UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 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)

Delaware
  
54-1817218
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
13595 Dulles Technology Drive, Herndon, VA 20171-3413
(Address of principal executive offices)
 
Registrant’s telephone number, including area code: (703) 984-8400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered
Common Stock, $.01 par value
NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
Yes ☐ No ☒

 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 229.405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
☒

 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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐(do not check if smaller reporting company)
Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

The aggregate market value of the common stock held by non-affiliates of ePlus, computed by reference to the closing price at which the stock was sold as of September 30, 2014 was $320,259,331. The outstanding number of shares of common stock of ePlus as of May 26, 2015, was 7,389,631.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the indicated parts of this Form 10-K:

Portions of the Company's definitive Proxy Statement relating to its 2015 annual meeting of stockholders ( the “2015 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2015 Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the Company's fiscal year end to which this report relates.
 
Table of Contents
 
   
Page
     
1
     
Part I
    
     
Item 1.
3
 
12
Item 1A.
14
Item 1B.
22
Item 2.
22
Item 3.
23
Item 4.
23
     
Part II
    
     
Item 5.
24
Item 6.
26
Item 7.
28
Item 7A.
44
Item 8.
45
Item 9.
45
Item 9.A
45
Item 9B.
46
     
Part III
    
     
Item 10.
47
Item 11.
47
Item 12.
47
Item 13.
47
Item 14.
47
     
Part IV
    
     
Item 15.
48
     
51
 
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CAUTIONARY LANGUAGE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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:
●
 managing a diverse product set of solutions in highly competitive markets with a number of key vendors;
●
 increasing the total number of customers utilizing integrated solutions by up-selling within our customer base and gaining new customers;
●
 adapting to meet changes in markets and competitive developments;
●
 maintaining and increasing advanced professional services by retaining highly skilled personnel and vendor certifications;
●
 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;
●
 maintain our proprietary software and update our technology infrastructure to remain competitive in the marketplace; and
●
 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”).

Industry and Market Data

 This Form 10-K includes industry data that we obtained from periodic industry publications, which represent data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, Inc. and are not representations of facts. References to data from Gartner apply to their original publication date (and not as of the date of this Form 10-K) and the opinions expressed in the Gartner Report are subject to change without notice.

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PART I

ITEM 1. BUSINESS

GENERAL

Our company was founded in 1990 and is a Delaware corporation. ePlus inc. is sometimes referred to in this Annual Report on Form 10-K as “we,” “our,” “us,” “ourselves,” or “ePlus.”

Our operations are conducted through two business segments. Our technology segment sells information technology hardware products, third-party software and maintenance contracts, our own and third-party advanced professional and managed services, and our proprietary software. Our financing segment operations primarily consist in the financing of information technology equipment, software and related services. Both segments sell to commercial entities, state and local governments, government contractors, and educational institutions. See Note 14, “Segment Reporting” in the consolidated financial statements included elsewhere in this report.

ePlus inc. does not engage in any business other than serving as the parent holding company for the following operating companies:

Technology

· ePlus Technology, inc.;
· ePlus Systems, inc.;
· ePlus Content Services, inc.;
· ePlus Document Systems, inc.; and
· ePlus Technology Services, inc.

 Financing

· ePlus Group, inc.;
· ePlus Government, inc.;
· ePlus Canada Company;
· ePlus Capital, inc.;
· ePlus Jamaica, inc.; and
· ePlus Iceland, inc.

We began using the name ePlus inc. in 1999 after changing our name from MLC Holdings, Inc. ePlus Technology, inc. conducts our technology sales and services business. ePlus Systems, inc. and ePlus Content Services, inc. were incorporated on May 15, 2001 and provide consulting services and proprietary software for enterprise supply management. ePlus Capital, inc. owns 100 percent of ePlus Canada Company, which was created on December 27, 2001 to transact business within Canada. ePlus Government, inc. was incorporated on September 17, 1997 to transact business with governmental contractors servicing the federal government marketplace and other state and local governments. ePlus Document Systems, inc. was incorporated on October 15, 2003 and provides proprietary software for document management.
 
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OUR BUSINESS

We are a leading integrator of technology solutions for information technology (IT) lifecycle management. We enable organizations to optimize their IT infrastructure and supply chain processes by delivering world-class IT products from top vendors, providing a consultative approach to professional and managed services, providing our proprietary software, as well as flexible financing solutions for all our offerings. We have been in the business of selling, leasing, financing, and managing information technology and other assets for more than 24 years and have been licensing our proprietary software for more than 15 years.

Our primary focus is to deliver integrated technology solutions for our customers’ data center, network, and collaboration needs, including hosted, on-premise, hybrid and cloud infrastructures. These solutions consist of services and products encompassing initial and periodic assessments, consultative engagements, architecture, design, and implementation of security, storage, cloud, mobility, hyper-converged infrastructure, and other advanced technologies. We design, implement and provide an array of IT solutions from multiple leading IT vendors. We are an authorized reseller from over 1,000 vendors including Check Point, Cisco Systems, Dell, EMC, FireEye, F5 Networks, Hewlett-Packard, Juniper, McAfee, NetApp, Nimble, Oracle, Palo Alto Networks, Pure Storage, VMware, and among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer multi-vendor IT solutions that are optimized for each of our customers’ specific requirements. Our proprietary software solutions are focused on giving our customers more control over their IT supply chain, by automating and optimizing the procurement and management of their assets.

Our scale and strong financial position have enabled us to invest in the engineering and technology resources required to deliver leading edge IT solutions. We believe we are a trusted IT advisor to our customers, delivering turn-key IT solutions that incorporate hardware, software, security and both managed and professional services. In addition, we offer a wide range of leasing and financing options for technology and other capital assets. We believe our offering of integrated IT products, services, financing, and our proprietary supply chain software, is unique in the industry. It allows us to offer a customer service strategy that spans the continuum from fast delivery of competitively priced products, services, subsequent management and upkeep, through to end-of-life disposal services. This selling approach also permits us to grow with our customers and solidify our relationships through hands-on engagement and understanding of their needs.

We focus exclusively on middle market and large enterprises. For the year ended March 31, 2015, the percentage of revenue by customer end market within our technology segment include state and local government, and educational institutions 22%, technology industry 19%, telecommunications, media and entertainment 18%, financial services 10%, and healthcare 10%. The majority of our sales were generated within the United States, however, we have the ability to support our customers nationally and internationally. Our technology segment accounts for 97% of our net sales, 86% of our operating income, and 78% of our earnings before taxes, while our financing segment accounts for 3% of our net sales, 14% of our operating income, and 22% of our earnings before taxes for the year ended March 31, 2015.

OUR INDUSTRY BACKGROUND AND MARKET OPPORTUNITY

We participate in the large and growing United States IT market which, according to Gartner Group, Inc. (Gartner), is estimated to generate sales of over $1.15 trillion in 2015, and is expected to grow at an annual rate of approximately 2.9% for 2014 through 20181. Based on data published by Gartner, we have calculated spending in the segments of the U.S. IT market that our solutions address, including cloud2, security3, managed services4, virtualization5 and mobility6, to grow over twice as fast as the overall market, or at an annual rate of 6.1% through 2019.

We have identified several specific trends that are driving growth in the broader U.S. IT market and the specific markets we focus on:
 
1 Gartner, “Market Databook, 1Q15 Update,” 2013-2019 End-User Spending on IT Products and Services (U.S.).
2 Gartner, “Forecast: IT Services, Worldwide, 2013-2019, 1Q15 Update,” 2014-2019 Cloud Access (U.S.).
3 Gartner, “Forecast: Information Security, Worldwide, 2012-2018, 4Q14 Update,” 2013-2018 Security Spending (U.S.).
4 Gartner, “Forecast: IT Services, Worldwide, 2013-2019, 1Q15 Update,” 2014-2019 Data Center Outsourcing, Colocation, Hosting (U.S.).
5 Gartner, “Forecast: Enterprise Software Markets, Worldwide, 2012-2019, 1Q15 Update” 2013-2019 Virtualization Infrastructure Software (U.S.).
6 Gartner, “Forecast: PCs, Ultramobiles and Mobile Phones Worldwide, 2012-2019, 1Q15 Update” 2013-2019 Ultramobiles purchased by business customers (U.S.).
 
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· Greater complexity of the IT ecosystem has created challenges for enterprise customers and vendors. Historically, customers could procure and implement disparate hardware and software solutions to satisfy their IT needs. However, the emergence of complex IT offerings such as cloud computing, evolving trends and choices in data center and network architectures, the proliferation of mobile devices, increased security threats and the demand for big data analytics has made it difficult for customers to effectively design, procure, implement and manage their own IT systems. Moreover, increased budget pressures, fewer internal resources, a fragmented vendor landscape and fast time-to-value expectations make it challenging for customers to design, implement and manage secure, efficient and cost-effective IT environments.

· Increasing sophistication and incidences of cyber-attacks. Over the last decade, cyber-attacks have become more sophisticated, more prevalent and difficult to safeguard against. We believe our customers are focused on all aspects of cyber security, including intellectual property, data and business processes. In order to meet current and future security threats, enterprises must implement solutions that are fully-integrated and capable of monitoring, detecting, containing and remediating security threats and attacks.

· Lack of sufficient internal IT resources at mid-sized and large enterprises. We believe that IT departments at mid-sized and large enterprises are facing pressure to deliver higher service levels with fewer resources. At the same time the prevalence of security threats, increased use of cloud computing, proliferation of mobile devices, bring-your-own-device (BYOD) policies, complexity of multi-vendor solutions, have made it difficult for IT departments to implement high-quality IT solutions.

· Reduction in the number of IT solutions providers. We believe that customers are seeking to reduce the number of vendors they do business with to improve supply chain and internal efficiencies, enhance accountability, improve supplier management practices and reduce costs. As a result, customers are required to select IT solutions providers that are capable of delivering complex multi-vendor IT solutions.

· Increasing need for third-party services. We believe that customers are relying on third-party service providers to manage significant aspects of their IT infrastructure, from design, implementation, pre- and post-sales support, maintenance, engineering and other services.

COMPETITION

The market for IT sales and professional services is competitive, subject to economic conditions and rapid change, and significantly affected by new product introductions and other market activities of industry participants. We expect to continue to compete in all areas of our business against local, regional, national and international firms, including vendors; other direct marketers; national and regional resellers; and regional, national, and international services providers. Many of our competitors commoditize products which places downward pressure on product pricing. In addition, many IT vendors may sell or lease directly to our customers, and our continued ability to compete effectively may be affected by the policies of such vendors. In the software market, there are a number of companies offering business-to-business electronic commerce and asset management solutions similar to ours in a Software-As-A-Service (“SaaS”) platform, including enterprise resource planning system vendors. We also face indirect competition from potential customers’ internal development efforts and have to overcome potential customers’ reluctance to move away from legacy systems and processes.

The leasing market is also competitive and subject to changing economic conditions and market activities of leading industry participants. We expect to continue to compete against local, regional, national and international firms, including banks, specialty finance companies, vendors' captive finance companies, and third-party leasing companies. Banks and other large financial services companies sell directly to business customers, particularly larger enterprise customers, and may provide other financial or ancillary services that we do not provide. Vendor captive leasing companies may utilize internal transfer pricing to effectively lower lease rates and/or bundle equipment sales and leasing to provide highly competitive packages to customers. Third-party leasing companies may have deep customer relationships with contracts in place that are difficult to displace. However, these competitors typically do not provide the breadth of product, service, and software offerings that we provide to our customers.

In all of our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current and potential competitors also have greater name recognition and engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing policies than we do.

For a discussion of risks associated with the actions of our competitors, see Item 1A, “Risk Factors” included elsewhere in this report.
 
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OUR SOLUTIONS
 
Technology Segment

·
 IT Sales: Our offerings consist of hardware, software, maintenance, software assurance and services from over 1,000 vendors. Our most important vendor relationships include Check Point, Cisco Systems, Dell, EMC, FireEye, F5 Networks, Hewlett-Packard, Juniper, McAfee, NetApp, Nimble, Oracle, Palo Alto Networks, Pure Storage and VMware. We believe that our customers view technology purchases as integrated solutions, rather than discrete product and service categories, and the majority of our sales are derived from integrated solutions involving our customers’ data center, network, and collaboration infrastructure. We hold various technical and sales related certifications that authorize us to market their products and enable us to provide advanced professional services. We actively engage with emerging vendors to offer their technologies to our customers. Our flexible platform and customizable catalogs facilitate the addition of new vendors’ products with minimal incremental effort.

·
 Advanced Professional and Managed Services: We provide a range of advanced professional and managed services to help our customers improve productivity, profitability and revenue growth while reducing operating costs. Our solutions and services include the following:

·
 Data center solutions enable customers to streamline operations, reduce complexity and costs, and simplify vendor management;

·
 Network services that aim to improve network performance for our customers;

·
 Security and wireless solution services help safeguard our customers’ IT infrastructure through environment analysis, risk identification and the implementation of security processes;

·
 Managed services enable customers to reduce costs and burdens of their day-to-day IT tasks while monitoring availability, reliability and performance;

·
 Staff augmentation services provide customers with flexible headcount options while allowing them to access talent, fill specific technology skill gaps, or provide short-term or long-term IT professional help, which also includes services, such as Virtual Chief Information Officer (vCIO) and Virtual Chief Security Information Officer (vCISO), used to help complement existing personnel and build three to five year IT roadmaps;

·
 Server and desktop support provides outsourcing services to respond to our customers’ business demands while minimizing overhead;

·
 Professional services focused on cloud infrastructure, unified communications, collaboration, networking, storage, hyper-converged infrastructure, virtual desktop infrastructure, supported by security and managed services solutions;

·
 Business intelligence and data management services help customers effectively use critical business information by enabling companies to aggregate, normalize, cleanse and analyze their data; and

·
 Project management services enhance productivity and collaboration to enable successful implementations.

·
 Proprietary Software: Our line of proprietary software products is called OneSource® and consists of the following products:

·
 OneSource®IT is online web based software portal for customers purchasing IT equipment, software, and services from us; OneSource®IT+ is an online web based software portal for customers purchasing IT products from other suppliers and/or from us;

·
 OneSource® Procurement is a complete web-based software tool to facilitate procurement of any type of asset;
 
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·
 OneSource® Asset Management is a software platform for managing and tracking corporate assets including vendor maintenance contracts;

·
 OneSource® DigitalPaper is a document management software application.

Financing Segment

·
 Leasing and Financing: We specialize in financing arrangements, including direct financing, sales-type and operating leases, notes receivable, and consumption based financing arrangements, and underwriting and management of IT equipment and assets. Our financing operations include sales, pricing, credit, contracts, accounting, risk management and asset management.

We primarily finance IT equipment including accessories and software, communication-related equipment, and medical equipment. We may also finance industrial machinery and equipment, office furniture and general office equipment, transportation equipment, and other general business equipment. We offer our solutions both directly and through vendors.

We offer enhanced financing solutions for our customers, and our business process services approach automates a significant portion of the IT procurement process and reduces our customers’ cost of doing business. The solution incorporates value-added services at every step in the process, including:

· Front-end processing, such as eProcurement, order aggregation, order automation, vendor performance measurement, ordering, reconciliation, and payment;
· lifecycle and asset ownership services, including asset management, change management, and property tax filing; and
· end-of-life services such as equipment audit, removal, and disposal.

In addition, we are able to bundle financing with equipment sales and advanced professional services to provide a turnkey leasing solution. This differentiates us from competitors.

OUR COMPETITIVE STRENGTHS

Large Addressable Market with Substantial Growth Opportunities Driven by Increasing IT Complexity

We participate in the large and growing United States IT market with specific focus on the cloud, security, virtualization and mobility segments of the industry, all supported by our professional and managed service solutions. We believe we are well positioned in the complex high-growth IT solutions segment and can achieve outsized growth relative to the overall IT market.

We focus exclusively on enterprises, primarily large and middle market companies as well as state, local and educational entities. Our products and services are targeted at the approximately 50,000 middle market companies, state and local governmental organizations and educational institutions in the United States. We believe IT organizations within these companies are facing pressure to deliver higher service levels with fewer resources, increasing their reliance on third parties who can provide complex, multi-vendor technology solutions, such as our company.

Broad and Diverse Customer Base across a Wide Range of End Markets

We have a broad and diverse customer base of over 2,900 customers across a wide range of end markets. We serve a wide range of end markets, including education, financial services, healthcare, media and entertainment, state and local government, technology and telecommunications.
 
Differentiated Business Model Serving Entire IT Lifecycle – Solutions, Services, Software, Financing

We believe we are a trusted IT advisor, delivering differentiated products and services to enable our customers to meet increasingly complex IT requirements. We are able to provide complete, turn-key solutions serving the entire IT lifecycle – products, services, software and financing. We provide upfront assessments, configuration capabilities, installation and implementation, and ongoing services to support our customers’ solutions.

Deep Expertise in Advanced Technology to Address Emerging Data Center and IT Infrastructure Trends
 
We believe our customers choose us for their complex IT infrastructure needs based on our track record of delivering best-of-breed solutions, value-added services and close relationships with both established and emerging vendors.
 
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Our close relationships with emerging vendors such as FireEye, Nimble, Nutanix, Palo Alto Networks, Pure Storage, Simplivity and others enable us to provide new and evolving IT solutions to our customers.

Strategic Ability to Design and Integrate Cloud Solutions Across Multiple Vendors

We believe our relationships with vendors focused on the design and integration of cloud systems allows us to provide differentiated, market-leading cloud offerings. We have developed long standing, strategic partnerships with leading cloud systems vendors, including Cisco Systems, EMC, Hewlett-Packard, NetApp, and VMware.

Our vendor agnostic approach allows us to provide the best customer-specific solutions. Our experienced professionals are trained in various product lines across vendors and have achieved top-level certifications with multiple strategic partners. In addition to providing initial products, our vendor certifications allow us to contract the assumption of many of the day-to-day maintenance and servicing functions for these products.

Proven Track Record of Successfully Integrating Acquisitions and Accelerating Growth

We view acquisitions as an important factor in our strategic growth plan. Since 1997, we have successfully identified and integrated 17 acquisitions. Most recently, we have been active in tuck-in acquisitions to broaden our product offerings, sector reach and geographic footprint, with recent acquisitions including:

·
 Granite Business Solutions, Inc. (“Evolve”)– West Coast operations expansion and broadened SLED customer base

·
 AdviStor – Upstate New York operations expansion and broadened storage offerings and expertise

·
 pbm (Pacific Blue Micro)– Expansion of West Coast operations

·
 Vanticore – Northern New England operations expansion, gained municipal contracts and customer contact center expertise

·
 NCC Networks – Midwest operations expansion and broadened security expertise.

·
 Interchange Technologies – Acquired Cisco video resale capability nationwide

Our proven integration methodology allows us to retain customers, vendors and employees from acquired firms, seamlessly integrate acquired firms into the ePlus platform, and accelerate growth.

We continue to review new acquisition opportunities to grow our national footprint and expand our offerings.

Strong Financial Performance Characterized by Growth and Profitability
 
We have focused on achieving strong top-line revenue growth while maintaining industry-leading gross margins – with a compound annual growth rate of 16% on net sales and 13.6% for consolidated gross profit, respectively, from April 1, 2010 to March 31, 2015.

Through our organic expansion as well as acquisitions, we have increased our employee base by 49% from the year ended March 31, 2010 to March 31, 2015 while increasing revenue per employee by approximately 39%. Our increase in our employee base has largely been in customer facing roles.

GROWTH STRATEGY
 
Our goal is to continue to grow as a leading provider of technology solutions. The key elements of our strategy include the following:

Be Our Customers’ Partner of Choice for IT Products, Services, and Financing Needs

We seek to become the primary provider of IT solutions for each of our customers by delivering excellent customer service, pricing, availability, and advanced professional and managed services in the most efficient manner. We believe the increasing complexity of the IT ecosystem and the emergence of new technologies and vendors are factors that will lead to growing demand from existing customers. We continue to focus on improving our sales efficiency by providing on-going training and targeted incentive compensation as well as implementing better automation processes to reduce costs and improve productivity. Our account executives are trained on our broad solutions capabilities and to sell in a consultative manner that increases the likelihood of cross-selling our solutions. We believe that our bundled offerings are an important differentiating factor from our competitors. We also have experienced telesales professionals, pre-sales engineers and inside sales representatives to support our outside sales representatives.
 
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We have focused on gaining top-level engineering certifications and professional services expertise in advanced technologies of strategic vendors. This expertise will help our customers develop their cloud capabilities including private, public, and hybrid infrastructures. We are providing virtual desktop infrastructure, unified communications, collaboration, networking, security, storage, big-data, and managed services offerings, all of which remain in high demand. We believe our ability to deliver advanced professional services provides benefits in two ways. First, we gain recognition and mindshare of our strategic vendor partners and become the “go-to” partner in selected regional markets as well as the national market. This significantly increases direct and referral sales opportunities for our products and services, and allows us to offer competitive pricing levels. Second, within our existing and potential customer base, our advanced professional services are a key differentiator against competitors who cannot provide services or advanced services for these key technologies or across multiple vendor product lines.

We continuously offer best-of-breed solutions to provide our clients with next generation capabilities. During the last fiscal year, we have expanded our managed services offerings to include FlexPod and Cisco Meraki devices. We have also expanded and improved our proprietary software, OneSource ® asset management, which allows companies to take control of their assets, including IT maintenance contracts.

Build Our National Geographic Footprint

We intend to increase our direct sales and targeted marketing efforts in each of our geographic areas. We actively seek to acquire new account relationships through an outbound telesales effort, face-to-face field sales, electronic commerce (especially OneSource®), leveraging our partnerships with vendors, and targeted direct marketing to increase awareness of our solutions. We will also seek to broaden our customer base, expand our geographic reach, improve our technical expertise, and scale our existing operating structure through acquisitions.

Recruit, Retain and Develop Employees

Based on our prior experience, capital structure, and business systems and processes, we believe we are well positioned to take advantage of hiring experienced sales people and engineers, and make strategic acquisitions that broaden our customer base, expand our geographic reach, scale our existing operating structure, and/or enhance our product and service offerings. Part of our growth strategy is to hire purposefully, and evaluate strategic hiring opportunities if and when they become available. During the year ended March 31, 2015, as part of our expansion strategy, our customer facing sales and professional services team grew from 662 to 712.

Improve Operational Efficiencies
 
We continue to invest in our internal technology infrastructure and software platforms to optimize our operations, and to engage in process re-engineering efforts to become more streamlined and cost effective.

RESEARCH AND DEVELOPMENT

We incur software development costs associated with maintaining, enhancing or upgrading our proprietary software, which may be performed by internal IT development resources or by an offshore software-development company that we use to supplement our internal development team.

SALES AND MARKETING

We focus our sales and marketing efforts on becoming the primary provider of IT solutions for each of our customers and by seeking to acquire new account relationships through outbound telesales efforts, face-to-face field sales and leveraging our partnerships with manufacturers and targeted direct marketing to increase awareness of our solutions. We target enterprises, primarily middle market companies with annual revenues between $20 million and $2.5 billion and large companies. We believe there are over 50,000 potential customers in the middle market and we currently have over 2,900 customers. We undertake direct marketing campaigns to target certain markets in conjunction with our primary vendor partners, who may provide financial reimbursement, outsourced services, and personnel to assist us in these efforts.
 
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Our sales representatives are compensated by a combination of salary and commission, with commission becoming the primary component of compensation as the sales representatives gain experience. To date, we acquired a majority of our customers through the efforts of our direct sales force. We market to different areas within a customer’s organization depending on the products or services. We also market to customers through our telesales group, which consists of experienced telesales sales professionals and engineers. This group is focused on marketing to existing and new customers primarily within the geographic reach of our existing service areas.

As of March 31, 2015, our sales force consisted of 404 sales, marketing and sales support personnel organized regionally in 33 office locations throughout the United States.

INTELLECTUAL PROPERTY RIGHTS
 
Our success depends in part upon proprietary business methodologies and technologies that we have licensed and modified. We own certain software programs or have entered into software licensing agreements to provide services to our customers. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret protection, confidentiality and nondisclosure agreements and licensing arrangements to establish and protect intellectual property rights. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection.

For example, in the United States we have six catalog management patents, three image transmission management patents, a patent for collaborative editing of electronic documents over a network, a hosted asset information management patent, and an eCatalog supplier portal patent, among others. The three image transmission patents are scheduled to expire in 2018; the earliest of the catalog management patents is scheduled to expire in 2024; and the patent for collaborative editing of electronic documents over a network is scheduled to expire in 2025, provided that all maintenance fees are paid in accordance with United States Patent and Trademark Office (“USPTO”) regulations. We also have certain patent rights in some European forums, Japan, and Canada. We cannot provide assurance that any patents, as issued, will prevent the development of competitive products or that our patents will not be successfully challenged by others or invalidated through the administrative process or litigation. We also have the following registered service/trademarks: ePlus®, eCloud ®, Procure+®, Manage+®, Docpak®, Viewmark®, OneSource® and a trademark pending for “Where Technology Means More”. In addition, we have over 20 registered copyrights and additional common-law trademarks and copyrights.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our products is difficult and can be expensive, and while we are unable to determine the extent to which piracy of our software products exists, software piracy could be expected to be a persistent problem. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop similar technology, duplicate our products or design around our proprietary intellectual property.

FINANCIAL AND RISK MANAGEMENT ACTIVITIES
 
Inventory Management: We have drop-shipment arrangements with many of our vendors and distributors, which permit us to offer products to our customers without having to take physical delivery of the equipment. Arrow Enterprises, Ingram Micro, and Tech Data are the largest distributors we utilize. Using the distribution systems available, we frequently sell products that are shipped from the vendors or distributors directly to our customers’ location, which allows us to keep our inventory of any product and shipping expenses to a minimum. For the year ended March 31, 2015, our largest distributors accounted for 40% of our purchases related to our technology segment net sales.

Sales of products manufactured by Cisco Systems, Hewlett-Packard, and NetApp, whether purchased directly from these vendors or through distributors, represented 49%, 8%, and 7%, respectively, of our technology segment net sales for the year ended March 31, 2015. Our flexible platform and customizable catalogs facilitate the addition of new vendors with minimal incremental effort.

Financing and Banking Relationships: We maintain relationships with many financial institutions that provide financing for our business. The companies that provide us with financing of investments originated through our financing segment review and approve the financing based on the credit quality of our customers for which the underlying lease or financing arrangement relates. Our technology segment has a credit facility with GE Capital, Commercial Distribution Finance, which we use for working capital purposes. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”
 
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Risk Management and Process Controls: It is our goal to minimize the financial risks of our assets. To accomplish this goal, we use and maintain conservative underwriting policies and disciplined credit approval processes. We also have internal control processes, including credit management, contract origination and management, cash management, servicing, collections, remarketing and accounting. We may utilize non-recourse financing, which is recourse to our customer and is secured by the underlying assets of the financing arrangement and not our general assets. We may obtain lender commitments before acquiring the related assets.

When desirable, we manage our risk in assets we finance by assigning the contractual payments due under the financing arrangement to third parties rather than owning them. For certain transactions, we may act as an intermediary and obtain commitments for these asset sales before we consummate the lease. We also use agency purchase orders to procure equipment for lease to our customers as an agent, not a principal, and otherwise take measures to minimize our inventory of financed assets. When our technology segment is the supplier of the assets being financed, we maintain certain procurement risks. Additionally, we use fixed-rate funding and issue proposals that adjust for material adverse interest rate movements as well as material adverse changes to the financial condition of the customer.

We have an executive management review process and other internal controls in place to evaluate the transactions’ potential risk. Our lease, financing, assignment and sale arrangements are reviewed by senior management for pricing, structure, documentation, and credit quality. Due, in part, to our strategy of focusing on certain equipment categories, we have product knowledge, historical remarketing information and experience with many of the items that we lease, sell, and service. We rely on our experience or outside opinions to set and adjust our sale prices, lease rate factors, and residual values.

Credit Risk Loss Experience: During the fiscal year ended March 31, 2015, we increased our reserves for credit losses by $125 thousand, and incurred actual credit losses of $257 thousand and had recoveries of $3 thousand. During the fiscal year ended March 31, 2014, we increased our reserves for credit losses by $750 thousand, incurred actual credit losses of $127 thousand and had no recoveries. During the fiscal year ended March 31, 2013, we reduced our reserves for credit losses by $333 thousand, incurred actual credit losses of $144 thousand, and had no recoveries.

BACKLOG

We rely on our vendors or distributors to fulfill a large majority of our shipments to our customers. As of March 31, 2015, we had open orders of $74.9 million and deferred revenue of $37.3 million. As of March 31, 2014, we had open orders of $81.4 million and deferred revenues of $23.7 million. We expect that the open orders as of March 31, 2015 will be recognized within ninety days of that date. We also expect that 92% of the deferred revenues as of March 31, 2015 will be recognized within the next twelve months.

EMPLOYEES

As of March 31, 2015, we employed 986 employees who operated through 33 office locations, home offices and customer sites. No employees are represented by a labor union and we believe that we have good relations with our employees. The functional areas of our employees are as follows:

 
  
March 31,
  
 
  
2015
    
2014
  
Sales and Marketing
    
404
      
369
  
Professional Services
    
308
      
293
  
Administration
    
188
      
181
  
Software Development and Internal IT
    
78
      
82
  
Executive Management
    
8
      
9
  
     
986
      
934
  
 
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U.S. SECURITIES AND EXCHANGE COMMISSION REPORTS

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”), are available free of charge through our Internet website, www.eplus.com, as soon as reasonably practical after we have electronically filed such material with, or furnished it to, the SEC. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-202-551-8300. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents on or accessible through, these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

EXECUTIVE OFFICERS
 
The following table sets forth the name, age and position of each person who was an executive officer of ePlus on March 31, 2015. There are no family relationships between any directors or executive officers of ePlus.

Name
Age
Position
 
 
 
Phillip G. Norton
71
Director, Chairman of the Board of Directors, President and Chief Executive Officer
 
 
  
Mark P. Marron
53
Chief Operating Officer
 
 
  
Elaine D. Marion
47
Chief Financial Officer
 
 
  
Steven J. Mencarini
59
Senior Vice President of Business Operations

The business experience of each executive officer of ePlus is described below:

Phillip G. Norton, joined the Company in March 1993 and has served since as its Chairman of the Board and Chief Executive Officer. Since September 1, 1996, Mr. Norton has also served as President of the Company. Mr. Norton had extensive leasing experience prior to joining ePlus. With over thirty years of senior management experience in the equipment leasing and equipment sales markets, Mr. Norton brings leadership, vision, and extensive business, operating, and financing experience to the Company. He has tremendous knowledge of our markets, and since joining the Company in 1993, he has guided the expansion of our business lines and revenues. Today, we are a provider of advanced technology solutions, leasing, and software with $1.1 billion in revenues, as compared to our initial businesses of equipment leasing and brokerage with revenues of $40 million when the Company went public in 1996. As CEO, Mr. Norton has led several successful capital raising initiatives, including our IPO and secondary offerings and two private equity rounds; multiple accretive acquisitions in three different business lines; the hiring and retention of numerous highly qualified personnel; the successful litigation of multiple patent infringement lawsuits protecting our patent rights; and the development of strong industry relationships with key technology partners.

He was founder, Chairman of the Board of Directors, President and Chief Executive Officer of Systems Leasing Corporation, an equipment leasing and equipment brokerage company which he founded in 1978 and sold to PacifiCorp, Inc., a large Northwest utility, in 1986. From 1986 to 1990, Mr. Norton served as President and CEO of PacifiCorp Capital, Inc., the leasing entity of PacifiCorp, Inc., which had over $650 million of leased assets. From 1990 until 1993, Mr. Norton coached high school basketball and invested in real estate. From 1970-1975, he worked in various sales and management roles for Memorex Corporation, a vendor of storage and communication equipment and from 1975-1978, he was Vice President of Federal Leasing Corporation, a provider of financing and logistics to federal, state, and local governments. In June 2011, Mr. Norton began serving on the Board of Directors of The Northern Virginia Technology Council, the largest membership and trade association for the technology in the United States. Mr. Norton is a 1966 graduate of the U.S. Naval Academy, with a BS in engineering, and served in the U.S. Navy from 1966-1970 as a Lieutenant in the Supply Corps.
 
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Mark P. Marron, joined us in 2005 as Senior Vice President of Sales. Mr. Marron was appointed as Chief Operating Officer of ePlus inc. and President of ePlus Technology, inc. in 2010. Prior to joining us, from 2001 – 2005 Mr. Marron served as senior vice president of worldwide sales and services of NetIQ. Prior to joining NetIQ, Mr. Marron served as senior vice president and general manager of worldwide channel sales for Computer Associates International Inc. Mr. Marron has a Bachelor’s of Science degree in Computer Science from Montclair State University.

Elaine D. Marion, joined us in 1998. Ms. Marion became our Chief Financial Officer on September 1, 2008. Since 2004, Ms. Marion served as our Vice President of Accounting. Prior to that, she was the Controller of ePlus Technology, inc., a subsidiary of ePlus, from 1998 to 2004. Ms. Marion is a graduate of George Mason University, where she earned a Bachelor’s of Science degree with a concentration in Accounting.

Steven J. Mencarini, joined us in June 1997. On September 1, 2008, he became our Senior Vice President of Business Operations. Prior to that, he served as our Chief Financial Officer. Prior to joining us, Mr. Mencarini was Controller of the Technology Management Group of Computer Sciences Corporation (CSC). Mr. Mencarini joined CSC in 1991 as Director of Finance and was promoted to Controller in 1996. Mr. Mencarini is a graduate of the University of Maryland and received a Masters of Taxation from American University in 1985.

Each of our executive officers is chosen by the Board and holds his or her office until his or her successor shall have been duly chosen and qualified or until his or her death or until he or she resigns or is removed by the Board.
 
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ITEM 1A.
RISK FACTORS

General Economic Weakness May Harm Our Operating Results and Financial Condition

Our results of operations are dependent, to a large extent, upon the state of the economy. Economic weakness and uncertainty may result in decreased sales, gross margin, and earnings or growth rates. Adverse economic conditions may decrease our customers’ demand for our products and services or impair the ability of our customers to pay for products and services they have purchased. As a result, our sales could decrease and reserves for our credit losses and write-offs of receivables may increase.

If We Lost Several of Our Large Customers Our Earnings May be Affected

The contracts for the provision of products and services from us to our customers are generally non-exclusive agreements without volume purchase commitments that are terminable by either party upon 30 days’ notice. The loss of our largest customer, or of several of our large customers, or the failure of such customers to pay amounts due to us, or a material reduction in the amount of purchases made by such customers could have a material adverse effect on our business, financial position, results of operations and cash flows.

For the year ended March 31, 2015, there was no customer whose sales were greater than 10% of total net sales. For the years ended March 31, 2014 and 2013, sales to a large telecommunications company were approximately 11% and 14% of total net sales, respectively, all of which related to our technology segment.

We Depend on Having Creditworthy Customers to Avoid an Adverse Impact on Our Operating Results and Financial Condition

Our financing and technology segments require sufficient amounts of debt or equity capital to fund our equipment purchases. If the credit quality of our customer base materially decreases, or if we experience a material increase in our credit losses, we may find it difficult to continue to obtain the required capital for our business, and our operating results and financial condition may be harmed. In addition to the impact on our ability to attract capital, a material increase in our delinquency and default experience would itself have a material adverse effect on our business, operating results and financial condition. We are also subject to changes, if any, in our lenders’ willingness to provide financing for different, particularly lower, credit quality lessees.

As of March 31, 2015 and 2014, we had reserves for credit losses of $5.6 million and $5.8 million, respectively, which included a specific reserve of $3.2 million and $3.1 million, respectively, due to a customer that filed for bankruptcy in May 2012.
 
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We May Experience A Reduction in Incentives Offered to Us by Our Vendors That Would Affect Our Earnings

We receive payments and credits from vendors, including consideration pursuant to volume incentive programs, shared marketing expense programs and early pay discounts. These programs are usually of finite terms and may not be renewed or may be changed in a way that has an adverse effect on us. Vendor funding is used to offset inventory costs, costs of goods sold, marketing costs and other operating expenses. Certain of these funds are based on our volume of purchases, growth rate of purchases, and marketing programs. If we do not grow our sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by vendors. We may not continue to receive such incentives or may not be able to collect outstanding amounts relating to these incentives in a timely manner, or at all. Any sizeable reduction in, the discontinuance of, a significant delay in receiving or the inability to collect such incentives, particularly related to incentive programs with our largest partners, including Cisco Systems and Hewlett-Packard, could have a material adverse effect on our business, results of operations and financial condition. If we are unable to react timely to any fundamental changes in the programs of vendors, including the elimination of funding for some of the activities for which we have been compensated in the past, such changes could have a material adverse effect on our business, results of operations and financial condition.

For the fiscal years ended March 31, 2015, 2014, and 2013 vendor incentives earned remained fairly stable as a percent of our consolidated sales of product and services. More specifically, there was only a 0.1% increase in the percentage of vendor incentives earned as a percentage of sales of product and services for the year ended March 31, 2015 compared to the prior year. The change in the amount of vendor incentives earned during the fiscal years ended March 31, 2014 and 2013 resulted in decreases to our gross margins for products and services of 0.1%.

Changes in the IT Industry and/or Rapid Changes in Product Standards May Result in Reduced Demand for the IT Hardware, Software and Services We Sell

Our results of operations are influenced by a variety of factors, including the condition of the IT industry, shifts in demand for, or availability of, IT hardware, software, peripherals and services, and industry introductions of new products, upgrades or methods of distribution. The IT industry is characterized by rapid technological change and the frequent introduction of new products, product enhancements and new distribution methods or channels, each of which can decrease demand for current products or render them obsolete. In addition, the proliferation of cloud technology, infrastructure as a service (“IaaS”), software as a service (“SaaS”), platform as a service (“PaaS”), software defined networking, or other emerging technologies may reduce the demand for products and services we sell to our customers. Cloud offerings may influence our customers to move workloads to cloud providers, which may reduce the procurement of products and services from us. Changes in the IT industry may also affect the demand for our advanced professional and managed services. We have invested a significant amount of capital in our services strategy and it may fail due to competition or changes in the industry. If we fail to react in a timely manner to such changes, our results of operations may be significantly adversely affected. Our sales can be dependent on demand for specific product categories, and any change in demand for or supply of such products could have a material adverse effect on our results of operations.

We Are Dependent on Continued Innovations in Hardware, Software and Services Offerings by Our Vendors and the Competitiveness of Their Offerings, and Our Ability to Partner With New and Emerging Technology Providers

The technology industry is characterized by rapid innovation and the frequent introduction of new and enhanced hardware, software and services offerings, such as cloud-based solutions, including SaaS, IaaS and PaaS. We are dependent on innovations in hardware, software and services offerings, as well as the acceptance of those innovations by our customers. A decrease in the rate of innovation, or the lack of acceptance of innovations by our customers, could have an adverse effect on our business, results of operations or cash flows.

In addition, if we are unable to keep up with changes in technology and new hardware, software and services offerings, for example by providing the appropriate training to our account managers, sales technology specialists and engineers to enable them to effectively sell and deliver such new offerings to customers, our business, results of operations or cash flows could be adversely affected.
 
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We also are dependent upon our vendors for the development and marketing of hardware, software and services to compete effectively with hardware, software and services of vendors whose products and services we do not currently offer or that we are not authorized to offer in one or more customer channels. In addition, our success is dependent on our ability to develop relationships with and sell hardware, software and services from new emerging vendors and vendors that we have not historically represented in the marketplace. To the extent that a vendor's offering that is highly in demand is not available to us for resale in one or more customer channels, and there is not a competitive offering from another vendor that we are authorized to sell in such customer channels, or we are unable to develop relationships with new technology providers or companies that we have not historically represented, our business, results of operations or cash flows could be adversely impacted.

We Rely on a Small Number of Key Vendors and Do Not Have Long-Term Supply or Guaranteed Price Agreements or Assurance of Stock Availability with Our Vendors

A substantial portion of our revenue within in our technology segment are dependent on a small number of key vendors including Cisco Systems, Hewlett-Packard, and NetApp. Products manufactured by Cisco Systems represented approximately 49%, 48% and 48% of our technology segment net sales for the years ended March 31, 2015, 2014 and 2013, respectively. Products manufactured by Hewlett-Packard represented approximately 8%, 10% and 11% of our technology segment net sales for the years ended March 31, 2015, 2014 and 2013, respectively. NetApp products represent approximately 7%, 8% and 7% of our technology segment net sales for the years ended March 31, 2015, 2014 and 2013, respectively.
 
Our industry frequently experiences periods of product shortages from our vendors as a result of our vendors’ difficulties in projecting demand for certain product sold by us, additional trade law provisions or regulations, additional duties, tariffs or other charges on imports or exports, natural disasters affecting our suppliers’ facilities, and significant labor disputes. As we do not stock inventory that is not related to an order we have received from our customer, we are dependent upon the supply of products available from our vendors in order to fulfill orders from our customers on a timely basis. The loss of, or change in business relationship with, any of these or any other key vendor partners, the diminished availability of their products, or backlogs for their products leading to manufacturer allocation, could reduce the supply and increase the cost of products we sell and negatively impact our competitive position.

We Depend on Third-Party Companies to Perform Some of Our Obligations to Our Customers, Which if Not Performed Could Cause Significant Disruption to Our Business

We rely on arrangements with third parties to perform certain professional services, managed services, warranties, and configuration services and other services for our customers, which, if not performed by these third parties in accordance with the terms of the agreement or if they cause disruption of or security weaknesses in our customers’ businesses, could result in legal claims or costs to our organization, including monetary damages paid to our customers and an adverse effect on our customer relationships, our brand and our business, results of operations, or cash flows could be affected.

We rely on arrangements with independent shipping companies, such as FedEx and United Parcel Service, for the delivery of our products from us and our vendors to our customers. The failure or inability of these shipping companies to deliver products, or the unavailability of their shipping services, even temporarily, could have an adverse effect on our business. We may also be adversely affected by an increase in freight surcharges.

The loss of a key vendor or changes in its policies could adversely impact our financial results. Violation of a contract that results in either the termination of our ability to sell the product or a decrease in our certification level with the vendor could adversely impact our financial results. In addition, a reduction in the amount of credit granted to us by our vendors and financial partners could increase our need for and cost of working capital and have a material adverse effect on our business, results of operations and financial condition.
 
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Loss of Services of Any of Our Executive Officers and/or Failure to Successfully Implement Succession Plan Could Adversely Affect Our Business

The loss of the services of our executive officers and failure to successfully implement a succession plan could disrupt management of our business and impair the execution of our business strategies. We believe that our success depends in part upon our ability to retain the services of our executive officers and successfully implement a succession plan. Our executive officers have been instrumental in determining our strategic direction and focus. The loss of our executive officers’ services without replacement by qualified successors could adversely affect our ability to manage effectively our overall operations and successfully execute current or future business strategies and could cause other instability within our workforce.

We Rely on Inventory and Accounts Receivable Financing Arrangements for Working Capital and Our Accounts Payable Processing

The loss of the technology segment’s credit facility could have a material adverse effect on our future results as we rely on this facility and its components for daily working capital and the operational function of our accounts payable process. Our credit agreement contains various covenants that must be met each quarter. There can be no assurance that we will continue to meet those covenants and failure to do so may limit availability of, or cause us to lose, such financing. There can be no assurance that such financing will continue to be available to us in the future on acceptable terms.

We May Not Adequately Protect Ourselves Through Our Contract Vehicles or Our Insurance Policies May Not be Adequate to Address Potential Losses or Claims

Our contracts may not protect us against the risks inherent in our business including, but not limited to, warranties, limitations of liability, indemnification obligations, human resources and subcontractor-related claims, patent and product liability, data security and financing activities. Also, we face pressure from our customers for competitive pricing contract terms. Despite the non-recourse nature of the loans financing certain of our activities, non-recourse lenders have, in the past, brought suit when the underlying transaction turns out poorly for the lenders. We have vigorously defended such cases in the past and will do so in the future, however, we are subject to such suits and the cost of defending such suits due to the nature of our business.

Failure to Comply With Our Public Sector Contracts or Applicable Laws and Regulations Could Result in, Among Other Things, Termination, Fines or Other Liabilities, and Changes in Procurement Regulations Could Adversely Impact Our Business

Revenues in our public sector are derived from sales to SLED customers, through various contracts and open market sales of products and services. Sales to SLED customers are highly regulated. Noncompliance with contract provisions, government procurement regulations or other applicable laws or regulations could result in civil, criminal and administrative liability, including substantial monetary fines or damages, termination of SLED sector customer contracts, and suspension, debarment or ineligibility from doing business with the government and other customers in the SLED sector. In addition, contracts in the SLED sector are generally terminable at any time for convenience of the contracting agency or upon default. The effect of any of these possible actions could adversely affect our business, results of operations or cash flows. In addition, the adoption of new or modified procurement regulations and other requirements may increase our compliance costs and reduce our gross margins, which could have a negative effect on our business, results of operations or cash flows.

We May Not Be Able to Hire and/or Retain Personnel That We Need to Succeed

To increase market awareness and sales of our offerings, we may need to expand our sales operations and marketing efforts in the future. Our products and services require a sophisticated sales effort and significant technical engineering talent. For example, our sales and engineering candidates must have highly technical hardware and software knowledge in order to create a customized solution for our customers’ business processes. Competition for qualified sales, marketing and engineering personnel fluctuates depending on market conditions and we may not be able to hire or retain sufficient numbers of such personnel to maintain and grow our business. Increasingly, our competitors are requiring their employees to agree to non-compete and non-solicitation agreements as part of their employment. This could result in making it more difficult for us to hire and increase our costs by reviewing and managing non-compete restrictions.
 
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We Face Substantial Competition From Larger Companies That May be Difficult to Overcome

In our technology segment, we compete in all areas of our business against local, regional, national and international firms, including other direct marketers; national and regional resellers; and regional, national and international service providers. In addition, we face competition from vendors, which may choose to market their products directly to end-users, rather than through channel partners such as our company, and this could adversely affect our future sales. Many competitors compete principally on the basis of price and may have lower costs or accept lower selling prices than us and, therefore, current gross margins may not be maintainable. In addition, we do not have guaranteed purchasing volume commitments from our customers and, therefore, our sales volume may be volatile.

In our financing segment, we face competition from many sources including much larger companies with greater financial resources. Our competition may originate from vendors of the products we finance or financial partners who choose to market directly to customers through the vendors’ captive leasing organization or large financial institutions such as banks with substantially lower cost of funds. Our competition may lower lease rates in order to increase market share.

We May be Liable for Misappropriation of Our Customers’ or Employees’ Information

The security practices and products used in our product and service offerings or our security practices or products used in our internal information technology systems may be circumvented or sabotaged by third parties, such as hackers, which could result in the disclosure of sensitive information or private personal information, unauthorized procurement, or cause other business interruptions that could damage our reputation and disrupt our business. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats.

If third parties or our employees are able to penetrate our network security or otherwise misappropriate our customers’ information or employees’ personal information such as credit card information, or such information for which our customers may be responsible and for which we agree to be responsible in connection with service contracts we may enter, or if we give third parties or our employees improper access to certain information, we could be subject to liability. This liability could include claims for unauthorized purchases with credit card information, identity theft or other similar fraud-related claims. This liability could also include claims for other misuses of personal information, including for unauthorized marketing purposes. Other liability could include claims alleging misrepresentation of our privacy and data security practices. Any such liability for misappropriation of this information could decrease our profitability. In addition, federal and state agencies have been investigating various companies regarding whether they misused or inadequately secured information. We could incur additional expenses if new laws or regulations regarding the use of sensitive information are introduced or if governmental agencies require us to substantially modify our privacy or security practices.

Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of our security practices we use to protect sensitive customer transaction data and employee data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Our security measures are designed to protect against security breaches, but our failure to prevent such security breaches could cause us to incur significant expense to investigate and respond to a security breach and correct any problems caused by any breach, subject us to liability, damage our reputation and diminish the value of our brand-name.

We May Not Have Designed Our Information Technology Systems to Support Our Business without Failure

We are dependent upon the reliability of our information, telecommunication and other systems, which are used for sales, distribution, marketing, purchasing, inventory management, order processing, customer service and general accounting functions. We must continually improve our systems to maintain efficiency. Poor security practices or design of our information technology systems could result in the disclosure of sensitive information or private personal information or cause other business interruptions that could damage our reputation and disrupt our business. Interruption or poor design of our information systems, Internet or telecommunications systems could have a material adverse effect on our business, financial condition, cash flows or results of operations.
 
18
If We Publish Inaccurate Catalog Content Data, Our Business Could Suffer

Any defects or errors in our electronic catalog content data could harm our customers or deter businesses from participating in our offering, damage our business reputation, harm our ability to attract new customers, and potentially expose us to legal liability. In addition, from time to time vendors who provide us electronic catalog data could submit to us inaccurate pricing or other catalog data. Even though such inaccuracies are not caused by our work and are not within our control, such inaccuracies could deter current and potential customers from using our products or result in inaccurate pricing to our customers.

If We Fail to Integrate Acquisitions, Our Profitability May Be Adversely Affected

Our ability to successfully integrate the operations we acquire, reduce costs, or leverage these operations to generate revenue and earnings growth, could significantly impact future revenue and earnings. Integrating acquired operations is a significant challenge and there is no assurance that we will be able to manage the integrations successfully. Failure to successfully integrate acquired operations may adversely affect our cost structure thereby reducing our gross margins and return on investment. In addition, we may acquire entities with unknown liabilities, fraud, cultural or business environment issues or that may not have adequate internal controls as may be required by law.

If Securities Analysts Do Not Publish Research or Reports About Our Company, or If They Issue Unfavorable Commentary About Us or Our Industry or Downgrade Our Common Stock, the Price of Our Common Stock Could Decline

The trading market for our common stock depends in part on the research and reports that third-party securities analysts publish about us and our industry. One or more analysts could downgrade our common stock or issue other negative commentary about us or our industry. If one or more of the analysts that covers us cease coverage, we could lose visibility in the market. As a result of one or more of these factors, the trading price of our common stock could decline.

We May Not Be Able to Realize Our Entire Investment in the Equipment We Lease

The realization of equipment values (residual values) during the life and predominantly at the end of the term of a lease is an important element in our financing segment. At the inception of each lease, we record a residual value for the leased equipment based on our estimate of the value of the equipment at the expected disposition date.

A decrease in the market value of leased equipment at a rate greater than the rate we projected, whether due to rapid technological or economic obsolescence, unusual wear and tear on the equipment, excessive use of the equipment, or other factors, would adversely affect the recoverability of the estimated residual values of such equipment. Further, certain equipment residual values are dependent on the vendor’s warranties, reputation and other factors, including market liquidity. In addition, we may not realize the full market value of equipment if we are required to sell it to meet liquidity needs or for other reasons outside of the ordinary course of business. Consequently, there can be no assurance that we will realize our estimated residual values for equipment.

The degree of residual realization risk varies by transaction type. Direct financing leases bear less risk because contractual payments typically cover 90% or more of the equipment’s lease cost at inception. Operating leases have a higher degree of risk because a smaller percentage of the equipment’s value is covered by contractual cash flows at lease inception.

We Face Risks of Claims From Third Parties for Intellectual Property Infringement That Could Harm Our Business

We may be subject to claims on our products and services or products that we resell infringe on the intellectual property rights of third parties. The vendor of certain products or services we resell may not provide us with indemnification for infringement; however, our customers may seek indemnification from us. We could incur substantial costs in defending ourselves and our customers against infringement claims. In the event of a claim of infringement, we and our customers may be required to obtain one or more licenses from third parties. We may not be able to obtain such licenses from third parties at a reasonable cost or at all. Defense of any lawsuit or failure to obtain any such required license could significantly increase our expenses and/or adversely affect our ability to offer one or more of our services.
 
19
Failure to Comply with New or Changes in Laws and Other Legislation May Adversely Impact Our Business

Our operations are subject to numerous U.S. and foreign laws and regulations in a number of areas including, but not limited to, areas of labor and employment, immigration, advertising, e-commerce, tax, import and export requirements, anti-corruption, data privacy requirements, anti-competition, and environmental, health, and safety. Compliance with these laws, regulations and similar requirements may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction, further increasing the cost of compliance and doing business, and the risk of noncompliance. We have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, but there can be no guarantee against employees, contractors, or agents violating such laws and regulations or our policies and procedures.

We May Be Required to Take Impairment Charges for Goodwill or Other Intangible Assets Related to Acquisitions

We have acquired certain portions of our business and certain assets through acquisitions. Further, as part of our long-term business strategy, we may continue to pursue acquisitions of other companies or assets. In connection with prior acquisitions, we have accounted for the portion of the purchase price paid in excess of the book value of the assets acquired as goodwill or intangible assets, and we may be required to account for similar premiums paid on future acquisitions in the same manner.

Under the applicable accounting principles, goodwill is not amortized and is carried on our books at its original value, subject to annual review and evaluation for impairment, whereas intangible assets are amortized over the life of the asset. Changes in the business itself, the economic environment (including business valuation levels and trends), or the legislative or regulatory environment may trigger a review and evaluation of our goodwill and intangible assets for potential impairment outside of the normal review periods. These changes may adversely affect either the fair value of the business or the fair value of our individual reporting units and we may be required to take an impairment charge.

If market and economic conditions deteriorate, this could increase the likelihood that we will need to record impairment charges to the extent the carrying value of our goodwill exceeds the fair value of our overall business. Such impairment charges could materially adversely affect our net earnings during the period in which the charge is taken. As of March 31, 2015, we had goodwill and other intangible assets of $40.8 million.

The Soundness of Financial Institutions With Which We Have Relationships Could Adversely Affect Us

We have relationships with many financial institutions, including the lender under our credit facility, and, from time to time, we execute transactions with counterparties in the financial services industry. Some of our balances that we maintain with various financial institutions may exceed the $250,000 maximum insured deposit amount by the FDIC. As a result, defaults by, or even rumors or questions about, financial institutions or the financial services industry generally, could result in losses or defaults by these institutions. In the event that volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to access credit facilities or complete transactions as intended, which could adversely affect our business and results of operations.

Changes in Accounting Rules May Adversely Affect Our Future Financial Results

We prepare our financial statements in conformity with accounting principles generally accepted in the United States. These accounting principles are subject to interpretation by the Financial Accounting Standards Board, the Public Company Accounting Oversight Board, the Securities and Exchange Commission, the American Institute of Certified Public Accountants and various other bodies formed to interpret and create appropriate accounting policies. The voluminous number of products and services, and the manner in which they are bundled, are technologically complex and the characterization of these product and services require judgment in order to apply revenue recognition policies. Mischaracterization of these products and services could result in misapplication of revenue recognition polices. Future periodic assessments required by current or new accounting standards may result in noncash charges and/or changes in presentation or disclosure. In addition, any change in accounting standards may influence our customers’ decision to purchase from us or finance transactions with us, which could have a significant adverse effect on our financial position or results of operations.

20
Our Earnings May Fluctuate, Which Could Adversely Affect the Price of Our Common Stock

Our earnings are susceptible to fluctuations for a number of reasons, including, but not limited to, the risk factors discussed herein. In the event our revenues or net earnings are less than the level expected by the market in general, such shortfall could have an immediate and significant adverse impact on the market price of our common stock.

Our Software Products and Services Subject Us to Challenges and Risks in a Rapidly Evolving Market

As a provider of a comprehensive set of solutions, which involves the bundling of direct IT sales, advanced professional and managed services and financing with our proprietary software, we expect to encounter some of the challenges, risks, difficulties and uncertainties frequently encountered by companies providing bundled solutions in rapidly evolving markets. Some of these challenges include our ability to: increase the total number of users of our services, adapt to meet changes in our markets and competitive developments or continue to update our technology to enhance the features and functionality of our suite of products. Our business strategy may not be successful or successfully address these and other challenges, risks and uncertainties.

In the software market, there are a number of companies marketing business-to-business electronic commerce solutions similar to ours, and competitors are adapting their product offerings to a SaaS platform. Some of these competitors and potential competitors include ERP system vendors and other major software vendors that are expected to sell their procurement and asset management products along with their application suites. These ERP vendors have a significant installed customer base and have the opportunity to offer additional products to those customers as additional components of their respective application suites. We may not be able to compete successfully against current or future competitors, and competitive pressures faced by us may harm our business, operating results or financial condition. We also face indirect competition from potential customers’ internal development efforts and have to overcome potential customers’ reluctance to move away from legacy systems and processes.

In all of our markets, some of our competitors have longer operating histories and greater financial, technical, marketing, and other resources than we do. In addition, some of these competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer requirements. Many current competitors may have, and potential competitors may have, greater name recognition and engage in more extensive promotional marketing and advertising activities, offer more attractive terms to customers, and adopt more aggressive pricing policies than we do. We may not be successful in achieving revenue growth and may incur additional costs associated with our software products, which may have a material adverse effect on our future operating results as a whole.

If Our Proprietary Software Products Contain Defects, Our Business Could Suffer

Products as complex as those used to provide our electronic commerce solutions often contain unknown and undetected errors or performance problems. We may have serious defects immediately following introduction of new products or enhancements to existing products. Undetected errors or performance problems may not be discovered in the future and errors considered by us to be minor may be considered serious by our customers. Our software products may be circumvented or sabotaged by third parties such as hackers which could result in the disclosure of sensitive information or private personal information, unauthorized procurement, or cause other business interruptions that could damage our reputation and disrupt our business. Attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. In addition, our customers may experience a loss in connectivity by our software solutions as a result of a power loss at our data center, Internet interruption or defects in our software. This could result in lost revenues, delays in customer acceptance or unforeseen liabilities that would be detrimental to our reputation and to our business.

Costs to Protect Our Intellectual Property May Affect Our Earnings

The legal and associated costs to protect our intellectual property may significantly increase our expenses and have a material adverse effect on our operating results. We may deem it necessary to protect our intellectual property rights and significant expenses could be incurred with no certainty of the results of these potential actions. Costs relative to lawsuits are usually expensed in the periods incurred and there is no certainty in recouping any of the amounts expended regardless of the outcome of any action.

21
If We Are Unable to Protect Our Intellectual Property, Our Business May Suffer

The success of our business strategy depends, in part, upon proprietary technology and other intellectual property rights. To date, we have relied primarily on a combination of copyright, trademark, patent and trade secret laws and contractual provisions with our customers, subcontractors and employees to protect our proprietary technology. Issues regarding a patent’s validity can arise even subsequent to a patent’s issuance and can result in cancellation of the patent. It may be possible for unauthorized third parties to copy certain portions of our products or reverse engineer or obtain and use information that we regard as proprietary. Some of our agreements with our customers and technology licensors contain residual clauses regarding confidentiality and the rights of third parties to obtain the source code for our products. These provisions may limit our ability to protect our intellectual property rights in the future that could seriously harm our business and operating results. Our means of protecting our intellectual property rights may not be adequate.

Future Offerings of Debt or Equity Securities, Which Would Rank Senior to Our Common Stock, May Adversely Affect the Market Price of Our Common Stock

If, in the future, we decide to issue debt or equity securities that rank senior to our common stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings, if any. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

ITEM 2. PROPERTIES

As of March 31, 2015, we operated from 33 office locations, and a number of home offices or customer sites. Our total leased square footage as of March 31, 2015, was approximately 245 thousand square feet for which we incurred rent expense of approximately $291 thousand per month. Some of our subsidiaries operate in shared office space to improve sales, marketing and cost efficiency. Eleven of our office locations include dedicated or shared space configuration centers; which include certain locations in California, New Hampshire, New York, North Carolina, Pennsylvania, Texas, and Virginia. Some sales and technical service personnel operate from either home offices or space that is provided for by another entity or are located on a customer site.

Our largest office location is in Herndon, VA. The leasing contract extends to December 31, 2017, and contains a renewal option to extend the lease through December 31, 2019. For more information see Exhibit 10.1, of our Form 8-K filed March 6, 2014.
 
22
ITEM 3. LEGAL PROCEEDINGS
 
We are the plaintiff in a lawsuit in the United States District Court for the Eastern District of Virginia (“the trial court”) in which a jury unanimously found that Lawson Software, Inc. (“Lawson”) infringed certain ePlus patents. The jury verdict, which was reached on January 27, 2011, also found that all of ePlus’ patent claims tried in court were not invalid. On May 23, 2011, the trial court issued a permanent injunction, ordering Lawson and its successors to: immediately stop selling and servicing products relating to its electronic procurement systems that infringe our patents; cease providing any ongoing or future maintenance, training or installation of its infringing products; and refrain from publishing any literature or information that encourages the use or sale of its infringing products. Lawson filed an appeal. On November 21, 2012, the United States Court of Appeals for the Federal Circuit (the “Appeals Court”) reversed in part, vacated in part, affirmed in part, and remanded. The Appeals Court upheld the finding that the patent claims were not invalid and upheld, in part, the finding of infringement. The Appeals Court remanded the case to the trial court for consideration of what changes, if any, are required to the terms of the injunction. Consistent with the Appeals Court’s decision, on June 11, 2013, the trial court issued an order modifying the injunction so that it would continue in full effect with respect to those configurations of Lawson’s electronic procurement systems that the Appeals Court affirmed were infringing.

On August 16, 2013, the trial court issued an order finding, by clear and convincing evidence, that Lawson was in contempt of the trial court’s May 23, 2011, injunction, entering judgment in our favor in the amount of $18.2 million, and ordering that Lawson pay to the court a daily coercive fine. Lawson filed an appeal and posted a bond, and collection of the judgment and the imposition of the coercive fine were stayed pending the appeal.

Patent litigation is extremely complex and issues regarding a patent’s validity can arise even subsequent to a patent’s issuance and a court’s enforcement thereof. On April 3, 2014, the United States Patent and Trademark Office issued a notice canceling the patent at issue in the Lawson litigation. On July 25, 2014, the Appeals Court issued an Opinion vacating the injunction and contempt order. We have filed a Petition for Rehearing, and are awaiting the court’s response.

Court calendars and rulings are inherently unpredictable, and we cannot predict when any litigation will be resolved, or the outcome thereof.

Other Matters

We may become party to various legal proceedings arising in the ordinary course of business including preference payment claims asserted in customer bankruptcy proceedings, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, claims of alleged non-compliance with contract provisions, employment related claims, claims by competitors, vendors or customers, claims related to alleged violations of laws and regulations, and claims relating to alleged security or privacy breaches. Although we do not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered that could adversely affect our results of operations or cash flows in a particular period. We provide for costs related to contingencies when a loss is probable and the amount is reasonably determinable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable
 
23
PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

At March 31, 2015, our common stock traded on The NASDAQ Global Select Market under the symbol  “PLUS.” The following table sets forth the range of high and low closing prices for our common stock during each quarter of the two fiscal years ended March 31, 2015 and 2014.

Quarter Ended
  
High
    
Low
  
         
Fiscal Year 2015
        
March 31, 2015
  
$
90.15
    
$
65.67
  
December 31, 2014
  
$
75.69
    
$
56.05
  
September 30, 2014
  
$
59.04
    
$
54.28
  
June 30, 2014
  
$
60.85
    
$
49.74
  
                 
Fiscal Year 2014
                
March 31, 2014
  
$
58.08
    
$
52.09
  
December 31, 2013
  
$
58.25
    
$
48.57
  
September 30, 2013
  
$
65.91
    
$
51.68
  
June 30, 2013
  
$
62.41
    
$
40.48
  

On May 26, 2015, the closing price of our common stock was $83.99 per share. On May 26, 2015, there were 169 stockholders of record of our common stock. We believe there are approximately 2,600 beneficial holders of our common stock.

DIVIDEND POLICIES AND RESTRICTIONS

Holders of our common stock are entitled to dividends if and when declared by our Board out of funds legally available. Generally we have retained our earnings for use in the business. We currently intend to retain future earnings to fund ongoing operations and finance the growth and development of our business. Any future determination concerning the payment of dividends will depend upon our financial condition, results of operations, capital requirements and any other factors deemed relevant by our Board.

During the year ended March 31, 2013, our Board approved a one-time special cash dividend of $2.50 per share, which was paid December 26, 2012 to stockholders of record as of the close of business on December 17, 2012.
 
24
PURCHASES OF OUR COMMON STOCK

The following table provides information regarding our purchases of ePlus inc. common stock during the fiscal year ended March 31, 2015.

Period
  
Total
number of
shares
purchased
(1)
    
Average
price paid
per share
    
Total number of
shares
purchased as
part of publicly
announced plans
or programs
    
Maximum number (or
approximate dollar
value) of shares that
may yet be purchased
under the plans or
programs
  
April 1, 2014 through April 30, 2014
    
414,013
    
$
47.78
      
414,013
      
200,572
  
(2
)
May 1, 2014 through May 31, 2014
    
115,230
    
$
53.54
      
115,230
      
85,342
  
(3
)
June 1, 2014 through June 15, 2014
    
22,830
    
$
55.69
      
22,830
      
62,512
  
(4
)
June 16, 2014 through June 30, 2014
    
35,158
    
$
57.69
      
-
      
500,000
  
(5
)
July 1, 2014 through July 31, 2014
    
25,740
    
$
55.67
      
25,740
      
474,260
  
(6
)
August 1, 2014 through August 31, 2014
    
15,377
    
$
54.74
      
15,377
      
458,883
  
(7
)
September 1, 2014 through September 30, 2014
    
57,829
    
$
56.34
      
57,829
      
401,054
  
(8
)
October 1, 2014 through October 31, 2014
    
39,903
    
$
57.59
      
39,903
      
361,151
  
(9
)
November 1, 2014 through November 30, 2014
    
-
              
-
      
361,151
  
(10
)
December 1, 2014 through December 31, 2014
    
-
              
-
      
361,151
  
(11
)
January 1, 2015 through January 31, 2015
    
8,281
    
$
65.82
      
8,281
      
352,870
  
(12
)
February 1, 2015 through February 28, 2015
    
910
    
$
65.95
      
910
      
351,960
  
(13
)
March 1, 2015 through March 31, 2015
    
-
              
-
      
351,960
  
(14
)
 
(1) All shares acquired were in open-market purchases, except for 35,158 shares, which were repurchased to satisfy tax withholding obligations that arose due to the vesting of shares of restricted stock.
(2) The share purchase authorization in place for the month ended April 30, 2014 had purchase limitations on the number of shares of up to 750,000 shares. As of April 30, 2014, the remaining authorized shares to be purchased were 200,572.
(3) The share purchase authorization in place for the month ended May 31, 2014 had purchase limitations on the number of shares of up to 750,000 shares. As of May 31, 2014, the remaining authorized shares to be purchased were 85,342.
(4) The share purchase authorization in place through June 15, 2014 had purchase limitations on the number of shares of up to 750,000 shares. As of June 15, 2014, the remaining authorized shares to be purchased were 62,512.
(5) On June 12, 2014, the board of directors authorized the Company to repurchase up to 500,000 shares of its outstanding common stock over a 12-month period commencing June 16, 2014. As of June 30, 2014, the remaining authorized shares to be purchased were 500,000.
(6) The share purchase authorization in place for the month ended July 31, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of July 31, 2014, the remaining authorized shares to be purchased were 474,260.
(7) The share purchase authorization in place for the month ended August 31, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of August 31, 2014, the remaining authorized shares to be purchased were 458,883.
(8) The share purchase authorization in place for the month ended September 30, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of September 30, 2014, the remaining authorized shares to be purchased were 401,054.
(9) The share purchase authorization in place for the month ended October 31, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of October 31, 2014, the remaining authorized shares to be purchased were 361,151.
(10) The share purchase authorization in place for the month ended November 30, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of November 30, 2014, the remaining authorized shares to be purchased were 361,151.
(11) The share purchase authorization in place for the month ended December 31, 2014 had purchase limitations on the number of shares of up to 500,000 shares. As of December 31, 2014, the remaining authorized shares to be purchased were 361,151.
(12) The share purchase authorization in place for the month ended January 31, 2015 had purchase limitations on the number of shares of up to 500,000 shares. As of January 31, 2015, the remaining authorized shares to be purchased were 352,870.
(13) The share purchase authorization in place for the month ended February 28, 2015 had purchase limitations on the number of shares of up to 500,000 shares. As of February 28, 2015, the remaining authorized shares to be purchased were 351,960.
(14) The share purchase authorization in place for the month ended March 31, 2015 had purchase limitations on the number of shares of up to 500,000 shares. As of March 31, 2015, the remaining authorized shares to be purchased were 351,960.

The timing and expiration date of the share repurchase authorizations are included in Note 9, “Stockholders’ Equity” to our consolidated financial statements included elsewhere in this report.
 
25
ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the consolidated financial statements and related notes, which are included elsewhere in this Form 10-K. The selected consolidated statement of operations data for the years ended March 31, 2015, 2014 and 2013 and the selected consolidated balance sheet data as of March 31, 2015 and 2014 presented below was derived from our audited consolidated financial statements, which are included elsewhere herein. The selected financial data as of and for the years ended March 31, 2012 and 2011 have been derived from our audited consolidated financial statements, which are not included in this report.

   
For the years ended March 31,
  
Statement of Operations Data:
  
2015
    
2014
    
2013
    
2012
    
2011
  
       
(in thousands, except per share data)
      
Net sales
  
$
1,143,282
    
$
1,057,536
    
$
983,112
    
$
825,581
    
$
718,515
  
Cost of sales
  
$
898,735
    
$
840,623
    
$
778,339
    
$
654,066
    
$
561,072
  
Gross profit
  
$
244,547
    
$
216,913
    
$
204,773
    
$
171,515
    
$
157,443
  
Operating expense
  
$
173,837
    
$
156,815
    
$
146,028
    
$
131,941
    
$
116,875
  
Operating income
  
$
70,710
    
$
60,098
    
$
58,745
    
$
39,574
    
$
40,568
  
Other income
  
$
7,603
    
$
-
    
$
-
    
$
-
    
$
-
  
Earnings before provision for income taxes
  
$
78,313
    
$
60,098
    
$
58,745
    
$
39,574
    
$
40,568
  
Net earnings
  
$
45,840
    
$
35,273
    
$
34,830
    
$
23,367
    
$
23,727
  
                                         
Net earnings per common share - basic
  
$
6.26
    
$
4.41
    
$
4.37
    
$
2.82
    
$
2.83
  
Net earnings per common share - diluted
  
$
6.19
    
$
4.37
    
$
4.32
    
$
2.79
    
$
2.78
  
Dividend per common share
  
$
-
    
$
-
    
$
2.50
    
$
-
    
$
-
  

   
As of March 31,
  
Balance Sheet Data:
  
2015
    
2014
    
2013
    
2012
    
2011
  
   
(in thousands)
  
Cash and cash equivalents
  
$
76,175
    
$
80,179
    
$
52,720
    
$
33,778
    
$
75,756
  
Accounts receivable—net
  
$
249,803
    
$
243,216
    
$
192,254
    
$
174,599
    
$
121,771
  
Total financing receivables and operating leases—net
  
$
143,900
    
$
143,739
    
$
122,603
    
$
140,311
    
$
123,510
  
Total assets
  
$
571,546
    
$
553,845
    
$
439,895
    
$
433,688
    
$
389,191
  
                                         
Total non-recourse and recourse notes payable
  
$
56,564
    
$
68,888
    
$
41,739
    
$
28,055
    
$
29,592
  
Total liabilities
  
$
292,284
    
$
287,462
    
$
201,663
    
$
214,061
    
$
177,214
  
Total stockholders' equity
  
$
279,262
    
$
266,383
    
$
238,232
    
$
219,627
    
$
211,977
  

   
For the years ended March 31,
  
Other Financial Data:
  
2015
    
2014
    
2013
    
2012
    
2011
  
   
(in thousands)
  
Consolidated gross margin
    
21.4%
 
    
20.5%
 
    
20.8%
 
    
20.8%
 
    
21.9%
 
Gross margin, product and services
    
19.4%
 
    
18.3%
 
    
18.0%
 
    
17.9%
 
    
17.9%
 
Operating income margin
    
6.2%
 
    
5.7%
 
    
6.0%
 
    
4.8%
 
    
5.6%
 
                                         
 Non-GAAP Gross sales of products and services (1) $ 1,435,039 $ 1,276,133 $ 1,163,577 $ 978,180 $ 816,813
 Non-GAAP Gross cost of sales, products and services (1) $ 1,221,828 $ 1,090,634 $ 994,796 $ 838,787 $ 696,370
 
Adjusted EBITDA (2)
  
$
75,043
    
$
62,890
    
$
61,134
    
$
41,239
    
$
41,917
  
Adjusted EBITDA margin (2)
   
6.6%
 
    
5.9%
 
    
6.2%
 
    
5.0%
 
    
5.8%
 
                                         
Purchases of property and equipment used internally
  
$
3,610
    
$
4,238
    
$
1,436
    
$
1,594
    
$
977
  
Purchases of equipment under operating leases
    
8,156
      
5,714
      
14,148
      
6,061
      
12,424
  
Total capital expenditures
  
$
11,766
    
$
9,952
    
$
15,584
    
$
7,655
    
$
13,401
  

We use a variety of operating and other information to evaluate the operating performance of our business, develop financial forecasts, make strategic decisions, and prepare and approve annual budgets. These key indicators include financial information that is prepared in accordance with GAAP and presented in our consolidated financial statements as well as (i) Non-GAAP Gross Sales of Product and Services, (ii) Non-GAAP Gross Cost of Sales, Product and Services (iii) Adjusted EBITDA and (iv) Adjusted EBITDA margin, all of which are non-GAAP metrics.

(1)
We define non-GAAP gross sales of product and services as our sales of product and services calculated in accordance with GAAP, adjusted to exclude the costs incurred related to sales of third party software assurance, maintenance and services. We define non-GAAP gross cost of sales, product and services as our cost of sales, product and services calculated in accordance with GAAP, adjusted to include the costs incurred related to sales of third party software assurance, maintenance and services. We have provided below a reconciliation of Non-GAAP Gross Sales of Product and Services to Sales of Product and Services, which is the most closely comparable to this non-GAAP financial measure. We have also provided below a reconciliation of Non-GAAP Gross Cost of Sales of Product and Services to Cost of Sales, Product and Services, which is the most closely comparable to this non-GAAP financial measure.

We use Non-GAAP Gross Sales of Product and Services and Non-GAAP Gross Cost of Sales, Product and Services as a supplemental measure of our performance to gain insight into the volume of business generated by our technology segment. Our use of Non-GAAP Gross Sales of Product and Services and Non-GAAP Gross Cost of Sales, Product and Services as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Non-GAAP Gross Sales of Product and Services and Non-GAAP Gross Cost of Sales, Product and Services or similarly titled measures differently, which may reduce their usefulness as comparative measures.
 
 
For the years ended March 31,
            
   
2015
  
2014
  
2013
  
2012
  
2011
Sales of products and services
  
$ 1,100,884
  
$ 1,013,374
  
$ 936,228
  
$ 784,951
  
$ 672,303
Costs incurred related to sales of
third party software assurance,
maintenance and services
334,155
  
262,759
  
227,349
  
193,229
  
144,510
Non-GAAP: Gross sales of products and services
  
$ 1,435,039
  
$ 1,276,133
  
$ 1,163,577
  
$ 978,180
  
$ 816,813
                     
Cost of sales, product and services
  
$ 887,673
  
$ 827,875
  
$ 767,447
  
$ 645,558
  
$ 551,860
Costs incurred related to sales of
third party software assurance,
maintenance and services
334,155
  
262,759
  
227,349
  
193,229
  
144,510
Non-GAAP: Gross cost of sales, product and services
  
$ 1,221,828
  
$ 1,090,634
  
$ 994,796
  
$ 838,787
  
$ 696,37
 
(2)
We define Adjusted EBITDA as net earnings calculated in accordance with GAAP, adjusted for the  following: interest expense, depreciation and amortization, provision for income taxes, and other income. Certain operating expenses from the financing segment are excluded from the Adjusted EBITDA. We consider the interest on debt from the financing segment, as well as depreciation of assets under lease, to be operating expenses. We have provided below a reconciliation of Adjusted EBITDA to net earnings, which is the most closely comparable to this non-GAAP financial measure. Adjusted EBITDA margin is our calculation of Adjusted EBITDA divided by net sales.

We use Adjusted EBITDA as a supplemental measure of our performance to gain insight into our operating performance. We believe that the exclusion of other income in calculating Adjusted EBITDA and Adjusted EBITDA margin provides management and investors a useful measure for period-to-period comparisons of our core business and operating results by excluding items that are not comparable across reporting periods. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results. However, our use of Adjusted EBITDA and Adjusted EBITDA margin as analytical tools has limitations, and you should not consider them in isolation or as substitutes for analysis of our financial results as reported under GAAP. In addition, other companies, including companies in our industry, might calculate Adjusted EBITDA and Adjusted EBITDA margin or similarly titled measures differently, which may reduce their usefulness as comparative measures.
 
 
  
   
For the years ended March 31,
    
   
 
 
  
2015
    
2014
    
2013
    
2012
    
2011
  
Net earnings
  
$
45,840
    
$
35,273
    
$
34,830
    
$
23,367
    
$
23,727
  
Provision for income taxes
    
32,473
      
24,825
      
23,915
      
16,207
      
16,841
  
Other income
    
(7,603
)
    
-
      
-
      
-
      
-
  
Depreciation and amortization
    
4,333
      
2,792
      
2,389
      
1,665
      
1,349
  
Non-GAAP: Adjusted EBITDA
  
$
75,043
    
$
62,890
    
$
61,134
    
$
41,239
    
$
41,917
  
 
 
 
 
 
 
 
 
 
27
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations (“financial review”) of ePlus is intended to help investors understand our company and our operations. The financial review is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the related notes included elsewhere in this report.

EXECUTIVE OVERVIEW

Business Description

ePlus and its consolidated subsidiaries provide leading information technology (“IT”) products and services, flexible leasing and financing solutions, and enterprise supply management to enable our customers to optimize their IT infrastructure and supply chain processes.

We design, implement and provide IT solutions for our customers. We are focused primarily on specialized IT segments including data center infrastructure, networking, security, cloud and collaboration. Our solutions incorporate hardware and software products from multiple leading IT vendors. As our customers’ IT requirements have grown increasingly complex, we have evolved our offerings by investing in our professional and managed services capabilities and by expanding our relationships with existing key vendors.

We have also continued to strengthen our relationships with vendors focused on emerging technologies, which have enabled us to provide our customers with new and evolving IT solutions. We are an authorized reseller from over 1,000 vendors including Check Point, Cisco Systems, Dell, EMC, FireEye, F5 Networks, Hewlett-Packard, Juniper, McAfee, NetApp, Nimble, Oracle, Palo Alto Networks, Pure Storage, VMware, and among many others. We possess top-level engineering certifications with a broad range of leading IT vendors that enable us to offer IT solutions that are optimized for each of our customers’ specific requirements. Our proprietary software solutions allow our customers to procure, control and automate their IT solutions environment.

Financial Summary

During the year ended March 31, 2015, net sales increased 8.1% to $1,143.3 million, or an increase of $85.7 million over the prior fiscal year. We had a 12.5% increase in non-GAAP gross sales of products and services of $1.44 billion for the year ended March 31, 2015, compared to $1.28 billion last fiscal year. This increase in demand was offset by a shift in product mix; as a higher proportion of our sales consisted of third party software assurance, maintenance and services, which are presented on a gross basis. We believe that our growth outpaced the overall industry due to a gains in market share through capturing additional customer spend, and focusing on faster growing segments within the market, such as virtualization, collaboration, and security. In addition, we added new customers as a result of our own organic sales and marketing efforts as well as through increased vendor referrals, and through acquisitions.

Consolidated gross margins were 21.4% for the year ended March 31, 2015, compared to 20.5% for the year ended March 31, 2014. The increase in gross margins was due to shifts in our product mix resulting from our continued focus on value added services for our customers, including the increase in sales of our advanced professional and managed services, and sales of third party maintenance agreements on core elements of our customers’ IT environment.

Operating income increased $10.6 million, or 17.7%, to $70.7 million and operating margin increased by 50 basis points to 6.2%, as compared to the year ended March 31, 2014. Net earnings for the year ended March 31, 2015 increased 30.0% to $45.8 million, as compared to the year ended March 31, 2014. Net earnings included other non-operating income of $7.6 million for the year ended March 31, 2015, primarily due to a $6.2 million payment received from a class action suit which alleged that a group of companies conspired to fix, raise, maintain or stabilize prices of certain flat panels used in many flat screen televisions, monitors and notebook computers. Adjusted EBITDA increased $12.2 million, or 19.3%, to $75.0 million and Adjusted EBITDA margin increased 62 basis points to 6.6% for the year ended March 31, 2015, as compared to the prior period.

Diluted earnings per share increased 41.7% to $6.19 per share for the year ended March 31, 2015, as compared to $4.37 per share for the year ended March 31, 2014.
 
28
Cash and cash equivalents decreased $4.0 million, or 5.0%, to $76.2 million at March 31, 2015 compared to March 31, 2014. The decrease in our cash and cash equivalents was due, in part, to funds generated from operations used to repurchase our common stock during the year ended March 31, 2015 and the acquisition of Evolve. Share repurchases included 400,000 shares of our common stock for $19.0 million in connection with the public underwritten secondary offering by certain of our existing stockholders. During the fiscal year ended March 31, 2015, we repurchased 700,113 shares of our common stock for a total purchase price of $35.7 million. Our cash on hand, funds generated from operations, amounts available under our credit facility and the possible monetization of our investment portfolio provide sufficient liquidity for our business.

Segment Overview

Our operations are conducted through two segments: technology and financing.

Technology Segment

The technology segment sells IT equipment and software and related services primarily to corporate customers, state and local governments, and higher education institutions on a nationwide basis, with geographic concentrations relating to our physical locations. The technology segment also provides Internet-based business-to-business supply chain management solutions for information technology products.

Customers who purchase IT equipment and services from us may have customer master agreements, or CMAs, with our company, which stipulate the terms and conditions of the relationship. Some CMAs contain pricing arrangements, and most contain mutual voluntary termination clauses. Our other customers place orders using purchase orders without a CMA in place or with other documentation customary for the business. Often, our work with state and local governments is based on public bids and our written bid responses. Our service engagements are generally governed by statements of work, and are primarily fixed price (with allowance for changes); however, some service agreements are based on time and materials.

We endeavor to minimize the cost of sales through incentive programs provided by vendors and distributors. The programs we qualify for are generally set by our reseller authorization level with the vendor. 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 purchase volume, certifications held by sales executives or engineers and/or contractual commitments by us. The authorization levels are costly to maintain and these programs continually change and, therefore, there is no guarantee of future reductions of costs provided by these vendor consideration programs.

Financing Segment

Our financing segment offers financing solutions to corporations, governmental entities, and educational institutions nationwide and also in Canada and Iceland. The financing segment derives revenue from leasing IT and medical equipment and the disposition of that equipment at the end of the lease. The financing segment also derives revenues from the financing of third-party software licenses, software assurance, maintenance and other services.

Financing revenue generally falls into the following three categories:

· Portfolio income: Interest income from financing receivables and rents due under operating leases;
· Transactional gains: Net gains or losses on the sale of financial assets; and
· Post-contract earnings: Month-to-month rents; early termination, prepayment, make-whole, or buyout fees; and net gains on the sale of off-lease (used) equipment.

Our financing segment sells the equipment underlying a lease to the lessee or a third-party other than the lessee. These sales occur at the end of the lease term and revenues from the sales of such equipment are recognized at the date of sale. We also recognize revenue from events that occur after the initial sale of a financial asset and remarketing fees from certain residual value investments.
 
29
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, changes in vendor incentive programs, interest rate fluctuations, general economic conditions, 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 a sale prior to the expiration of the lease term to the lessee or to a third-party or from other post-term events.

We expect to continue to expand by opening new sales locations and hiring additional staff for specific targeted market areas in the near future whenever we can find both experienced personnel and desirable geographic areas. These investments may reduce our results from operations in the short term.

RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
 
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED — In May 2014, Financial Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2014-09, which will update ASC topic Revenue from Contracts with Customers. 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. The standard will become effective for us on April 1, 2017. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual periods beginning after that date. We are currently evaluating the impact it will have on our financial statements and disclosures and have not yet selected our planned transition approach.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. 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, residual values, vendor consideration, lease classification, goodwill and intangibles, reserves for credit losses and income taxes specifically relating to uncertain tax positions. 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 such estimates, we caution that future events rarely develop exactly as forecasted, and therefore, these estimates may 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 information on these and other accounting policies, see Note 1, “Organization and Summary of Significant Accounting Policies” to the consolidated financial statements included elsewhere in this report.

REVENUE RECOGNITION. The majority of our revenues are derived from the following sources: sales of third-party products, software, software assurance, maintenance and services; sales of our advanced professional and managed services; sales of licenses of our software, and financing revenues. For all these revenue sources, we determine whether we are the principal or agent in accordance with Codification Topic, Revenue Recognition, Subtopic Principal Agent Considerations. Our revenue recognition policies vary based upon these revenue sources and the mischaracterization of these products and services could result in misapplication of revenue recognition polices.

For arrangements with multiple elements, we allocate the total consideration to the deliverables based on an estimated selling price. We determine the estimated selling price using cost plus a reasonable margin for each deliverable, which is based on our established policies and procedures for providing customers with quotes, as well as on historical data.
 
30
Generally, sales of third-party products and software are recognized on a gross basis with the selling price to the customer recorded as sales and the acquisition cost of the product or software recorded as cost of sales. Revenue is 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, the sales price is fixed or determinable and collectability is reasonably assured. Delivery for products is typically performed via drop-shipment by the vendor or distributor to our customers’ location, and for software via electronic delivery. Using these tests, the vast majority of our sales are recognized upon delivery due to our sales terms with our customers. We estimate the product delivered to our customers at the end of each quarter based upon an analysis of current quarter and historical delivery dates.

We sell software assurance, subscription licenses, maintenance and service contracts where the services are performed by a third party. Software assurance is a service that allows customers to upgrade at no additional cost to the latest technology, if new applications are introduced during the period for which the software assurance is in effect. As we enter into contracts with third-party service providers, we evaluate whether we are acting as a principal or agent in the transaction. We conclude that we are acting as an agent and recognize revenue on a net basis at the date of sale when we are not responsible for the day-to-day provision of services in these arrangements and our customers are aware that the third-party service provider will provide the services to them.

Revenues from ePlus advanced professional services are generally recognized when the services are complete. Revenues from other ePlus services, such as maintenance, managed services and hosting services are recognized on a straight-line basis over the term of the arrangement.

Financing revenues include income earned from investments in leases, leased equipment, and financed third-party software and services. We classify our investments in leases and leased equipment as either direct financing lease, sales-type lease, or operating lease, as appropriate. Revenue on direct financing and sales-type leases is deferred at the inception of the leases and is recognized over the term of the lease using the interest method. Revenue on operating leases is recorded on a straight line basis over the lease term. We classify third-party software, maintenances, and services that we finance for our customers as notes receivable and recognize interest income over the term of the arrangement using the effective interest method.

We account for the transfer of financial assets as sales or secured borrowings in accordance with Transfers and Servicing in the Codification. For transfers that qualify for sale treatment, we recognize a net gain on the effective date of the transfer.

RESIDUAL VALUES. Residual values represent our estimated value of the equipment at the end of the initial lease term. 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, vendor's discount, market conditions, lease term, equipment supply and demand, and new product announcements by vendors.

We evaluate residual values on a quarterly basis and record any required impairments of residual value, in the period in which the impairment is determined. No upward adjustment to residual values is made subsequent to lease inception.

GOODWILL. Goodwill represents the premium paid over the fair value of net tangible and intangible assets we have acquired in business combinations. We review our goodwill for impairment annually, or more frequently if indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, and/or slower growth rates, among others.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors we consider include, but are not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows and market capitalization.
 
31
If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the two step process to assess our goodwill for impairment. First, we compare the fair value of each of our reporting units with its carrying value. We estimate the fair value of the reporting unit using various valuation methodologies, including discounted expected future cash flows. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired, and no further testing is necessary. If the net book value of a reporting unit exceeds its fair value, we perform a second test to measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we determine the fair value of goodwill in the same manner as if our reporting unit were being acquired in a business combination. Specifically, we allocate the fair value of the reporting unit to all of the assets and liabilities of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the estimated fair value of goodwill. If the estimated fair value of goodwill is less than the goodwill recorded on our balance sheet, we record an impairment charge for the difference.

For the annual impairment assessment performed during the third quarter of the year ended March 31, 2015, we elected to bypass the qualitative assessment and estimated the fair values of our reporting units using the best information available, including prices for similar assets and liabilities and other valuation techniques. The fair values of our reporting units significantly exceeded their respective carrying amounts and the recoverability of goodwill would not have been impacted by a 10% change in the fair values.

VENDOR CONSIDERATION. We receive payments and credits from vendors and distributors, including consideration pursuant to volume incentive programs, and shared marketing expense programs. Many of these programs extend over one or more quarters’ sales activities. Different programs have different vendor/program specific goals to achieve. We estimate the amount of vendor consideration earned when it is probable and reasonably estimable using the best information available, including historical data.

Vendor consideration received pursuant to volume incentive programs is allocated to inventories based on the applicable incentives from each vendor and is recorded in cost of sales of 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 our consolidated statements of operations.

RESERVES FOR CREDIT LOSSES. We maintain our reserves for credit losses at a level believed to be adequate to absorb potential losses inherent in the respective balances. We assign an internal credit quality rating to all new customers and update these ratings regularly, but no less than annually. Management’s determination of the adequacy of the reserve for credit losses for our accounts receivable is based on the age of the receivable balance, the customer’s credit quality rating, an evaluation of historical credit losses, current economic conditions, and other relevant factors.

Management’s determination of the adequacy of the reserve for credit losses for financing receivables may be based on the following factors: an internally assigned credit quality rating, historical credit loss experience, current economic conditions, volume, growth, the composition of the lease portfolio, the fair value of the underlying collateral, and the funding status (i.e. not funded, funded on a recourse or partial recourse basis, or funded on non-recourse basis), and other relevant factors.

The reserve for credit losses as of March 31, 2015 and March 31, 2014 included a specific reserve of $3.2 million due to one specific customer, which filed for bankruptcy in May 2012.

INCOME TAXES. We make certain estimates and judgments in determining income tax expense for financial statement reporting 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 reporting 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 considering 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.
 
32
BUSINESS COMBINATIONS. We account for business combinations using the acquisition method, which requires that the total purchase price of each of the acquired entities be allocated to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The purchase price of the acquired entities may include an estimate of the fair value of contingent consideration. The allocation process requires an analysis of intangible assets, customer relationships, trade names, acquired contractual rights and assumed contractual commitments and legal contingencies to identify and record all assets acquired and liabilities assumed at their fair value.

Any premium over the fair value of assets acquired less the liabilities assumed is recorded as goodwill. To the extent the purchase price is less than the fair value of assets acquired and liabilities assumed we recognize a gain in our statements of operations. The results of operations for an acquired company are included in our financial statements from the date of acquisition.
 
33
RESULTS OF OPERATIONS
 
The Year Ended March 31, 2015 Compared to the Year Ended March 31, 2014

Technology Segment

The results of operations for our technology segment for the years ended March 31, 2015 and 2014 were as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
Change
  
Sales of product and services
  
$
1,100,884
    
$
1,013,374
    
$
87,510
      
8.6
%
Fee and other income
    
7,565
      
8,037
      
(472
)
    
(5.9
%)
Net sales
    
1,108,449
      
1,021,411
      
87,038
      
8.5
%
Cost of sales, product and services
    
887,673
      
827,875
      
59,798
      
7.2
%
Gross profit
    
220,776
      
193,536
      
27,240
      
14.1
%
                                 
Professional and other fees
    
5,340
      
7,557
      
(2,217
)
    
(29.3
%)
Salaries and benefits
    
128,945
      
113,481
      
15,464
      
13.6
%
General and administrative
    
25,437
      
21,103
      
4,334
      
20.5
%
Interest and financing costs
    
96
      
84
      
12
      
14.3
%
Operating expenses
    
159,818
      
142,225
      
17,593
      
12.4
%
                                 
Segment earnings
  
$
60,958
    
$
51,311
    
$
9,647
      
18.8
%

Net sales: Net sales for the year ended March 31, 2015 increased by $87.0 million to $1,108.4 million due to an increase in demand for products and services from our large and middle-market customers. Sales of product and services increased 8.6% due to a 12.5% increase in non-GAAP gross sales of product and services to $1.44 billion from $1.28 billion last year, which was offset by a shift in product mix, as a higher proportion of our sales consisted of third party software assurance, maintenance and services, which are presented on a net basis. We had year over year growth in our quarterly sales of product and services for all quarters during the year ended March 31, 2015. We experienced sequential increases in quarterly sales of product and services during the first three quarters of the year ended March 31, 2015 and a decrease during the fourth quarter. The sequential decrease in net sales for our fourth quarter over the prior quarter is primarily due to changes in customer demand as the IT spending cycle for many of our commercial customers tends to increase towards the end of their fiscal (calendar) years.

The sequential and year over year change in sales of product and services is summarized below:

Quarter Ended
  
Sequential
    
Year over Year
  
March 31, 2015
    
(13.0
%)
    
3.2
%
December 31, 2014
    
3.2
%
    
15.6
%
September 30, 2014
    
9.7
%
    
9.7
%
June 30, 2014
    
4.8
%
    
5.8
%
 
We rely on our vendors or distributors to fulfill a large majority of our shipments to our customers. As of March 31, 2015, we had open orders of $74.9 million and deferred revenue of $37.0 million. As of March 31, 2014, we had open orders of $81.4 million and deferred revenues of $23.2 million. The increase of $13.8 million in deferred revenues as of March 31, 2015 over the prior year is due to several purchases of equipment that have been invoiced to our customers but had yet to be delivered as of March 31, 2015.

Gross profit: Our gross margin on the sale of product and services increased to 19.4% for the year ended March 31, 2015, from 18.3% in the prior year due to an increase in sales of third-party software assurance, maintenance, and services, for which the revenues are presented on a net basis, as well as increases in revenues from our professional and managed service. There was a 0.1% increase in the percentage of vendor incentives earned as a percentage of sales of product and services for the year ended March 31, 2015 compared to the prior year. There are ongoing changes to the incentive programs offered to us by our vendors. Accordingly, if we are unable to maintain the level of vendor incentives we are currently receiving, gross margins may decrease.
 
34
Operating expenses: Total operating expenses of $159.8 million for the year ended March 31, 2015 increased by $17.6 million or 12.4% from the prior year. Professional and other fees decreased $2.2 million, or 29.3%, to $5.3 million, compared to $7.6 million during the prior year due to $1.9 million of fees incurred in the prior period related to the patent infringement litigation. These types of patent infringement cases are complex in nature, and are likely to have significant expenses associated with them. 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.

Salaries and benefits increased $15.5 million or 13.6% to $128.9 million, compared to $113.5 million during the prior year. Approximately 48% of this increase was due to higher variable compensation due to the increase in gross profit, and the remaining increase was due to an increase in the number of employees. Our technology segment had 936 employees as of March 31, 2015, an increase of 57, or 6.5%, from 879 at March 31, 2014, of which 88% of the positions added in the past year relate to sales and technical support personnel.

General and administrative expenses increased $4.3 million, or 20.5%, to $25.4 million during the fiscal year ended March 31, 2015 compared to $21.1 million the prior year. We incurred $1.6 million of additional costs due to depreciation and amortization expense related to the acquisition of Evolve in August, 2014, the acquisition of AdviStor in November, 2013 and our next generation data center that went live in February, 2014. We also incurred additional expenses due to increases in personnel, including communications, and travel and entertainment expenses.

Segment earnings: As a result of the foregoing, segment earnings increased $9.6 million, or 18.8%, to $61.0 million for the year ended March 31, 2015.

Financing Segment

The results of operations for our financing segment for the years ended March 31, 2015 and 2014 were as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
Change
  
Financing revenue
  
$
34,728
    
$
35,896
    
$
(1,168
)
    
(3.3
%)
Fee and other income
    
105
      
229
      
(124
)
    
(54.1
%)
Net sales
    
34,833
      
36,125
      
(1,292
)
    
(3.6
%)
Direct lease costs
    
11,062
      
12,748
      
(1,686
)
    
(13.2
%)
Gross profit
    
23,771
      
23,377
      
394
      
1.7
%
                                 
Professional and other fees
    
1,168
      
1,484
      
(316
)
    
(21.3
%)
Salaries and benefits
    
9,141
      
9,670
      
(529
)
    
(5.5
%)
General and administrative
    
1,427
      
1,572
      
(145
)
    
(9.2
%)
Interest and financing costs
    
2,283
      
1,864
      
419
      
22.5
%
Operating expenses
    
14,019
      
14,590
      
(571
)
    
(3.9
%)
                                 
Operating income
    
9,752
      
8,787
      
965
      
11.0
%
                                 
Other income
    
7,603
      
-
      
7,603
      
n/
a
Segment earnings
  
$
17,355
    
$
8,787
    
$
8,568
      
97.5
%

Net sales: Net sales decreased by $1.3 million, or 3.6%, to $34.8 million for the year ended March 31, 2015 due to a decrease in both in financing revenue and fee and other income. The decrease in financing revenues was due to lower transactional gains, partially offset by higher post-contract earnings. Transactional gains decreased to $5.9 million for the year ended March 31, 2015 from $8.5 million in the prior year due to lower margins realized on sales of financing receivables. Total proceeds from sales of financing receivables were $181.3 million and $187.2 million for the years ended March 31, 2015 and 2014, respectively. Post-contract earnings increased to $10.3 million for the year ended March 31, 2015 from $8.8 million in the prior year, due to an increase in renewal rent.

Our total financing receivables and operating leases increased slightly as of March 31, 2015 to $143.9 million from $143.7 million in the prior year, which was due to originations during the year, offset by repayments and sales of financial assets.
 
35
Gross profit: Gross profit increased $0.4 million due to a reduction in direct lease cost for the year ended March 31, 2015 of $1.7 million principally due to lower depreciation for assets under operating leases compared to the prior year. Lower revenue of $1.3 million mostly offset the decrease in direct lease costs for the year ended March 31, 2015.

Operating expenses: For the year ended March 31, 2015, operating expenses decreased $0.6 million, or 3.9% as decreases in professional fees and salaries and benefits were offset by higher interest and financing costs. Professional and other fees decreased by $0.3 million or 21.3% to $1.2 million due to lower legal fees. Salaries and benefits decreased by $0.5 million, or 5.5%, to $9.1 million due a slight decrease in personnel. Our financing segment employed 50 people as of March 31, 2015 compared to 55 employees as of March 31, 2014. General and administrative expenses decreased $0.1 million primarily due to lower reserves for credit losses.

Interest and financing costs increased $0.4 million or 22.5% to $2.3 million during the year ended March 31, 2015, as compared to $1.9 million during the prior year. While total notes payable decreased as of March 31, 2015, our average balance of notes payable outstanding during the year was higher due to additional borrowings in the fourth quarter of fiscal year 2014. Our weighted average interest rate for our notes payable was 3.23% as of March 31, 2015 compared to 3.48% for March 31, 2014.

Other income: On October 31, 2014, we received payment in the amount of $6.2 million related to our claim in a class action suit which alleged that a group of companies conspired to fix, raise, maintain or stabilize prices of certain flat panels used in many flat screen televisions, monitors and notebook computers.

In April 2014, we entered into an arrangement to repurchase the rights, title, and interest to payments due under a financing arrangement. This financing arrangement 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.

Segment earnings: As a result of the foregoing, earnings increased $8.6 million, or 97.5%, to $17.4 million for the year ended March 31, 2015.

Consolidated

Income taxes: Our effective income tax rates for the years ended March 31, 2015 and 2014 were 41.5% and 41.3%, respectively. The increase in effective income tax rate is primarily due to changes in state apportionment factors.

Net earnings: Net earnings were $45.8 million for the year ended March 31, 2015, an increase of 30.0% as compared to $35.3 million in the prior fiscal year.

Basic and fully diluted earnings per common share were $6.26 and $6.19, respectively, for the year ended March 31, 2015. Basic and fully diluted earnings per common share were $4.41 and $4.37, respectively, for the year ended March 31, 2014.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the year ended March 31, 2015 were 7.3 million and 7.4 million and for the year ended March 31, 2014 were, 7.9  million and 8.0 million, respectively.
 
36
The Year Ended March 31, 2014 Compared to the Year Ended March 31, 2013

Technology Segment

The results of operations for our technology segment for the years ended March 31, 2014 and 2013 were as follows (in thousands):

   
Year Ended March 31,
  
   
2014
    
2013
    
Change
  
Sales of product and services
  
$
1,013,374
    
$
936,228
    
$
77,146
      
8.2
%
Fee and other income
    
8,037
      
6,949
      
1,088
      
15.7
%
Net sales
    
1,021,411
      
943,177
      
78,234
      
8.3
%
Cost of sales, product and services
    
827,875
      
767,447
      
60,428
      
7.9
%
Gross profit
    
193,536
      
175,730
      
17,806
      
10.1
%
                                 
Professional and other fees
    
7,557
      
9,638
      
(2,081
)
    
(21.6
%)
Salaries and benefits
    
113,481
      
100,447
      
13,034
      
13.0
%
General and administrative
    
21,103
      
19,028
      
2,075
      
10.9
%
Interest and financing costs
    
84
      
89
      
(5
)
    
(5.6
%)
Operating expenses
    
142,225
      
129,202
      
13,023
      
10.1
%
                                 
Segment earnings
  
$
51,311
    
$
46,528
    
$
4,783
      
10.3
%
 
Net sales: Net sales for the year ended March 31, 2014 increased by $78.2 million to $1,021.4 million due to an increase in sales of product and services to our large and middle-market customers. We had year over year growth in our quarterly sales of product and services during the year ended March 31, 2014. We experienced sequential increases in quarterly sales of product and services during the first two quarters of the year ended March 31, 2014 and slight decreases during the third and fourth quarters. The sequential decrease in net sales over the last two quarters is primarily due to changes in customer demand as the IT spending cycle for many of our commercial customers tends to increase towards the end of their fiscal years.

The sequential and year over year change in sales of product and services is summarized below:

Quarter Ended
  
Sequential
    
Year over Year
  
March 31, 2014
    
(2.5
%)
    
11.4
%
December 31, 2013
    
(2.1
%)
    
12.1
%
September 30, 2013
    
5.8
%
    
4.4
%
June 30, 2013
    
10.4
%
    
5.4
%

We rely on vendors and distributors to fulfill shipments to our customers, which occur on a regular basis. As of March 31, 2014, we had open orders of $81.4 million and deferred revenue of $23.2 million. As of March 31, 2013, we had open orders of $55.4 million and deferred revenues of $16.7 million.

Gross profit: Our gross margin on the sale of product and services increased to 18.3% for the year ended March 31, 2014, from 18.0% in the prior year. Our gross margin increased due to an increase in sales of third-party software assurance, maintenance, and services, for which the revenues are presented on a net basis, as well as increases in service revenues. Vendor incentives earned decreased slightly as a percentage of sales of product and services. There are ongoing changes to the incentive programs offered to us by our vendors. Accordingly, if we are unable to maintain the level of vendor incentives we are currently receiving, gross margins may decrease.

Operating expenses: Total operating expenses increased by $13.0 million or 10.1% for the year ended March 31, 2014 from the prior year to $142.2 million. Professional and other fees decreased $2.1 million, or 21.6%, to $7.6 million for the year ended March 31, 2014, compared to $9.6 million during the prior year. These decreases are primarily due to lower fees related to the patent infringement litigation, which were $1.9 million and $3.3 million for the years ended March 31, 2014 and 2013, respectively. These types of patent infringement cases are complex in nature, and are likely to have significant expenses associated with them. 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. In addition, we experienced lower accounting and other professional fees in the fiscal year ended March 31, 2014.
 
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Salaries and benefits increased $13.0 million or 13.0% to $113.5 million, compared to $100.4 million during the prior year. This increase was driven by increases in the number of employees and commissions. Our technology segment had 879 employees as of March 31, 2014, an increase of 44, or 5.3%, from 835 at March 31, 2013. Over 90% of the increase in personnel relates to sales and professional service personnel in order to expand our geographical presence and solutions offerings. In addition, commissions increased due to the increase in gross profit during the fiscal year ended March 31, 2014.

General and administrative expenses increased $2.1 million, or 10.9%, to $21.1 million during the fiscal year ended March 31, 2014 compared to prior year, due to higher software license costs and maintenance fees, rent, and depreciation and amortization expense.

Segment earnings: As a result of the foregoing, segment earnings increased $4.8 million, or 10.3%, to $51.3 million for the year ended March 31, 2014.

Financing Segment

The results of operations for our financing segment for the years ended March 31, 2014 and 2013 were as follows (in thousands):
 
   
Year Ended March 31,
  
   
2014
    
2013
    
Change
  
Financing revenue
  
$
35,896
    
$
38,384
    
$
(2,488
)
    
(6.5
%)
Fee and other income
    
229
      
1,551
      
(1,322
)
    
(85.2
%)
Net sales
    
36,125
      
39,935
      
(3,810
)
    
(9.5
%)
Direct lease costs
    
12,748
      
10,892
      
1,856
      
17.0
%
Gross profit
    
23,377
      
29,043
      
(5,666
)
    
(19.5
%)
                                 
Professional and other fees
    
1,484
      
3,460
      
(1,976
)
    
(57.1
%)
Salaries and benefits
    
9,670
      
10,516
      
(846
)
    
(8.0
%)
General and administrative
    
1,572
      
1,071
      
501
      
46.8
%
Interest and financing costs
    
1,864
      
1,779
      
85
      
4.8
%
Operating expenses
    
14,590
      
16,826
      
(2,236
)
    
(13.3
%)
                                 
Segment earnings
  
$
8,787
    
$
12,217
    
$
(3,430
)
    
(28.1
%)
 
Net sales: Net sales decreased by $3.8 million, or 9.5%, to $36.1 million for the year ended March 31, 2014 due to a decrease in both in financing revenue and fee and other income. The decrease in financing revenues was due to lower post-contract earnings, offset by higher transactional gains. Post-contract earnings decreased to $8.8 million for the year ended March 31, 2014 from $12.7 million in the prior year, due to the early termination of certain lease agreements in fiscal year 2014. Transactional gains increased to $8.5 million for the year ended March 31, 2014 from $7.1 million in the prior year due to higher volume of sales of financing receivables. Total proceeds from sales of financing receivables were $187.2 million and $142.3 million for the years ended March 31, 2014 and 2013, respectively. Fee and other income was lower than the prior year by $1.3 million due to decreases in remarketing income of $0.9 million and broker fee income of $0.4 million.

Our total financing receivables and operating leases increased as of March 31, 2014 to $143.7 million from $122.6 million in the prior year, which was due to originations during the year, offset by repayments and sales of financial assets.

Gross profit: Gross profit decreased $5.7 million or 19.5% during the fiscal year ended March 31, 2015 due to the decrease in revenue of $3.8 million and higher direct lease costs, which increased $1.9 million due to higher depreciation expense related to operating leases.
 
38
Operating expenses: Total operating expenses decreased by $2.2 million or 13.3% for the year ended March 31, 2014 from the prior year to $14.6 million. Professional and other fees decreased by $2.0 million or 57.1% due largely to broker fees $1.8 million incurred in fiscal year 2013 in connection with the sale of a portion of our financing receivables, as well as lower legal fees. Salaries and benefits decreased by $0.8 million, or 8.0%, to $9.7 million due to lower commissions as a result of the decrease in revenues during the period. Our financing segment employed 55 people as of March 31, 2014 and March 31, 2013. General and administrative expenses increased $0.5 million due to additional reserves for credit losses recorded during the year.

Interest and financing costs increased $85 thousand or 4.8% to $1.9 million during the year ended March 31, 2014, as compared to $1.8 million during the prior year. This increase is primarily due to higher notes payable balances partially offset by lower interest rates. Total notes payable increased to $68.9 million as of March 31, 2014 as compared to $41.7 million at March 31, 2013, while our weighted average interest rate for our notes payable decreased to 3.48% as of March 31, 2014 compared to 4.25% as of March 31, 2013.

Segment earnings: As a result of the foregoing, segment earnings decreased $3.4 million, or 28.1%, to $8.8 million for the year ended March 31, 2014.

Consolidated

Income taxes: Our effective income tax rates for the years ended March 31, 2014 and 2013 were 41.3% and 40.7%, respectively. The increase in effective income tax rate is primarily due to changes in state apportionment factors.

Net earnings: Net earnings were $35.3 million for the year ended March 31, 2014, an increase of 1.3% as compared to $34.8 million in the prior fiscal year.

Basic and fully diluted earnings per common share were $4.41 and $4.37, respectively, for the year ended March 31, 2014. Basic and fully diluted earnings per common share were $4.37 and $4.32, respectively, for the year ended March 31, 2013.

Weighted average common shares outstanding used in the calculation of basic and diluted earnings per common share for the year ended March 31, 2014 were 7.9 million and 8.0 million and for the year ended March 31, 2013 were, 7.8  million and 7.9 million, 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 equipment for lease, payments of principal and interest on indebtedness outstanding, acquisitions and the repurchase of shares of our common stock.

Our subsidiary ePlus Technology, inc., part of our technology segment, finances its operations with funds generated from operations, and with a credit facility with GE Commercial Distribution Finance, or GECDF, with an aggregate credit limit of $225 million. 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 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 condensed consolidated balance sheets. Payments on the floor plan component are due on three specified dates each month, generally 30-60 days from the invoice date. 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 available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our condensed consolidated balance sheets. There was no outstanding balance at March 31, 2015 or March 31, 2014, while the maximum credit limit was $30.0 million for both periods. The borrowings and repayments under the floor plan component are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our consolidated statements of cash flows.
 
39
Most customer payments in our technology segment are remitted to our lockboxes. Once payments are cleared, the monies in the lockbox accounts are automatically transferred to our operating account on a daily basis. On the due dates of the floor plan component, we make cash payments to GECDF. These payments from the accounts receivable component to the floor plan component and repayments from our cash are reflected as “net borrowings on floor plan facility” in the cash flows from financing activities section of our condensed consolidated statements of cash flows. We engage in this payment structure in order to minimize our interest expense and bank fees in connection with financing the operations of our technology segment.

We believe that cash on hand, and funds generated from operations, together with available credit under our credit facility, 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 requiring any additional sources of financing to fund operations, if demand for IT products declines, our cash flows from operations may be substantially affected.

Cash Flows

The following table summarizes our sources and uses of cash over the periods indicated (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
Net cash provided by (used in) operating activities
  
$
13,847
    
$
(8,223
)
  
$
41,270
  
Net cash used in investing activities
    
(30,592
)
    
(28,797
)
    
(12,658
)
Net cash provided by (used in) financing activities
    
12,820
      
64,459
      
(9,667
)
Effect of exchange rate changes on cash
    
(79
)
    
20
      
(3
)
Net (decrease) increase in cash and cash equivalents
  
$
(4,004
)
  
$
27,459
    
$
18,942
  
 
Cash flows from operating activities. Cash provided by operating activities totaled $13.8 million in the year ended March 31, 2015. Net earnings adjusted for the impact of non-cash items was $45.5 million. Net changes in assets and liabilities resulted in a decrease to cash of $31.6 million, primarily due to cash used for financing receivables of $19.6 million, and additional working capital needs in our technology segment. The change in financing receivables included within cash flows from operations consists of assets financed by our financing segment that were purchased through our technology segment.

Cash used in operating activities totaled $8.2 million in the year ended March 31, 2014. Net earnings adjusted for the impact of non-cash items was $33.7 million. Net changes in assets and liabilities resulted in a decrease to cash of $41.9 million, primarily due to cash used for financing receivables of $30.8 million, which is used by our financing segment for investments in notes receivables and leases, and additional working capital needs in our technology segment.

Cash provided by operating activities totaled $41.3 million in the year ended March 31, 2013. Net earnings adjusted for the impact of non-cash items was $37.8 million. Net changes in assets and liabilities for the year ended March 31, 2013 resulted in additional cash of $3.4 million, as net decreases in financing receivables from our financing segment were offset by increases in accounts receivable-other.
 
40
In order to manage our working capital, we monitor our cash conversion cycle for our Technology segment, which is defined as days sales outstanding (“DSO”) in accounts receivable plus days of supply in inventory (“DIO”) minus days of purchases outstanding in accounts payable (“DPO”). The following table presents the components of the cash conversion cycle for our Technology segment:

 
  
as of March 31,
  
 
  
2015
    
2014
    
2013
  
 
  
   
   
 
Days sales outstanding (1)
    
60
      
53
      
55
  
Days inventory outstanding (2)
    
8
      
7
      
7
  
Days payable outstanding (3)
    
(45
)
    
(41
)
    
(39
)
Cash conversion cycle
    
23
      
19
      
23
  

(1) Represents the rolling three-month average of the balance of trade accounts receivable-trade, net for our Technology segment at the end of the period divided by non-GAAP gross sales of product and services for the same three-month period.
(2) Represents the rolling three-month average of the balance of inventory, net for our Technology segment at the end of the period divided by non-GAAP gross cost of sales, product and services for the same three-month period.
(3) Represents the rolling three-month average of the combined balance of accounts payable-trade and accounts payable-floor plan for our Technology segment at the end of the period divided by non-GAAP gross cost of sales, product and services for the same three-month period.

Our standard payment term for customers is between 30-60 days; however, certain customers or orders may be approved for extended payment terms. Invoices processed through our credit facility, or the A/P-floor plan balance, are typically paid within 45-60 days from the invoice date, while A/P trade invoices are typically paid within 30 days from the invoice date.

Our cash conversion cycle increased to 23 days at March 31, 2015, compared to 19 days at March 31, 2014, primarily driven by an increase in DSO, which was partially offset by an increase in DPO. Our DSO as of March 31, 2015, was negatively impacted by the increase in deferred revenues, which was due to certain equipment orders for which delivery had not occurred as of March 31, 2015.  The remaining increase in our DSO was due to timing of collections.  The increase in DPO was due to an increase in the average balance of invoices processed through our credit facility. Our cash conversion cycle improved to 19 days at March 31, 2014, compared to 23 days at March 31, 2013 due to improved collections, which decreased our DSO, as well as an increase in DPO. The increase in DPO was due the timing of orders processed during the quarter, as a higher proportion were processed during the last two weeks of March 2014 than March 2013.

Cash flows related to investing activities. Cash used in investing activities was $30.6 million during the year ended March 31, 2015, primarily due to net issuances of financing receivables of $21.7 million, purchases of property, equipment, and operating lease equipment, and assets to be leased of $11.9 million and cash used in acquisitions, net of cash acquired of $8.1 million, partially offset by proceeds from sale of property, equipment, and operating lease equipment of $8.6 million and maturities of supplemental benefit plan investments of $2.5 million. The net issuance of financing receivables included within cash flows from investing activities consists of assets financed by our financing segment that were purchased from third party vendors.

Cash used in investing activities was $28.8 million during the year ended March 31, 2014, primarily due to net issuances of notes receivable of $20.0 million, purchases of property, equipment, and operating lease equipment, and assets to be leased of $15.4 million and cash used in acquisitions, net of cash acquired of $2.8 million, partially offset by proceeds from sale of property, equipment, and operating lease equipment of $4.1 million.

Cash used in investing activities were $12.7 million during the year ended March 31, 2013, primarily due to purchases of property, equipment and operating lease equipment of $15.6 million and net issuance of notes receivable of $5.3 million, partially offset by net changes in short-term investments of $6.4 million.

Cash flows from financing activities. Cash provided by financing activities was $12.8 million for the year ended March 31, 2015, driven by net borrowings of non-recourse and recourse notes payable of $50.5. This cash provided by financing activities is partially offset by repurchases of common stock of $37.7 million.

Cash provided by financing activities was $64.5 million for the year ended March 31, 2014, driven by net borrowings of non-recourse and recourse notes payable of $49.3 million and net borrowings on the floor plan facility of $27.2 million. This cash provided by financing activities is partially offset by repurchases of common stock of $13.2 million.
 
41
For the year ended March 31, 2013 cash used in financing activities was $9.7 million mostly due to dividends paid of $20.1 million and net repayments on floor plan facility of $19.7 million, which was partially offset by net borrowings of non-recourse and recourse notes payable of $29.6 million.

Non-Cash Activities

We assign contractual payments due under lease and financing agreements to third-party financial institutions, which are accounted for as non-recourse notes payable. As a condition to the assignment agreement, certain financial institutions may request that the customer remit their contractual payments to a trust; rather than to us, and the trust pays the financial institution. Alternatively, if the structure of the agreement does not require a trustee, the customer will continue to make payments to us, and we will remit the payment to the financial institution. The economic impact to us under either assignment structure is similar, in that the assigned contractual payments are paid by the customer and remitted to the lender to pay down the corresponding non-recourse notes payable. However, these assignment structures are classified differently within our consolidated statements of cash flows. More specifically, we are required to exclude non-cash transactions from our consolidated statement of cash flows, so certain contractual payments made by the customer to the trust are excluded from our operating cash receipts and the corresponding repayment of the non-recourse notes payable from the trust to the third-party financial institution are excluded from our cash flows from financing activities. Contractual payments received by the trust and paid to the lender on our behalf are disclosed as a non-cash financing activity.

Liquidity and Capital Resources

We may utilize non-recourse notes payable to finance approximately 80% to 100% of the purchase price of the assets being leased or financed by our customers. Any balance of the purchase price remaining after non-recourse funding and any upfront payments received from the customer (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 financing arrangements and our residual return history will continue to allow us to obtain such financing, such financing may not be available on acceptable terms, or at all.

The financing necessary to support our lease and financing activities has been provided by our cash and non-recourse borrowings. We monitor our exposure closely. Historically, we have obtained mostly non-recourse borrowings from third party banks and finance companies. We continue to be able to obtain financing through our traditional lending sources. 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 payments, 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 the lender’s only recourse, upon default by the lessee, is against the lessee and the specific equipment under lease.

At March 31, 2015, our non-recourse notes payable portfolio decreased 19.1% to $52.9 million, as compared to $65.3 million at March 31, 2014. Our recourse notes payable increased by $0.1 million to $3.7 million as of March 31, 2015, compared to $3.6 million as of March 31, 2014.

Whenever desirable, we arrange for equity investment financing, which includes selling lease payments, 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.

Credit Facility — Technology

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. This facility has full recourse to ePlus Technology, inc. and is secured by a blanket lien against all its assets, such as chattel paper, receivables and inventory. As of March 31, 2015, the facility had an aggregate limit of the two components of $225.0 million with an accounts receivable sub-limit of $30.0 million.
 
42
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 of ePlus Technology, inc. We were in compliance with these covenants as of March 31, 2015. Interest on the facility is assessed at a rate of the One Month LIBOR plus two and one half percent if the payments are not made on the three specified dates each month. 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 requires other operational reports be provided on a regular basis. Either party may terminate the facility with 90 days advance written 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 a certain date. We have delivered the annual audited financial statements for the year ended March 31, 2014, 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.

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 sixty days, in general, is not charged. The floor plan liabilities are recorded as accounts payable—floor plan on our condensed consolidated balance sheets, as they are normally repaid within the fifteen to sixty-day time frame and represent assigned accounts payable originally generated with the manufacturer/distributor. In some cases we are able to pay invoices early and receive a discount, but if the fifteen to sixty-day obligation is not paid timely, interest is then assessed at stated contractual rates.

The respective floor plan component credit limits and actual outstanding balance payables for the dates indicated were as follows (in thousands):

Maximum Credit Limit
 at March 31, 2015
  
Balance as of
March 31, 2015
  
Maximum Credit Limit
 at March 31,2014
  
Balance as of
 March 31, 2014
  
$
225,000
  
$
99,418
  
$
175,000
  
$
93,416
  
 
Accounts Receivable Component

Included within the credit facility, 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 available cash. The outstanding balance under the accounts receivable component is recorded as recourse notes payable on our consolidated balance sheets. There was no balance outstanding for the accounts receivable component at March 31, 2015 or March 31, 2014, while the maximum credit limit was $30.0 million for both periods.

Credit Facility — General

First Virginia Community Bank, (formerly 1st Commonwealth Bank of Virginia), provides us with a $0.5 million credit facility, which will mature on October 26, 2015. This credit facility is available for us and our affiliates and is full recourse to us. Borrowings under this facility bear interest at 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 March 31, 2015 and March 31, 2014, we had no outstanding balance on this credit facility.

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 consolidated statements of operations.
 
43
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 as defined in Item 303(a)(4)(ii) of Regulation S-K or other contractually narrow or limited purposes. As of March 31, 2015 and 2014, 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 start offices in new geographic areas, which may require a significant investment of cash. 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.

Inflation

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.
 
Contractual Obligations
 
The impact that our contractual obligations as of March 31, 2015 are expected to have on our liquidity and cash flow in future periods is as follows (in thousands):

 
      
Payments Due by Period
  
 
  
Total
    
1 year
    
Years 2 & 3
    
Years 4 & 5
    
More than
5 years
  
 
                    
Recourse & non-recourse notes payable (1)
  
$
56,564
    
$
29,449
    
$
24,740
    
$
1,822
    
$
554
  
Interest payments on recourse and non-recourse notes payable
  
$
2,404
    
$
1,464
    
$
839
    
$
91
    
$
10
  
Operating lease obligations (2)
    
11,210
      
4,199
      
5,726
      
1,279
      
6
  
Total
  
$
70,178
    
$
35,112
    
$
31,305
    
$
3,192
    
$
570
  

(1) Payments reflected principal amounts related to the recourse and non-recourse notes payable.
(2) Rental and services obligations

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Although a substantial portion of our liabilities are non-recourse, fixed-interest-rate instruments, we utilize our lines of credit and other financing facilities which are subject to fluctuations in short-term 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 GECDF facility, 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 GECDF facility bear interest at a market-based variable rate. As of March 31, 2015, the aggregate fair value of our recourse and non-recourse borrowings approximated their carrying value.

We have operations in Canada and Iceland. As such, we have entered into lease contracts and non-recourse, fixed-interest-rate financing denominated in Canadian dollars and Icelandic krona. To date, our Canadian and Icelandic operations have been insignificant and we believe that potential fluctuations in currency exchange rates will not have a material effect on our financial position.
 
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the consolidated financial statements and schedules listed in the accompanying “Index to Financial Statements and Schedules.”

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. 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,” as defined in Exchange Act Rule 13a-15(e). 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 Form 10-K annual 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 on the evaluation described above, the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures as of March 31, 2015 were effective in ensuring information required to be disclosed in our SEC reports was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Our management performed an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2015, utilizing the criteria described in the “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The objective of this assessment was to determine whether our internal control over financial reporting was effective as of March 31, 2015.

Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on this assessment, management determined that, as of March 31, 2015, the Company maintained effective internal control over financial reporting.

Deloitte & Touche LLP, an independent registered public accounting firm, who audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K , has also audited the effectiveness of the Company’s internal control over financial reporting as stated in its report appearing on page F-3.
 
45
Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended March 31, 2015, 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.

ITEM 9B. OTHER INFORMATION

None.
 
46
PART III

Except as set forth below, the information required by Items 10, 11, 12, 13 and 14 is incorporated by reference from our definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the close of our fiscal year.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information about our directors may be found under the caption “Proposals – Proposal 1 – Election of Directors” in our Proxy Statement for the 2015 Annual Meeting of Stockholders (the “Proxy Statement”). The information in the Proxy Statement set forth under the captions of “Section 16 (a) Beneficial Ownership Reporting Compliance, Related Person Transactions and Indemnification”, “Committees of the Board of Directors” and “Corporate Governance” is incorporated herein by reference.

The information under the heading “Executive Officers” in Item 1 of this report is incorporated in this section by reference.

Code of Ethics

We have a code of ethics that applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer and our Board. The Standard of Conduct and Ethics for Employees, Officers and Directors of ePlus inc. is available on our website at www.ePlus.com/ethics. We will disclose on our website any amendments to or waivers from any provision of the Standard of Conduct and Ethics that applies to any of the directors or officers.

ITEM 11. EXECUTIVE COMPENSATION

The information in the Proxy Statement set forth under the captions “Directors’ Compensation” and “Executive Compensation” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in the Proxy Statement set forth under the captions “Executive Compensation – Equity Compensation Plan Information,” “Security Ownership of Certain Beneficial Owners” and “Security Ownership by Management” is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information in the Proxy Statement set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance, Related Person Transactions and Indemnification” and “Corporate Governance” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information in the Proxy Statement set forth under the caption “Proposals – Proposal 3 – Ratification of the appointment of Deloitte and Touche LLP as our independent auditors for our fiscal year ending March 31, 2016” is incorporated herein by reference.
 
47
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1)
Financial Statements

The consolidated financial statements listed in the accompanying Index to Financial Statements and Schedules are filed as a part of this report and incorporated herein by reference.

(a)(2)
Financial Statement Schedule

See "Financial Statement Schedule II - Valuation and Qualifying Accounts" on page S-1.

(a)(3) Exhibit List

Exhibits 10.2 through 10.22 are management contracts or compensatory plans or arrangements.
 
Exhibit
No.
Exhibit Description
   
3.1
ePlus inc. Amended and Restated Certificate of Incorporation, filed on September 19, 2008 (Incorporated herein by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2008).
   
3.2
Amended and Restated Bylaws of ePlus amended as of February 17, 2015 (Incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on February 23, 2015).
   
4
Specimen Certificate of Common Stock (Incorporated herein by reference to Exhibit 4.1 to our Registration Statement on Form S-1 (File No. 333-11737) originally filed on September 11, 1996).
   
10.1
Form of Indemnification Agreement entered into between ePlus and its directors and officers (Incorporated herein by reference to Exhibit 10.5 to our Registration Statement on Form S-1 (File No. 333-11737) originally filed on September 11, 1996).
   
10.2
Employment Agreement dated September 27, 2011, between ePlus inc. and Phillip G. Norton (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 28, 2011).
   
10.3
Amendment No. 1 to Employment Agreement effective August 1, 2012 by and between ePlus inc. and Phillip G. Norton (Incorporated herein by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on August 3, 2012).
   
10.4
Amendment No. 2 to Employment Agreement effective July 1, 2013, by and between ePlus inc. and Phillip G. Norton (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 20, 2013).
   
10.5
Amendment No. 3 to Employment Agreement dated February 14, 2014, by and between ePlus inc. and Phillip G. Norton (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on February 18, 2014).
   
10.6
Amended and Restated Employment Agreement effective August 1, 2013, between ePlus inc. and Mark P. Marron (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 2, 2013).
   
10.7
Amended and Restated Employment Agreement effective August 1, 2013, between ePlus inc. and Steven J. Mencarini (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on August 2, 2013).
   
10.8
Amended and Restated Employment Agreement effective August 1, 2013. between ePlus inc. and Elaine D. Marion (Incorporated herein by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2014).
 
10.9
2008 Non-Employee Director Long-Term Incentive Plan as amended (Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q, for the period ended December 31, 2012).
   
10.10
2008 Employee Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 19, 2008).

10.11
Form of Award Agreement – Restricted Stock Awards (Incorporated herein by reference to Exhibit 10.5 to our Current Report on Form 8-K filed on September 19, 2008).
   
10.12
Form of Award Agreement – Restricted Stock Units (Incorporated herein by reference to Exhibit 10.6 to our Current Report on Form 8-K filed on September 19, 2008).
   
10.13
Form of Award Agreement – Restricted Stock Award Agreement (for awards granted on or after September 23, 2011) (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September 26, 2011)
   
10.14
Form of Award Agreement – Restricted Stock Agreement (director quarterly grants only for awards granted on or after September 23, 2011) (Incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on September 26, 2011)
   
10.15
Form of Award Agreement – Restricted Stock Unit Award Agreement (for awards granted on or after September 23, 2011) (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on September 26, 2011)
   
10.16
ePlus inc. Supplemental Benefit Plan for Steven J. Mencarini (Incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on March 2, 2005).
   
10.17
ePlus inc. Form of Supplemental Benefit Plan Participation Election Form (Incorporated herein by reference to Exhibit 10.4 to our Current Report on Form 8-K filed on March 2, 2005).
   
10.18
Form of Amendment to ePlus inc. Supplemental Benefit Plan (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 12, 2008).
   
10.19
ePlus inc. Executive Incentive Plan effective April 1, 2011 (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 3, 2011).
   
10.20
ePlus inc. 2012 Employee Long-term Incentive Plan (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2012).
   
10.21
Form of Award Agreement – Restricted Stock Agreement (for awards granted under and subject to the provisions of the ePlus inc. 2012 Employee Long-Term Incentive Plan) (Incorporated herein by reference to Exhibit 10.24 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2013).
   
10.22
Form of Award Agreement – Restricted Stock Unit Award Agreement (for awards granted under and subject to the provisions of the ePlus inc. 2012 Employee Long-Term Incentive Plan) (Incorporated herein by reference to Exhibit 10.25 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2013).
   
10.23
Limited Guaranty dated June 24, 2004 between GE Commercial Distribution Finance Corporation and ePlus inc. (Incorporated herein by reference to Exhibit 10.10 to our Current Report on Form 8-K filed on November 17, 2005).
   
10.24
Collateralized Guaranty, dated March 30, 2004, between GE Commercial Distribution Finance Corporation and ePlus Group, inc. (Incorporated herein by reference to Exhibit 10.11 to our Current Report on Form 8-K filed on November 17, 2005).
   
10.25
Amendment to Collateralized Guaranty, dated November 14, 2005, between GE Commercial Distribution Finance Corporation and ePlus Group, inc. (Incorporated herein by reference to Exhibit 10.12 to our Current Report on Form 8-K filed on November 17, 2005).
 

49
10.26
Amended and Restated Business Financing Agreement, dated July 23, 2012, between General Electric Commercial Distribution Finance and ePlus Technology, inc. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 26, 2012).
 
 
10.27
Amendment No. 1, dated July 31, 2014, to Amended and Restated Business Financing Agreement between General Electric Commercial Distribution Finance and ePlus Technology, inc. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended September 30, 2014).

10.28
Amended and Restated Agreement for Wholesale Financing, dated July 23, 2012, between General Electric Commercial Distribution Finance and ePlus Technology, inc. (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on July 26, 2012).
   
10.29
Amendment No. 1, dated July 31, 2014, to Amended and Restated Agreement for Wholesale Financing between General Electric Commercial Distribution Finance and ePlus Technology, inc. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2014).
   
10.30
Deed of Lease by and between ePlus inc. and Norton Building I, LLC dated as of December 23, 2004 (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on December 27, 2004).
   
10.31
Amendment #1 to Deed of Lease by and between ePlus inc. and Norton Building I, LLC, dated as of July 1, 2007 (Incorporated herein by reference to Exhibit 10.45 to our Annual Report on Form 10-K for the fiscal year ended March 31, 2013).
   
10.32
Amendment #2 to Deed of Lease by and between ePlus inc. and Norton Building I, LLC, dated as of June 18, 2009 (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 23, 2009).
   
10.33
Amendment #3 to Deed of Lease by and between ePlus inc. and Norton Building I, LLC, dated as of June 22, 2010 (Incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended June 30, 2010).
   
10.34
Amendment #4 to Deed of Lease by and between ePlus inc. and H/F Techpointe, LLC, dated as of March 4, 2014 (Incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K filed March 6, 2014).
   
12  Ratio of Earnings to Fixed Charges
 
Subsidiaries of ePlus inc.
   
Consent of Independent Registered Public Accounting Firm.
   
31.1
Rule 13a-14(a) and 15d-14(a) Certification of the Chief Executive Officer of ePlus inc.
   
31.2
Rule 13a-14(a) and 15d-14(a) Certification of the Chief Financial Officer of ePlus inc.
   
32
Section 1350 certification of the Chief Executive Officer and Chief Financial Officer of ePlus inc.
 
101.INS
XBRL Instance Document
   
101.SCH
XBRL Taxonomy Extension Schema Document
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

(b)
See item 15(a)(3) above.

(c)
See Item 15(a)(1) and 15(a)(2) above.
 
50
SIGNATURES

Pursuant to the requirements of Section 13 or Section 15(d) 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.
   
 
/s/ PHILLIP G. NORTON
 
By: Phillip G. Norton, Chairman of the Board,
 
President and Chief Executive Officer
 
Date: May 28, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 
/s/ PHILLIP G. NORTON
 
By: Phillip G. Norton, Chairman of the Board,
 
President, Chief Executive Officer
(Principal Executive Officer)
 
Date: May 28, 2015
   
 
/s/ ELAINE D. MARION
 
By: Elaine D. Marion, Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
Date: May 28, 2015
   
 
/s/ BRUCE M. BOWEN
 
By: Bruce M. Bowen, Director
 
Date: May 28, 2015
   
 
/s/ JOHN E. CALLIES
 
By: John E. Callies, Director
 
Date: May 28, 2015
   
 
/s/ C. THOMAS FAULDERS, III
 
By: C. Thomas Faulders, III, Director
 
Date: May 28, 2015
   
 
/s/ LAWRENCE S. HERMAN
 
By: Lawrence S. Herman, Director
 
Date: May 28, 2015
   
 
/s/ ERIC D. HOVDE
 
By: Eric D. Hovde, Director
 
Date: May 28, 2015
   
 
/s/ IRA A. HUNT
 
By: Ira A. Hunt, Director
 
Date: May 28, 2015
   
 
/s/ TERRENCE O’DONNELL
 
By: Terrence O’Donnell, Director
 
Date: May 28, 2015
 

51
ePlus inc. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
 
 
PAGE
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated Balance Sheets as of March 31, 2015 and 2014
F-4
   
Consolidated Statements of Operations for the Years Ended March 31, 2015, 2014 and 2013
F-5
   
Consolidated Statements of Comprehensive Income for the Years Ended March 31, 2015, 2014 and 2013
F-6
   
Consolidated Statements of Cash Flows for the Years Ended March 31, 2015, 2014 and 2013
F-7
   
Consolidated Statements of Stockholders’ Equity for the Years Ended March 31, 2015, 2014 and 2013
F-9
   
Notes to Consolidated Financial Statements
F-10
 
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ePlus inc.
Herndon, Virginia

We have audited the accompanying consolidated balance sheets of ePlus inc. and subsidiaries (the "Company") as of March 31, 2015 and 2014, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 2015. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ePlus inc. and subsidiaries as of March 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 28, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

McLean, Virginia

May 28, 2015
 
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ePlus inc.
Herndon, Virginia

We have audited the internal control over financial reporting of ePlus inc. and subsidiaries (the “Company”) as of March 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended March 31, 2015 of the Company and our report dated May 28, 2015 expressed an unqualified opinion on those financial statements and financial statement schedule.

DELOITTE & TOUCHE LLP

McLean, Virginia

May 28, 2015
 
F-3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

ePlus inc. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share data)
  
As of
March 31, 2015
    
As of
March 31, 2014
  
 
ASSETS
    
         
Current assets:
        
Cash and cash equivalents
  
$
76,175
    
$
80,179
  
Accounts receivable—trade, net
    
218,458
      
211,314
  
Accounts receivable—other, net
    
31,345
      
31,902
  
Inventories—net
    
19,835
      
22,629
  
Financing receivables—net, current
    
66,909
      
57,749
  
Deferred costs
    
20,499
      
10,819
  
Deferred tax assets
    
3,643
      
3,742
  
Other current assets
    
7,413
      
6,925
  
Total current assets
    
444,277
      
425,259
  
                 
Financing receivables and operating leases—net
    
76,991
      
85,990
  
Property, equipment and other assets
    
9,480
      
8,013
  
Goodwill and other intangible assets
    
40,798
      
34,583
  
TOTAL ASSETS
  
$
571,546
    
$
553,845
  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
LIABILITIES
                
                 
Current liabilities:
                
Accounts payable—equipment
  
$
20,330
    
$
6,772
  
Accounts payable—trade
    
46,090
      
61,940
  
Accounts payable—floor plan
    
99,418
      
93,416
  
Salaries and commissions payable
    
14,860
      
12,401
  
Deferred revenue
    
34,363
      
21,840
  
Recourse notes payable - current
    
889
      
1,460
  
Non-recourse notes payable - current
    
28,560
      
30,907
  
Other current liabilities
    
13,575
      
15,382
  
Total current liabilities
    
258,085
      
244,118
  
                 
Recourse notes payable - long term
    
2,801
      
2,100
  
Non-recourse notes payable - long term
    
24,314
      
34,421
  
Deferred tax liability - long term
    
3,271
      
5,001
  
Other liabilities
    
3,813
      
1,822
  
TOTAL LIABILITIES
    
292,284
      
287,462
  
                 
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; 13,114 issued and 7,389 outstanding at March 31, 2015 and 13,026 issued and 8,036 outstanding at March 31, 2014
    
131
      
130
  
Additional paid-in capital
    
111,072
      
105,924
  
Treasury stock, at cost, 5,725 and 4,990 shares, respectively
    
(118,179
)
    
(80,494
)
Retained earnings
    
286,477
      
240,637
  
Accumulated other comprehensive income—foreign currency translation adjustment
    
(239
)
    
186
  
Total Stockholders' Equity
    
279,262
      
266,383
  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
571,546
    
$
553,845
  

See Notes to Consolidated Financial Statements.
 
F-4
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
   
(amounts in thousands, except per share data)
  
             
Net sales
  
$
1,143,282
    
$
1,057,536
    
$
983,112
  
Cost of sales
    
898,735
      
840,623
      
778,339
  
Gross profit
    
244,547
      
216,913
      
204,773
  
                         
Professional and other fees
    
6,508
      
9,041
      
13,098
  
Salaries and benefits
    
138,086
      
123,151
      
110,963
  
General and administrative expenses
    
26,864
      
22,675
      
20,099
  
Interest and financing costs
    
2,379
      
1,948
      
1,868
  
Operating expenses
    
173,837
      
156,815
      
146,028
  
                         
Operating income
    
70,710
      
60,098
      
58,745
  
                         
Other income
    
7,603
      
-
      
-
  
                         
Earnings before tax
    
78,313
      
60,098
      
58,745
  
                         
Provision for income taxes
    
32,473
      
24,825
      
23,915
  
                         
Net earnings
  
$
45,840
    
$
35,273
    
$
34,830
  
                         
Net earnings per common share—basic
  
$
6.26
    
$
4.41
    
$
4.37
  
Net earnings per common share—diluted
  
$
6.19
    
$
4.37
    
$
4.32
  
                         
Weighted average common shares outstanding—basic
    
7,318
      
7,927
      
7,810
  
Weighted average common shares outstanding—diluted
    
7,393
      
7,999
      
7,903
  
 
See Notes to Consolidated Financial Statements.
 
F-5
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
   
( in thousands)
  
             
NET EARNINGS
  
$
45,840
    
$
35,273
    
$
34,830
  
                         
OTHER COMPREHENSIVE INCOME, NET OF TAX:
                        
Foreign currency translation adjustments
    
(425
)
    
(224
)
    
(55
)
Other comprehensive income (loss)
    
(425
)
    
(224
)
    
(55
)
                         
TOTAL COMPREHENSIVE INCOME
  
$
45,415
    
$
35,049
    
$
34,775
  

See Notes to Consolidated Financial Statements.
 
F-6
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
   
(in thousands)
  
Cash Flows From Operating Activities:
            
Net earnings
  
$
45,840
    
$
35,273
    
$
34,830
  
                         
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
                        
Depreciation and amortization
    
15,575
      
14,755
      
12,168
  
Reserve for credit losses, inventory obsolescence and sales returns
    
125
      
853
      
(192
)
Share-based compensation expense
    
4,585
      
3,968
      
3,283
  
Excess tax benefit from share-based compensation
    
(564
)
    
(1,762
)
    
(1,648
)
Deferred taxes
    
(1,863
)
    
(3,536
)
    
(991
)
Payments from lessees directly to lenders—operating leases
    
(7,685
)
    
(7,539
)
    
(5,567
)
Gain on disposal of property, equipment and operating lease equipment
    
(3,112
)
    
(2,473
)
    
(946
)
Gain on sale of financing receivables
    
(5,884
)
    
(5,843
)
    
(2,997
)
Excess increase in cash value of life insurance
    
-
      
(103
)
    
(107
)
Gain on settlement
    
(1,434
)
    
-
      
-
  
Other
    
(127
)
    
109
      
15
  
Changes in:
                        
Accounts receivable—trade
    
1,372
      
(36,751
)
    
(14,230
)
Accounts receivable—other
    
(2,407
)
    
(2,621
)
    
(3,610
)
Inventories
    
3,161
      
(7,724
)
    
8,764
  
Financing receivables
    
(19,560
)
    
(30,792
)
    
18,763
  
Deferred costs, other intangible assets and other assets
    
(10,060
)
    
(1,179
)
    
(479
)
Accounts payable—equipment
    
(349
)
    
3,578
      
(11,708
)
Accounts payable—trade
    
(16,461
)
    
29,512
      
4,568
  
Salaries and commissions payable, deferred revenue and other liabilities
    
12,695
      
4,052
      
1,354
  
Net cash provided by (used in) operating activities
  
$
13,847
    
$
(8,223
)
  
$
41,270
  
                         
Cash Flows From Investing Activities:
                        
Purchases of short-term investments
  
$
-
    
$
-
    
$
(1,233
)
Maturities of short-term investments
    
-
      
982
      
7,647
  
Maturities of supplemental benefit plan investments
    
2,544
      
-
      
-
  
Proceeds from sale of property, equipment and operating lease equipment
    
8,562
      
4,138
      
1,923
  
Purchases of property, equipment and operating lease equipment
    
(11,773
)
    
(9,952
)
    
(15,584
)
Purchases of assets to be leased or financed
    
(143
)
    
(5,445
)
    
-
  
Issuance of financing receivables
    
(128,125
)
    
(104,298
)
    
(87,859
)
Repayments of financing receivables
    
60,619
      
42,514
      
26,913
  
Proceeds from sale of financing receivables
    
45,828
      
46,249
      
55,663
  
Premiums paid on life insurance
    
(47
)
    
(140
)
    
(128
)
Cash used in acquisitions, net of cash acquired
    
(8,057
)
    
(2,845
)
    
-
  
Net cash used in investing activities
  
$
(30,592
)
  
$
(28,797
)
  
$
(12,658
)
 
F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
   
(in thousands)
  
Cash Flows From Financing Activities:
            
Borrowings of non-recourse and recourse notes payable
  
$
52,237
    
$
51,547
    
$
32,746
  
Repayments of non-recourse and recourse notes payable
    
(1,688
)
    
(2,252
)
    
(3,105
)
Repurchase of common stock
    
(37,685
)
    
(13,188
)
    
(1,890
)
Dividends paid
    
(90
)
    
(108
)
    
(20,100
)
Proceeds from issuance of capital stock through option exercise
    
-
      
560
      
1,167
  
Payments of contingent consideration
    
-
      
(1,027
)
    
(473
)
Excess tax benefit from share-based compensation
    
564
      
1,762
      
1,648
  
Net borrowings (repayments) on floor plan facility
    
(518
)
    
27,165
      
(19,660
)
Net cash provided by (used in) financing activities
    
12,820
      
64,459
      
(9,667
)
                         
Effect of exchange rate changes on cash
    
(79
)
    
20
      
(3
)
                         
Net (Decrease) Increase in Cash and Cash Equivalents
    
(4,004
)
    
27,459
      
18,942
  
                         
Cash and Cash Equivalents, Beginning of Period
    
80,179
      
52,720
      
33,778
  
                         
Cash and Cash Equivalents, End of Period
  
$
76,175
    
$
80,179
    
$
52,720
  
                         
Supplemental Disclosures of Cash Flow Information:
                        
Cash paid for interest
  
$
239
    
$
105
    
$
26
  
Cash paid for income taxes
  
$
35,436
    
$
25,517
    
$
24,200
  
                         
Schedule of Non-Cash Investing and Financing Activities:
                        
Purchase of property, equipment, and operating leasese included in accounts payable
  
$
432
    
$
123
    
$
313
  
Purchase of assets to be leased or financed included in accounts payable
  
$
20,022
    
$
1,140
    
$
-
  
Proceeds from sales of operating lease equipment included in accounts receivable
  
$
443
    
$
861
    
$
34
  
Repayments of non-recourse and recourse notes payable
  
$
34,584
    
$
22,146
    
$
15,872
  
Dividends declared included in other liabilities
  
$
-
    
$
-
    
$
278
  
Vesting of share-based compensation
  
$
6,474
    
$
7,838
    
$
4,648
  
Origination and concurrent sale of financing receivables
  
$
73,881
    
$
98,616
    
$
-
  
Contingent consideration
  
$
1,980
    
$
-
    
$
-
  

See Notes to Consolidated Financial Statements.
 
F-8
ePlus inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)

   
Common Stock
    
Additional
Paid-In
    
Treasury
    
Retained
    
Accumulated
Other
Comprehensive
      
   
Shares
    
Par Value
    
Capital
    
Stock
    
Earnings
    
Income
    
Total
  
     
Balance, April 1, 2012
    
8,000
    
$
127
    
$
93,545
    
$
(65,416
)
  
$
190,906
    
$
465
    
$
219,627
  
Issuance of shares for option exercises and issuance of restricted shares
    
105
      
1
      
1,166
      
-
      
-
      
-
      
1,167
  
Excess tax benefit of share based compensation
    
-
      
-
      
1,648
      
-
      
-
      
-
      
1,648
  
Effect of share-based compensation, net of forfeitures
    
102
      
1
      
3,282
      
-
      
-
      
-
      
3,283
  
Repurchase of common stock
    
(57
)
    
-
      
-
      
(1,890
)
    
-
      
-
      
(1,890
)
Dividends declared ($2.50 per share)
    
-
      
-
      
-
      
-
    
(20,378
)
    
-
    
(20,378
)
Net earnings
    
-
      
-
      
-
      
-
      
34,830
      
-
      
34,830
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(55
)
    
(55
)
                                                         
Balance, March 31, 2013
    
8,150
    
$
129
    
$
99,641
    
$
(67,306
)
  
$
205,358
    
$
410
    
$
238,232
  
                                                         
Issuance of shares for option exercises
    
40
      
-
      
559
      
-
      
-
      
-
      
559
  
Excess tax benefit of share- based compensation
    
-
      
-
      
1,762
      
-
      
-
      
-
      
1,762
  
Issuance of restricted stock awards
    
87
      
1
      
-
      
-
      
-
      
-
      
1
  
Share-based compensation
                    
3,962
      
-
      
6
      
-
      
3,968
  
Repurchase of common stock
    
(241
)
    
-
      
-
      
(13,188
)
    
-
      
-
      
(13,188
)
Net earnings
    
-
      
-
      
-
      
-
      
35,273
      
-
      
35,273
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(224
)
    
(224
)
                                                         
Balance, March 31, 2014
    
8,036
    
$
130
    
$
105,924
    
$
(80,494
)
  
$
240,637
    
$
186
    
$
266,383
  
                                                         
Excess tax benefit of share-based compensation
    
-
      
-
      
564
      
-
      
-
      
-
      
564
  
Issuance of restricted stock awards
    
88
      
1
      
-
      
-
      
-
      
-
      
1
  
Share-based compensation
    
-
      
-
      
4,584
      
-
      
-
      
-
      
4,584
  
Repurchase of common stock
    
(735
)
    
-
      
-
      
(37,685
)
    
-
      
-
      
(37,685
)
Net earnings
    
-
      
-
      
-
      
-
      
45,840
      
-
      
45,840
  
Foreign currency translation adjustment
    
-
      
-
      
-
      
-
      
-
      
(425
)
    
(425
)
                                                         
Balance, March 31, 2015
    
7,389
    
$
131
    
$
111,072
    
$
(118,179
)
  
$
286,477
    
$
(239
)
  
$
279,262
  

See Notes to Consolidated Financial Statements.
 
F-9
ePlus inc. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended March 31, 2015, 2014 and 2013

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 Annual Report on Form 10-K as “we,” “our,” “us,” “ourselves,” or “ePlus.” The consolidated financial statements include the accounts of ePlus inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accounts of businesses acquired during fiscal years 2014, 2013, and 2012 are included in the consolidated financial statements from the dates of acquisition.

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.

REVENUE RECOGNITION — The majority of our revenues are derived from the following sources: sales of third-party products, software, software assurance, maintenance and services; sales of our services and software and financing revenues. For all these revenue sources, we determine whether we are the principal or agent in accordance with Accounting Standards Codification (“Codification”) Topic, Revenue Recognition, Subtopic Principal Agent Considerations. Our revenue recognition policies vary based upon these revenue sources.

For arrangements with multiple elements, we allocate the total consideration to the deliverables based on an estimated selling price of our products and services. We determine the estimated selling price using cost plus a reasonable margin for each deliverable, which was based on historical data.

Sales of Product and Services

Generally, sales of third-party product and software are recognized on a gross basis with the selling price to the customer recorded as sales and the acquisition cost of the product or software recorded as cost of sales. Revenue is 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, the sales price is fixed or determinable and collectability is reasonably assured. Delivery for products is typically performed via drop-shipment by the vendor or distributor to our customers’ location, and for software via electronic delivery. Using these tests, the vast majority of our product and software sales are recognized upon delivery due to our sales terms with our customers and with our vendors.

Revenues from ePlus advanced professional services are generally recognized when the services are complete. Revenues from other ePlus services, such as maintenance, managed services and hosting services are recognized on a straight-line basis over the term of the arrangement.

We sell software assurance, subscription licenses, maintenance and service contracts where the services are performed by a third-party. Software assurance is a maintenance product that allows customers to upgrade at no additional cost to the latest technology if new applications are introduced during the period that the software assurance is in effect. As we enter into contracts with third-party service providers, we evaluate whether we are acting as a principal or agent in the transaction. As our customers are aware that the third-party service provider is to provide the services to them and that we are not responsible for the day-to-day provision of services in these arrangements, we concluded that we are acting as an agent and recognize revenue on a net basis at the date of sale. Under net revenue recognition, the cost paid to the vendor or third-party service provider is recorded as a reduction to sales, resulting in revenue being equal to the gross profit on the transaction.

We present freight billed to our customers within sales and the related freight charged to us within cost of sales. Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis.
 
F-10
Financing Revenue

We lease products to customers that are accounted for in accordance with Codification Topic, Leases. In connection with those leases, we may also finance third-party software and services for our customers, which are classified as notes receivable. The terms of the notes receivable are often similar to the terms of the leases of IT equipment; that is, receivables are interest bearing and are often due over a period of time that corresponds with the terms of the leased IT equipment.

The accounting for investments in leases and leased equipment 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 fair value of the leased property at the inception of the lease.

Revenue on direct financing and sales-type leases is deferred at the inception of the leases and is recognized over the term of the lease using the interest method. Revenue from operating leases is recognized ratably on a straight line basis over the term of the lease agreement.

Codification Topic Transfers and Servicing, Subtopic Sales of Financial Assets, 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 notes receivable and direct finance and sales-type leases we make on a non-recourse basis meet the criteria for surrender of control set forth by this subtopic and have therefore been treated as sales in our financial results. We recognize a net gain or loss on these transactions, which is included within revenue in our consolidated statements of operations.

Revenues on the sales of equipment at the end of a lease are recognized at the date of sale. The net gain or loss on sales of such equipment is presented within revenue in our consolidated statements of operations.

Software License Sales

We recognize revenue for the licensing and hosting of our software in accordance with Codification Topic Software, Subtopic Revenue Recognition. We recognize revenue when all the following criteria exist:

· there is persuasive evidence that an arrangement exists;
· delivery has occurred;
· no significant obligations by us remain, which relate to services essential to the functionality of the software  with regard to implementation;
· the sales price is determinable; and
· it is probable that collection will occur.

The majority of our agreements are fixed term license agreements and the revenue is recognized over the contract term. Revenue from the sale of a perpetual license is recognized upon installation of the software. We recognize revenue from hosting our proprietary software for our customers over the contract term. Our hosting arrangements do not contain a contractual right to take possession of the software.

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) agent fees received from various vendors in the technology segment; (4) settlement fees related to disputes or litigation; and (5) interest and other miscellaneous income.
 
F-11
FINANCING RECEIVABLES AND OPERATING LEASES — Financing receivables and operating leases consists of notes receivable, direct financing, sales-type leases and operating leases. The terms of lease and financing arrangements are typically between 2 to 5 years, with an average term of 36 to 39 months.

Notes receivables consist of software and services that we finance for our customers. Interest income is recognized using the effective interest method and reported within revenue in our consolidated statement of operations.

At the inception of our 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 financing 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. We recognize contingent rental income, if any, when the changes in the factors on which the contingent lease payments are based actually occur.

At the inception of an operating lease, equipment under operating leases is recorded at cost and depreciated on a straight-line basis over its useful life to the estimated residual value. The estimated useful lives for equipment under operating leases ranges based on the nature of the equipment. The estimated useful life for information technology equipment is 42 months, while that of medical equipment is between 48 and 60 months.

VENDOR CONSIDERATION — We receive payments and credits from vendors, including consideration pursuant to volume incentive programs and shared marketing expense programs. Many of these programs extend over one or more quarters’ sales activities. Different programs have different vendor/program specific goals to achieve. We estimate the amount of vendor consideration earned when it is probable and reasonably estimable using the best information available, including historical data. Amounts due from vendors as of March 31, 2015 and 2014 were $13.9 million and $14.4 million, respectively, which were included within accounts receivable-other, net in the accompanying balance sheets.

· Vendor consideration received pursuant to volume purchase incentive programs is allocated to inventory 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.

RESIDUAL VALUES — Residual values, representing the unguaranteed estimated value of equipment at the termination of a lease, are recorded at the inception of each lease. The estimated residual values vary, both in amount and as a percentage of the original equipment cost, and depend upon several factors, including the equipment type, vendor's discount, market conditions, term of the lease, equipment supply and demand and by new product announcements by vendors.

Unguaranteed residual values for direct financing and sales-type 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.

Residual values are evaluated on a quarterly basis and any impairment, other than temporary, is recorded in the period in which the impairment is determined. No upward revision of residual values is made subsequent to lease inception.

RESERVES FOR CREDIT LOSSES — Our receivables consist of trade and other accounts receivable and financing receivables. We maintain our reserves for credit losses at a level believed to be adequate to absorb potential losses inherent in the respective balances. The reserve for credit losses is increased by provisions for potential credit losses, which increases expenses, and decreased by subsequent recoveries. The reserve for credit losses is decreased by write-offs and reductions to the provision for potential credit losses. Accounts are either written off or written down when the loss is both probable and determinable.
 
F-12
Management’s determination of the adequacy of the reserves for credit losses for accounts receivable is based on the age of the receivable balance, the customer’s credit quality rating, an evaluation of historical credit losses, current economic conditions, and other relevant factors. Management’s determination of the adequacy of the reserve for credit losses for financing receivables may be based on the following factors: an internally assigned credit quality rating, historical credit loss experience, current economic conditions, volume, growth, the composition of the lease portfolio, the fair value of the underlying collateral, and the funding status (i.e. not funded, funded on a recourse or partial recourse basis, or funded on non-recourse basis). We assign an internal credit quality rating to each customer at the inception of the lease based on the customer’s financial status, rating agency reports and other financial information. We update the internal credit quality rating at least annually or when an indicator of a change in credit quality arises, such as a delinquency or bankruptcy. Also, management regularly reviews financing receivables to assess whether any balances should be impaired or placed on nonaccrual status.

RESERVES FOR SALES RETURNS — Sales of product and services are reported net of allowances for returns which is maintained at a level believed by management to be adequate to absorb potential returns of sales of product and services in accordance with Codification Topic Revenue, Subtopic Product. 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 at the date of acquisition, to be cash equivalents. Cash and cash equivalents consist primarily of interest-bearing accounts and money market funds that consist of short-term U.S. treasury securities. There were no restrictions on the withdrawal of funds from our money market accounts as of March 31, 2015 and March 31, 2014.

INVENTORIES — Inventories are stated at the lower of cost (weighted average basis) or market and are shown net of allowance for obsolescence of $161 thousand and $180 thousand as of March 31, 2015 and 2014, respectively.

DEFERRED COSTS AND DEFERRED REVENUES — Deferred costs include internal and third party costs associated with deferred revenue arrangements. Deferred revenue relates to professional, managed and hosting services.

PROPERTY AND EQUIPMENT — Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment obtained through an acquisition are stated at the fair market value as of the acquisition date. 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. Information technology equipment is depreciated over three years. Perpetual software licenses are depreciated over five years. Furniture and certain fixtures are depreciated over five to ten years. Telecommunications equipment is depreciated over seven years.

CAPITALIZATION OF COSTS OF SOFTWARE FOR INTERNAL USE — We capitalize costs for the development of internal use software under the guidelines of Codification Topic Intangibles—Goodwill and Other Intangibles, Subtopic Internal-Use Software. Software capitalized for internal use was $77 thousand and $373 thousand during the years ended March 31, 2015 and March 31, 2014, respectively, and is included in the accompanying consolidated balance sheets as a component of goodwill and other intangible assets. We had capitalized costs, net of amortization, of approximately $675 thousand and $882 thousand at March 31, 2015 and March 31, 2014, respectively.

CAPITALIZATION OF COSTS OF SOFTWARE TO BE MADE AVAILABLE TO CUSTOMERS — In accordance with Codification Topic Software, Subtopic Costs of Software to Be Sold, Leased, or 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. No amounts were capitalized for the year ended March 31, 2015 and $305 thousand was capitalized for the year ended March 31, 2014. We had $566 thousand and $789 thousand of capitalized costs, net of amortization, at March 31, 2015 and March 31, 2014, respectively, which is included within goodwill and other intangible assets in the accompanying balance sheets.

GOODWILL— Goodwill represents the premium paid over the fair value of net tangible and intangible assets we have acquired in business combinations. Goodwill is assigned to a reporting unit on the acquisition date. During the year ended March 31, 2015, we made an acquisition for the Technology reporting unit and have assigned goodwill to the Technology reporting unit. We have four reporting units based on the nature of the products and services offered: financing, technology, software procurement, and software document management.
 
F-13
We review our goodwill for impairment annually in the third quarter of our fiscal year, or more frequently if indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, and/or slower growth rates, among others.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Qualitative factors we consider include, but are not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows and market capitalization. If the qualitative factors indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the two step process to assess our goodwill for impairment. First, we compare the fair value of our reporting units with its carrying value. We estimate the fair value of the reporting unit using various valuation methodologies, including discounted expected future cash flows. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired, and no further testing is necessary. If the net book value of our reporting unit exceeds its fair value, we perform a second test to measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we determine the fair value of goodwill in the same manner as if our reporting unit were being acquired in a business combination. Specifically, we allocate the fair value of the reporting unit to all of the assets and liabilities of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the estimated fair value of goodwill. If the estimated fair value of goodwill is less than the goodwill recorded on our balance sheet, we record an impairment charge for the difference.

For the annual impairment assessment performed during the third quarter of the year ended March 31, 2015, we elected to bypass the qualitative assessment and estimated the fair values of our reporting units using the best information available, including prices for similar assets and liabilities and other valuation techniques. The fair values of our reporting units significantly exceeded their respective carrying amounts and the recoverability of goodwill would not have been impacted by a 10% change in the fair values.

FAIR VALUE MEASUREMENT — We follow the guidance in Codification Topic Fair Value Measurements which governs fair value accounting for financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be disclosed at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risk inherent in valuation techniques, transfer restrictions and credit risk. Topic Fair Value Measurements and Disclosures establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement as follows:

· Level 1 – Observable inputs such as quoted prices for identical assets and liabilities in active markets;
· Level 2 – Inputs other than quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
· Level 3 – Unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. As of March 31, 2015, we measure money market funds and contingent consideration at fair value on a recurring basis, which is based on quoted net asset values.

FINANCIAL INSTRUMENTS — For financial instruments such as cash, short-term investments, accounts receivables, accounts payable and other current liabilities, we consider the recorded value of the financial instruments to approximate the fair value due to their short maturities.

At March 31, 2015, the carrying amount of notes receivables, recourse and non-recourse payables were $56.8 million, $3.7 million and $52.9 million, respectively and the fair value of notes receivables, recourse and non-recourse payables were $59.4 million, $3.6 million and $52.3 million, respectively. At March 31, 2014, the carrying amount of notes receivables, recourse and non-recourse payables were $40.7 million, $3.6 million and $65.3 million, respectively and the fair value of notes receivables, recourse and non-recourse payables were $42.4 million, $3.6 million and $65.4 million, respectively.
 
F-14
TREASURY STOCK — We account for treasury stock under the cost method and include treasury stock as a component of stockholders’ equity on the accompanying consolidated balance sheets.

INCOME TAXES — Deferred income taxes are accounted for in accordance with Codification Topic 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 carry-forwards, are recognized to the extent that realization of these benefits is considered to be more likely than not. We review our deferred tax assets at least annually and make necessary valuation adjustments.

In addition, we account for uncertain tax positions in accordance with Codification Topic Income Taxes. Specifically, the Topic 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 de-recognition, 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.

EARNINGS PER SHARE — Earnings per share is calculated using the two-class method. Basic earnings per share is calculated by dividing net earnings attributable to common stockholders by the basic weighted average number of shares of common stock outstanding during each period. Diluted earnings per share reflects the potential dilution of securities that could participate in our earnings, including incremental shares issuable upon the assumed exercise of “in-the-money” stock options and other common stock equivalents during each period.

SHARE-BASED COMPENSATION — We account for share-based compensation in accordance with Codification Topic Compensation—Stock Compensation. We recognize compensation cost for awards of restricted stock with graded vesting on a straight line basis over the requisite service period and we estimate forfeitures based on historical experience. There are no additional conditions for vesting other than service conditions.

BUSINESS COMBINATIONS — We account for business combinations using the acquisition method in accordance with Codification Topic Business Combinations, which requires that the total purchase price of each of the acquired entities be allocated to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The allocation process requires an analysis of intangible assets, such as customer relationships, trade names, acquired contractual rights and assumed contractual commitments and legal contingencies to identify and record all assets acquired and liabilities assumed at their fair value.

Any premium paid over the fair value of the net tangible and intangible assets of the acquired business is recorded as goodwill. We recognize a gain in our income statement to the extent the purchase price is less than the fair value of assets acquired and liabilities assumed. The results of operations for an acquired company are included in our financial statements from the date of acquisition.

CONCENTRATIONS OF RISK — Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, short-term investments, accounts receivable, notes receivable and investments in direct financing and sales-type leases. Cash and cash equivalents and short-term investments are maintained principally with financial institutions in the United States, which have high credit ratings. Risk on accounts receivable, notes receivable and investments in direct financing and sales-type leases is reduced by the large number of diverse industries comprising our customer base and through the ongoing evaluation of collectability of our portfolio. Our credit risk is further mitigated through the underlying collateral and whether the lease is funded with recourse or non-recourse notes payable.

A substantial portion of our sales are from Cisco Systems, Hewlett-Packard, and NetApp products, which represented approximately 49%, 8% and 7%, respectively, of our technology segment net sales for the year ended March 31, 2015, as compared to 48%, 10%, and 8%, respectively, of our technology segment net sales for the year ended March 31, 2014, and 48%, 11%, and 7%, respectively, for the year ended March 31, 2013.
 
F-15
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED — In May 2014, FASB issued ASU 2014-09, which will update ASC topic Revenue from Contracts with Customers. 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. The standard will become effective for us on April 1, 2017. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual periods beginning after that date. 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

FINANCING RECEIVABLES—NET

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

March 31, 2015
  
Notes
Receivables
    
Lease-Related
Receivables
    
Total
Financing
Receivables
  
Minimum payments
  
$
59,943
    
$
66,415
    
$
126,358
  
Estimated unguaranteed residual value (1)
    
-
      
8,376
      
8,376
  
Initial direct costs, net of amortization (2)
    
429
      
495
      
924
  
Unearned income
    
-
      
(5,233
)
    
(5,233
)
Reserve for credit losses (3)
    
(3,573
)
    
(881
)
    
(4,454
)
Total, net
  
$
56,799
    
$
69,172
    
$
125,971
  
Reported as:
                        
Current
  
$
33,484
    
$
33,425
    
$
66,909
  
Long-term
    
23,315
      
35,747
      
59,062
  
Total, net
  
$
56,799
    
$
69,172
    
$
125,971
  

(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.”

March 31, 2014
  
Notes
Receivables
    
Lease-Related
Receivables
    
Total
Financing
Receivables
  
Minimum payments
  
$
43,707
    
$
81,551
    
$
125,258
  
Estimated unguaranteed residual value (1)
    
-
      
8,275
      
8,275
  
Initial direct costs, net of amortization (2)
    
354
      
537
      
891
  
Unearned income
    
-
      
(6,285
)
    
(6,285
)
Reserve for credit losses (3)
    
(3,364
)
    
(1,024
)
    
(4,388
)
Total, net
  
$
40,697
    
$
83,054
    
$
123,751
  
Reported as:
                        
Current
  
$
22,109
    
$
35,640
    
$
57,749
  
Long-term
    
18,588
      
47,414
      
66,002
  
Total, net
  
$
40,697
    
$
83,054
    
$
123,751
  

(1) Includes estimated unguaranteed residual values of $3,034 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 $525 thousand.
(3) For details on reserve for credit losses, refer to Note 4, “Reserves for Credit Losses.”
 
F-16
Future scheduled minimum lease payments for investments in direct financing and sales-type leases as of March 31, 2015 are as follows (in thousands):

Year ending March 31, 2016
  
$
36,546
  
2017
    
20,041
  
2018
    
7,421
  
2019
    
1,484
  
2020 and thereafter
    
923
  
Total
  
$
66,415
  

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

   
March 31,
2015
    
March 31,
2014
  
Cost of equipment under operating leases
  
$
36,283
    
$
40,513
  
Accumulated depreciation
    
(18,354
)
    
(20,525
)
Investment in operating lease equipment—net (1)
  
$
17,929
    
$
19,988
  

(1) Amounts include estimated unguaranteed residual values of $4,340 thousand and $5,610 thousand as of March 31, 2015 and 2014, respectively.

Future scheduled minimum lease rental payments as of March 31, 2015 are as follows (in thousands):

Year ending March 31, 2016
  
$
7,627
  
2017
    
4,171
  
2018
    
1,928
  
2019
    
555
  
Total
  
$
14,281
  

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, 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 March 31, 2015 and 2014 we had financing receivables and operating leases of $61.9 million and $72.3 million, respectively that 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 are presented within financing revenues in the consolidated statement of operations. For the years ended March 31, 2015 and 2014, we recognized net gains of $5.9 million and $8.5 million, respectively, and total proceeds from these sales were $181.3 million and $187.2 million, respectively.
 
F-17
3. GOODWILL AND OTHER INTANGIBLE ASSETS

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

   
March 31, 2015
    
March 31, 2014
  
   
Gross
Carrying
Amount
    
Accumulated
Amortization
/ Impairment
Loss
    
Net
Carrying
Amount
    
Gross
Carrying
Amount
    
Accumulated
Amortization
/ Impairment
Loss
    
Net
Carrying
Amount
  
                         
Goodwill
  
$
42,785
    
$
(8,673
)
  
$
34,112
    
$
38,243
    
$
(8,673
)
  
$
29,570
  
Customer relationships & other intangibles
    
12,005
      
(6,560
)
    
5,445
      
8,013
      
(4,671
)
    
3,342
  
Capitalized software development
    
2,693
      
(1,452
)
    
1,241
      
2,616
      
(945
)
    
1,671
  
Total
  
$
57,483
    
$
(16,685
)
  
$
40,798
    
$
48,872
    
$
(14,289
)
  
$
34,583
  

GOODWILL

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business combinations. All of our goodwill as of March 31, 2015 and 2014 related to our technology segment. The following table summarizes the amount of goodwill allocated to our reporting units:

Reporting Unit
  
March 31,
2015
    
March 31,
2014
  
Technology
  
$
33,023
    
$
28,481
  
Software Document Management
    
1,089
      
1,089
  

Goodwill attributed to our technology reporting unit increased by $4.5 million due to the acquisition of Granite Business Solutions, Inc. dba Evolve Technology Group (“Evolve”) in August, 2014. See Note 13, “Business Combinations,” for additional information.

During the third quarter of fiscal 2015, we performed our annual impairment test of goodwill and concluded that the fair value of our Technology and Software Document Management reporting units were in excess of their respective book values. As part of our annual assessment, we elected to bypass the qualitative assessment and estimated the fair values of our reporting units using the best information available, including prices for similar assets and liabilities and other valuation techniques. We employed both the market approach and the income approach to determine fair value. The market approach measures the value of an entity through an analysis of recent sales or by comparison to comparable companies. The income approach measures the value of an entity by discounting expected future cash flows.

Under the market approach, we used the guideline public company method and similar transactions method. Under the guideline public company method, we analyzed companies that were in the same industry, performed the same or similar services, had similar operations, and are considered competitors. Multiples that related to some level of earnings or revenue were considered most appropriate for the industry in which we operate. The multiples selected were based on our analysis of the guideline companies’ profitability ratios and return to investors. We compared our reporting units’ size and ranking against the guideline companies, taking into consideration risk, profitability and growth along with guideline medians and averages. We then selected pricing multiples, adjusted appropriately for size and risk, to apply to our reporting units’ financial data.

Multiples were weighted based on the consistency and comparability of the guideline companies along with the respective reporting units, including margins, profitability and leverage. For each of the reporting units, we used the following multiples: enterprise value (“EV”) to trailing twelve months (“TTM”) revenue, EV to TTM earnings before interest and taxes (“EBIT”), and EV to forward twelve months revenue. Under the similar transactions method, we examined the recently completed transactions of sales of stock of private or public companies, which are in the same industry or similar lines of business to compute the enterprise value to trailing twelve months revenue multiple. This multiple, adjusted for differences in size, was used to estimate the fair value.
 
F-18
Under the income approach, we used the discounted future cash flow method to estimate the fair value of each of the reporting units by discounting the expected future cash flows to their present value using the weighted average cost of capital, which reflects the overall level of inherent risk involved in our reporting units and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of our model, we used a terminal value approach. Under this approach, we used the estimated earnings before interest, taxes, depreciation and amortization in the final year of our model, adjusted to estimate a normalized cash flow, applied a perpetuity growth assumption and discounted by a perpetuity discount factor to determine the terminal value. We incorporated the present value of the resulting terminal value into our estimate of fair value.

The estimated fair value of our reporting units is dependent on several significant assumptions underlying our forecasted cash flows and weighted average cost of capital. The forecasted cash flows were based on management’s best estimates after considering economic and market conditions over the projection period, including business plans, growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Our ability to meet our forecasted cash flow estimates may be impacted by any adverse changes, including: a significant decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, or slower growth rates.

The fair value of our Technology and Software Document Management reporting units exceeded their respective carrying values as of October 1, 2014, and our conclusions regarding the recoverability of goodwill would not have been impacted by a 10% change in the fair values.

OTHER INTANGIBLE ASSETS

Total amortization expense was $2.4 million, $1.5 million, and $1.3 million for the years ended March 31, 2015, 2014 and 2013, respectively. Amortization expense is estimated to be $2.6 million, $1.9 million, $1.1 million, $0.7 million, and $0.3 million for the years ended March 31, 2016, 2017, 2018, 2019, and 2020, respectively.

4. RESERVES FOR CREDIT LOSSES

Activity in our reserves for credit losses for the years ended March 31, 2015, 2014 and 2013 were as follows (in thousands):

   
Accounts
Receivable
    
Notes
Receivable
    
Lease-Related
Receivables
    
Total
  
Balance April 1, 2014
  
$
1,364
    
$
3,364
    
$
1,024
    
$
5,752
  
Provision for credit losses
    
28
      
209
      
(112
)
    
125
  
Write-offs and other
    
(223
)
    
-
      
(31
)
    
(254
)
Balance March 31, 2015
  
$
1,169
    
$
3,573
    
$
881
    
$
5,623
  

   
Accounts
Receivable
    
Notes
Receivable
    
Lease-Related
Receivables
    
Total
  
Balance April 1, 2013
  
$
1,147
    
$
3,137
    
$
845
    
$
5,129
  
Provision for credit losses
    
344
      
227
      
179
      
750
  
Write-offs and other
    
(127
)
    
-
      
-
      
(127
)
Balance March 31, 2014
  
$
1,364
    
$
3,364
    
$
1,024
    
$
5,752
  

   
Accounts
Receivable
    
Notes
Receivable
    
Lease-Related
Receivables
    
Total
  
Balance April 1, 2012
  
$
1,307
    
$
2,963
    
$
1,336
    
$
5,606
  
                             
-
  
Provision for credit losses
    
(19
)
    
174
      
(488
)
    
(333
)
Write-offs and other
    
(141
)
    
-
      
(3
)
    
(144
)
Balance March 31, 2013
  
$
1,147
    
$
3,137
    
$
845
    
$
5,129
  
 
F-19
Our reserve for credit losses and minimum lease payments associated with our investment in direct financing and sales- type lease balances disaggregated on the basis of our impairment method were as follows (in thousands):

   
March 31, 2015
    
March 31, 2014
  
   
Notes
Receivable
    
Lease-
Related
Receivables
    
Notes
Receivable
    
Lease-
Related
Receivables
  
Reserves for credit losses:
                
Ending balance: collectively evaluated for impairment
  
$
440
    
$
740
    
$
265
    
$
852
  
Ending balance: individually evaluated for impairment
    
3,133
      
141
      
3,099
      
172
  
Ending balance
  
$
3,573
    
$
881
    
$
3,364
    
$
1,024
  
                                 
Minimum payments:
                                
Ending balance: collectively evaluated for impairment
  
$
56,525
    
$
66,255
    
$
39,869
    
$
81,114
  
Ending balance: individually evaluated for impairment
    
3,418
      
160
      
3,838
      
437
  
Ending balance
  
$
59,943
    
$
66,415
    
$
43,707
    
$
81,551
  

The net credit exposure for the balance evaluated individually for impairment as of March 31, 2015 was $3.6 million, $3.1 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 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, which represented our estimated probable loss. As of March 31, 2014, we had $3.4 million of notes receivables from this customer and total reserves for credit losses of $3.1 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 March 31, 2015 and 2014 (in thousands):

   
31-60
Days
Past
Due
    
61-90
Days
Past
Due
    
Greater
than 90
Days
Past
Due
    
Total
Past
Due
    
Current
    
Unbilled
Minimum
Lease
Payments
    
Total
Minimum
Lease
Payments
    
Unearned
Income
    
Non-
Recourse
Notes
Payable
    
Net
Credit
Exposure
  
                                         
March 31, 2015
                                      
                                         
High CQR
  
$
70
    
$
185
    
$
133
    
$
388
    
$
430
    
$
41,213
    
$
42,031
    
$
(2,340
)
  
$
(16,561
)
  
$
23,130
  
Average CQR
    
15
      
68
      
19
      
102
      
75
      
24,047
      
24,224
      
(1,742
)
    
(9,397
)
    
13,085
  
Low CQR
    
-
      
-
      
-
      
-
      
-
      
160
      
160
      
(19
)
    
-
      
141
  
Total
    
85
      
253
      
152
      
490
      
505
      
65,420
      
66,415
      
(4,101
)
    
(25,958
)
    
36,356
  
                                                                                 
March 31, 2014
                                                                          
                                                                                 
High CQR
  
$
194
    
$
35
    
$
106
    
$
335
    
$
502
    
$
42,159
    
$
42,996
    
$
(1,890
)
  
$
(17,406
)
  
$
23,700
  
Average CQR
    
33
      
57
      
18
      
108
      
86
      
37,924
      
38,118
      
(3,401
)
    
(20,709
)
    
14,008
  
Low CQR
    
-
      
-
      
61
      
61
      
-
      
376
      
437
      
(55
)
    
-
      
382
  
Total
    
227
      
92
      
185
      
504
      
588
      
80,459
      
81,551
      
(5,346
)
    
(38,115
)
    
38,090
  
 
F-20
The age of the recorded notes receivable balance disaggregated based on our internally assigned CQR were as follows as March 31, 2015 and 2014 (in thousands):
 
   
31-60
Days
Past
Due
    
61-90
Days
Past
Due
    
Greater
than 90 Days
Past
Due
    
Total
Past
Due
    
Current
    
Unbilled
Notes
Receivable
    
Total
Notes
Receivable
    
Non-
Recourse
Notes
Payable
    
Net
Credit
Exposure
  
                                     
March 31, 2015
                                  
                                     
High CQR
  
$
338
    
$
260
    
$
161
    
$
759
    
$
2,455
    
$
35,996
    
$
39,210
    
$
(18,255
)
  
$
20,955
  
Average CQR
    
57
      
-
      
-
      
57
      
376
      
16,882
      
17,315
      
(11,665
)
    
5,650
  
Low CQR
    
-
      
-
      
656
      
656
      
-
      
2,762
      
3,418
      
-
      
3,418
  
Total
    
395
      
260
      
817
      
1,472
      
2,831
      
55,640
      
59,943
      
(29,920
)
    
30,023
  
                                                                         
March 31, 2014
                                                                  
                                                                         
High CQR
  
$
-
    
$
205
    
$
148
    
$
353
    
$
2,317
    
$
30,249
    
$
32,919
    
$
(19,641
)
  
$
13,278
  
Average CQR
    
-
      
-
      
-
      
-
      
-
      
6,950
      
6,950
      
(3,491
)
    
3,459
  
Low CQR
    
-
      
-
      
791
      
791
      
-
      
3,047
      
3,838
      
-
      
3,838
  
Total
    
-
      
205
      
939
      
1,144
      
2,317
      
40,246
      
43,707
      
(23,132
)
    
20,575
  
 
We estimate losses on our net credit exposure to be between 0% - 5% for customers with high 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, AND OTHER ASSETS AND LIABILITIES
 
PROPERTY AND EQUIPMENT—NET

Property and equipment—net consists of the following (in thousands):

   
March 31,
  
   
2015
    
2014
  
Furniture, fixtures and equipment
  
$
13,781
    
$
11,463
  
Vehicles
    
370
      
283
  
Capitalized software
    
4,007
      
3,498
  
Leasehold improvements
    
3,497
      
3,115
  
Total assets
    
21,655
      
18,359
  
                 
Accumulated depreciation and amortization
    
(15,528
)
    
(14,066
)
Property and equipment - net
  
$
6,127
    
$
4,293
  

For the years ended March 31, 2015, 2014 and 2013, depreciation expense on property and equipment was $1.5 million, $1.3 million, and $1.1 million, respectively.
 
F-21
OTHER ASSETS AND LIABILITIES

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

   
March 31,
2015
    
March 31,
2014
  
Other current assets:
        
Deposits & funds held in escrow
  
$
4,281
    
$
995
  
Prepaid assets
    
2,652
      
2,865
  
Supplemental benefit plan investments
    
-
      
2,544
  
Other
    
480
      
521
  
Total other current assets
  
$
7,413
    
$
6,925
  
                 
Other assets:
                
Deferred costs
  
$
2,308
    
$
1,591
  
Property and equipment, net
    
6,127
      
4,293
  
Other
    
1,045
      
2,129
  
Other assets - long term
  
$
9,480
    
$
8,013
  

   
March 31,
2015
    
March 31,
2014
  
Other current liabilities:
        
Accrued expenses
  
$
5,302
    
$
5,322
  
Deferred compensation
    
222
      
2,544
  
Other
    
8,051
      
7,516
  
Total other current liabilities
  
$
13,575
    
$
15,382
  
                 
Other liabilities:
                
Deferred revenue
  
$
2,923
    
$
1,822
  
Other
    
890
      
-
  
Total other liabilities - long term
  
$
3,813
    
$
1,822
  

6. NOTES PAYABLE AND CREDIT FACILITY
 
Recourse and non-recourse obligations consist of the following (in thousands):

   
March 31,
  
   
2015
    
2014
  
         
Recourse notes payable with interest rates ranging from 2.24% and 4.13% at March 31, 2015 and ranging from 2.24% and 4.84% at March 31, 2014.
        
Current
  
$
889
    
$
1,460
  
Long-term
    
2,801
      
2,100
  
Total recourse notes payable
  
$
3,690
    
$
3,560
  
                 
Non-recourse notes payable secured by financing receivables and investments in operating leases with interest rates ranging from 1.70% to 10.00% at March 31, 2015 and ranging from 2.00% to 11.24% as of March 31, 2014.
                
Current
  
$
28,560
    
$
30,907
  
Long-term
    
24,314
      
34,421
  
Total non-recourse notes payable
  
$
52,874
    
$
65,328
  
 
F-22
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 3.23% and 3.46%, as of March 31, 2015 and March 31, 2014, respectively. The weighted average interest rate for our recourse notes payable was 3.19% and 3.85%, as of March 31, 2015 and March 31, 2014, respectively. Under recourse financing, in the event of a default by a customer, the lender has recourse against 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. The 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, which is presented within other income in our 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 $99.4 million and $93.4 million as of March 31, 2015 and 2014, respectively. Under the accounts receivable component, we had no outstanding balances as of March 31, 2015 and 2014. As of March 31, 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.

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 March 31, 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, 2014, 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 March 31, 2015 and 2014, we had no outstanding balance on this credit facility.
 

F-23
Recourse and non-recourse notes payable as of March 31, 2015, mature as follows (in thousands):

   
Recourse Notes
Payable
    
Non-Recourse
Notes Payable
  
         
Year ending March 31, 2016
  
$
889
    
$
28,559
  
2017
    
1,501
      
16,384
  
2018
    
1,300
      
5,555
  
2019
    
-
      
1,252
  
2020 and thereafter
    
-
      
1,124
  
   
$
3,690
    
$
52,874
  

7. COMMITMENTS AND CONTINGENCIES

We lease office space and certain office equipment to conduct our business. Annual rent expense relating to these operating leases was $4.7 million, $3.8 million, and $3.5 million for the years ended March 31, 2015, 2014 and 2013, respectively. As of March 31, 2015, the future minimum lease payments are due as follows (in thousands):

Contractual Obligations
  
(in thousands)
  
     
Year ending March 31, 2016
  
$
4,199
  
2017
    
3,329
  
2018
    
2,397
  
2019
    
932
  
2020 and thereafter
    
353
  
Operating lease obligations (1)
  
$
11,210
  

(1) Excluding taxes, insurance and common area maintenance charges.

Legal Proceedings

On May 19, 2009, we filed a complaint (the “Lawson litigation”) in the United States District Court for the Eastern District of Virginia (the “trial court”) against four defendants, alleging that they used or sold products, methods, processes, services and/or systems that infringe on certain of our patents. During July and August 2009, we entered into settlement and license agreements with three of the defendants. We obtained a jury verdict against the remaining defendant, Lawson Software, Inc. (“Lawson”) on January 27, 2011. The jury unanimously found that Lawson infringed certain ePlus patents relating to electronic procurement systems, and additionally found that all ePlus patent claims tried in court were not invalid.

On May 23, 2011, the trial court issued a permanent injunction, ordering Lawson and its successors to: immediately stop selling and servicing products relating to its electronic procurement systems that infringe our patents; cease providing any ongoing or future maintenance, training or installation of its infringing products; and refrain from publishing any literature or information that encourages the use or sale of its infringing products. Lawson filed an appeal. On November 21, 2012, the United States Court of Appeals for the Federal Circuit (the “Appeals Court”) reversed in part, vacated in part, affirmed in part, and remanded. The Appeals Court upheld the finding that the patent claims were not invalid and upheld, in part, the finding of infringement. On June 11, 2013, consistent with the Appeals Court’s decision, the trial court issued an Order modifying the injunction so that it would continue in full effect with respect to those configurations of Lawson’s electronic procurement systems that the Appeals Court affirmed were infringing.

On August 16, 2013, the trial court issued an order finding, by clear and convincing evidence, that Lawson was in contempt of the trial court’s May 23, 2011, injunction, entering judgment in our favor in the amount of $18.2 million, and ordering that Lawson pay to the court a daily coercive fine. Lawson filed an appeal and posted a bond, and collection of the judgment and imposition of the coercive fine were stayed pending the appeal.

Patent litigation is extremely complex and issues regarding a patent’s validity can arise even subsequent to a patent’s issuance and a court’s enforcement thereof. On April 3, 2014, the United States Patent and Trademark Office issued a notice canceling the patent at issue in the Lawson litigation. On July 25, 2014, the Appeals Court issued an Opinion vacating the injunction and contempt order. We have filed a Petition for Rehearing, and are awaiting the court’s response.
 
F-24
These types of cases are complex in nature, are likely to have significant expenses associated with them, and we cannot predict when any litigation will be resolved, whether we will be successful in our claim for a contempt finding or damages, whether any award ultimately received will exceed the costs incurred to pursue this matter, or how long it will take to bring this matter to resolution.

We filed a claim in a class action suit in the United States District Court for the Northern District of California. The suit alleged that ten groups of companies conspired to fix, raise, maintain or stabilize prices of certain flat panels used in many flat screen televisions, monitors and notebook computers. On August 6, 2014, the Claims Administrator issued to us a Notice of Claim Final Determination. On October 20, 2014, the court issued an order directing that approved claims be paid, and on October 31, 2014, we received a payment of $6.2 million, which is presented within other income in our consolidated statement of operations.

Other Matters

We may become party to various legal proceedings arising in the ordinary course of business including preference payment claims asserted in customer bankruptcy proceedings, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, claims of alleged non-compliance with contract provisions, employment related claims, claims by competitors, vendors or customers, claims related to alleged violations of laws and regulations, and claims relating to alleged security or privacy breaches. Although we do not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on our financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered that could adversely affect our results of operations or cash flows in a particular period. We provide for costs related to contingencies when a loss is probable and the amount is reasonably determinable.

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 March 31, 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.
 
F-25
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 consolidated statements of operations for the fiscal years ended March 31, 2015, 2014, and 2013 (in thousands, except per share data).

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
Basic and diluted common shares outstanding:
            
Weighted average common shares outstanding — basic
    
7,318
      
7,927
      
7,810
  
Effect of dilutive shares
    
75
      
72
      
93
  
Weighted average shares common outstanding — diluted
    
7,393
      
7,999
      
7,903
  
                         
Calculation of earnings per common share - basic:
                        
Net earnings
  
$
45,840
    
$
35,273
    
$
34,830
  
Net earnings attributable to participating securities
    
59
      
307
      
668
  
Net earnings attributable to common shareholders
  
$
45,781
    
$
34,966
    
$
34,162
  
                         
Earnings per common share - basic
  
$
6.26
    
$
4.41
    
$
4.37
  
                         
Calculation of earnings per common share - diluted:
                        
Net earnings attributable to common shareholders— basic
  
$
45,781
    
$
34,966
    
$
34,162
  
Add: undistributed earnings attributable to participating securities
    
1
      
3
      
4
  
Net earnings attributable to common shareholders— diluted
  
$
45,782
    
$
34,969
    
$
34,166
  
                         
Earnings per common share - diluted
  
$
6.19
    
$
4.37
    
$
4.32
  

There were no unexercised stock options during the year ended March 31, 2015. All unexercised stock options were included in the computations of diluted earnings per common share for the years ended March 31, 2014 and 2013.

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 commencing June 16, 2014. 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. This new authorization replaced the company´s previous repurchase plan which was to expire on November 13, 2014. The previous plan, which commenced November 14, 2013, authorized the repurchase of up to 750,000 shares of ePlus´ outstanding common stock. Since commencement of the previous plan through its termination on June 12, 2014, we repurchased 687,488 shares.

During the year ended March 31, 2015, we repurchased 700,113 shares of our outstanding common stock at an average cost of $50.93 per share for a total purchase price of $35.7 million under the share repurchase plans. We also purchased 35,158 shares of common stock to satisfy tax withholding obligations to the vesting of employees’ restricted stock.

During the year ended March 31, 2014, we repurchased 198,401 shares of our outstanding common stock at an average cost of $53.84 per share for a total purchase price of $10.7 million under the share repurchase plan, and 42,073 were repurchased to satisfy tax withholding obligations due to the vesting of employees’ restricted stock.

Since the inception of our initial repurchase program on September 20, 2001 to March 31, 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.
 
F-26
10. SHARE-BASED COMPENSATION

 Share-Based Plans

We have share-based awards outstanding under the following plans: (1) the 2008 Non-Employee Director Long-Term Incentive Plan (“2008 Director LTIP”), (2) the 2008 Employee Long-Term Incentive Plan (“2008 Employee LTIP”), and (3) the 2012 Employee Long-Term Incentive Plan (“2012 Employee LTIP”). For the year ended March 31, 2015, awards were issued under the 2008 Director LTIP and the 2012 Employee LTIP. All the share-based plans defined fair market value as the previous trading day's closing price when the grant date falls on a date the stock was not traded.

2008 Director LTIP

On September 15, 2008, our stockholders approved the 2008 Director LTIP that was adopted by the Board on June 25, 2008. Under the 2008 Director LTIP, 250,000 shares were 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 stockholders by including equity as a component of pay and to attract, motivate and retain experienced and knowledgeable directors. 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 anniversary and another half of these shares will vest on the second-year anniversary from the date of the grant.

2008 Employee LTIP

On September 15, 2008, our stockholders approved the 2008 Employee LTIP that was adopted by the Board on June 25, 2008. 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, or other share-based awards to ePlus employees. The purpose of the 2008 Employee LTIP was to encourage our employees to acquire a proprietary interest in the growth and performance of ePlus, thus enhancing the value of ePlus for the benefit of its stockholders, and to enhance our ability to attract and retain exceptionally qualified individuals. The 2008 Employee LTIP was administered by the Compensation Committee. Shares issuable under the 2008 Employee LTIP consisted of authorized but unissued shares or shares held in our treasury. Shares under the 2008 Employee LTIP were not used to compensate our outside directors, who may be compensated under the separate 2008 Director LTIP, as discussed above. Under the 2008 Employee LTIP, the Compensation Committee determined the time and method of exercise of the awards. Awards are no longer issued under this plan.

2012 Employee LTIP
 
On September 13, 2012, our stockholders approved the 2012 Employee LTIP that was adopted by the Board on July 10, 2012. Under the 2012 Employee LTIP, 750,000 shares were authorized for grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards, or other share-based awards to ePlus employees. The purpose of the 2012 Employee LTIP is to encourage our employees to acquire a proprietary interest in the growth and performance of ePlus, thus enhancing the value of ePlus for the benefit of its stockholders, and to enhance our ability to attract and retain exceptionally qualified individuals. The 2012 Employee LTIP is administered by the Compensation Committee. Shares issuable under the 2012 Employee LTIP may consist of authorized but unissued shares or shares held in our treasury. Shares under the 2012 Employee LTIP will not be used to compensate our outside directors, who may be compensated under the separate 2008 Director LTIP, as discussed above. Under the 2012 Employee LTIP, the Compensation Committee will determine the time and method of exercise of the awards.

Stock Option Activity

During the years ended March 31, 2015 and 2014, there were no stock options granted to employees. As of April 1, 2013 we had 40,000 options outstanding with an average exercise price between $12.73 and $15.25. During the year ended March 31, 2014, all 40,000 shares were exercised, which had an intrinsic value of $1.6 million. As of March 31, 2015 and 2014, we had no outstanding stock options.
 
F-27
Restricted Stock Activity

We estimate the forfeiture rate of the restricted stock to be zero. As of March 31, 2015, we have granted 116,363 shares under the 2008 Director LTIP, 454,160 restricted shares under the 2008 Employee LTIP, and 155,280 restricted shares under the 2012 Employee LTIP.

A summary of the non-vested restricted shares is as follows:

   
Number of
Shares
    
Weighted
Average Grant-
date Fair Value
  
         
Nonvested April 1, 2014
    
200,120
    
$
41.11
  
Granted
    
88,771
    
$
57.18
  
Vested
    
(112,377
)
  
$
35.70
  
Nonvested March 31, 2015
    
176,514
    
$
52.75
  

Upon each vesting period of the restricted stock awards, participants are subject to minimum tax withholding obligations. The 2008 Director LTIP, 2008 Employee LTIP and the 2012 Employee LTIP allow the Company, at the participant’s election, to withhold a sufficient number of shares due to the participant to satisfy their minimum tax withholding obligations. For the year ended March 31, 2015, the Company had withheld 35,158 shares of common stock at a value of $2.0 million, which was included in treasury stock. For the prior year ended March 31, 2014, the Company had withheld 42,073 shares of common stock at a value of $2.5 million, which was included in treasury stock.

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, based on historical experience. There are no additional conditions for vesting other than service conditions. During the years ended March 31, 2015, 2014 and 2013 we recognized $4.6 million, $4.0 million and $3.3 million, respectively, of total share-based compensation expense. At March 31, 2015, there was no unrecognized compensation expense related to non-vested options. Unrecognized compensation expense related to non-vested restricted stock was $5.6 million, which will be fully recognized over the next 27 months.

We also provide our employees with a contributory 401(k) profit sharing 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 years ended March 31, 2015, 2014 and 2013, our employer contributions for the plan were approximately $1.4 million, $1.1 million and $1.1 million, respectively.

11. INCOME TAXES

We account for our tax positions in accordance with Codification Topic Income Taxes. Under the guidance, we evaluate uncertain tax positions based on the two-step approach. 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 in an audit, including resolution of related appeals or litigation processes, if any. For tax positions that are not likely 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, 2014, we had $149 thousand of total gross unrecognized tax benefits recorded for uncertain income tax position in accordance with Income Taxes in the Codification. During the year ended March 31, 2015, this liability decreased to $72 thousand due to statutes of limitations expiring.
 
F-28
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
  
         
Beginning balance
  
$
149
    
$
316
  
Reductions to uncertain tax positions
    
(77
)
    
(167
)
Ending balance
  
$
72
    
$
149
  

At March 31, 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 have been $101 thousand. At March 31, 2014, if the unrecognized tax benefits of $149 thousand were to be recognized, including the effect of interest, penalties and federal tax benefit, the impact would have been $193 thousand.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended March 31, 2015 and 2014, we recognized $4 thousand and $7 thousand, respectively, of interest related to uncertain tax positions, and did not recognize any additional penalties. We had $43 thousand and $65 thousand accrued for the payment of interest at March 31, 2015 and 2014, respectively.

We file income tax returns, including returns for our subsidiaries, with federal, state, local, and foreign jurisdictions. Tax years 2011, 2012 and 2013 are subjected to examination by federal and state taxing authorities. Various state and local income tax returns are also under examination by taxing authorities. We do not believe that the outcome of any examination will have a material impact on our financial statements.

A reconciliation of income taxes computed at the statutory federal income tax rate of 35% to the provision for income taxes included in the consolidated statements of operations is as follows (in thousands, except percentages):

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
             
Statutory federal income tax rate
    
35
%
    
35
%
    
35
%
Income tax expense computed at the U.S. statutory federal rate
  
$
27,410
    
$
21,040
    
$
20,555
  
State income tax expense—net of federal benefit
    
4,193
      
3,080
      
2,894
  
Non-deductible executive compensation
    
222
      
248
      
150
  
Other
    
648
      
457
      
316
  
Provision for income taxes
  
$
32,473
    
$
24,825
    
$
23,915
  
Effective income tax rate
    
41.5
%
    
41.3
%
    
40.7
%

The effective income tax rate for the year ended March 31, 2015 was 41.5%, a change from 41.3% of the previous fiscal year. The change in the effective income tax rate is due to changes in state apportionment factors.
 
F-29
The components of the provision for income taxes are as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
Current:
            
Federal
  
$
27,665
    
$
23,313
    
$
20,041
  
State
    
6,667
      
5,033
      
4,453
  
Foreign
    
3
      
15
      
36
  
Total current expense
    
34,335
      
28,361
      
24,530
  
                         
Deferred:
                        
Federal
    
(1,591
)
    
(3,274
)
    
(581
)
State
    
(271
)
    
(262
)
    
(34
)
Total deferred expense (benefit)
    
(1,862
)
    
(3,536
)
    
(615
)
                         
Provision for income taxes
  
$
32,473
    
$
24,825
    
$
23,915
  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows (in thousands):

   
March 31,
  
   
2015
    
2014
  
Deferred Tax Assets:
        
Accrued vacation
  
$
1,955
    
$
1,700
  
Deferred compensation
    
89
      
1,010
  
Deferred revenue
    
369
      
260
  
Reserve for credit losses
    
2,066
      
2,111
  
Restricted Stock
    
1,431
      
1,164
  
State net operating loss carryforward
    
1,223
      
1,287
  
Other credits and carryforwards
    
12
      
99
  
Other accruals and reserves
    
687
      
576
  
Gross deferred tax assets
    
7,832
      
8,207
  
Less: valuation allowance
    
(1,223
)
    
(1,287
)
Net deferred tax assets
    
6,609
      
6,920
  
                 
Deferred Tax Liabilities:
                
Basis difference in fixed assets
    
(1,238
)
    
(1,056
)
Basis difference in operating leases
    
(2,356
)
    
(4,674
)
Basis difference in tax deductible goodwill
    
(2,411
)
    
(2,449
)
Total deferred tax  liabilities
    
(6,005
)
    
(8,179
)
                 
Net deferred tax assets (liabilities)
  
$
604
    
$
(1,259
)
                 
Reported as:
                
Deferred tax assets - current
  
$
3,643
    
$
3,742
  
Deferred tax assets - long-term
    
232
      
-
  
Deferred tax liabilities - long-term
    
(3,271
)
    
(5,001
)
Net deferred tax liabilities
  
$
604
    
$
(1,259
)

As of March 31, 2015, we have state net operating losses of approximately $28.0 million, which have begun to expire.

The valuation allowance resulted from management's determination, based on available evidence, that it was more likely than not that the state net operating loss deferred tax asset balance of $1.2 million and $1.3 million as of March 31, 2015 and 2014, respectively, may not be realized.
 
F-30
12. FAIR VALUE MEASUREMENTS

We account for the fair values of our assets and liabilities in accordance with Codification Topic Fair Value Measurement and Disclosure. Accordingly, we established a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value.

The following tables summarize the fair value hierarchy of our financial instruments as of March 31, 2015 and 2014 (in thousands):

       
Fair Value Measurement Using
      
   
Recorded
Amount
    
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
    
Total Gains
(Losses)
  
March 31, 2015:
                    
Assets:
                    
                     
Money market funds
  
$
25,004
    
$
25,004
    
$
-
    
$
-
    
$
-
  
                                         
Liabilities:
                                        
                                         
Contingent consideration
  
$
1,830
    
$
-
    
$
-
    
$
1,830
    
$
150
  

     
Fair Value Measurement Using
      
 
Recorded
Amount
    
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
    
Significant
Other
Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
    
Total Gains
(Losses)
  
March 31, 2014:
                  
Assets:
                    
                                         
Money market funds
  
$
54,267
    
$
54,267
    
$
-
    
$
-
    
$
-
  

For the year ended March 31, 2015, the adjustment to the fair value of the contingent consideration was a decrease of $150 thousand, which was presented within general and administrative expenses in our consolidated statement of operations. We estimated the fair value using a Monte Carlo simulation model.

For the year ended March 31, 2014, the adjustment to the fair value of contingent consideration was an increase of $355 thousand, which was presented within general and administrative expenses in our consolidated statement of operations. We estimated the fair value using a discounted cash flow model.  During the year ended March 31, 2014, we paid $1.3 million to satisfy this contingent consideration obligation.

13. BUSINESS COMBINATIONS

On August 18, 2014, our subsidiary, ePlus Technology, inc., acquired the operating assets and assumed certain liabilities of Granite Business Solutions, Inc. dba Evolve Technology Group (“Evolve”). Evolve is a provider of IT solutions in California, expanding ePlus’ presence in the western United States. Located in Sacramento, CA, Evolve provides information security, collaboration, virtualization and data center solutions to an established customer base of state, local and educational institutions, as well as commercial enterprises.

The total purchase price was $10.5 million, which consists of cash paid, amounts to be paid to Evolve upon collection of certain accounts receivables, and the fair value of contingent consideration. We estimated the fair value of the contingent consideration to be $2.0 million as of the acquisition date using a Monte Carlo simulation model. The maximum payout for contingent consideration is $2.5 million over 3 years. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date, including identifiable intangible assets of $4.0 million related to customer relationships with an estimated useful life of 6 years, and other net assets of $0.6 million. We recognized goodwill related to this transaction of $4.5 million, which was assigned to our technology reporting unit. The goodwill recognized in the acquisition is attributable to the acquired assembled workforce, their presence in the western United States, and expected synergies, none of which qualify for recognition as a separate intangible asset. Goodwill associated with the acquisition is deductible for tax purposes.
 
F-31
On November 14, 2013, our subsidiary, ePlus Technology, inc., acquired the assets of AdviStor, Inc., a storage-focused solutions provider located in Pittsford, New York for $2.8 million in cash. The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction date, including identifiable intangible assets of $1.6 million related to customer relationships with an estimated useful life of 6 years, and other net assets of $0.4 million. We recognized goodwill related to this transaction of $0.9 million, which was assigned to our technology reporting unit. Goodwill associated with the acquisition is deductible for tax purposes.

14. SEGMENT REPORTING

Our operations are conducted through two business 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, state and local governments, and government contractors. Our financing segment consists of the financing of IT equipment, software and related services to commercial, state and local governments, and government contractors. Our reportable segment information was as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
   
Technology
    
Financing
    
Total
    
Technology
    
Financing
    
Total
    
Technology
    
Financing
    
Total
  
                                     
Sales of product and services
  
$
1,100,884
    
$
-
    
$
1,100,884
    
$
1,013,374
    
$
-
    
$
1,013,374
    
$
936,228
    
$
-
    
$
936,228
  
Financing revenue
    
-
      
34,728
      
34,728
      
-
      
35,896
      
35,896
      
-
      
38,384
      
38,384
  
Fee and other income
    
7,565
      
105
      
7,670
      
8,037
      
229
      
8,266
      
6,949
      
1,551
      
8,500
  
Net sales
    
1,108,449
      
34,833
      
1,143,282
      
1,021,411
      
36,125
      
1,057,536
      
943,177
      
39,935
      
983,112
  
                                                                         
Cost of sales, product and services
    
887,673
      
-
      
887,673
      
827,875
      
-
      
827,875
      
767,447
      
-
      
767,447
  
Direct lease costs
    
-
      
11,062
      
11,062
      
-
      
12,748
      
12,748
      
-
      
10,892
      
10,892
  
Cost of sales
    
887,673
      
11,062
      
898,735
      
827,875
      
12,748
      
840,623
      
767,447
      
10,892
      
778,339
  
                                                                         
Professional and other fees
    
5,340
      
1,168
      
6,508
      
7,557
      
1,484
      
9,041
      
9,638
      
3,460
      
13,098
  
Salaries and benefits
    
128,945
      
9,141
      
138,086
      
113,481
      
9,670
      
123,151
      
100,447
      
10,516
      
110,963
  
General and administrative expenses
    
25,437
      
1,427
      
26,864
      
21,103
      
1,572
      
22,675
      
19,028
      
1,071
      
20,099
  
Interest and financing costs
    
96
      
2,283
      
2,379
      
84
      
1,864
      
1,948
      
89
      
1,779
      
1,868
  
Operating expenses
    
159,818
      
14,019
      
173,837
      
142,225
      
14,590
      
156,815
      
129,202
      
16,826
      
146,028
  
                                                                         
Operating income
    
60,958
      
9,752
      
70,710
      
51,311
      
8,787
      
60,098
      
46,528
      
12,217
      
58,745
  
                                                                         
Other income
    
-
      
7,603
      
7,603
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                         
Earnings before provision for income taxes
  
$
60,958
    
$
17,355
    
$
78,313
    
$
51,311
    
$
8,787
    
$
60,098
    
$
46,528
    
$
12,217
    
$
58,745
  
                                                                         
Depreciation and amortization
  
$
4,450
    
$
11,125
    
$
15,575
    
$
2,838
    
$
11,917
    
$
14,755
    
$
2,369
    
$
9,799
    
$
12,168
  
Purchases of property, equipment and operating lease equipment
  
$
3,610
    
$
8,306
    
$
11,916
    
$
4,238
    
$
5,714
    
$
9,952
    
$
1,401
    
$
14,183
    
$
15,584
  
Total assets
  
$
368,971
    
$
202,575
    
$
571,546
    
$
335,879
    
$
217,966
    
$
553,845
    
$
255,257
    
$
184,638
    
$
439,895
  
 
F-32
The geographic information for the years ended March 31, 2015, 2014 and 2013 was as follows (in thousands):

   
Year Ended March 31,
  
   
2015
    
2014
    
2013
  
Net sales:
            
U.S.
  
$
1,124,371
    
$
1,042,446
    
$
964,996
  
Non U.S.
    
18,911
      
15,090
      
18,116
  
Total
  
$
1,143,282
    
$
1,057,536
    
$
983,112
  

   
As of March 31,
  
   
2015
    
2014
  
Long-lived tangible assets:
        
U.S.
  
$
22,550
    
$
24,596
  
Non U.S.
    
1,608
      
948
  
Total
  
$
24,158
    
$
25,544
  

Our long-lived tangible assets include property and equipment-net, operating leases-net, and equipment that has been returned to us at the termination of the lease.

No single customer accounted for more than 10% of net sales for the year ended March 31, 2015. For the years ended March 31, 2014, and 2013, sales to a large telecommunications company were approximately 11% and 14%, respectively, of net sales, all of which related to our technology segment.

15. QUARTERLY DATA —UNAUDITED
 
Condensed quarterly financial information is as follows (amounts in thousands, except per share amounts):

   
Year Ended March 31, 2015
  
   
First
Quarter
    
Second
Quarter
    
Third
Quarter
    
Fourth
Quarter
    
Annual
Amount
  
                     
Net sales
  
$
272,304
    
$
297,472
    
$
306,241
    
$
267,265
    
$
1,143,282
  
Cost of sales
    
215,865
      
233,548
      
240,803
      
208,519
      
898,735
  
Gross profit
    
56,439
      
63,924
      
65,438
      
58,746
      
244,547
  
Operating expenses
    
41,697
      
43,598
      
44,876
      
43,666
      
173,837
  
Operating income
    
14,742
      
20,326
      
20,562
      
15,080
      
70,710
  
Other income
    
1,434
      
-
      
6,169
      
-
      
7,603
  
Earnings before provision for income taxes
    
16,176
      
20,326
      
26,731
      
15,080
      
78,313
  
Provision for income taxes
    
6,699
      
8,374
      
11,230
      
6,170
      
32,473
  
Net earnings
  
$
9,477
    
$
11,952
    
$
15,501
    
$
8,910
    
$
45,840
  
                                         
Net earnings per common share—Basic (1)
  
$
1.26
    
$
1.63
    
$
2.14
    
$
1.23
    
$
6.26
  
 
Net earnings per common share—Diluted (1)
  
$
1.25
    
$
1.63
    
$
2.13
    
$
1.22
    
$
6.19
  
 
F-33
   
Year Ended March 31, 2014
  
   
First
Quarter
    
Second
Quarter
    
Third
Quarter
    
Fourth
Quarter
    
Annual
Amount
  
                     
Net sales
  
$
259,317
    
$
271,129
    
$
267,182
    
$
259,908
    
$
1,057,536
  
Cost of sales
    
206,583
      
218,349
      
210,433
      
205,258
      
840,623
  
Gross profit
    
52,734
      
52,780
      
56,749
      
54,650
      
216,913
  
Operating expenses
    
39,381
      
38,085
      
38,696
      
40,653
      
156,815
  
Operating income
    
13,353
      
14,695
      
18,053
      
13,997
      
60,098
  
Provision for income taxes
    
5,503
      
6,104
      
7,443
      
5,775
      
24,825
  
Net earnings
  
$
7,850
    
$
8,591
    
$
10,610
    
$
8,222
    
$
35,273
  
                                         
Net earnings per common share—Basic (1)
  
$
0.98
    
$
1.07
    
$
1.33
    
$
1.04
    
$
4.41
  
 
Net earnings per common share—Diluted (1)
  
$
0.97
    
$
1.06
    
$
1.32
    
$
1.03
    
$
4.37
  

(1) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share.
 
F-34
ePlus inc. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
(Dollars in thousands)

   
Balance at
Beginning of
Period
    
Charged to
Costs and
Expenses
    
 
Deductions/
Write-Offs
    
 
Balance at End
of Period
  
                 
Allowance for Sales Returns: (1)
                
Year Ended March 31, 2013
  
$
427
    
$
1,404
    
$
(1,288
)
  
$
543
  
Year Ended March 31, 2014
    
543
      
1,079
      
(1,030
)
    
592
  
Year Ended March 31, 2015
    
592
      
1,009
      
(988
)
    
613
  
                                 
Reserve for Credit Losses:
                                
Year Ended March 31, 2013
  
$
5,606
    
$
(333
)
  
$
(144
)
  
$
5,129
  
Year Ended March 31, 2014
    
5,129
      
750
      
(127
)
    
5,752
  
Year Ended March 31, 2015
    
5,752
      
125
      
(254
)
    
5,623
  
                                 
Valuation for Deferred Taxes:
                                
Year Ended March 31, 2013
  
$
1,217
    
$
288
    
$
-
    
$
1,505
  
Year Ended March 31, 2014
    
1,505
      
(218
)
    
-
      
1,287
  
Year Ended March 31, 2015
    
1,287
      
(64
)
    
-
      
1,223
  

(1) These amounts represent the gross profit effect of sales returns during the respective years. Expected merchandise returns after year-end for sales made before year-end were $3.8 million, $3.6 million, and $3.4 million as of March 31, 2015, 2014, and 2013, respectively.
 
 
S-1