ePlus (PLUS) to Restate Financials for Prior Periods, Found Error on Lease Revenue Before 2010
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ePlus inc. (Nasdaq: PLUS) today announced that the Company will restate its consolidated financial statements for the fiscal years ended March 31, 2010 and 2011, and the quarterly financial statements for the three quarters ended June 30, September 30, and December 31, 2011 and all of the quarters in the fiscal year ended March 31, 2011. For the periods affected by the restatement, the Company's restated financial statements will report revenues from the sale of third party software assurance, maintenance and services on a net basis rather than on a gross basis, as previously reported. The Company expects that the correction of this error will have no effect on its previously reported earnings, earnings per share, or consolidated statements of cash flows. Additionally, the Company has identified an unrelated error in connection with lease revenue reported prior to 2010 that will have an immaterial effect on its previously reported consolidated balance sheets and consolidated statements of stockholders' equity.
In each fiscal year during the restatement period, the Company expects the effect of the gross vs. net revenue accounting change to decrease previously reported "sales of product and services" and "cost of sales, products and services." As a result of the reporting change to a net basis, the Company also expects gross profit to remain unchanged and gross margin to increase. The Company expects its financial results for the quarter ended March 31, 2012 to reflect similar revenue and cost of sales adjustments.
During the preparation of its financial statements for the fiscal year ended March 31, 2012, and after discussions with Deloitte & Touche LLP, its independent registered public accounting firm, the Company reassessed the presentation of sales of third party software assurance, maintenance and services and, after giving further consideration with respect to gross vs. net reporting, concluded that these transactions should be presented on a net basis. The Company previously presented these transactions consistent with its revenue recognition policy, originally implemented during fiscal year 2006, on a gross basis, primarily as a result of the Company's determination that it was acting as a principal in these arrangements as the customer contracts are with ePlus and not with third party service providers. However, it has recently been determined that ePlus should be considered as an agent in these transactions because third party service providers are responsible for the day to day provision of services under these contracts. This change in the determination of that status results in a different accounting treatment of the revenue resulting from the sale of such third party software assurance, maintenance and services, requiring the revenue to be reported net of the associated cost of the underlying contracts with the third party service providers.
Under net sales recognition, the cost paid to a third party service provider is recorded as a reduction to sales of related products and services, resulting in net sales being equal to the gross profit on a transaction. The Company does not expect any changes to earnings before provision for income tax, net earnings, or net earnings per common share or consolidated statements of cash flows. In addition, the Company expects that the changes to the consolidated balance sheets and consolidated statements of stockholders'
equity will be immaterial. The restatement will not have any impact on the Company's underlying agreements with, or obligations to, its customers and third party service providers, nor will the restatement affect the amount that the Company invoices its customers.
As a result of the foregoing, on May 24, 2012, the Audit Committee of the Company's Board of Directors concluded, in consultation with and upon the recommendation of the Company's management, and after consulting with outside advisors, that investors should no longer rely upon the Company's previously issued financial statements and related audit reports of its independent registered public accounting firm, Deloitte & Touche LLP, for the restatement period identified above. The Company expects to file restated financial statements as described below to correct the Company's presentation of sales of third party software assurance, maintenance and services. The Audit Committee and management have discussed these matters with the Company's independent registered public accounting firm.
Until the restatement is complete, the expected effects of the restatement are subject to change. It is possible that additional issues may be identified during the course of the review and audit processes. Any additional items that may be identified during the completion of the review and audit process could be material to the Company's financial condition and results of operations for the years ended March 31, 2010 and 2011, and each of the three quarters ended December 31, 2011 and each of the quarters in fiscal year ended March 31, 2011.
Management is continuing to assess the effect of the restatement on the Company's internal control over financial reporting and its disclosure controls and procedures. Management will report its conclusion on internal control over financial reporting and disclosure controls and procedures upon completion of the restatement process.
As soon as practicable, the Company intends to file its Annual Report on Form 10-K for the year ended March 31, 2012, which will include restated audited financial statements for the years ended March 31, 2010 and 2011, for each of the three quarters ended December 31, 2011 and for each of the quarters in the fiscal year ended March 31, 2011. The Company will also include in the Form 10-K restated selected financial data for the years ended March 31, 2008 through 2011.
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In each fiscal year during the restatement period, the Company expects the effect of the gross vs. net revenue accounting change to decrease previously reported "sales of product and services" and "cost of sales, products and services." As a result of the reporting change to a net basis, the Company also expects gross profit to remain unchanged and gross margin to increase. The Company expects its financial results for the quarter ended March 31, 2012 to reflect similar revenue and cost of sales adjustments.
During the preparation of its financial statements for the fiscal year ended March 31, 2012, and after discussions with Deloitte & Touche LLP, its independent registered public accounting firm, the Company reassessed the presentation of sales of third party software assurance, maintenance and services and, after giving further consideration with respect to gross vs. net reporting, concluded that these transactions should be presented on a net basis. The Company previously presented these transactions consistent with its revenue recognition policy, originally implemented during fiscal year 2006, on a gross basis, primarily as a result of the Company's determination that it was acting as a principal in these arrangements as the customer contracts are with ePlus and not with third party service providers. However, it has recently been determined that ePlus should be considered as an agent in these transactions because third party service providers are responsible for the day to day provision of services under these contracts. This change in the determination of that status results in a different accounting treatment of the revenue resulting from the sale of such third party software assurance, maintenance and services, requiring the revenue to be reported net of the associated cost of the underlying contracts with the third party service providers.
Under net sales recognition, the cost paid to a third party service provider is recorded as a reduction to sales of related products and services, resulting in net sales being equal to the gross profit on a transaction. The Company does not expect any changes to earnings before provision for income tax, net earnings, or net earnings per common share or consolidated statements of cash flows. In addition, the Company expects that the changes to the consolidated balance sheets and consolidated statements of stockholders'
equity will be immaterial. The restatement will not have any impact on the Company's underlying agreements with, or obligations to, its customers and third party service providers, nor will the restatement affect the amount that the Company invoices its customers.
As a result of the foregoing, on May 24, 2012, the Audit Committee of the Company's Board of Directors concluded, in consultation with and upon the recommendation of the Company's management, and after consulting with outside advisors, that investors should no longer rely upon the Company's previously issued financial statements and related audit reports of its independent registered public accounting firm, Deloitte & Touche LLP, for the restatement period identified above. The Company expects to file restated financial statements as described below to correct the Company's presentation of sales of third party software assurance, maintenance and services. The Audit Committee and management have discussed these matters with the Company's independent registered public accounting firm.
Until the restatement is complete, the expected effects of the restatement are subject to change. It is possible that additional issues may be identified during the course of the review and audit processes. Any additional items that may be identified during the completion of the review and audit process could be material to the Company's financial condition and results of operations for the years ended March 31, 2010 and 2011, and each of the three quarters ended December 31, 2011 and each of the quarters in fiscal year ended March 31, 2011.
Management is continuing to assess the effect of the restatement on the Company's internal control over financial reporting and its disclosure controls and procedures. Management will report its conclusion on internal control over financial reporting and disclosure controls and procedures upon completion of the restatement process.
As soon as practicable, the Company intends to file its Annual Report on Form 10-K for the year ended March 31, 2012, which will include restated audited financial statements for the years ended March 31, 2010 and 2011, for each of the three quarters ended December 31, 2011 and for each of the quarters in the fiscal year ended March 31, 2011. The Company will also include in the Form 10-K restated selected financial data for the years ended March 31, 2008 through 2011.
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