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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

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)

(Address, including zip code, of principal executive offices)

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 ☒   No ☐
 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒   No ☐
 

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.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No ☒

 

The number of shares of common stock outstanding as of July 31, 2015 was 7,476,316

 

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TABLE OF CONTENTS

ePlus inc. AND SUBSIDIARIES

Part I. Financial Information:
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and March 31, 2015	5
	Unaudited Condensed Consolidated Statements of Operations for the Three Months ended June 30, 2015 and 2014	6
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months ended June 30, 2015 and 2014	7
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months ended June 30, 2015 and 2014	8
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months ended June 30, 2015	10
	Notes to Unaudited Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II. Other Information:
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
Signatures & Certifications		40

 

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CAUTIONARY STATEMENT CONCERNING 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, or “Exchange Act,” 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,” “should,” “would,” “intend,” “estimate,” “will,” “potential,” “possible,” “could,” “believe,” “expect,” “intend,” “plan,” “anticipate,” “hope,” “project,” and similar expressions. Readers are cautioned not to place undue reliance on any forward-looking statements made by us or on our behalf. Forward-looking statements are made based upon information that is currently available or management’s current expectations and beliefs concerning future developments and their potential effects upon us, speak only as of the date hereof, and are subject to certain risks and uncertainties. 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:

●

uncertainty and volatility in the global economy and financial markets;

●

significant adverse changes in, reductions in, or losses of relationships with several of our larger customers or vendors;

●

the creditworthiness of our customers and our ability to reserve adequately for credit losses;

●

reduction of vendor incentives provided to us;

●

we offer a comprehensive set of solutions— integrating information technology (IT) product sales, third-party software assurance and maintenance, our advanced professional and managed services, our proprietary software, and financing, and may encounter some of the challenges, risks, difficulties and uncertainties frequently faced by similar companies, such as:

o

managing a diverse product set of solutions in highly competitive markets with a number of key vendors;

o

increasing the total number of customers utilizing integrated solutions by up-selling within our customer base and gaining new customers;

o

adapting to meet changes in markets and competitive developments;

o

maintaining and increasing advanced professional services by retaining highly skilled personnel and vendor certifications;

o

increasing the total number of customers who utilize our managed services and professional services and continuing to enhance our managed services offerings to remain competitive in the marketplace;

o

maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace; and

o

reliance on third parties to perform some of our service obligations;

●

changes in the IT industry and/or rapid changes in product offerings, including the proliferation of the cloud, infrastructure as a service and software as a service;

●

and our dependency on continued innovations in hardware, software, and services offerings by our vendors and our ability to partner with them;

●

future growth rates in our core businesses;

●

failure to comply with public sector contracts or applicable laws;

●

changes to or loss of any members of our senior management team and/or failure to successfully implement succession plans;

●

our dependence on key personnel, and our ability to hire, train, and retain sufficient qualified personnel;

●

our ability to implement comprehensive plans for the integration of sales forces, cost containment, asset rationalization, systems integration and other key strategies;

●

a possible decrease in the capital spending budgets of our customers or a decrease in purchases from us;

●

our contracts may not be adequate to protect us and our professional and liability insurance policies coverage may be insufficient to cover a claim;

●

our ability to secure our and our customers’ electronic and other confidential information, and remain secure during a cyber-security attack;

●

our ability to raise capital, maintain or increase as needed our lines of credit with vendors or floor planning facility, or obtain debt for our financing transactions or the effect of those changes on our common stock or its holders;

 

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●

our ability to realize our investment in leased equipment;

●

our ability to successfully integrate acquired businesses;

●

the possibility of goodwill impairment charges in the future;

●

our ability to protect our intellectual property rights and successfully defend any challenges to the validity of our patents, and, when appropriate, license required technology;

●

exposure to changes in, interpretations of, or enforcement trends in legislation; and

●

significant changes in accounting standards including changes to the financial reporting of leases which could impact the demand for our leasing services, or misclassification of products and services we sell resulting in the misapplication of revenue recognition policies.

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 Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections contained elsewhere in this report, as well as other reports that we file with the Securities and Exchange Commission (“SEC”).

 

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PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

		As of June 30, 2015				As of March 31, 2015
ASSETS		(in thousands, except per share data)
Current assets:
Cash and cash equivalents		$	88,781			$	76,175
Accounts receivable—trade, net			188,407				218,458
Accounts receivable—other, net			20,779				31,345
Inventories—net			24,273				19,835
Financing receivables—net, current			93,548				66,909
Deferred costs			19,256				20,499
Deferred tax assets			3,643				3,643
Other current assets			9,343				7,413
Total current assets			448,030				444,277
Financing receivables and operating leases—net			82,734				76,991
Property, equipment and other assets			9,456				9,480
Goodwill and other intangible assets			40,165				40,798
TOTAL ASSETS		$	580,385			$	571,546
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable—equipment		$	8,493			$	20,330
Accounts payable—trade			32,763				46,090
Accounts payable—floor plan			110,401				99,418
Salaries and commissions payable			12,660				14,860
Deferred revenue			33,407				34,363
Recourse notes payable - current			4,272				889
Non-recourse notes payable - current			54,645				28,560
Other current liabilities			12,003				13,575
Total current liabilities			268,644				258,085
Recourse notes payable - long term			2,747				2,801
Non-recourse notes payable - long term			14,164				24,314
Deferred tax liability - long term			3,271				3,271
Other liabilities			3,611				3,813
TOTAL LIABILITIES			292,437				292,284
COMMITMENTS AND CONTINGENCIES  (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 per share par value; 2,000 shares authorized; none issued or outstanding			-				-
Common stock, $.01 per share par value; 25,000 shares authorized; 13,234 issued and 7,478 outstanding at June 30, 2015 and 13,114 issued and 7,389 outstanding at March 31, 2015			132				131
Additional paid-in capital			113,375				111,072
Treasury stock, at cost, 5,756 and 5,725 shares, respectively			(120,654	)			(118,179	)
Retained earnings			295,291				286,477
Accumulated other comprehensive income—foreign currency translation adjustment			(196	)			(239	)
Total Stockholders' Equity			287,948				279,262
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	580,385			$	571,546

 

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ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

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ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

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ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Three Months Ended June 30,
		2015				2014
		(in thousands)
Cash Flows From Operating Activities:
Net earnings		$	8,814			$	9,477
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization			4,235				3,841
Reserve for credit losses, inventory obsolescence and sales returns			(391	)			219
Share-based compensation expense			1,231				1,047
Excess tax benefit from share-based compensation			(1,073	)			(887	)
Payments from lessees directly to lenders—operating leases			(1,458	)			(2,455	)
Gain on disposal of property, equipment and operating lease equipment			(325	)			(564	)
Gain on sale of financing receivables			(1,490	)			(2,241	)
Gain on settlement			-				(1,434	)
Other			47				52
Changes in:
Accounts receivable—trade			31,368				32,274
Accounts receivable—other			6,416				2,058
Inventories			(5,384	)			(6,527	)
Financing receivables			(65	)			(12,232	)
Deferred costs, other intangible assets and other assets			(3,027	)			1,100
Accounts payable—equipment			(63	)			(164	)
Accounts payable—trade			(13,287	)			(25,772	)
Salaries and commissions payable, deferred revenue and other liabilities			(3,792	)			(3,146	)
Net cash provided by (used in) operating activities		$	21,756			$	(5,354	)
Cash Flows From Investing Activities:
Proceeds from sale of property, equipment and operating lease equipment		$	1,843			$	2,066
Purchases of property, equipment and operating lease equipment			(6,924	)			(469	)
Purchases of assets to be leased or financed			(9,437	)			(9,158	)
Issuance of financing receivables			(44,253	)			(16,692	)
Repayments of financing receivables			21,132				13,616
Proceeds from sale of financing receivables			11,214				9,989
Premiums paid on life insurance			-				(47	)
Net cash used in investing activities		$	(26,425	)		$	(695	)

 

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

 

		Three Months Ended June 30,
		2015				2014
		(in thousands)
Cash Flows From Financing Activities:
Borrowings of non-recourse and recourse notes payable		$	7,957			$	11,213
Repayments of non-recourse and recourse notes payable			(186	)			(609	)
Repurchase of common stock			(2,475	)			(29,249	)
Dividends paid			(80	)			(80	)
Excess tax benefit from share-based compensation			1,073				887
Net borrowings (repayments) on floor plan facility			10,983				10,544
Net cash provided by (used in) financing activities			17,272				(7,294	)
Effect of exchange rate changes on cash			3				16
Net (Decrease) Increase in Cash and Cash Equivalents			12,606				(13,327	)
Cash and Cash Equivalents, Beginning of Period			76,175				80,179
Cash and Cash Equivalents, End of Period		$	88,781			$	66,852
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest		$	27			$	64
Cash paid for income taxes		$	9,072			$	6,462
Schedule of Non-Cash Investing and Financing Activities:
Proceeds from sales of property, equipment and operating lease equipment		$	6,783			$	339
Purchase of property, equipment, and operating leases		$	(8,069	)		$	(330	)
Purchase of assets to be leased or financed included in accounts payable		$	(3,781	)		$	(22,230	)
Issuance of financing receivables		$	(39,154	)		$	(26,976	)
Repayment of financing receivables		$	4,831			$	-
Proceeds from sale of financing receivables		$	6,960			$	26,976
Borrowing of recourse and nonrecourse notes payable		$	27,603			$	-
Repayments of non-recourse and recourse notes payable		$	(10,498	)		$	(9,319	)
Vesting of share-based compensation		$	7,083			$	5,944

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

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ePlus inc. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

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ePlus inc. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION — Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Quarterly Report on Form 10-Q as “we,” “our,” “us,” or “ePlus.” 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 in consolidation.

INTERIM FINANCIAL STATEMENTS — The unaudited condensed consolidated financial statements for the three months ended June 30, 2015 and 2014 were prepared by us, without audit, and include all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations, changes in comprehensive income and cash flows for such periods. Operating results for the three months ended June 30, 2015 and 2014 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year ending March 31, 2016 or any other future period. These unaudited condensed consolidated financial statements do not include all disclosures required by the accounting principles generally accepted in the United States (“U.S. GAAP”) for annual financial statements. Our audited consolidated financial statements are contained in our annual report on Form 10-K for the year ended March 31, 2015 (“2015 Annual Report”), which should be read in conjunction with these interim financial statements.

USE OF ESTIMATES — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Estimates are used when accounting for items and matters including, but not limited to, revenue recognition, residual values, vendor consideration, lease classification, goodwill and intangibles, reserves for credit losses, inventory obsolescence, and the recognition and measurement of income tax assets and other provisions and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

The notes to the consolidated financial statements contained in the 2015 Annual Report include additional discussion of the significant accounting policies and estimates used in the preparation of our consolidated financial statements. There have been no material changes to our significant accounting policies and estimates during the three months ended June 30, 2015.

CONCENTRATIONS OF RISK —A substantial portion of our sales of product and services are from sales of Cisco Systems, Hewlett-Packard, and NetApp products, which represented approximately 51%, 10% and 4% of our technology segment sales of product and services for the three months ended June 30, 2015, as compared to 47%, 7%, and 6% of our technology segment sales of product and services for the three months ended June 30, 2014. Any changes in our vendors’ ability to provide products could have a material adverse effect on our business, results of operations and financial condition.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED — In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will supersede all current US GAAP on this topic. The principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to approve a one-year deferral on the effective date of this standard. Including the one-year deferral, the new guidance becomes effective for us in our quarter ending June 30, 2018, and early adoption is permitted for us in our quarter ending June 30, 2017. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the impact it will have on our financial statements and disclosures and have not yet selected our planned transition approach.

 

2.	FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist of assets that we financed for our customers, which we manage as a portfolio of investments. Equipment financed for our customers are accounted for as investments in direct financing, sales-type or operating leases in accordance with Accounting Standards Codification (“ASC”) Topic 840, Leases. We also finance third-party software, maintenance, and services for our customers, which are classified as notes receivables. Our notes receivables are interest bearing and are often due over a period of time that corresponds with the terms of the leased products.

FINANCING RECEIVABLES—NET

Our financing receivables, net consist of the following (in thousands):

(1)

Includes estimated unguaranteed residual values of $4,005 thousand for direct financing leases, which have been sold and accounted for as sales under Codification Topic, Transfers and Servicing.

(2)

Initial direct costs are shown net of amortization of $674 thousand.

(3)

For details on reserve for credit losses, refer to Note 4, “Reserves for Credit Losses.”

(1)

Includes estimated unguaranteed residual values of $3,977 thousand for direct financing leases which have been sold and accounted for as sales under Codification Topic, Transfers and Servicing.

(2)

Initial direct costs are shown net of amortization of $647 thousand.

(3)

For details on reserve for credit losses, refer to Note 4, “Reserves for Credit Losses.”

 

OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as direct financing leases. The components of the operating leases—net are as follows (in thousands):

(1)	These totals include estimated unguaranteed residual values of $4,913 thousand and $4,340 thousand as of June 30, 2015 and March 31, 2015, respectively.

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating leases, which are accounted for as sales or secured borrowings in accordance with Codification Topic, Transfers and Servicing. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of June 30, 2015 and March 31, 2015, we had financing receivables and operating leases of $81.2 million and $61.9 million, respectively, which were collateral for non-recourse notes payable. See Note 6, “Notes Payable and Credit Facility.”

For transfers accounted for as sales, we derecognize the carrying value of the asset transferred and recognize a net gain or loss on the sale, which is presented within net sales in the unaudited condensed consolidated statement of operations. During the three months ended June 30, 2015 and 2014, we recognized net gains of $1.5 million and $2.2 million, respectively. The fair value of assets received from these sales was $24.3 million and $56.2 million for the three months ended June 30, 2015 and 2014, respectively.

3.	GOODWILL AND OTHER INTANGIBLE ASSETS

Our goodwill and other intangible assets consist of the following (in thousands):

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets that are individually identified and separately recognized in business combinations. Customer relationships and capitalized software development costs are amortized over an estimated useful life, which is generally between 3 to 6 years.

All of our goodwill as of June 30, 2015, and March 31, 2015, is related to our technology segment. The following table summarizes the amount of goodwill allocated to our reporting units (in thousands):

 

OTHER INTANGIBLE ASSETS

Total amortization expense for other intangible assets was $0.7 million and $0.3 million for the three months ended June 30, 2015 and 2014, respectively.

4.	RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses for the three months ended June 30, 2015 and 2014 were as follows (in thousands):

Our reserves for credit losses and minimum payments associated with our notes receivables and lease-related receivables disaggregated on the basis of our impairment method were as follows (in thousands):

The net credit exposure for the balance evaluated individually for impairment as of June 30, 2015 was $3.2 million, $3.2 million of which is related to one customer. During fiscal year 2012, we began selling and financing various products and services to a large law firm, which filed for bankruptcy in May 2012. As of June 30, 2015, we had $3.2 million of notes and lease-related receivables from this customer and total reserves for credit losses of $3.2 million, which represented our estimated probable loss. As of March 31, 2015, we had $3.2 million of notes and lease-related receivables from this customer and total reserves for credit losses of $3.2 million. The note and lease receivables associated with this customer are on non-accrued status.

 

The age of the recorded minimum lease payments and net credit exposure associated with our investment in direct financing and sales-type leases that are past due disaggregated based on our internally assigned credit quality rating (“CQR”) were as follows as of June 30, 2015 and March 31, 2015 (in thousands):

The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows as June 30, 2015 and March 31, 2015 (in thousands):

We estimate losses on our net credit exposure to be between 0% - 5% for customers with highest CQR, as these customers are investment grade or the equivalent of investment grade. We estimate losses on our net credit exposure to be between 2% - 15% for customers with average CQR, and between 15% - 100% for customers with low CQR, which includes customers in bankruptcy.

 

5.	PROPERTY, EQUIPMENT, OTHER ASSETS AND LIABILITIES

Our property, equipment, other assets and liabilities consist of the following (in thousands):

6.	NOTES PAYABLE AND CREDIT FACILITY

Non-recourse and recourse obligations consist of the following (in thousands):

Principal and interest payments on the non-recourse notes payable are generally due monthly in amounts that are approximately equal to the total payments due from the customer under the leases or notes receivable that collateralize the notes payable. The weighted average interest rate for our non-recourse notes payable was 3.02% and 3.23%, as of June 30, 2015 and March 31, 2015, respectively. The weighted average interest rate for our recourse notes payable was 2.96% and 3.19%, as of June 30, 2015 and March 31, 2015, respectively. Under recourse financing, in the event of a default by a customer, the lender has recourse to the customer, the assets serving as collateral, and us. Under non-recourse financing, in the event of a default by a customer, the lender generally only has recourse against the customer, and the assets serving as collateral, but not against us.

 

In May 2014, we entered into an agreement to repurchase the rights, title, and interest to payments due under a financing agreement. This financing agreement was previously assigned to a third party financial institution and accounted for as a secured borrowing. In conjunction with the repurchase agreement, we recognized a gain of $1.4 million in the three months ended June 30, 2014, which is presented within other income in our unaudited condensed consolidated statement of operations.

Our technology 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 technology segment. 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 $110.4 million and $99.4 million as of June 30, 2015 and March 31, 2015, respectively. Under the accounts receivable component, we had no outstanding balances as of June 30, 2015 and March 31, 2015. As of June 30, 2015, the facility agreement had an aggregate limit of the two components of $225 million, and the accounts receivable component had a sub-limit of $30 million, which bears interest assessed at a rate of the One Month LIBOR plus two and one half percent. On July 24, 2015, the facility was amended to increase the aggregate limit to $250 million. The accounts receivable component sub-limit of $30 million remains unchanged.

The credit facility has full recourse to ePlus Technology, inc. and is secured by a blanket lien against all its assets, such as receivables and inventory. Availability under the 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 excess availability of the facility and minimum earnings before interest, taxes, depreciation and amortization (“EBITDA”) of ePlus Technology, inc. We were in compliance with these covenants as of June 30, 2015. 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 with certain exceptions for dividends to ePlus inc. The facility also requires that financial statements of ePlus Technology, inc. be provided within 45 days of each quarter and 90 days of each fiscal year end and also includes that other operational reports be provided on a regular basis. Either party may terminate with 90 days’ advance notice. We are not, and do not believe that we are reasonably likely to be, in breach of the GECDF credit facility. In addition, we do not believe that the covenants of the GECDF credit facility materially limit our ability to undertake financing. In this regard, the covenants apply only to our subsidiary, ePlus Technology, inc. This credit facility is secured by the assets of only ePlus Technology, inc. and the guaranty as described below.

The facility provided by GECDF requires a guaranty of $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, 2015, 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 segment and as an operational function of our accounts payable process.

We have an agreement with First Virginia Community Bank to provide us with a $0.5 million credit facility, which will mature October 26, 2015. The credit facility is available for use by us and our affiliates and the lender has full recourse to us. Borrowings under this facility bear interest at the Wall Street Journal U.S. Prime rate plus 1%. The primary purpose of the facility is to provide letters of credit for landlords, taxing authorities and bids. As of June 30, 2015 and March 31, 2015, we had no outstanding balance on this credit facility.

As of June 30, 2015, the fair value of our long-term recourse and non-recourse notes payable approximated their carrying value.

 

7.	COMMITMENTS AND CONTINGENCIES

Legal Proceedings

8.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings attributable to common shares by the weighted average number of common shares outstanding for the period. Diluted net earnings per share include the potential dilution of securities that could participate in our earnings, but not securities that are anti-dilutive. Certain unvested shares of restricted stock awards (“RSAs”) contain non-forfeitable rights to dividends, whether paid or unpaid. As a result, these RSAs are considered participating securities because their holders have the right to participate in earnings with common stockholders. We use the two-class method to allocate net income between common shares and other participating securities. As of June 30, 2015, we had no unvested shares of RSAs that contained non-forfeitable rights to dividends. We no longer grant RSAs that contain non-forfeitable rights to dividends.

 

The following table provides a reconciliation of the numerators and denominators used to calculate basic and diluted net earnings per common share as disclosed in our unaudited condensed consolidated statements of operations for the three months ended June 30, 2015 and June 30, 2014 (in thousands, except per share data).

There were 118,974 and 78,165 unvested RSAs that were excluded from the computation of diluted earnings per share for the three months ended June 30, 2015 and 2014, respectively, as the impact of including these shares was anti-dilutive. As of June 30, 2015 and 2014, we had no unexercised stock options.

9.	STOCKHOLDERS’ EQUITY

On June 12, 2014, our board of directors authorized the Company to repurchase up to 500,000 shares of its outstanding common stock over a 12-month period which terminated as of June 15, 2015. The plan authorized purchases to be made from time to time in the open market, or in privately negotiated transactions, subject to availability. All repurchased shares were placed in the status of treasury shares and may be used, when needed, for general corporate purposes.

During the three months ended June 30, 2015, we did not purchase any shares of our outstanding common under the share repurchase plan; however, we did purchase 30,447 shares of common stock at a value of $2.5 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

During the three months ended June 30, 2014, we repurchased 552,073 shares of our outstanding common stock at an average cost of $49.31 per share for a total purchase price of $27.2 million under the share repurchase plans. We also purchased 35,158 shares of common stock at a value of $2.0 million to satisfy tax withholding obligations relating to the vesting of employees’ restricted stock.

Since the inception of our initial repurchase program on September 20, 2001 to June 30, 2015, we have repurchased approximately 5.6 million shares of our outstanding common stock at an average cost of $20.00 per share for a total purchase price of $111.6 million.

 

10.	SHARE-BASED COMPENSATION

Share-Based Plans

As of June 30, 2015, we had share-based awards outstanding under the following plans: (1) the 2008 Non-Employee Director Long-Term Incentive Plan (“2008 Director LTIP”), and (2) the 2012 Employee Long-Term Incentive Plan ("2012 Employee LTIP"). As of June 27, 2015, all remaining share-based awards under the 2008 Employee LTIP were vested. All the share-based plans define fair market value as the previous trading day's closing price when the grant date falls on a date the stock was not traded.

For a summary of descriptions and vesting periods of the 2008 Director LTIP, and the 2012 Employee LTIP discussed above, refer to our 2015 Annual Report.

Restricted Stock Activity

For the three months ended June 30, 2015, we granted 212 restricted shares under the 2008 Director LTIP, and 118,974 restricted shares under the 2012 Employee LTIP. For the three months ended June 30, 2014, we granted 658 restricted shares under the 2008 Director LTIP, and 78,165 restricted shares under the 2012 Employee LTIP. A summary of the restricted shares is as follows:

 

Upon each vesting period of the restricted stock awards, employees are subject to minimum tax withholding obligations. Under the 2012 Employee LTIP, we may purchase a sufficient number of shares due to the participant to satisfy their minimum tax withholding on employee stock awards.

Compensation Expense

We recognize compensation cost for awards of restricted stock with graded vesting on a straight line basis over the requisite service period and estimate the forfeiture rate to be zero, which is based on historical experience. There are no additional conditions for vesting other than service conditions. During the three months ended June 30, 2015 and 2014, we recognized $1.2 million and $1.0 million, respectively, of total share-based compensation expense. Unrecognized compensation expense related to non-vested restricted stock was $14.1 million as of June 30, 2015, which will be fully recognized over the next sixty months.

We also provide our employees with a contributory 401(k) plan. Employer contribution percentages are determined by us and are discretionary each year. The employer contributions vest pro-ratably over a four-year service period by the employees, after which all employer contributions will be fully vested. For the three months ended June 30, 2015 and 2014, our estimated contribution expense for the plan was $0.4 million and $0.3 million, respectively.

 

11.	INCOME TAXES

 

We recognize interest and penalties for uncertain tax positions. As of June 30, 2015, our gross liability related to uncertain tax positions was $72 thousand. At June 30, 2015, if the unrecognized tax benefits of $72 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would be $101 thousand. We also recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We recorded interest expense of $1 thousand for both the three months ended June 30, 2015 and 2014. We did not recognize any additional penalties. We had $44 thousand and $66 thousand accrued for the payment of interest at June 30, 2015 and June 30, 2015, respectively.

12.	FAIR VALUE OF FINANCIAL INSTRUMENTS

We account for the fair values of our assets and liabilities in accordance with ASC Topic 820, Fair Value Measurement and Disclosure. The following table summarizes the fair value hierarchy of our financial instruments as of June 30, 2015 and March 31, 2015 (in thousands):

 

For the three months ended June 30, 2015 there was an adjustment of $110 thousand increasing the fair value of the contingent consideration, which is presented within general and administrative expenses in our unaudited condensed consolidated statement of operations. There was no adjustment in fair value recognized in the three months ended June 30, 2014.

 

13.	SEGMENT REPORTING

Our operations are conducted through two segments. Our technology segment includes sales of information technology products, third-party software, third-party maintenance, advanced professional and managed services and our proprietary software to commercial enterprises, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software and related services to commercial enterprises, state and local governments, and government contractors. Our reportable segment information was as follows (in thousands):