in
the period the program takes place only if the consideration represents a
reimbursement of specific, incremental, identifiable costs. Consideration
that
exceeds the specific, incremental, identifiable costs is classified as a
reduction of cost of sales, product and services on
the accompanying Unaudited Condensed
Consolidated Statements of Operations.
RESIDUALS
—
Residual
values,
representing the estimated value of equipment at the termination of a lease,
are
recorded in our Unaudited Condensed Consolidated Financial Statements at
the
inception of each sales-type or direct financing lease as amounts estimated
by
management based upon its experience and judgment. Unguaranteed residual
values
for sales-type and direct financing leases are recorded at their net present
value and the unearned income is amortized over the life of the lease using
the
interest method. The residual values for operating leases are included in
the
leased equipment’s net book value.
We
evaluate residual values on an
ongoing basis and record any downward adjustment, if required. No upward
revision of residual values is made subsequent to lease
inception.
RESERVES
FOR CREDIT LOSSES —The reserve
for credit losses (the “reserve”) is maintained at a level believed by
management to be adequate to absorb potential losses inherent in our lease
and accounts
receivable portfolio.
Management’s determination of the adequacy of the reserve is based on an
evaluation of historical credit loss experience, current economic conditions,
volume,
growth, the composition of the lease portfolio, and other
relevant factors.
The reserve is increased by provisions for potential credit losses charged
against income. Accounts are either written off or written down when the
loss is
both probable and determinable, after giving consideration to the customer’s
financial condition, the value of the underlying collateral and funding status
(i.e., not funded or
discounted
on a
recourse or partial
recourse basis, or funded on
a non-recourse basis).
Sales
are reported net of returns and
allowances. Allowance for sales
returns is
maintained at a level believed by management to be adequate to absorb potential
sales returns from product and services in accordance with SFAS No.
48,“Revenue
Recognition
when the Right of Return Exist” (“SFAS No. 48”).
Management's determination of the
adequacy of the reserve is based on an evaluation of historical sales returns,
current economic conditions, volume and other relevant factors. These
determinations require considerable judgment in assessing the ultimate potential
for sales returns and include consideration of the type and volume of products
and services sold.
CASH
AND CASH EQUIVALENTS — We consider
all highly
liquid investments, including those with an original maturity of three months
or
less, to be cash equivalents. Cash and cash equivalents consist primarily
of
interest-bearing accounts and a money market account which consists of
short-term U.S. treasury securities with original maturities less than or
equal
to 90 days. Interest income on these short-term investments is recognized
when
earned. There are no restrictions on the withdrawal of funds from our money
market account.
INVENTORIES
—
Inventories
are stated at
the lower of cost (weighted average basis) or market and are shown net of
allowance for obsolescence.
PROPERTY
AND EQUIPMENT — Property and
equipment are stated at cost, net of accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method
over
the estimated useful lives of the related assets, which range from three
to ten
years.
CAPITALIZATION
OF COSTS OF SOFTWARE FOR
INTERNAL USE — We have capitalized certain costs for the development of internal
use software under the guidelines of SOP 98-1, “Accounting
for the
Costs of Computer Software Developed or Obtained for Internal Use.” Software capitalized
for internal use
was $29
thousand and $510
thousand during the six
months ended September
30, 2008 and 2007, respectively, which
is included in the accompanying Unaudited Condensed Consolidated Balance
Sheets
as a component of property and equipment—net. We had capitalized
costs, net of
amortization, of approximately $1.0
million at September
30, 2008 and $1.2
million at March 31,
2008.
CAPITALIZATION
OF COSTS OF SOFTWARE TO
BE MADE AVAILABLE TO CUSTOMERS — In accordance with SFAS No. 86, “Accounting
for Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed,” software development
costs are
expensed as incurred until technological feasibility has been established.
At
such time such costs are capitalized until the product is made available
for
release to customers. For
the six months
ended September 30, 2008 and 2007, no such costs were capitalized. We
had $486
thousand and $572 thousand of
capitalized costs, net of amortization, at September
30, 2008 and March 31, 2008,
respectively.
GOODWILL
AND INTANGIBLE ASSETS
— We
record, as goodwill, the excess of purchase price over the fair value of
the
identifiable net assets acquired in a purchase transaction. In
accordance with SFAS No. 142,
“Goodwill
and Other
Intangible Assets,” we
perform an impairment test for goodwill at September 30th of each year and
follow the two-step process prescribed in SFAS No. 142 to test our goodwill
for
impairment under the transitional goodwill impairment test. The first step
is to
screen for potential impairment, while the second step measures the amount
of
the impairment, if any. Intangible assets with
finite lives are
amortized over the estimated useful lives using the straight-line method.
An
impairment loss on such assets is recognized if the carrying amount of an
intangible asset is not recoverable and its carrying amount exceeds its fair
value. As of
September 30, 2008, no indicators of impairment have been
identified.
IMPAIRMENT
OF LONG-LIVED ASSETS — We
review long-lived assets, including property and equipment, for
impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets
may
not be fully recoverable. If the total of the expected undiscounted future
cash
flows is less than the carrying amount of the asset, a loss is recognized
for
the difference between the fair value and the carrying value of the
asset.
FAIR
VALUE MEASUREMENT—
We
adopted SFAS No. 157, Fair Value Measurements,
as
amended, on April
1, 2008. SFAS No. 157 defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. In February 2008, the FASB released
a
FASB Staff Position (FSP FAS 157-2—Effective Date of FASB Statement No. 157)
which delays the effective date of SFAS No. 157 for all nonfinancial assets
and
nonfinancial liabilities, except those that are recognized or disclosed at
fair
value in the financial statements on a recurring basis (at least annually)
to
fiscal years beginning after November 15, 2008. The partial adoption of SFAS
No.
157 for financial assets and liabilities did not have a material impact on
our
consolidated financial position, results of operations or cash flows. We
are
currently analyzing the impact, if any, of adopting SFAS No. 157 for
nonfinancial assets and liabilities.
SFAS
No.
157 clarifies that fair value is an exit price, representing the amount that
would be received to sell an asset or paid to transfer a liability in an
orderly
transaction between market participants. As such, fair value is a market-based
measurement that should be determined based on assumptions that market
participants would use in pricing an asset or liability. FASB Staff Position
(“FSP”) No. 157-3, Determining
the Fair Value of an Asset When the Market For that Asset is not Active,
clarifies the application of SFAS No. 157 in a market that is not
active
and provides an example to illustrate key considerations in determining the
fair
value of a financial asset when the market for that financial asset is not
active. As a basis for considering such assumptions, SFAS No. 157
establishes a three-tier value hierarchy, which prioritizes the inputs used
in
measuring fair value as follows:
|
·
|
Level
1 - observable inputs such as quoted prices in active
markets;
|
|
·
|
Level
2 - inputs other than the quoted prices in active markets that
are
observable either directly or indirectly;
and
|
|
·
|
Level
3 - unobservable inputs in which there is little or no market data,
which
require us to develop our own assumptions.
|
This
hierarchy requires us to use observable market data, when available, and
to
minimize the use of unobservable inputs when determining fair value. On a
recurring basis, we measure certain financial assets and liabilities at fair
value.
We
adopted SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities—Including an amendment
of FASB Statement No. 115, on April 1, 2008. SFAS No. 159 expands the use
of fair value accounting but does not affect existing standards which require
assets or liabilities to be carried at fair value. The objective of SFAS
No. 159
is to improve financial reporting by providing companies with the opportunity
to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions. Under SFAS No. 159, a company may elect to use fair value to
measure
eligible items at specified election dates and report unrealized gains and
losses on items for which the fair value option has been elected in earnings
at
each subsequent reporting date. Eligible items include, but are not limited
to,
accounts and loans receivable, available-for-sale and held-to-maturity
securities, equity method investments, accounts payable, guarantees, issued
debt
and firm commitments. Currently, we have not expanded our eligible items
subject
to the fair value option under SFAS No. 159.
For
the
financial instruments that are not accounted for under SFAS 157, which consist
primarily of cash and cash equivalents, short-term government debt instruments,
accounts receivables, accounts payable and accrued expenses and other
liabilities, we consider the recorded value of the financial instruments
to
approximate the fair value due to
their short maturities. The carrying amount of our non-recourse and recourse
notes payable approximates its fair value. We determined the fair value of
notes
payable by applying the average portfolio debt rate and applying such rate
to
future cash flows of the respective financial instruments. The
average portfolio debt rate is a
weighted average of all individual discount rates associated with each
lease. The
discount rate for each
lease is an agreed upon rate between two unrelated parties – either between the
lender and us or between the lessee and the lender. The
estimated fair value and carrying
amount of our recourse and non-recourse notes payable at September
30, 2008 was $86.2
million and $86.7
million, respectively, and
at March 31, 2008,
they were $93.3 million and $93.8
million, respectively. As the fair value
approximates the carry costs of these notes payable, we report them at carrying
costs on our Unaudited Condensed Consolidated Balance Sheet. We do
not have any other balance sheet items carried at fair value on a recurring
basis.
TREASURY
STOCK — We account for treasury
stock under the cost method and include treasury stock as a component of
stockholders’ equity on
the accompanying Unaudited
Condensed
Consolidated Balance
Sheet.
INCOME
TAXES — Deferred income taxes are
accounted for in accordance with SFAS No. 109,“Accounting for
Income
Taxes.” Under
this method, deferred income tax
assets and liabilities are determined based on the temporary differences
between
the financial statement reporting and tax bases of assets and liabilities,
using
tax rates currently in effect. Future tax benefits, such as net operating
loss
carryforwards, are recognized to the extent that realization of these benefits
is considered to be more likely than not. In addition, on April 1, 2007,
we
adopted Financial Accounting Standards Board Interpretation No. 48,
“Accounting
for
Uncertainty in Income Taxes—An Interpretation of FASB Statement No.
109” (“FIN 48”).
Specifically, the pronouncement prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. The interpretation
also provides guidance on the related derecognition, classification, interest
and penalties, accounting for interim periods, disclosure and transition
of
uncertain tax positions. In accordance with our accounting policy, we recognize
accrued interest and penalties related to unrecognized tax benefits as a
component of tax
expense. This
policy did not change as a result of the adoption of FIN 48. We have recorded a
cumulative effect
adjustment to reduce
our fiscal 2008 balance of beginning retained earnings by $491 thousand in
our Unaudited
Condensed Consolidated Financial Statements.
ESTIMATES
—
The
preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported
amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
COMPREHENSIVE
INCOME — Comprehensive
income consists of net income and foreign currency translation adjustments.
For
the six months ended September 30, 2008, other comprehensive loss was $94
thousand, and net income was $10.1 million, resulting in total comprehensive
income of $10.0 million. For the six months
ended September 30,
2007, other comprehensive income was $268 thousand and net income was $9.9
million, resulting in total comprehensive income of $10.1
million.
EARNINGS
PER SHARE — Earnings per share
(“EPS”) have been calculated in accordance with SFAS No. 128, “Earnings
per
Share”(“SFAS No. 128”). In
accordance with SFAS No. 128, basic EPS amounts were calculated based on
weighted average shares outstanding of 8,299,496 and 8,276,650 for the three
and
six months ended September 30, 2008, respectively, and 8,231,741 for both
the
three and six months ended September 30, 2007. Diluted EPS amounts
were calculated based on weighted average shares outstanding and potentially
dilutive common stock equivalents of 8,622,562 and 8,597,896 for the three and six
months ended
September 30, 2008, respectively, and 8,331,044 and 8,363,348 for the three
and
six months ended September 30, 2007. Additional shares
included in the
diluted EPS calculations are attributable to incremental shares issuable
upon
the assumed exercise of stock options and other common stock
equivalents.
SHARE-BASED
COMPENSATION — We currently have
two equity incentive plans which provide us with the opportunity to compensate
directors and selected employees with stock options, restricted stock and
restricted stock units. A stock option entitles the recipient to purchase
shares
of common stock from us at the specified exercise price. Restricted stock
and
restricted stock units (“RSUs”) entitle the recipient to obtain stock or stock
units, which vest over a set period of time. RSUs are granted at no cost
to the
employee and employees do not need to pay an exercise price to obtain the
underlying common stock. All grants or awards made under the Plans are governed
by written agreements between us and the participants. We also have
options outstanding under three previous incentive plans, under which we
no
longer grant awards.
We
account for share-based compensation under the provisions of SFAS No. 123
(revised 2004), Share-Based
Payment. We use the Black-Scholes option-pricing model to value all
options and the straight-line method to amortize this fair value as compensation
cost over the requisite service period.
Total
share-based compensation expense, which includes expense recognized for the
grants of options and restricted stock for our employees and non-employee
directors, was $31 thousand and $20 thousand for the three months ended
September 30, 2008 and 2007, respectively. Total share-based
compensation expense for the six months ended September 30, 2008 and 2007,
was
$62 thousand and $1.5 million, respectively. As previously disclosed, during
the
six
months ended September
30, 2007, 450,000 options were
cancelled which resulted in the recognition of the remaining nonvested
share-based compensation
expense of $1.5 million for
that period. At
September 30, 2008, there were
no unrecognized compensation
expense
related to nonvested options since all options
were
vested. Unrecognized compensation expense related to restricted stock
is $417 thousand at September 30, 2008, which will be fully recognized over
the
next two years.
RECENT
ACCOUNTING PRONOUNCEMENTS
— In
December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business
Combinations” (“SFAS No.
141R”), which replaces SFAS 141. SFAS No. 141R applies to all transactions in
which an entity obtains control of one or more businesses, including those
without the transfer of consideration. SFAS No. 141R defines the acquirer
as the
entity that obtains control on the acquisition date. It also requires the
measurement at fair value of the acquired assets, assumed liabilities and
noncontrolling interest. In addition, SFAS No. 141R requires that the
acquisition and restructuring related costs be recognized separately from
the
business combinations. SFAS No. 141R requires
that goodwill be
recognized as of the acquisition date, measured as residual, which in most
cases
will result in the excess of consideration plus acquisition-date fair value
of
noncontrolling interest over the fair values of identifiable net assets.
Under
SFAS No. 141R, “negative goodwill,” in which consideration given is less than
the acquisition-date fair value of identifiable net assets, will be recognized
as a gain to the acquirer. SFAS No. 141R is applied prospectively to business
combinations for which the acquisition date is on or after the first annual
reporting period beginning on or after December 15, 2008. We are evaluating
the
impact of SFAS No. 141R, if any, to our financial position and statement
of
operations. We
will adopt SFAS No. 141R for future business combinations that occur on or
after
April 1, 2009.
In
May 2008, the FASB issued SFAS No.
162, "The
Hierarchy of
Generally Accepted Accounting Principles" ("SFAS No.
162").
SFAS No. 162
identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP
hierarchy). SFAS No.
162
will become effective
60 days following the SEC approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The
Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles." We
do not expect the adoption
of SFAS 162 to
have a material effect on our financial
condition and results of
operations.
In
April
2008, the FASB issued Staff Position (“FSP”) No. 142-3, Determination of
the Useful Life of Intangible
Assets. FSP No. 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful
life of
a recognized intangible asset under SFAS No. 142. The provisions of FSP No.
142-3 are effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. We are in the process of evaluating
the impact, if any, that FSP No. 142-3 will have on our consolidated financial
statements.
In
June 2008, the FASB issued
EITF 03-6-1,
"Determining
Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities."
In the EITF 03-6-1,
the FASB concluded that all
outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends
or dividend equivalents
participate in undistributed earnings with common shareholders and, accordingly,
are considered participating
securities that shall be
included in the two-class method of computing basic and diluted EPS. Since we
have not historically paid dividends, we do not expect this provision to
have
any material impact on our
financial position or results of operations.
In
October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value
of a
Financial Asset When the Market for That Asset is Not
Active. FSP No. 157-3 clarifies the application of SFAS No.
157 in a market that is not active and provides an example to illustrate
key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The provisions of FSP
No. 157-3 were effective upon issuance and for financial statements not yet
reported. The adoption of FSP No. 157-3 did not have a material
impact on our consolidated financial statements.
2.
INVESTMENT IN LEASES AND LEASED
EQUIPMENT—NET
Investment
in leases and leased
equipment—net consists of the following:
|
|
As
of
|
|
|
|
September
30,
2008
|
|
|
March
31,
2008
|
|
|
|
(in
thousands)
|
|
Investment
in direct financing and
sales-type leases—net
|
|
$ |
113,566 |
|
|
$ |
124,254 |
|
Investment
in operating lease
equipment—net
|
|
|
27,583 |
|
|
|
33,128 |
|
|
|
$ |
141,149 |
|
|
$ |
157,382 |
|
INVESTMENT
IN DIRECT FINANCING AND
SALES-TYPE LEASES—NET
Our
investment in direct financing and
sales-type leases—net consists of the following:
|
|
As
of
|
|
|
|
September
30,
2008
|
|
|
March
31,
2008
|
|
|
|
(in
thousands)
|
|
Minimum
lease
payments
|
|
$ |
110,077 |
|
|
$ |
120,224 |
|
Estimated
unguaranteed residual
value (1)
|
|
|
14,751 |
|
|
|
17,831 |
|
Initial
direct costs, net of
amortization (2)
|
|
|
1,077 |
|
|
|
1,122 |
|
Less: Unearned
lease
income
|
|
|
(10,939 |
) |
|
|
(13,568 |
) |
Reserve for credit losses
|
|
|
(1,400 |
) |
|
|
(1,355 |
) |
Investment
in direct financing and
sales-type leases—net
|
|
$ |
113,566 |
|
|
$ |
124,254 |
|
(1)
|
Includes
estimated unguaranteed
residual values of $1,616
thousand and $2,315 thousand as
of September
30, 2008 and March 31, 2008,
respectively, for direct financing SFAS No. 140
leases.
|
(2)
|
Initial
direct costs are shown net
of amortization of $1,226
thousand and $1,536 thousand as
of September
30, 2008 and March 31, 2008,
respectively.
|
Our
net investment in direct financing
and sales-type leases is collateral for non-recourse and recourse equipment
notes, if any.
INVESTMENT
IN OPERATING LEASE
EQUIPMENT—NET
Investment
in operating lease
equipment—net primarily represents leases that do not qualify as direct
financing leases or are leases that are short-term renewals on a month-to-month
basis. The components of the net investment in operating lease equipment
are as
follows:
|
|
As
of
|
|
|
|
September
30,
2008
|
|
|
March
31,
2008
|
|
|
|
(in
thousands)
|
|
Cost
of equipment under operating
leases
|
|
$ |
58,298 |
|
|
$ |
62,311 |
|
Less: Accumulated
depreciation and amortization
|
|
|
(30,715 |
) |
|
|
(29,183 |
) |
Investment
in operating lease
equipment—net (1)
|
|
$ |
27,583 |
|
|
$ |
33,128 |
|
(1)
Includes estimated unguaranteed
residual values of $12,568
thousand and $17,699
thousand as of September
30, 2008 and March 31, 2008,
respectively, for operating
leases.
During
the six
months ended September
30, 2008 and 2007, we sold portions of
our lease portfolio. The sales were reflected
in our
Unaudited Condensed Consolidated Financial Statements as sales
of leased equipment totaling
approximately $3.4
million and $26.8
million,
and cost of leased equipment
of $3.3
million and $25.6
million, for the six
months ended September 30, 2008
and 2007,
respectively. There
was
a corresponding reduction
of investment
in leases and lease equipment − net of $3.3
million and $25.6
million at September
30, 2008 and 2007,
respectively.
3.
RESERVES FOR CREDIT
LOSSES
As
of March 31, 2008 and September
30, 2008, our activity in our reserves
for credit losses is as follows (in thousands):
|
|
Accounts
Receivable
|
|
|
Lease-Related
Assets
|
|
|
Total
|
|
Balance
April 1,
2007
|
|
$ |
2,060 |
|
|
$ |
1,641 |
|
|
$ |
3,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Bad
Debts
|
|
|
55 |
|
|
|
(245 |
) |
|
|
(190 |
) |
Recoveries
|
|
|
40 |
|
|
|
- |
|
|
|
40 |
|
Write-offs
and
other
|
|
|
(453 |
) |
|
|
(41 |
) |
|
|
(494 |
) |
Balance
March 31,
2008
|
|
|
1,702 |
|
|
|
1,355 |
|
|
|
3,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Bad
Debts
|
|
|
85 |
|
|
|
46 |
|
|
|
131 |
|
Recoveries
|
|
|
51 |
|
|
|
- |
|
|
|
51 |
|
Write-offs
and
other
|
|
|
(104 |
) |
|
|
(1 |
) |
|
|
(105 |
) |
Balance
September 30,
2008
|
|
$ |
1,734 |
|
|
$ |
1,400 |
|
|
$ |
3,134 |
|
4.
RECOURSE AND
NON-RECOURSE NOTES PAYABLE
We
do not have any recourse notes
payable as of September
30,
2008 and March 31,
2008. Non-recourse obligations
consist of the
following:
|
|
As
of
|
|
|
|
September
30,
2008
|
|
|
March
31,
2008
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Non-recourse
equipment notes
secured by lease payments and leased equipment with interest
rates ranging
from 4.65% to 8.5% for the six months ended September 30, 2008
and 4.02% to 10.77% for year ended March 31, 2008.
|
|
$ |
86,678 |
|
|
$ |
93,814 |
|
During
the six
months ended September
30, 2008 and 2007, we sold portions of
our lease portfolio. The sales were reflected
in our
Unaudited Condensed Consolidated Financial Statements as sales
of leased equipment totaling
approximately $3.4
million and $26.8
million,
and cost of leased equipment
of $3.3
million and $25.6
million, for the six
months ended September 30, 2008
and 2007,
respectively. There
was a
corresponding reduction of investment
in leases and lease equipment − net of $3.3
million and $25.6
million at September
30, 2008 and 2007,
respectively.
Principal
and interest payments on the
recourse and non-recourse notes payable are generally due monthly in amounts
that are approximately equal to the total payments due from the lessee under
the
leases that collateralize the
notes payable. Under
recourse financing, in the event
of a default by a lessee, the lender has recourse against the lessee, the
equipment serving as collateral, and us. Under non-recourse financing, in
the
event of a default by a lessee, the lender generally only has recourse against
the lessee, and the equipment serving as collateral, but not against
us.
Our
technology sales business segment,
through our subsidiary ePlus
Technology, inc., finances its
operations with funds generated from operations, and with a credit facility
with
GE Commercial Distribution Finance Corporation (“GECDF”). This facility provides
short-term capital for our reseller business. There
are two components of
the GECDF credit
facility: (1) a floor plan
component and (2) an accounts receivable component. Under the floor plan component, we
had outstanding balances of
$59.6
million and $55.6 million as of
September
30, 2008 and March
31, 2008,
respectively. Under the accounts
receivable component,
we had no outstanding balances as of September
30, 2008 and March 31,
2008. As of
September
30, 2008, the facility agreement had
an aggregate limit
of the two components of
$125 million, and the
accounts receivable component had a sub-limit of $30 million, which bears
interest at prime less 0.5%, or 4.75%. Availability under
the GECDF facility
may be limited by the asset
value of equipment we purchase or accounts receivable,
and may be further limited by certain
covenants and terms and conditions of the facility. These covenants include
but are not
limited to a minimum total tangible net worth and subordinated debt, and
maximum
debt to tangible net worth ratio of ePlus
Technology, inc. We were in compliance
with these covenants
as of September
30, 2008. Either party may terminate
with 90 days’
advance notice.
The
facility provided by GECDF requires
a guaranty of up to $10.5 million by ePlus
inc. The guaranty requires
ePlus
inc. to deliver its annual audited
financial statements by certain dates. We have delivered the
annual audited
financial statements for the year ended March 31, 2008 as
required. The
loss of the GECDF credit facility could have a material adverse effect on
our
future results as we currently rely on this facility and its components for
daily working capital and liquidity for our technology sales business and
as an
operational function of our accounts payable process.
National
City provides a credit
facility which can be
used for all ePlus
inc.’s
subsidiaries. Borrowings under our
$35 million line of
credit from National City Bank are subject to certain covenants regarding
minimum
consolidated tangible net worth, maximum recourse debt to net worth ratio,
cash
flow coverage, and minimum interest expense coverage ratio. We are in compliance
with these covenants as of September 30,
2008. The borrowings are
secured by our assets
such as leases, receivables, inventory, and equipment. Borrowings are limited
to
our collateral base, consisting of equipment, lease receivables, and other
current assets, up to a maximum of $35 million. In addition, the credit
agreement restricts, and under some circumstances prohibits, the payment
of
dividends.
The
National City Bank facility requires
the delivery of our audited and unaudited financial statements, and pro-forma
financial projections, by certain dates. As required by Section
5.1 of the
facility, we have delivered all
financial statements. We
have no balance on this facility
as of
September 30, 2008.
5.
RELATED PARTY
TRANSACTIONS
We
lease approximately 55,880 square
feet for use as our principal headquarters from Norton Building 1, LLC for
a
monthly rent payment of approximately $93 thousand. Norton Building 1,
LLC is a limited
liability company owned in part by the spouse of Mr. Norton, our President
and
CEO, and in part in trust
for his children. Since May 31, 2007,
Mr. Norton has not
had a managerial or executive role in Norton Building 1, LLC. The lease was approved
by the Board of
Directors prior to its commencement, and viewed by the Board as being at
or
below comparable market rents, and ePlus
has the right to terminate up to
40% of the leased premises for no penalty, with six months'
notice. The
current lease will expire on
December 31, 2009 with an option to renew for an additional five
years. During
the three months ended September 30, 2008 and 2007, we paid rent in the amount
of
$278 thousand and $281
thousand, respectively. During the six months
ended September
30, 2008 and 2007, we paid
rent in the amount of $556
thousand and $524 thousand, respectively.
6.
COMMITMENTS AND
CONTINGENCIES
Liabilities
for loss contingencies arising from claims, assessments, litigation and other
sources are recorded when it is probable that a liability has been incurred
and
the amount of the claim, assessment or damages can be reasonably
estimated.
Litigation
We
have
been involved in several matters relating to a customer named Cyberco Holdings,
Inc. ("Cyberco"). The Cyberco principals were perpetrating a scam, and at
least five principals have pled guilty to criminal conspiracy and/or related
charges, including bank fraud, mail fraud and money laundering. One lender
who financed our transaction with Cyberco, Banc of America Leasing and Capital,
LLC ("BoA"), filed a lawsuit against ePlus inc. in the Circuit Court for
Fairfax
County, Virginia on November 3, 2006, seeking to enforce a guaranty in which
ePlus inc. guaranteed ePlus
Group's obligations to BoA relating to
the Cyberco transaction. We are vigorously defending this suit. As
we do not believe a loss is probable or the amount is reasonably estimable,
we have not accrued for this matter.
On
January 18, 2007, a stockholder derivative action related to stock option
practices was filed in the United States District Court for the District
of
Columbia. The amended complaint names ePlus inc. as nominal defendant,
and
personally names eight individual defendants who are directors and/or executive
officers of ePlus. The amended complaint
alleges violations of federal securities law, and various state law claims
such
as breach of fiduciary duty, waste of corporate assets and unjust enrichment.
We
have filed a Motion to Dismiss the plaintiff's amended complaint. The amended
complaint seeks monetary damages from individual defendants and that we take
certain corrective actions relating to option grants and corporate governance,
and attorneys' fees. As we do not believe a loss is probable or the amount
is
reasonably estimable, we have not accrued for this matter.
We
are
also engaged in other ordinary and routine litigation incidental to our
business. While we cannot predict the outcome of these various legal
proceedings, management does not believe that the ultimate resolution will
have
a material effect on our Unaudited Condensed Consolidated Financial
Statements.
Regulatory
and Other Legal
Matters
In
June
2006, the Audit Committee commenced an investigation of our stock option
grants
since our initial public offering in 1996. In August 2006, the Audit Committee
voluntarily contacted and advised the staff of the SEC of its investigation
and
the Audit Committee's preliminary conclusion that a restatement would be
required. This restatement was included in our Form 10-K for the fiscal year
ended March 31, 2006 and was filed with the SEC on August 16, 2007. The SEC
opened an informal inquiry and we have and will continue to cooperate with
the
staff. No amount has been accrued for this matter.
We
are
currently engaged in a dispute with the government of the District of Columbia
("DC") regarding personal property taxes on property we financed for our
customers. DC is seeking payment for property taxes relating to property we
financed for our customers. We believe the tax is owed by our customers,
and are
seeking resolution in DC's Office of Administrative Hearings. Additionally,
if
we pay the taxes, we believe our customers are contractually obligated to
reimburse us for the amount of the tax. Based on changes in the current status
of the dispute subsequent to the quarter end, we have recorded a $826 thousand
liability to DC for taxes due to date, and a related receivable from our
lessees as of September 30, 2008.
7.
EARNINGS PER
SHARE
Earnings
per share (“EPS”) have been
calculated in accordance with SFAS No. 128, “Earnings
per
Share” ("SFAS No.
128"). In accordance
with SFAS No. 128, basic EPS amounts are calculated based on three and six months
weighted average shares
outstanding of 8,299,496 and 8,276,650
at September
30, 2008 and 8,231,741 and 8,231,741 at
September
30, 2007, respectively.
Diluted EPS amounts are calculated
based on three and six
months
weighted average
shares outstanding and potentially dilutive common stock equivalents of
8,622,562
and 8,597,896
at September
30, 2008 and 8,331,044 and 8,363,348
at September
30, 2007, respectively. Additional
shares included in the
diluted EPS calculations are attributable to incremental shares issuable
upon
the assumed exercise of stock options and other common stock
equivalents.
The
following table provides a
reconciliation of the numerators and denominators used to calculate basic
and
diluted net income per common share as disclosed in our Unaudited Condensed
Consolidated Statements of Operations for the three and six months
ended September
30, 2008 and 2007 (in thousands, except
per share data).
|
|
Three
months ended September
30,
|
|
|
Six
months ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common
shareholders—basic and diluted
|
|
$ |
6,420 |
|
|
$ |
4,854 |
|
|
$ |
10,113 |
|
|
$ |
9,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares
outstanding — basic
|
|
|
8,299 |
|
|
|
8,232 |
|
|
|
8,277 |
|
|
|
8,232 |
|
Effect
of dilutive
shares
|
|
|
324 |
|
|
|
99 |
|
|
|
321 |
|
|
|
131 |
|
Weighted
average shares
outstanding — diluted
|
|
$ |
8,623 |
|
|
$ |
8,331 |
|
|
$ |
8,598 |
|
|
$ |
8,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.77 |
|
|
$ |
0.59 |
|
|
$ |
1.22 |
|
|
$ |
1.20 |
|
Diluted
|
|
$ |
0.74 |
|
|
$ |
0.59 |
|
|
$ |
1.18 |
|
|
$ |
1.18 |
|
Unexercised
employee stock options
of 287,000
shares of our
common stock were not included in
the computations of diluted EPS for both the
three and six months
ended September
30, 2008, because the options’ exercise
prices were greater than the average market price of our common stock during
the
applicable periods.
8.
STOCK REPURCHASE
On
July 31, 2008, our Board authorized a
share repurchase plan commencing after August 4, 2008. The new share repurchase
plan is for a
12-month period ending August 4, 2009 for up to 500,000 shares
of ePlus’
outstanding
common
stock. The
purchases may be made from time to time in the open market, or in privately
negotiated transactions, subject to availability. Any repurchased shares
will have the
status of treasury shares and may be used, when needed, for general corporate
purposes. The
previous stock repurchase program
expired on November 17, 2006. During the three
and
six months ended September
30, 2008 and 2007, we did not repurchase
any shares
of our outstanding
common stock. Since
the inception of our initial repurchase program on September 20, 2001, as
of September 30,
2008, we have repurchased 2,978,990
shares of our outstanding common stock at an average cost of $11.04 per share
for a total purchase price of $32.9 million.
9.
SHARE-BASED
COMPENSATION
Contributory
401(k) Profit Sharing
Plan
We
provide our employees with a
contributory 401(k) profit sharing plan. To be eligible to participate
in the
plan, employees must be at least 21 years of age and have completed a minimum
service requirement.
Employer
contribution percentages are
determined by us and are discretionary each year. The
employer contributions vest over a
four-year period. For
the three months ended September 30,
2008 and 2007, our expense for the
plan was
approximately $93
thousand and $71 thousand,
respectively. For the six months
ended
September 30, 2008 and 2007, our expense for the plan was approximately $207
thousand and $163 thousand, respectively.
Share-Based
Plans
We
have issued share-based
awards under one of the
following plans: (1)
the 1998 Long-Term Incentive Plan (the
“1998 LTIP”), (2)
Amendment and Restatement of the 1998
Stock Incentive Plan (2001) (the “Amended LTIP (2001)”) ,
(3)
Amendment and Restatement of the 1998
Stock Incentive Plan (2003) (the “Amended LTIP (2003)”), (4) the 2008 Non-Employee
Director
Long-Term Incentive Plan (“2008 Director LTIP”) or (5) the 2008 Employee
Long-Term Incentive Plan (“2008 Employee LTIP”). However, we
no longer
issue awards under the 1998 LTIP, the Amended LTIP (2001), or
the Amended LTIP (2003). Awards are only issued under the 2008
Director LTIP and the 2008 Employee LTIP. Sections of these plans are
summarized below. All
the share-based
plans require the use of the previous
trading day's closing price when the grant date falls on a date the stock
was
not traded.
1998
Long-Term Incentive
Plan
The
1998 LTIP was adopted by the Board
on July 28, 1998, which is its effective date, and approved by the shareholders
on September 16, 1998. The allowable number
of shares under the
1998 LTIP is 20% of the outstanding shares, less shares previously granted
and
shares purchased through our then-existing
employee stock purchase
program. It
specified
that options shall be priced at not
less than fair market value. The 1998 LTIP consolidated the
Company’s
preexisting
stock incentive plans and made the
Compensation
Committee of the Board responsible for its administration. The
1998 LTIP required
that grants be evidenced in writing,
but the
writing was
not a condition precedent to the grant
of the award.
Under
the 1998 LTIP, options are to be
automatically awarded to
non-employee directors the
day after the annual shareholders meeting to all non-employee directors
in service as of that
day. No automatic
annual grants may be awarded under the LTIP after September 1,
2006. The LTIP also
permits for discretionary option awards to directors.
Amended
and Restated 1998 Long-Term
Incentive Plan
Minor
amendments were made to the 1998
LTIP on April 1, April 17 and April 30, 2001. The amendments change
the name of the
plan from the 1998 Long-Term Incentive Plan to the Amended and Restated 1998
Long-Term Incentive Plan. In addition, provisions
were added “to
allow the Compensation Committee to delegate to a single board member the
authority to make awards to non-Section 16 insiders, as a matter of
convenience,” and to provide that “no option granted under the Plan may be
exercisable for more than ten years from the date of its
grant.”
The
Amended LTIP (2001) was amended on
July 15, 2003 by the Board and approved by the stockholders on September
18,
2003. Primarily, the
amendment modified the aggregate number of shares available under the plan
to a
fixed number (3,000,000). Although the language
varies somewhat
from earlier plans, it permits the Board or Compensation Committee to delegate
authority to a committee of one or more directors who are also officers of
the
corporation to award options under certain conditions. The Amended LTIP (2003)
replaced all the
prior plans, and covered
option grants for employees, executives
and outside directors.
On
September 15, 2008, our shareholders
approved the 2008 Director LTIP and the 2008 Employee LTIP. Both
of the plans were adopted by the
Board on June 25, 2008. As a result of the
approval
of these plans, the Company does not intend to grant any awards under the
Amended LTIP (2003) or any earlier plan.
2008
Non-Employee Director
Plan
Under
the 2008 Director LTIP, 250,000
shares are authorized for grant to non-employee directors. The
purpose of the 2008 Director LTIP is to align the economic interests of the
directors with the interests of shareholders by including equity as a component
of pay and to attract, motivate and retain experienced and knowledgeable
directors. Under the 2008 Director LTIP, each non-employee director
received a one-time grant of a number of restricted shares of common stock
having a grant-date fair value of $35,000. The grant-date fair value
for this one-time grant was determined based on the share closing price on
September 25, 2008. In addition, each director will receive an annual
grant of restricted stock having a grant-date fair value equal to the cash
compensation earned by an outside director during our fiscal year ended
immediately before the respective annual grant-date. Directors may
elect to receive their cash compensation in restricted stock. These
restricted shares are prohibited from being sold, transferred, assigned,
pledged
or otherwise encumbered or disposed of. Half of these shares will
vest on the
one-year and second-year anniversary
from the date
of the grant.
2008
Employee Long-Term Incentive
Plan
Under
the 2008 Employee LTIP, 1,000,000
shares were authorized for grant of incentive stock options, nonqualified
stock
options, stock appreciation rights, restricted stock, restricted stock units,
performance awards,
and other shared-based
awards to ePlus employees. The
purposes of the 2008 Employee LTIP
are to encourage
our
employees
to acquire a proprietary
interest in the growth and
performance of the Company, thus enhancing the
value of the Company
for the benefit of its stockholders, and to
enhance
our ability to attract
and retain exceptionally qualified individuals. The 2008 Employee LTIP
will be
administered by the compensation committee of the Board of
Directors. Shares issuable under the 2008 Employee LTIP may consist
of authorized but unissued shares or shares held in our
treasury. Shares
under the 2008 Employee
LTIP will not be used to
compensate our
outside directors, who may
be compensated under the
separate 2008 Director
LTIP, as discussed above. We have not granted any awards under the
2008 Employee LTIP as of September 30, 2008.
Stock
Option
Activity
During
the three and six
months ended September
30, 2008 and 2007, there were no stock
options granted to employees.
A
summary of stock option activity
during the six months
ended September
30, 2008 is as
follows:
|
|
Number
of
Shares
|
|
|
Exercise Price Range
|
|
|
Weighted
Average Exercise
Price
|
|
|
Weighted
Average Contractual Life
Remaining (in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
April 1,
2008
|
|
|
1,240,813 |
|
|
$ |
6.23
- $17.38 |
|
|
$ |
9.78 |
|
|
|
|
|
|
|
Options
granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Options
exercised
|
|
|
(129,325 |
) |
|
$ |
6.86
- $9.00 |
|
|
$ |
7.83 |
|
|
|
|
|
|
|
Options
forfeited
|
|
|
(24,287 |
) |
|
$ |
6.86
- $17.38 |
|
|
$ |
11.59 |
|
|
|
|
|
|
|
Outstanding,
September 30,
2008
|
|
|
1,087,201 |
|
|
$ |
6.23
- $17.38 |
|
|
$ |
9.97 |
|
|
|
2.4 |
|
|
$ |
2,402,528 |
|
Vested
or expected to vest at
September 30, 2008
|
|
|
1,087,201 |
|
|
|
|
|
|
$ |
9.97 |
|
|
|
2.4 |
|
|
$ |
2,402,528 |
|
Exercisable,
September 30,
2008
|
|
|
1,087,201 |
|
|
|
|
|
|
$ |
9.97 |
|
|
|
2.4 |
|
|
$ |
2,402,528 |
|
(1)
The total intrinsic value of stock
options exercised during the six months ended September 30, 2008 was $531
thousand.
Additional
information regarding stock
options outstanding as of September
30, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
|
Options
Exercisable
|
|
Range
of Exercise
Prices
|
|
|
Options
Outstanding
|
|
|
Weighted
Avg. Exercise Price per
Share
|
|
|
Weighted
Avg. Contractual Life
Remaining
|
|
|
Options
Exercisable
|
|
|
Weighted
Average Exercise Price
per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.23
- $9.00 |
|
|
|
720,201 |
|
|
$ |
7.67 |
|
|
|
1.8 |
|
|
|
720,201 |
|
|
$ |
7.67 |
|
$ |
9.01
- $13.50 |
|
|
|
166,500 |
|
|
$ |
11.51 |
|
|
|
5.0 |
|
|
|
166,500 |
|
|
$ |
11.51 |
|
$ |
13.51
- $17.38 |
|
|
|
200,500 |
|
|
$ |
16.95 |
|
|
|
2.6 |
|
|
|
200,500 |
|
|
$ |
16.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.23
- $17.38 |
|
|
|
1,087,201 |
|
|
$ |
9.97 |
|
|
|
2.4 |
|
|
|
1,087,201 |
|
|
$ |
9.97 |
|
We
issue shares from our authorized but
unissued common stock to satisfy stock option exercises.
A
summary of nonvested option activity
is presented below:
|
|
Shares
|
|
|
Weighted
Average Grant-Date Fair
Value
|
|
|
|
|
|
|
|
|
Nonvested
at April 1,
2008
|
|
|
20,000 |
|
|
$ |
6.13 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
|
|
Vested
|
|
|
(20,000 |
) |
|
$ |
6.13 |
|
Forfeited
|
|
|
- |
|
|
|
|
|
Nonvested
at September 30,
2008
|
|
|
- |
|
|
|
|
|
Restricted
Stock
On
September 25, 2008, each non-employee
director received an annual grant of restricted shares of common
stocks. The number of shares subject to the grant was determined
based
on the cash compensation
received by a non-employee
director in the entire
fiscal year immediately prior to the grant date, which was $35,000. In
addition, each non-employee director
received a one-time grant of a number of restricted shares of common stock
having a grant-date fair value of $35,000. The grant-date fair value
for this one-time grant was determined based on the share closing price on
September 25, 2008. The
total number of shares of restricted stock granted to all non-employee directors
for the one-time and annual grant was 38,532. The closing price of
our
common stock on September 25, 2008 was $10.90, resulting in a total grant-date
fair value of $420,000. These shares will be vested over a two-year period
and
we will recognize share-base compensation expense
over the service period.
We estimate the forfeiture
rate of the restricted stock to be zero.
A
summary of restricted stock
activity
during the six months
ended September
30, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Weighted
Average Grant-Date Fair
Value
|
|
|
|
|
|
|
|
Outstanding,
April 1,
2008
|
|
|
|
|
|
|
Shares
granted
|
|
|
38,532 |
|
|
$ |
10.90 |
|
Shares
forfeited
|
|
|
- |
|
|
|
|
|
Outstanding,
September 30,
2008
|
|
|
38,532 |
|
|
$ |
10.90 |
|
|
|
|
|
|
|
|
|
|
Vested
or expected to vest at
September 30, 2008
|
|
|
- |
|
|
|
|
|
Exercisable,
September 30,
2008
|
|
|
- |
|
|
|
|
|
Shared-based
Compensation
Expense
We
recognized a total
$31
thousand and $62 thousand of
shared-based
compensation expense
for the three and six months
ended September
30, 2008, respectively. Shared-based
compensation recognized for the restricted stock is approximately $4 thousand
for the three and six months ended September 30, 2008. Shared-based
compensation expense recognized for stock options was $27 thousand and $58
thousand for the three and six months ended September 30, 2008, respectively.
The shared-based compensation expense recognized was $20
thousand and $1.5
million for the three and six
months ended September
30, 2007, respectively. As
previously
disclosed, during the six
months ended September
30, 2007, 450,000 options were
cancelled which resulted in the recognition of the remaining nonvested
share-based
compensation expense of $1.5
million for that period. At
September 30, 2008, there was
no unrecognized compensation
expense
related to nonvested options because all
the options were
vested. Unrecognized compensation expense related to the restricted
stock was $417 thousand which will be fully recognized over the next two
years.
10.
INCOME TAXES
On
April 1, 2007, we adopted FIN 48 and
recognized liabilities for uncertain tax positions based on the two-step
approach prescribed in the interpretation. The first step is to evaluate
each
uncertain tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will
be
sustained on audit, including resolution of related appeals or litigation
processes, if any. For tax positions that are more likely than not of being
sustained upon audit, the second step requires us to estimate and measure
the
tax benefit as the largest amount that is more than 50 percent likely of
being
realized upon ultimate settlement.
As
of March 31, 2008, our gross FIN 48
tax liability was $712 thousand; we have decreased this liability by $208
thousand based on the preliminary results of the Internal Revenue Service
Audit
for the periods March 31, 2004 through March 31, 2006. We expect that the
gross
unrecognized tax benefit will decrease by approximately $44 thousand in the
next
12 months
related to this
audit.
In
accordance with our accounting
policy, we recognize accrued interest and penalties related to unrecognized
tax
benefits as a component of tax expense. This policy did not change as a result
of the adoption of FIN 48. Our Unaudited Condensed Consolidated Statement
of
Operations for the three and six months ended
September
30, 2008 includes additional
interest of $11
thousand and $23
thousand,
respectively.
11.
SEGMENT
REPORTING
We
manage our business segments on the
basis of the products and services offered. Our reportable segments consist
of our traditional
financing business unit and technology sales business unit. The financing
business unit offers lease-financing solutions to corporations and governmental
entities nationwide. The technology sales business unit sells information
technology equipment and software and related services primarily to corporate
customers on a nationwide basis. The technology sales business unit also
provides Internet-based business-to-business supply chain management solutions
for information technology and other operating resources. We evaluate segment
performance on the basis of segment net earnings.
Both
segments utilize our proprietary
software and services throughout the organization. Sales and services and
related costs of our
software are included in the technology
sales business unit.
The
accounting policies of the segments
are the same as those described in Note 1, “Organization and Summary of
Significant Accounting Policies.” Corporate overhead expenses are allocated on
the basis of employee headcount.
|
|
Three
months ended September 30,
2008
|
|
|
Three
months ended September 30,
2007
|
|
|
|
Financing
Business
Unit
|
|
|
Technology
Sales Business
Unit
|
|
|
Total
|
|
|
Financing
Business
Unit
|
|
|
Technology
Sales Business
Unit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of product and
services
|
|
$ |
766 |
|
|
$ |
178,725 |
|
|
$ |
179,491 |
|
|
$ |
828 |
|
|
$ |
188,852 |
|
|
$ |
189,680 |
|
Sales
of leased
equipment
|
|
|
2,182 |
|
|
|
- |
|
|
|
2,182 |
|
|
|
18,218 |
|
|
|
- |
|
|
|
18,218 |
|
Lease
revenues
|
|
|
12,211 |
|
|
|
- |
|
|
|
12,211 |
|
|
|
12,470 |
|
|
|
- |
|
|
|
12,470 |
|
Fee
and other
income
|
|
|
186 |
|
|
|
2,788 |
|
|
|
2,974 |
|
|
|
766 |
|
|
|
3,867 |
|
|
|
4,633 |
|
Total
revenues
|
|
|
15,345 |
|
|
|
181,513 |
|
|
|
196,858 |
|
|
|
32,282 |
|
|
|
192,719 |
|
|
|
225,001 |
|
Cost
of
sales
|
|
|
2,470 |
|
|
|
153,978 |
|
|
|
156,448 |
|
|
|
18,015 |
|
|
|
165,607 |
|
|
|
183,622 |
|
Direct
lease
costs
|
|
|
3,833 |
|
|
|
- |
|
|
|
3,833 |
|
|
|
5,870 |
|
|
|
- |
|
|
|
5,870 |
|
Selling,
general and
administrative expenses
|
|
|
3,973 |
|
|
|
20,308 |
|
|
|
24,281 |
|
|
|
3,611 |
|
|
|
20,993 |
|
|
|
24,604 |
|
Segment
earnings
|
|
|
5,069 |
|
|
|
7,227 |
|
|
|
12,296 |
|
|
|
4,786 |
|
|
|
6,119 |
|
|
|
10,905 |
|
Interest
and financing
costs
|
|
|
1,442 |
|
|
|
25 |
|
|
|
1,467 |
|
|
|
2,228 |
|
|
|
48 |
|
|
|
2,276 |
|
Earnings
before income
taxes
|
|
$ |
3,627 |
|
|
$ |
7,202 |
|
|
$ |
10,829 |
|
|
$ |
2,558 |
|
|
$ |
6,071 |
|
|
$ |
8,629 |
|
Assets
|
|
$ |
231,841 |
|
|
$ |
158,548 |
|
|
$ |
390,389 |
|
|
$ |
261,114 |
|
|
$ |
153,121 |
|
|
$ |
414,235 |
|
|
|
Six
months ended September 30,
2008
|
|
|
Six
months ended September 30,
2007
|
|
|
|
Financing
Business
Unit
|
|
|
Technology
Sales Business
Unit
|
|
|
Total
|
|
|
Financing
Business
Unit
|
|
|
Technology
Sales Business
Unit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
of product and
services
|
|
$ |
2,497 |
|
|
$ |
342,753 |
|
|
$ |
345,250 |
|
|
$ |
1,767 |
|
|
$ |
394,467 |
|
|
$ |
396,234 |
|
Sales
of leased
equipment
|
|
|
3,447 |
|
|
|
- |
|
|
|
3,447 |
|
|
|
26,804 |
|
|
|
- |
|
|
|
26,804 |
|
Lease
revenues
|
|
|
23,836 |
|
|
|
- |
|
|
|
23,836 |
|
|
|
31,616 |
|
|
|
- |
|
|
|
31,616 |
|
Fee
and other
income
|
|
|
293 |
|
|
|
6,318 |
|
|
|
6,611 |
|
|
|
1,018 |
|
|
|
7,995 |
|
|
|
9,013 |
|
Total
revenues
|
|
|
30,073 |
|
|
|
349,071 |
|
|
|
379,144 |
|
|
|
61,205 |
|
|
|
402,462 |
|
|
|
463,667 |
|
Cost
of
sales
|
|
|
4,784 |
|
|
|
296,607 |
|
|
|
301,391 |
|
|
|
26,883 |
|
|
|
350,128 |
|
|
|
377,011 |
|
Direct
lease
costs
|
|
|
7,627 |
|
|
|
- |
|
|
|
7,627 |
|
|
|
11,893 |
|
|
|
- |
|
|
|
11,893 |
|
Selling,
general and
administrative expenses
|
|
|
8,158 |
|
|
|
41,920 |
|
|
|
50,078 |
|
|
|
7,715 |
|
|
|
44,733 |
|
|
|
52,448 |
|
Segment
earnings
|
|
|
9,504 |
|
|
|
10,544 |
|
|
|
20,048 |
|
|
|
14,714 |
|
|
|
7,601 |
|
|
|
22,315 |
|
Interest
and financing
costs
|
|
|
2,908 |
|
|
|
44 |
|
|
|
2,952 |
|
|
|
4,681 |
|
|
|
91 |
|
|
|
4,772 |
|
Earnings
before income
taxes
|
|
$ |
6,596 |
|
|
$ |
10,500 |
|
|
$ |
17,096 |
|
|
$ |
10,033 |
|
|
$ |
7,510 |
|
|
$ |
17,543 |
|
Assets
|
|
$ |
231,841 |
|
|
$ |
158,548 |
|
|
$ |
390,389 |
|
|
$ |
261,114 |
|
|
$ |
153,121 |
|
|
$ |
414,235 |
|
Included
in the financing business unit
above are inter-segment accounts receivable of $52.9
million and $42.4
million at September 30,
2008 and 2007,
respectively. Included in the technology sales
business unit above are
inter-segment accounts payable of $52.9 million
and $42.4
million at September
30, 2008 and 2007,
respectively.
For
the three months ended September
30, 2008 and 2007, our technology sales
business unit sold products to our financing business unit of $0.6
million and $0.4
million,
respectively. For the six months
ended September 30,
2008 and 2007, our technology sales
business unit sold products to our financing business unit of $1.0 million and $1.3
million,
respectively. These revenues were
eliminated in our
technology sales business unit for the same periods.
12.
THE NASDAQ STOCK MARKET
PROCEEDINGS
Effective
at the opening of September 3,
2008, our common stock was relisted and began trading on The Nasdaq Global
Market under the symbol “PLUS”.
13.
ACQUISITION
On
May 9, 2008, we acquired certain
assets and assumed certain liabilities of Network Architects, Inc., a San
Francisco-based company, for approximately $364 thousand dollars in
cash. Additional
consideration totaling $250 thousand may be due on the first and second
anniversary dates of the purchase date to one of the principals if certain
targets are met. These assets and liabilities
are
included in our Unaudited Condensed Consolidated Financial Statements as
of
September
30, 2008. This transaction was
accounted for as a
business combination in accordance with the provisions of SFAS No.
141,“Business
Combinations” and EITF
95-8, “Accounting
for
Contingent Consideration Paid to the Shareholders of an Acquired Enterprise
in a Purchase
Business Combination.” In
accordance with EITF 95-8, once the
contingency is resolved and considered distributable, we will record the
fair
value of the consideration issued as compensation expense in the
period.
The
estimated determination of the
purchase price allocation was based on the fair values of the acquired assets
and liabilities assumed including acquired intangible assets. The estimated
purchase price allocation was made by management through various means,
including obtaining a third party valuation of identifiable intangible assets
acquired and an evaluation of the fair value of other assets and liabilities
acquired. The assignment of amounts to some assets acquired and liabilities
assumed are noted below, and was prepared on the basis of all information
available at the
time. The following table
summarizes the estimated fair values of assets acquired and liabilities assumed
at the date of acquisition (in thousands):
Property
and
equipment—net
|
|
|
|
|
|
|
|
|
|
Customer
Relationship (estimated
5-year life)
|
|
|
|
|
Tradename
(estimated 15-year
life)
|
|
|
|
|
|
|
|
|
|
Other
current
liabilities
|
|
|
|
|
|
|
|
|
|
All
the assets acquired and liabilities
assumed are included in ePlus
Technology, inc., a subsidiary of
ePlus
inc., which is a part of the
Technology Sales Business Unit Segment as of September
30, 2008.
Network
Architects, Inc. is a
Cisco-focused solution provider and consulting firm. Network Architects
strengthens our existing footprint in the San Francisco Bay Area and improves
our reach into the commercial marketplace for Cisco advanced technologies,
a key
strategic focus for us. In addition, Network Architects has highly experienced
Cisco engineers with deep expertise in commercial marketplace solutions,
including remote managed services solutions, systematic remote deployment
and
configuration, and security and network assessments.
The
pro forma impact of Network
Architects, Inc. on our historical operating results is not
material.
Item
2. Management’s
Discussion and Analysis of
Financial Condition and Results of Operations
This
discussion is intended to further
the reader’s understanding of the consolidated financial condition and results
of operations of our company. It should be read in
conjunction with
the financial statements included in this quarterly report on Form 10-Q and
our
annual report on Form 10-K for the year ended March 31, 2008 (the “2008 Annual
Report”). These
historical financial statements may not be indicative of our future
performance. This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations contains a number of forward-looking statements, all of which
are
based on our current expectations and could be affected by the uncertainties
and
risks described in Part I, Item 1A, “Risk Factors” in our 2008 Annual
Report and in Part II, Item 1A of this quarterly
report on Form
10-Q.
EXECUTIVE
OVERVIEW
Business
Description
ePlus
and its consolidated subsidiaries
provide leading IT products and services, flexible leasing solutions, and
enterprise supply management to enable our customers to optimize their IT
infrastructure and supply chain processes. Our revenues are composed
of sales of
product and services, sales of leased equipment, lease revenues and fee and
other income. Our
operations are conducted through two basic business segments: our technology
sales business unit and our financing business unit.
Financial
Summary
During
the three months ended
September
30, 2008, sales decreased 12.5%
to $196.9
million while total costs and expenses
decreased 14.0%
to $186.0
million. Net income increased
32.3%
to $6.4
million as compared to the same period
in the prior fiscal year. Gross margin for product
and services
improved 1.6%
to 14.0% during the three
months ended
September
30, 2008. During the six
months ended September
30, 2008, sales decreased 18.2%
to $379.1
million while total costs and expenses
decreased 18.8%
to $362.0
million. Net income increased
2.5%
to $10.1
million as compared to the same period
in the prior fiscal year. Gross margin for product
and services
improved 2.3%
to 13.6%
during the six
months ended September
30, 2008. Cash
increased $16.8
million or 28.7%
to $75.2
million at September
30, 2008 compared to March 31, 2008, due
in part to management’s effort to
conserve our liquidity position. Total sales for both the three and
six months ended
September
30, 2008 decreased as compared to the
prior fiscal periods
due to an overall softening in
the economy, which
delays our
customers’ investment in capital
equipment. We
expect this trend to continue into
the next calendar year and believe the recent credit market condition will
intensify this trend.
The
United States and other countries around the world have been experiencing
deteriorating economic conditions, including unprecedented financial market
disruption. As a result of the recent financial crisis in the credit
markets, softness in the housing markets, difficulties in the financial services
sector and continuing economic uncertainties, the direction and relative
strength of the U.S. economy has become increasingly uncertain. This could
cause
our current and potential customers to delay or reduce technology purchases,
which could reduce sales of our products and services, and result in longer
sales cycles, slower adoption of new technologies and increased price
competition. Restrictions on credit may impact economic activity and
our results. Credit risk associated with our customers and
vendors may also be adversely impacted. Additionally, although we do
not anticipate needing additional capital in the near term due to our current
financial position, financial market disruption may adversely affect our
access
to additional capital.
Business
Unit
Overview
Technology
Sales Business
Unit
The
technology sales business unit sells
information technology equipment and software and related services primarily
to
corporate customers on a nationwide basis. The technology sales
business unit also
provides Internet-based business-to-business supply chain management solutions
for information technology and other operating resources.
Our
technology sales business unit
derives revenue from
the sales of new equipment and service engagements. These
revenues are reflected in our
Unaudited Condensed Consolidated Statements of Operations under sales of
product
and services and fee and other income. Many customers purchase
information
technology equipment from
us using Master Purchase Agreements
(“MPAs”) in which the terms and conditions of our relationship are
stipulated. Some MPAs
contain pricing arrangements. However, the MPAs do not contain purchase volume
commitments and most have 30-day terminations for convenience
clauses. In addition,
many of our customers place orders using purchase orders without an MPA in
place. A substantial
portion of our sales of product and services are from sales of
Hewlett Packard and
CISCO products, which represent approximately
19% and 42%
of sales, respectively, for the
three months ended September 30, 2008.
Included
in the sales of product and
services in our technology sales business unit are certain service revenues
that
are bundled with sales of equipment and are integral to the successful delivery
of such equipment. Our
service engagements are generally governed by Statements of Work and/or Master
Service Agreements. They are primarily
fixed fee; however,
some agreements are time and materials or estimates. We endeavor to minimize
the cost of
sales in our technology sales business unit through vendor consideration
programs provided by manufacturers. The programs are generally
governed by
our reseller authorization level with the manufacturer. The authorization level
we achieve and
maintain governs the types of products we can resell as well as such items
as
pricing received, funds provided for the marketing of these products and
other
special promotions. These authorization
levels are achieved
by us through sales volume, certifications held by sales executives or engineers
and/or contractual commitments by us. The authorizations
are costly to
maintain and these programs continually change and there is no guarantee
of
future reductions of costs provided by these vendor consideration
programs. We currently
maintain the following authorization levels with our major
manufacturers:
Manufacturer
|
Manufacturer
Authorization
Level
|
|
|
|
HP
Platinum Major
(National)
|
|
Cisco
Gold DVAR
(National)
|
|
Microsoft
Gold
(National)
|
|
Sun
SPA Executive Partner
(National)
|
|
Sun
National Strategic DataCenter
Authorized
|
|
Premier
IBM Business Partner
(National)
|
|
Lenovo
Premium
(National)
|
|
|
|
|
Through
our technology sales business
unit we also generate revenue through hosting arrangements and sales of
our software. These
revenues are reflected in our
Unaudited Condensed Consolidated Statements of Operations under fee and other
income. In addition,
fee and other income results from: (1) income from events that occur after
the
initial sale of a financial asset; (2) remarketing fees; (3) brokerage fees
earned for the placement of financing transactions; and (4) interest and
other
miscellaneous income.
Financing
Business
Unit
The
financing business unit offers
lease-financing solutions to corporations and governmental entities
nationwide. The
financing business unit derives revenue from leasing primarily
information
technology equipment and sales of leased equipment. These revenues are
reflected in our
Unaudited Condensed Consolidated Statements of Operations under lease revenues
and sales of leased equipment.
Lease
revenues consist of rentals due
under operating leases, amortization of unearned income on direct financing
and
sales-type leases and sales of leased assets to lessees. These transactions
are accounted for in
accordance with SFAS No. 13. Each lease is classified
as either a
direct financing lease, sales-type lease, or operating lease, as
appropriate. Under the
direct financing and sales-type lease methods, we record the net investment
in
leases, which consists of the sum of the minimum lease payments, initial
direct
costs (direct financing leases only), and unguaranteed residual value (gross
investment) less the unearned income. The difference between
the gross
investment and the cost of the leased equipment for direct finance leases
is recorded
as unearned income at the
inception of the lease. The unearned income
is amortized over
the life of the lease using the interest method. Under sales-type leases,
the difference
between the fair value and cost of the leased property plus initial direct
costs
(net margins) is recorded as revenue at the inception of the lease. For
operating leases, rental amounts are
accrued on a straight-line basis over the lease term and are recognized as
lease
revenue. SFAS No. 140
establishes criteria for determining whether a transfer of financial assets
in
exchange for cash or other consideration should be accounted for as a sale
or as
a pledge of collateral in a secured borrowing. Certain assignments
of direct finance
leases we make on a non-recourse basis meet the criteria for surrender of
control set forth by SFAS No. 140 and have, therefore, been treated as sales
for
financial statement purposes.
Sales
of leased equipment represent
revenue from the sales of equipment subject to a lease in which we
are the
lessor. Such sales of equipment
may have the
effect of increasing revenues and net income during the quarter in which
the
sale occurs, and reducing revenues and net income otherwise expected in
subsequent quarters. If the rental stream
on such lease has
non-recourse debt associated with it, sales revenue is recorded at
the amount
of consideration received, net of
the amount of debt assumed by the purchaser. If there is no non-recourse
debt
associated with the rental stream, sales revenue is recorded at the amount
of
gross consideration received, and costs of sales is recorded at the book
value
of the lease.
Fluctuations
in
Revenues
Our
results of operations are
susceptible to fluctuations for a number of reasons, including, without
limitation, customer demand for our products and services, supplier costs,
interest rate fluctuations and differences between estimated residual values
and
actual amounts realized related to the equipment we lease. Operating results could
also fluctuate
as a result of the sale of equipment in our lease portfolio prior to the
expiration of the lease term to the lessee or to a third
party. Such sales of
leased equipment prior to the expiration of the lease term may have the effect
of increasing revenues and net earnings during the period in which the sale
occurs, and reducing revenues and net earnings otherwise expected in subsequent
periods.
We
have expanded our product and service
offerings under our comprehensive set of solutions which represents the
continued evolution of our original implementation of our e-commerce products
entitled ePlusSuite®. The
expansion to our bundled solution is
a framework that combines our IT sales and professional services, leasing
and
financing services, asset management software and services, procurement
software, and electronic catalog content management software and
services.
We
expect to expand or open new sales
locations and hire additional staff for specific targeted market areas in
the
near future whenever we can find both experienced personnel and qualified
geographic areas.
As
a result of our acquisitions and
expansion of sales locations, our historical results of operations and financial
position may not be indicative of our future performance over
time.
RECENT
ACCOUNTING
PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS
No. 141 (revised 2007), “Business
Combinations” (“SFAS No.
141R”), which replaces SFAS 141. SFAS No. 141R applies to all transactions in
which an entity obtains control of one or more businesses, including those
without the transfer of consideration. SFAS No. 141R defines the acquirer
as the
entity that obtains control on the acquisition date. It also requires the
measurement at fair value of the acquired assets, assumed liabilities and
noncontrolling interest. In addition, SFAS No. 141R requires that the
acquisition and restructuring related costs be recognized separately from
the
business combinations. SFAS No. 141R requires
that goodwill be
recognized as of the acquisition date, measured as residual, which in most
cases
will result in the excess of consideration plus acquisition-date fair value
of
noncontrolling interest over the fair values of identifiable net assets.
Under
SFAS No. 141R, “negative goodwill,” in which consideration given is less than
the acquisition-date fair value of identifiable net assets, will be recognized
as a gain to the acquirer. SFAS No. 141R is applied prospectively to business
combinations for which the acquisition date is on or after the first annual
reporting period beginning on or after December 15, 2008. We are evaluating
the
impact of SFAS No. 141R, if any, to our financial position and statement
of
operations. We
will adopt SFAS No. 141R for future business combinations that occur on or
after
April 1, 2009.
In
May 2008, the FASB issued SFAS No.
162, "The
Hierarchy of
Generally Accepted Accounting Principles" ("SFAS No.
162").
SFAS No. 162
identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP
hierarchy). SFAS No.
162
will become effective
60 days following the SEC approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The
Meaning of
Present Fairly in Conformity With Generally Accepted Accounting
Principles." We
do not expect the adoption
of SFAS 162 to
have a material effect on our financial
condition and results of
operations.
In
April
2008, the FASB issued Staff Position (“FSP”) No. 142-3, Determination of
the Useful Life of Intangible
Assets. FSP No. 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful
life of
a recognized intangible asset under SFAS No. 142. The provisions of FSP No.
142-3 are effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. We are in the process of evaluating
the impact, if any, that FSP No. 142-3 will have on our consolidated financial
statements.
In
June 2008, the FASB issued
EITF 03-6-1,
"Determining
Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities."
In the EITF 03-6-1,
the FASB concluded that all
outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends
or dividend equivalents
participate in undistributed earnings with common shareholders and, accordingly,
are considered participating
securities that shall be
included in the two-class method of computing basic and diluted EPS. Since we
have not historically paid dividends, we do not expect this provision to
have
any material impact on our
financial position or results of operations.
In
October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value
of a
Financial Asset When the Market for That Asset is Not
Active. FSP No. 157-3 clarifies the application of SFAS No.
157 in a market that is not active and provides an example to illustrate
key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. The provisions of FSP
No. 157-3 were effective upon issuance and for financial statements not yet
reported. The adoption of FSP No. 157-3 did not have a material
impact on our consolidated financial statements.
CRITICAL
ACCOUNTING
POLICIES
The
preparation of financial statements
in conformity with GAAP requires management to use judgment in the application
of accounting policies, including making estimates and assumptions. If our
judgment or interpretation of
the facts and circumstances relating
to various transactions had been different, or different assumptions were
made,
it is possible that alternative accounting policies would have been applied,
resulting in a change in financial results. On an ongoing basis, we reevaluate
our estimates, including those related to revenue recognition, residuals,
vendor
consideration, lease classification, goodwill and intangibles, reserves for
credit losses and income taxes specifically relating to FIN
48. Estimates in the
assumptions used in the valuation of our stock option expense are updated
periodically and reflect conditions that existed at the time of each new
issuance of stock options. We base estimates on
historical
experience and on various other assumptions
that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that
are
not readily apparent from other sources. For all of these estimates,
we caution
that future events rarely develop exactly as forecasted, and therefore, these
estimates routinely require adjustment.
We
consider the following accounting
policies important in understanding the potential impact of our judgments
and
estimates on our operating results and financial condition. For additional accounting
policies, see
Note 1, “Organization and Summary of Significant Accounting Policies" to the
Unaudited Condensed Consolidated Financial Statements included elsewhere
in this
report.
REVENUE
RECOGNITION. The
majority of our revenues are derived
from three sources: sales of products and
services, lease
revenues and sales of our
software. Our
revenue recognition policies vary
based upon these revenue sources. We adhere to guidelines
and principles
of sales recognition described in Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue
Recognition”(“SAB 104”),
issued by the staff of the SEC. Under SAB No. 104,
sales are recognized
when the title and risk of loss are passed to the customer, there is persuasive
evidence of an arrangement for sale, delivery has occurred and/or services
have
been rendered, the sales price is fixed or determinable and collectibility
is
reasonably assured. Using these tests,
the vast majority of
our product sales are recognized upon delivery due to our sales terms with
our
customers and with our vendors. For
proper cutoff, we estimate the
product delivered to our customers at the end of each quarter based upon
historical delivery dates.
We
also sell services that are performed
in conjunction with product sales, and recognize revenue for these sales
in
accordance with EITF 00-21, “Accounting
for
Revenue Arrangements with Multiple Deliverables”.
Accordingly,
we recognize sales from
delivered items only when the delivered item(s) has value to the client on
a
stand alone basis, there is objective and reliable evidence of the fair value
of
the undelivered item(s), and delivery of the undelivered
item(s)
is probable and substantially
under our control. For
most of the arrangements with
multiple deliverables (hardware and
services), we generally cannot establish reliable evidence of the fair value
of
the undelivered items. Therefore, the majority
of revenue from
these services and hardware sold in conjunction with the services is recognized
when the service is complete and we have received an
acceptance
certificate. However, in some cases,
we do not
receive an acceptance certificate and we estimate the completion date based
upon
our records.
RESIDUAL
VALUES. Residual values represent
our estimated
value of the equipment at the end of the initial lease term. The residual values
for direct financing
and sales-type leases are included as part of the investment in direct financing
and sales-type leases. The residual values
for operating leases
are included in the leased equipment's net book value and are reported in
the
investment in leases and leased equipment—net. Our estimated residual
values will vary,
both in amount and as a percentage of the original equipment cost, and depend
upon several factors, including the equipment type, manufacturer's discount,
market conditions and the term of the lease.
We
evaluate residual values on a
quarterly basis and record any required changes in accordance with SFAS No.
13,
paragraph 17.d., in which impairments of residual value, other than temporary,
are recorded in the period in which the impairment is
determined. Residual
values are affected by equipment supply and demand and by new product
announcements by manufacturers.
We
seek to realize the estimated
residual value at lease termination mainly through renewal or extension of
the
original lease
or the sale of the
equipment either to the lessee or on the secondary market. The difference between
the proceeds of a
sale and the remaining estimated residual
value is recorded as a gain or
loss in lease revenues when title is transferred to the lessee, or, if the
equipment is sold on the secondary market, in sales of product and services and
cost of sales, product and services when title
is transferred to the
buyer.
ASSUMPTIONS
RELATED TO
GOODWILL. We account
for our acquisitions using the purchase method of accounting. This method requires
estimates to
determine the fair values of assets and liabilities acquired, including
judgments to determine any acquired intangible assets such as customer-related
intangibles, as well as assessments of the fair value of existing assets
such as
property and equipment. Liabilities acquired
can include
balances for litigation and other contingency reserves established prior
to or
at the time of acquisition, and require judgment in ascertaining a reasonable
value. Third party
valuation firms may be used to assist in the appraisal of certain assets
and
liabilities, but even those determinations would be based on significant
estimates provided by us, such as forecasted revenues or profits on
contract-related intangibles. Numerous factors are
typically
considered in the purchase accounting assessments. Changes in assumptions and
estimates of
the acquired assets and liabilities would result in changes to the fair values,
resulting in an offsetting change to the goodwill balance associated with
the
business acquired.
As
goodwill is not amortized, goodwill
balances are regularly assessed for potential impairment. Such assessments require
an analysis of
future cash flow projections as well as a determination of an appropriate
discount rate to calculate present values. Cash flow projections
are based on
management-approved estimates. Key factors used in
estimating future
cash flows include assessments of labor and other direct costs on existing
contracts, estimates of overhead costs and other indirect costs, and assessments
of new business prospects and projected win rates. Significant changes
in the estimates and
assumptions used in purchase accounting and goodwill impairment testing can
have
a material effect on our Unaudited Condensed Consolidated financial
statements.
VENDOR
CONSIDERATION. We receive payments
and credits from
vendors, including consideration pursuant to volume sales incentive programs,
volume purchase incentive programs and shared marketing expense
programs. Many of
these programs extend over one or more quarter’s sales activities and are
primarily formula-based. These programs can
be very complex to
calculate and, in some cases, we estimate that we will obtain our targets
based
upon historical data.
Vendor
consideration received pursuant
to volume sales incentive programs is recognized as a reduction to cost of
sales, product and services on the accompanying Unaudited Condensed Consolidated
Statements of Operations in
accordance with EITF Issue No. 02-16,
“Accounting
for
Consideration Received from a Vendor by a Customer (Including a Reseller
of the
Vendor’s Products).” Vendor
consideration received pursuant
to volume purchase incentive programs is allocated to inventories based on
the
applicable incentives from each vendor and is recorded in cost of sales,
product
and services, as the inventory is sold. Vendor consideration
received pursuant
to shared marketing expense programs is recorded as a reduction of the related
selling and administrative expenses in the period the program takes place
only
if the consideration represents a reimbursement of specific, incremental,
identifiable costs. Consideration that
exceeds the
specific, incremental,
identifiable costs is
classified as a reduction of cost of sales, product and services on
the accompanying Unaudited Condensed
Consolidated Statements of Operations. The company accrues vendor consideration
as earned based on sales of qualifying products or as services are provided
in
accordance with the terms of the related program. Actual vendor consideration
amounts may vary based on volume or other sales achievement levels, which
could
result in an increase or reduction in the estimated amounts previously accrued,
and can, at times, result in significant earnings fluctuations on a quarterly
basis.
RESERVES
FOR CREDIT LOSSES.
The reserves for
credit losses are maintained at a level believed by management to be adequate
to
absorb potential losses inherent in our lease and accounts receivable
portfolio. Management's determination
of the
adequacy of the reserve is based on an evaluation of historical credit loss
experience, current economic conditions, volume, growth, the composition
of the
lease portfolio and other relevant factors. These determinations
require
considerable judgment in assessing the ultimate potential for collection
of
these receivables and include giving consideration to the customer's financial
condition and the value of the underlying collateral and funding status (i.e.,
discounted on a non-recourse or recourse basis).
SALES
RETURNS
ALLOWANCE. The
allowance for sales returns is maintained at a level believed by management
to
be adequate to absorb potential sales returns from product and services in
accordance with SFAS No. 48. Management's
determination of the
adequacy of the reserve is based on an evaluation of historical sales
returns and other
relevant factors. These determinations
require
considerable judgment in assessing the ultimate potential for sales returns
and
include consideration of the type and volume of products and services
sold.
INCOME
TAX. We make certain estimates
and judgments
in determining income tax expense for financial statement purposes. These
estimates and judgments occur in the calculation of certain tax assets and
liabilities, which principally arise from differences in the timing of
recognition of revenue and expense for tax and financial statement purposes.
We
also must analyze income tax reserves, as well as determine the likelihood
of
recoverability of deferred tax assets, and adjust any valuation allowances
accordingly. Considerations with respect to the recoverability of deferred
tax
assets include the period of expiration of the tax asset, planned use of
the tax
asset, and historical and projected taxable income as well as tax liabilities
for the tax jurisdiction to which the tax asset relates. Valuation allowances
are evaluated periodically and will be subject to change in each future
reporting period as a result of changes in one or more of these factors.
The
calculation of our tax liabilities also involves dealing with uncertainties
in
the application of complex tax regulations. We recognize liabilities for
uncertain income tax positions based on our estimate of whether, and the
extent
to which, additional taxes will be required.
SHARE-BASED
PAYMENT. We currently
have two
equity incentive plans which provide us with the opportunity to compensate
directors and selected employees with stock options, restricted stock and
restricted stock units. A stock option entitles the recipient to purchase
shares
of common stock from us at the specified exercise price. Restricted stock
and
restricted stock units (“RSUs”) entitle the recipient to obtain stock or stock
units, which vest over a set period of time. RSUs are granted at no cost
to the
employee and employees do not need to pay an exercise price to obtain the
underlying common stock. All grants or awards made under the Plans are governed
by written agreements between us and the participants. We also have options
outstanding under three previous incentive plans, under which we no longer
issue
equity awards.
We
account for share-based compensation under the provisions of SFAS No. 123
(revised 2004), Share-Based
Payment. We use the Black-Scholes option-pricing model to value all
options and the straight-line method to amortize this fair value as compensation
cost over the requisite service period.
Under
the
fair value method of accounting for stock-based compensation, we measure
stock
option expense at the date of grant using the Black-Scholes valuation model.
This model estimates the fair value of the options based on a number of
assumptions, such as interest rates, employee exercises, the current price
and
expected volatility of our common stock and expected dividends, if any. The
expected life is a significant assumption as it determines the period for
which
the risk-free interest rate, volatility and dividend yield must be applied.
The
expected life is the average length of time in which we expect our employees
to
exercise their options. The risk-free interest rate is the five-year nominal
constant maturity Treasury rate on the date of the award. Expected stock
volatility reflects movements in our stock price over a historical period
that
matches the expected life of the options. The dividend yield assumption is
zero
since we have historically not paid any dividends and do not anticipate paying
any dividends in the near future.
Results
of Operations — Three and
six months
ended September
30, 2008 compared to three
and six months ended September 30,
2007
Revenues.
We generated total revenues during the
three months ended September 30,
2008 of $196.9
million compared to revenues of
$225.0
million during the three months ended
September
30, 2007, a decrease of 12.5%. During
the six months ended September
30, 2008, revenues decreased 18.2% to $379.1 million, as compared to $463.7
million during the same period ended September 30, 2007. Decreases in sales
from
our technology subsidiary are primarily
the result of our customers’ lower capital expenditures in response to
current economic
conditions.
Sales
of product and services decreased
5.4%
to $179.5
million during the three months ended
September
30, 2008 compared to $189.7
million generated during the three
months ended September
30, 2007. Sales of product and
services decreased
12.9%
to $345.3
million during the six
months ended September
30, 2008 compared to $396.2
million generated during the three
months ended September
30, 2007. These
decreases
in revenue are primarily
attributed to the
economic downturn, which generally
results in our customers’ propensity to postpone technology equipment
investments. Sales
of product and
services represented
91.2%
and 84.3%
of total revenue during the
three
months ended September 30,
2008 and 2007, respectively.
Sales
of product and
services represented
91.1% and 85.5%
of total revenue during the
six
months ended September 30,
2008 and 2007, respectively. The
increases
in sales of product and
services as a percentage of
revenue are
results of
proportionately larger
decreases
in sales of leased equipment and lease
revenue in the prior period.
We
realized a gross margin on sales of
product and services of 14.0%
and 13.6%
for the three
and
six months ended September
30, 2008, respectively, and 12.4% and 11.3%
for
the
three
and
six months ended September
30, 2007. Our
gross margin on sales of product and
services was affected by our customers’ investment in technology equipment, the
mix and volume of products sold and changes
in incentives provided to us by
manufacturers. While we saw improvement
in
the gross margin this quarter related to manufacturer incentives, we believe
that manufacturers may begin tightening these programs due to current market
conditions. We believe our ability to maintain or increase the level
of manufacturer incentives may therefore be limited without increases in
the
volume of products sold.
Lease
revenues decreased 2.1%
to $12.2
million and 24.6% to $23.8
million, for the three and
six months ended September
30,
2008, respectively. These
decreases are
due to smaller number of
leases in
our operating and direct financing
lease portfolio as a result of higher sales of leased
equipment during the
same periods
in fiscal year 2008. Sales
of leased equipment
fluctuate from quarter to quarter, and are a component of our
risk-mitigation process, which we conduct to diversify our portfolio by
customer, equipment type, and residual value investments. These
decreases are partially offset by a slight increase in broker sales during
the
three and six months ended September 30, 2008. The
recent tightness in the credit market
has affected our
non-recourse debt funding interest rates and prompted us to
arrange funding
earlier in our transaction cycles.
From
time to time, our lessees purchase
leased assets from us before and at the end of the lease term. This amount is included
in lease
revenues in our Unaudited Condensed Consolidated Statements of Operations. During
three months ended September
30, 2008 sales of leased assets to
lessees was $3.0
million, a 51.1%
increase
from $2.0
million as of September 30,
2007. During
the six
months ended September
30, 2008 sales of leased assets to
lessees was $5.4
million, a 51.3%
decrease
from $11.0
million as of September 30,
2007. This decrease is primarily
attributable to a
decrease in sales
of approximately $7.7
million during the
six
months ended September
30, 2007.
We
also recognize revenue from the sale
of leased equipment to non-lessee third parties. During the three months
ended
September
30, 2008 and 2007, we sold a portion of
our lease portfolio and recognized a gross margin of 6.8%
and 4.3%,
respectively, on these sales. The
revenue recognized on the sale of leased equipment totaled
approximately $2.2
million and $18.2
million, and the cost of leased
equipment totaled $2.0
million and $17.4
million, for the three months ended
September
30, 2008 and 2007,
respectively.
For the six
months ended September
30, 2008 and 2007, we recognized
revenue of approximately
$3.4
million and $26.8 million,
cost of leased equipment of
$3.3 million and $25.6 million, resulting in gross margin of 5.4% and 4.5%,
respectively on the sale of leased equipment. These decreases
were due
to management’s decision to retain
most lease schedules during this fiscal year. The revenue and gross
margin recognized on sales of leased equipment can vary significantly depending
on the nature and timing of the sale, as well as the timing of any debt funding
recognized in
accordance with SFAS No. 125, “Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,” as amended by
SFAS No. 140, “Accounting
for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
-
a replacement of FASB Statement No. 125.”
For
the three and six months
ended September
30, 2008, fee and other income was
$3.0
million and $6.6 million,
a decrease of 35.8%
and 26.7%, respectively, over
the
same periods in
September 30,
2007. These
decreases were primarily driven by a decrease in fees related to early lease
buyouts, a decrease in
software and related
consulting
revenue, a
decrease in short-term investment income and a decrease in agent fees from
manufacturers for the three and six months ended September 30,
2008. Fee
and other income may also include
revenues from adjunct services and fees, including broker and agent fees,
support fees, warranty reimbursements, monetary settlements arising from
disputes and litigation and interest income. Our fee and other income contains
earnings from certain transactions that are infrequent, and there is no
guarantee that future transactions of the same nature, size or profitability
will occur. Our ability to consummate
such transactions, and the
timing thereof, may depend largely upon factors outside the direct control
of management.
The
earnings from these types of
transactions in a particular period may not be indicative of the earnings
that
can be expected in future periods.
Costs
and
Expenses. During the three
months ended September
30, 2008, cost of sales, product and
services decreased 7.1%
to $154.4
million as compared to $166.2
million during the same period ended
September
30, 2007. During the six months
ended September
30, 2008, cost of sales, product and services decreased 15.2% to $298.1 million
as compared to $351.4 million during the same period in the prior fiscal
period. These decreases
correspond to the decreases in
sales of product and services in our technology sales business unit as well
as a
reduction in cost of goods sold during the three and six months ended September
30, 2008.
Direct
lease costs decreased
34.7%
to $3.8 million and 35.9%
to $7.6 million during the
three and six months
ended September
30, 2008, respectively,
as compared to the same
periods
in the prior fiscal year. The
largest component of direct lease
costs is depreciation expense for operating lease
equipment. Our
investment in operating leases decreased 46.4% to
$27.6
million at September
30, 2008 as compared to $51.5 million at September
30, 2007 because we sold a
number of lease
schedules during the prior fiscal year.
Professional
and other fees decreased
48.4%
to $1.8
million and 39.3% to $4.4
million during the three and
six months ended September
30,
2008, respectively,
as compared to the same periods in September
30, 2007. These
decreases are
primarily due to higher expenses in the
same periods
last year relating to our investigation
of stock option grants, which was commenced by our Audit Committee and
previously disclosed in our Form 10-K for the year ended March 31,
2007. In addition,
during the three and six
months
ended September
30, 2008, we reduced our legal and
outside consulting fees
and other
fees.
Salaries
and benefits expense increased
8.5%
to $18.7
million and 3.3% to $38.1
million during the
three and
six months ended
September
30, 2008, respectively, as
compared to the same periods in September
30, 2007. Theses increases
are mostly driven by
an increase in the number of employees and related
expenses. We
employed 674
people at September
30, 2008 as compared to 635
people at September
30, 2007. The increase in headcount
is
attributable to the
establishment of a
telesales unit,
the employment of several
former
consultants as
professional services staff and
additional support
personnel. The increases are partially offset by lower commissions
as a result
of lower sales and the recognition of
$1.5 million shared-based compensation expense
from the cancellation of
options, during the six
months ended September
30, 2007 as previously
disclosed.
General
and administrative expenses
decreased 2.3% to $3.8 million and 9.4% to $7.6 million
during the three and six months
ended September
30, 2008, respectively,
as compared to the same
periods
in the prior fiscal
year. These decreases
were due to increased efficiency in spending controls and efforts to
enhance productivity.
Interest
and financing costs decreased
35.5% to $1.5 million and 38.1% to $3.0 million
during the three and six months ended
September 30, 2008, respectively, as compared to the same periods in the
prior
fiscal year. This
decrease is primarily due to lower
interest costs and related expenses as a result of lower recourse and
non-recourse note
balance. We repaid our $5.0
million recourse notes payable
related to our
credit facility with National City Bank on December 31,
2007. In
addition, there was a 25.9% decrease in non-recourse notes payable to $86.7
million at September 30, 2008 as compared to September 30,
2007.
Provision
for Income
Taxes. Our
provision for income taxes
increased
$0.6
million to $4.4
million for the three months
ended September
30, 2008, as a result of the
increase in
earnings. Provision
for income taxes for the six
months ended September
30, 2008 decreased $0.7 million
to $7.0
million. The decrease is due to the non-deductible
share-based
compensation expense of $1.5 million related to the cancellation of 450,000
options during the same period in the prior fiscal year. Our
effective income tax rates for the
three and six
months ended
September 30, 2008 were 40.7%
and 40.8%, respectively. Our
effective income tax rates for the
three and six
months ended
September 30, 2007
were 43.7% and 43.8%,
respectively.
Net
Earnings. The foregoing
resulted in net earnings of $6.4
million for the three months
ended September 30,
2008, an increase
of 32.3%
as compared to $4.9
million during the same period in the
prior fiscal year. Net earnings for the
six
months ended September 30, 2008 was $10.1 million, an increase
of 2.5% over the same period in the prior fiscal
period.
Basic
and fully diluted earnings per
common share were $0.77
and $0.74,
respectively, for the three months
ended September
30, 2008 as compared to
$0.59 and $0.59,
respectively, for the three months
ended September
30, 2007. Basic
and fully diluted earnings per common share
were $1.22
and $1.18,
respectively, for the six months
ended September
30, 2008 as compared to $1.20 and $1.18,
respectively, for the six
months ended September
30, 2007.
Basic
and diluted weighted average
common shares outstanding for the three months ended September
30, 2008 were 8,299,496
and 8,622,562,
respectively. For the three months
ended September
30, 2007 the basic and diluted weighted
average common shares outstanding were 8,231,741
and 8,331,044
respectively. Basic
and diluted weighted average
common shares outstanding for the six
months ended September
30, 2008 were 8,276,650
and 8,597,896,
respectively. For the six
months
ended September
30, 2007 the basic and diluted weighted
average common shares outstanding were 8,231,741
and 8,363,348
respectively.
LIQUIDITY
AND CAPITAL
RESOURCES
Liquidity
Overview
Our
primary sources of liquidity have
historically been cash and cash equivalents, internally generated funds from
operations and borrowings, both non-recourse and
recourse. We
have used those funds to meet our capital requirements, which have historically
consisted primarily of working capital for operational needs, capital
expenditures, purchases of operating lease equipment,
payments of principal and interest on
indebtedness outstanding, acquisitions and to repurchase shares of our
common stock.
Our
technology sales business segment,
through our subsidiary ePlus
Technology, inc., finances its
operations with funds generated from operations, and with a credit facility
with
GECDF, which is described in more detail below. There are two components
of this
facility: (1) a floor plan component; and (2) an accounts receivable
component. After
a customer places a purchase order with us and we have completed our credit
check, we will place an order for the equipment with one of our vendors.
Generally, most purchase orders from us to our vendors are first financed
under
the floor plan component and reflected in “accounts payable – floor plan” in our
Unaudited Condensed Consolidated Balance Sheets. Payments
on the floor plan component are
due on three specified dates each month which is generally 40-45 days from
the
invoice date. At
each due date, the payment is made by the accounts receivable component of
our
facility and reflected as “recourse notes payable” on our Unaudited Condensed
Consolidated Balance Sheets.
All
customer payments in our technology
sales business segment are paid into lockbox accounts. Once payments are cleared,
the monies in
the lockbox accounts are automatically transferred to our accounts receivable
facility at GECDF on a daily basis. To the extent the monies
from the
lockboxes are insufficient to cover the amount due under the accounts receivable
facility, we make a cash payment to GECDF for the
deficit. To the
extent the monies received from the lockbox account exceed the amounts due
under
the accounts receivable facility, GECDF wires the excess funds to
us. These
deficiency and excess payments are reflected as “net repayments (borrowings) on
floor plan facility” in the cash flows from financing activities section of our
Unaudited Condensed Consolidated Statements of Cash
Flows. We engage
in this payment structure in order to minimize our interest expense in
connection with financing the operations of our technology sales business
segment.
We
believe that cash on hand, funds
generated from operations,
together with available credit under our credit facilities, will be sufficient
to finance our working capital, capital expenditures and other requirements
for
at least the next twelve calendar months.
Our
ability to continue to fund our
planned growth, both internally and externally, is dependent upon our ability
to
generate sufficient cash flow from operations or to obtain additional funds
through equity or debt financing, or from other sources of financing, as
may be
required. While
at this time we do not anticipate needing any additional sources of financing
to
fund operations, if
demand
for IT products declines, our cash flows from operations
may be
substantially affected. Given the current environment within the
global financial markets, management has maintained higher cash reserves
to
ensure adequate cash is available to fund our working capital requirements
should the availability to the debt and equity markets be
limited.
Cash
Flows
The
following table summarizes our
sources and uses of cash over the periods indicated (in
thousands):
|
|
Six
Months Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Net
cash provided
by (used)
in operating
activities
|
|
|
|
|
|
|
|
|
Net
cash used in investing
activities
|
|
|
|
|
|
|
|
|
Net
cash provided by financing
activities
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on
cash
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash
equivalents
|
|
|
|
|
|
|
|
|
Cash
Flows from
Operating Activities. Cash
used in operating activities increased $20.0 million
in the six months ended September 30,
2008, compared to the six months ended September 30,
2007. Cash flows
used in operations for the six months ended September 30, 2008 resulted
primarily from $17.0
million in cash used by investment in direct
financing and sales
type leases — net. While
our investment in direct financing
and sales-type leases − net decreased $10.7 million on our Unaudited Condensed
Consolidated Balance Sheet over the six months ended September 30, 2008 which
might otherwise be expected to create a cash inflow, it resulted in a cash
outflow of $11.5 million for new leases. This was as a result of the
repayment of $21.5 million in principal payments by our lessees directly
to our
lenders which has the effect of decreasing the investment in direct-financing
and sales-type leases – net, but is not reported in our cash flows from
operating activities. These lessee principal payments are disclosed in our
schedule of Non-cash Investing and Financing Activities. These payments by our
lessees directly to our lenders also decreased our non-recourse debt on our
Unaudited Condensed Consolidated Balance Sheet. Other significant changes
from the six months ended September 30, 2008 compared to the six months ended
September 30, 2007 include the $7.6 million unfavorable change in accounts
payable – trade and the $3.8 million unfavorable change in salaries and
commissions payable, accrued expenses and other liabilities.
The
increase in cash used in operating activities was partially offset by an
increase in net earnings for the six months ended September 30, 2008 and
favorable changes in accounts receivable – net and payments from lessees
directly to lenders for operating leases.
Cash
Flows from
Investing Activities. Cash
used in investing activities
decreased $4.7 million
in
the six months ended
September 30, 2008, compared to
the six months ended September 30, 2007. This decrease was primarily
due to a
$3.8 million decrease
in purchases of operating lease
equipment and a $0.8 million increase in proceeds from the sale or
disposal of operating lease equipment for the six months ended September
30,
2008 compared with the six months ended September 30,
2007. Cash used
in investing activities also included cash paid, net of cash
acquired,
in the amount of $364 thousand to
acquire certain assets of Network Architects, Inc.
Cash
Flows from
Financing Activities. Cash
provided by financing activities
increased
$19.8
million for the six months
ended September 30,
2008, compared to the six months ended September 30, 2007. The increase in cash
flows from financing activities for
the six months ended September 30, 2008 resulted primarily from an increase in non-recourse
borrowings of $10.3
million, and a decrease in
repayments by us of
non-recourse borrowings of $7.5 million.
However,
principal payments from lessees
of $26.4 million were paid directly from our lessees to our lenders as disclosed
in our Schedule of Non-cash Investing and Financing
Activities. Therefore, non-recourse debt decreased during the
six-month period ended September 30, 2008. Cash flows from non-recourse
borrowings
increased primarily due to the recordation of new
leases. In
addition, net borrowings on the floor plan facility were $4.0
million and $3.1
million for the six months ended
September 30, 2008 and 2007, respectively.
Liquidity
and Capital
Resources
Debt
financing activities provide
approximately 80% to 100% of the purchase price of the equipment we purchase
for
leases to our customers. Any
balance of the purchase price (our
equity investment in the equipment)
must generally be financed by
cash flows from our operations, the sale of the equipment leased to third
parties, or other internal means. Although we expect that the credit quality
of
our leases and our residual return history will continue to allow us to obtain
such financing, no assurances can be given that such financing will be available
on acceptable terms, or at all. The financing necessary to support our leasing
activities has
principally been provided by non-recourse and recourse borrowings. Given the current market,
we have been monitoring
our exposure
closely and conserving
our capital. Historically,
we have obtained recourse and non-recourse borrowings from banks and finance
companies. We continue to be able to obtain financing through
our
traditional lending
sources, however pricing has
increased and has become more volatile. Non-recourse financings are
loans whose repayment is the responsibility of a specific customer, although
we
may make representations
and warranties to the lender regarding the specific contract or have ongoing
loan servicing obligations. Under a non-recourse loan, we borrow from a lender
an amount based on the present value of the contractually committed lease
payments under the lease at a fixed rate of interest, and the lender secures
a
lien on the financed assets. When the lender is fully repaid from the lease
payment, the lien is released and all further rental or sale proceeds are
ours.
We are not liable for the repayment of non-recourse loans unless we breach
our
representations and warranties in the loan agreements. The lender assumes
the
credit risk of each lease, and its only recourse, upon default by the lessee,
is
against the lessee and the specific equipment under
lease. At
September
30, 2008, our lease-related
non-recourse debt portfolio decreased
7.6%
to $86.7
million as compared to $93.8 million at
March 31, 2008.
Whenever
possible and desirable, we
arrange for equity investment financing, which includes selling assets,
including the residual portions, to third parties and financing the equity
investment on a non-recourse basis. We generally retain customer control
and
operational services, and have minimal residual risk. We usually reserve
the
right to share in remarketing proceeds of the equipment on a subordinated
basis
after the investor has received an agreed-to return on its
investment.
Accrued
expenses and other liabilities
includes deferred expenses, income tax accrual and amounts collected and
payable, such as sales taxes and lease rental payments due to third parties.
We
had $30.6
million and $30.4 million of accrued
expenses and other liabilities as of September
30, 2008 and March 31,
2008, respectively, an increase
of 0.7%. The
decrease is primarily
driven by decreases in professional and other fees as a result of higher
expenses in the same periods last year relating to our investigation of stock
option grants, which was commenced by our Audit Committee and previously
disclosed in our Form 10-K for the year ended March 31, 2007. In addition, during
the three and six
months ended September 30, 2008, we reduced our legal and outside consulting
fees and other fees.
Credit
Facility — Technology Business
Our
subsidiary, ePlus
Technology, inc., has a financing
facility from GECDF to finance its working capital requirements
for inventories and
accounts receivable. There are two components of this facility: (1) a floor
plan
component; and (2) an accounts receivable component. As of September
30, 2008, the facility had an aggregate
limit of the two components of $125 million with an accounts receivable
sub-limit of $30 million. Availability under
the GECDF facility
may be limited by the asset value of equipment we purchase and may be further
limited by certain covenants and terms and conditions of the
facility. These
covenants include but are not limited to a minimum total tangible net worth
and
subordinated debt, and maximum debt to tangible net worth ratio of ePlus
Technology, inc. We were in compliance
with these
covenants as of September
30, 2008. In addition, the facility
restricts the ability of ePlus
Technology, inc. to transfer funds to its affiliates in the form of dividends,
loans or advances; however, we do not expect these restrictions to have an
impact on the ability of ePlus inc. to
meet its cash obligations.
The
facility provided by GECDF requires
a guaranty of up to $10.5 million by ePlus
inc. The guaranty requires
ePlus
inc. to deliver its audited
financial statements by certain dates. We have delivered
the annual audited
financial statements for the year ended March 31, 2008 as required. The
loss of the GECDF credit facility
could have a material adverse effect on our future results as we currently
rely
on this facility and its components for daily working capital and liquidity
for
our technology sales business and as an operational function of our accounts
payable process. In
light of the credit market condition,
we have had discussions with GECDF recently to inquire about the
strategic focus of
their distribution finance unit. Pursuant to these discussions, we
believe that we can continue to rely on the availability of this credit
facility. Should the GECDF credit facility no longer be available, we
believe we can increase our lines of credit with our vendors and utilize
our
cash and credit facility with National City
Bank for working capital.
Floor
Plan Component
The
traditional business of ePlus
Technology, inc. as a seller of
computer technology, related peripherals and software products is in part financed
through a floor plan component
in which interest expense for the first thirty to forty-five days, in general,
is not charged. The floor plan liabilities are recorded as accounts
payable—floor plan on our Unaudited Condensed Consolidated Balance Sheets, as
they are normally repaid within the thirty- to forty-five-day time frame
and
represent an assigned accounts payable originally generated with the
manufacturer/distributor. If the thirty- to forty-five-day obligation is
not
paid timely, interest is then assessed at stated contractual
rates.
The
respective floor plan component
credit limits and actual outstanding balances (in thousands) for the dates
indicated were as follows:
Maximum Credit
Limit at
September
30, 2008
|
|
|
Balance as of
September
30, 2008
|
|
|
Maximum Credit
Limit at
March 31,
2008
|
|
|
Balance as of
March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
Component
Included
within the floor plan
component, ePlus
Technology, inc. has an accounts
receivable component from GECDF, which has a revolving line of
credit. On the due
date of the invoices financed by the floor plan component, the invoices are
paid
by the accounts receivable component of the credit facility. The balance of the
accounts receivable
component is then reduced by payments from our customers into a lockbox and
our
available cash. The
outstanding balance under the accounts receivable component is recorded as
recourse notes payable on our Unaudited Condensed Consolidated Balance
Sheets. There
was no outstanding balance at September 30, 2008 and March 31,
2008.
The
respective accounts receivable
component credit limits and actual outstanding balances (in thousands) for
the
dates indicated were as follows:
Maximum
Credit Limit
at
September,
2008
|
|
|
Balance
as of
September
30,
2008
|
|
|
Maximum
Credit Limit
at
March 31,
2008
|
|
|
Balance
as of
March 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility — Leasing Business
Working
capital for our leasing business
is provided through a $35 million credit facility which is currently
contractually scheduled to expire on July 10, 2009. Participating in this
facility are
Branch Banking and Trust Company ($15 million) and National City Bank ($20
million), with National City Bank acting as agent. The
ability to borrow under this
facility is limited to the amount of eligible collateral at any given time.
The credit facility
has full recourse to us and is secured by a blanket lien against all of our
assets such as chattel paper (including leases), receivables, inventory and
equipment and the common stock of all wholly-owned
subsidiaries.
The
credit facility contains certain
financial covenants and certain restrictions on, among other things, our
ability
to make certain investments, sell assets or merge with another company.
Borrowings under the
credit facility bear interest at London Interbank Offered Rates (“LIBOR”) plus
an applicable margin or, at our option, the Alternate Base Rate (“ABR”) plus an
applicable margin. The
ABR is the higher of the agent bank’s prime rate or Federal Funds rate plus
0.5%. The applicable
margin is determined based on our recourse funded debt ratio and can range
from
1.75% to 2.50% for LIBOR loans and from 0.0% to 0.25% for ABR loans.
As
of September
30, 2008, we had no outstanding balance
on the facility. We
believe that we will be able to renew
this credit facility when it expires in July 2009.
In
general, we may use the National City
Bank facility to pay the cost of equipment to be put on lease, and we repay
borrowings from the proceeds of: (1) long-term, non-recourse, fixed-rate
financing which we obtain from lenders after the underlying lease transaction
is
finalized; or (2) sales of leases to third parties. The availability of
the credit facility
is subject to a borrowing base formula that consists of inventory, receivables,
purchased assets and lease assets. Availability under
the credit facility
may be limited by the asset value of the equipment purchased by us or by
terms
and conditions in the credit facility agreement. If we are unable to sell
the equipment or unable
to
finance the equipment on a permanent basis within a certain time period,
the availability of credit
under the facility could be diminished or eliminated. The credit facility
contains covenants
relating
to minimum tangible net worth,
cash flow coverage ratios, maximum debt to equity ratio, maximum guarantees
of
subsidiary obligations, mergers and acquisitions and asset
sales. We are
in compliance with
these covenants as of September
30, 2008.
The
National City Bank facility requires
the delivery of our Audited and Unaudited Financial Statements, and pro forma
financial projections, by certain dates. As required by Section
5.1 of the
facility, we have delivered all financial statements.
Performance
Guarantees
In
the normal course of business, we may
provide certain customers with performance guarantees, which are generally
backed by surety bonds. In general, we would
only be liable for
the amount of these guarantees in the event of default in the performance
of our
obligations. We are in
compliance with the performance obligations under all service contracts for
which there is a performance guarantee, and we believe that any liability
incurred in connection with these guarantees would not have a material adverse
effect on our Unaudited Condensed Consolidated Statements of
Operations.
Off-Balance
Sheet
Arrangements
As
part of our ongoing business, we do
not participate in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, which would have been
established for the purpose of facilitating off-balance sheet arrangements
or
other contractually narrow or limited purposes. As of September
30, 2008, we were not involved in any
unconsolidated special purpose entity transactions.
Adequacy
of Capital
Resources
The
continued implementation of our
business strategy will require a significant investment in both resources
and
managerial focus. In addition, we may selectively acquire other companies
that
have attractive customer relationships and skilled sales forces. We may also
acquire technology companies to expand and enhance the platform of bundled
solutions to provide additional functionality and value-added services. As
a
result, we may require additional financing to fund our strategy,
implementation and potential future
acquisitions, which may include additional debt and equity
financing.
For
the periods presented herein,
inflation has been relatively low and we believe that inflation has not had
a
material effect on our results of operations.
Potential
Fluctuations in Quarterly
Operating Results
Our
future quarterly operating results
and the market price of our common stock may fluctuate. In the event our revenues
or earnings
for any quarter are less than the level expected by securities analysts or
the
market in general, such shortfall could have an immediate and significant
adverse impact on the market price of our common stock. Any such adverse
impact
could be greater if any such shortfall occurs near the time of any material
decrease in any widely followed stock index or in the market price of the
stock
of one or more public equipment leasing and financing companies, IT resellers,
software competitors, major customers or vendors of ours.
Our
quarterly results of operations are
susceptible to fluctuations for a number of reasons, including, but not limited
to, reduction in IT spending, our entry into the e-commerce market, any
reduction of expected residual values related to the equipment under our
leases,
the timing and mix of specific transactions, and other factors. See Part
I, Item
1A, “Risk Factors,” in our 2008 Annual Report. Quarterly operating
results could also
fluctuate as a result of our sale of equipment in our lease portfolio, at
the
expiration of a lease term or prior to such expiration, to a lessee or to
a
third party. Such
sales of equipment may have the effect of increasing revenues and net income
during the quarter in which the sale occurs, and reducing revenues and net
income otherwise expected in subsequent quarters.
We
believe that comparisons of quarterly
results of our operations are not necessarily meaningful and that results
for
one quarter should not be relied upon as an indication of future
performance.
Item
3. Quantitative
and Qualitative Disclosures
About Market Risk
Although
a substantial portion of our
liabilities are non-recourse, fixed-interest-rate instruments, we are reliant
upon lines of credit and other financing facilities which are subject to
fluctuations in interest rates. These instruments, which are denominated
in U.S.
dollars, were entered into for other than trading purposes and, with the
exception of amounts drawn under the National City Bank and GECDF facilities,
bear interest at a fixed rate. Because the interest rate on these instruments
is
fixed, changes in interest rates will not directly impact our cash flows.
Borrowings under the National City
Bank facility bear interest at a
market-based variable rate, based on a rate selected by us and determined
at the
time of borrowing. Borrowings under the
GECDF facility bear
interest at a market-based variable rate. Due to the relatively
short nature of
the interest rate periods, we do not expect our operating results or cash
flow
to be materially affected by changes in market interest
rates. As of
March 31, 2008, the aggregate fair value of our recourse borrowings approximated
their carrying value.
During
the year ended March 31, 2003, we
began transacting business in Canada.
As such, we have entered into lease
contracts and non-recourse, fixed-interest-rate financing denominated in
Canadian dollars. To date, Canadian operations have been insignificant and
we
believe that potential fluctuations in currency exchange rates will not have
a
material effect on our financial position.
Item
4. Controls
and
Procedures
Evaluation
of Disclosure Controls and
Procedures
As
of the end of the period covered by
this report, we carried out an evaluation, under the supervision and with
the
participation of our management, including our Chief Executive Officer ("CEO")
and our Chief Financial Officer ("CFO"), of the effectiveness of the design
and
operation of our disclosure controls and procedures, or “disclosure controls,”
pursuant to Exchange Act Rule 13a-15(b). Disclosure controls are controls
and
procedures designed to reasonably ensure that information required to be
disclosed in our reports filed under the Exchange Act, such as this quarterly
report, is recorded, processed, summarized and reported within the time periods
specified in the U.S. Securities and Exchange Commission’s rules and forms.
Disclosure controls include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act is accumulated and communicated to our management,
including our CEO and CFO, or persons performing similar functions, as
appropriate, to allow timely decisions regarding required disclosure. Our
disclosure controls include some, but not all, components of our internal
control over financial reporting. Based upon that evaluation, our CEO and
CFO
concluded that our disclosure controls and procedures were not effective
as of
September
30, 2008 due to the existing material
weakness in our internal control over financial reporting as discussed
below.
Changes
in Internal
Controls
During
the course of preparing our
Unaudited Condensed Consolidated Financial Statements for the quarter ended
December 31, 2006, we identified a material weakness related to the cut-off
of
accrued liabilities. As of September
30, 2008, we are continuing to remediate
this material weakness by
implementing additional procedures related to the cut-off of accrued
liabilities. In addition, we have developed enhancements to our controls
surrounding these cut-off issues including, but not limited to, electronically
tracking liabilities incurred from third parties related to service engagements,
and enhanced monitoring of our accounts payable obligations. The actions
we plan
to take are subject to continued management review supported by confirmation
and
testing as well as Audit Committee oversight.
Other
than as described above, there
have not been any other changes in our internal control over financial reporting
during the quarter ended
September 30, 2008, which
have materially affected, or are reasonably likely to materially affect,
our
internal control over financial reporting.
Limitations
on the Effectiveness of
Controls
Our
management, including our CEO and
CFO, does not expect that our disclosure controls or our internal control
over
financial reporting will prevent or detect all errors and all fraud. A control
system cannot provide absolute assurance due to its inherent limitations;
it is
a process that involves human diligence and compliance and is subject to
lapses
in judgment and breakdowns resulting from human failures. A control system
also
can be circumvented by collusion or improper management override. Further,
the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to
their
costs. Because of such limitations, disclosure controls and internal control
over financial reporting cannot prevent or detect all misstatements, whether
unintentional errors or fraud. However, these inherent limitations are known
features of the financial reporting process, therefore, it is possible to
design
into the process safeguards to reduce, though not eliminate, this
risk.
PART
II. OTHER
INFORMATION
Item
1. Legal Proceedings
Cyberco
Related
Matters
We
have been involved in several matters
relating to a customer named Cyberco Holdings, Inc. ("Cyberco"). The
Cyberco principals were perpetrating a scam, and at least five principals
have
pled guilty to criminal conspiracy and/or related charges, including bank
fraud,
mail fraud and money laundering. We
have
previously disclosed our losses
relating to Cyberco, and are pursuing avenues to recover those
losses. In September
2008, the Superior Court in the state of California,
County
of San Diego,
dismissed the second of two claims
we
filed against one of our lenders,
Banc of America
Leasing and Capital, LLC, relating to the Cyberco
transaction. The time to file an appeal has not yet
lapsed. In June 2007, ePlus
Group, inc. and two other Cyberco victims filed suit in the United States
District Court for the Western District of Michigan against The Huntington
National Bank. The complaint alleges counts of aiding and abetting fraud,
aiding
and abetting conversion, and statutory conversion. While we believe that
we have
a basis for these claims to recover certain of our losses related to the
Cyberco
matter, we cannot predict whether we will be successful in our claims for
damages, whether any award ultimately received will exceed the costs
incurred to pursue
these matters, or how long it will take to bring these matters to
resolution.
Other
Matters
On
January 18, 2007 a shareholder derivative action related to stock option
practices was filed in the United States District Court for the District
of
Columbia. The amended complaint names ePlus inc. as nominal defendant and
personally
names eight individual defendants who are directors and/or executive officers
of
ePlus inc. The amended complaint
alleges
violations of federal securities law, and various state law claims such as
breach of fiduciary duty, waste of corporate assets and unjust enrichment.
The
amended complaint seeks monetary damages from the individual defendants and
that
we take certain corrective actions relating to option grants and corporate
governance, and attorneys' fees. We have filed a motion to dismiss the amended
complaint. We cannot predict the outcome of this suit.
We
are
currently engaged in a dispute with the government of the District of Columbia
("DC") regarding personal property taxes on property we financed for our
customers. DC is seeking payment for property taxes relating to property we
financed for our customers. We believe the tax is owed by our customers,
and are
seeking resolution in DC's Office of Administrative Hearings. While management
does not believe this matter will have a material effect on our financial
condition and results of operations, resolution of this dispute is
ongoing.
There
can
be no assurance that these or any existing or future litigation arising in
the
ordinary course of business or otherwise will not have a material adverse
effect
on our business, consolidated financial position, or results of operations
or
cash flows.
There
have not been any material changes
in the risk factors previously disclosed in Part I, Item 1A of our Annual
Report
on Form 10-K for the fiscal year ended March 31, 2008.
Item
2. Unregistered
Sales of Equity Securities
and Use of Proceeds
We
did not purchase
any ePlus
inc. common stock during the
three and six
months ended September
30, 2008.
The
timing and expiration date of the
stock repurchase authorizations are included in Note 8,
“Stock
Repurchase” to our Unaudited Condensed
Consolidated
Financial Statements.
Item
3. Defaults
Upon Senior
Securities
Not
Applicable
Item
4. Submission
of Matters to a Vote of
Security Holders
The
following matters were voted upon at the Company’s annual meeting of
shareholders held on September 15, 2008:
1.
|
The
election of three directors
of the Company to serve
until the Company’s
2009 annual meeting
of shareholders (“Class I”).
|
|
|
|
|
|
|
Name
|
For
|
Withheld
|
Broker
Non-vote
|
|
|
|
|
|
|
C.
Thomas Faulders, III
|
6,637,705
|
1,363,135
|
0
|
|
Lawrence
S. Herman
|
6,638,442
|
1,362,398
|
0
|
|
Eric
D. Hovde
|
7,807,251
|
193,589
|
0
|
|
|
|
|
|
|
The
election of three directors
of the Company to serve
until the Company’s
2010 annual meeting
of shareholders (“Class II”).
|
|
|
|
|
|
|
Name
|
For
|
Withheld
|
Broker
Non-vote
|
|
|
|
|
|
|
Irving
R. Beimler
|
7,477,951
|
522,889
|
0
|
|
Milton
E. Cooper, Jr.
|
6,638,823
|
1,362,017
|
0
|
|
Terrence
O’Donnell
|
6,637,742
|
1,363,098
|
0
|
|
|
|
|
|
|
The
election of two directors
of the Company to serve
until the Company’s 2011
annual meeting of shareholders
(“Class III”).
|
|
|
|
|
|
|
Name
|
For
|
Withheld
|
Broker
Non-vote
|
|
|
|
|
|
|
Phillip
G. Norton
|
7,404,519
|
596,321
|
0
|
|
Bruce
M. Bowen
|
7,436,504
|
564,336
|
0
|
|
|
|
|
|
|
As
disclosed below, the
shareholders approved
the proposal to amend
the
Certificate of Incorporation
to de-classify the
Board of
Directors.
|
|
|
|
|
|
2.
|
The
stockholders approved
the 2008 non-employee
director long-term
incentive
plan.
|
|
|
|
|
|
|
For
|
Against
|
Abstain
|
Broker
Non-vote
|
|
|
|
|
|
|
6,371,897
|
173,763
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
The
stockholders approved
the 2008 employee long-term
incentive
plan.
|
|
|
|
|
|
|
For
|
Against
|
Abstain
|
Broker
Non-vote
|
|
|
|
|
|
|
5,522,955
|
1,020,855
|
3,233
|
|
4.
|
The
stockholders approved the Amended and Restated
Certificate of
Incorporation which provides that directors will
be elected to one-year
terms of office starting at the 2009 Annual Meeting
of
Shareholders. The Amended and Restated Certificate of
Incorporation includes other less substantive revisions,
such as updating
the name and address of the Company’s registered agent.
|
|
|
|
|
|
|
For
|
Against
|
Abstain
|
Broker
Non-vote
|
|
|
|
|
|
|
7,986,573
|
6,892
|
7,373
|
0
|
|
|
|
|
|
|
|
|
|
|
5.
|
The
stockholders ratified the appointment of Deloitte
& Touche LLP as the
Company’s independent auditors for the fiscal year ending
March 31,
2009.
|
|
|
|
|
|
|
For
|
Against
|
Abstain
|
Broker
Non-vote
|
|
|
|
|
|
|
7,642,939
|
29,155
|
328,747
|
|
Item
5. Other
Information
None.
Exhibit
No.
|
Exhibit
Description
|
|
|
|
Amended
and
Restated Certificate of Incorporation of ePlus inc., filed
on September 19,
2008.
|
|
|
|
Employment
Agreement, effective as of November 1, 2008, between ePlus inc. and Kleyton L.
Parkhurst.
|
|
|
|
Certification
of
the Chief Executive Officer of ePlus
inc. pursuant
to the Securities Exchange Act Rules 13a-14(a) and
15d-14(a).
|
|
Certification
of
the Chief Financial Officer of ePlus
inc. pursuant
to the Securities Exchange Act Rules 13a-14(a) and
15d-14(a).
|
|
Certification
of
the Chief Executive Officer and Chief Financial Officer of
ePlus
inc. pursuant
to 18 U.S.C. §
1350.
|
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
ePlus
inc.
|
|
|
Date:
November
12,
2008
|
/s/PHILLIP G. NORTON
|
|
By:
Phillip G. Norton,
Chairman
of the Board,
|
|
President
and
Chief Executive
Officer
|
Date:
November
12,
2008
|
/s/ELAINE
D. MARION
|
|
By:
Elaine
D.
Marion
|
|
Chief
Financial
Officer
|