FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[Mark One]
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 No.: 0-15641
AMPLICON, INC.
(Exact name of registrant as specified in charter)
California 95-3162444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Hutton Centre Dr., Ste. 500
Santa Ana, California 92707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 751-7551
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's Common Stock,
par value $.005 per share, as of October 26, 1998 was 11,845,118.
<PAGE>
AMPLICON, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets - September 30, 1998
(unaudited) and June 30, 1998 (audited) 3
Statements of Earnings - Three months ended
September 30, 1998 and 1997 (unaudited) 4
Statements of Cash Flows - Three months ended
September 30, 1998 and 1997 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
<PAGE>
AMPLICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
September 30, June 30,
ASSETS 1998 1998
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 31,301,000 $ 15,192,000
Net receivables 69,318,000 87,229,000
Inventories, primarily customer
deliveries in process 2,537,000 2,500,000
Net investment in capital leases 102,453,000 109,149,000
Net equipment on operating leases - -
Other assets 1,388,000 1,308,000
Discounted lease rentals assigned
to lenders 291,979,000 297,227,000
------------ ------------
$498,976,000 $512,605,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 12,978,000 $ 25,766,000
Accrued liabilities 6,600,000 8,038,000
Customer deposits 9,212,000 8,175,000
Nonrecourse debt 264,802,000 269,769,000
Deferred interest income 27,177,000 27,458,000
Net deferred income 7,133,000 7,436,000
Income taxes payable, including
deferred taxes 30,957,000 30,018,000
------------ ------------
358,859,000 376,660,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; 2,500,000 shares
authorized; none issued - -
Common stock; $.005 par value;
40,000,000 shares authorized;
11,841,118 and 11,830,618
issued and outstanding as of
September 30, 1998 and
June 30, 1998, respectively 59,000 59,000
Additional paid in capital 7,041,000 6,970,000
Retained earnings 133,017,000 128,916,000
------------ ------------
140,117,000 135,945,000
------------ ------------
$498,976,000 $512,605,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMPLICON, INC.
STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Sales of equipment $37,874,000 $69,752,000
Interest income 11,745,000 10,051,000
Investment income 256,000 90,000
Rental income 195,000 145,000
----------- -----------
50,070,000 80,038,000
----------- -----------
Costs:
Cost of equipment sold 32,278,000 63,708,000
Interest expense on
nonrecourse debt 5,620,000 5,175,000
Depreciation of equipment on
operating leases 1,000 3,000
----------- -----------
37,899,000 68,886,000
----------- -----------
Gross profit 12,171,000 11,152,000
Selling, general and
administrative expenses 4,716,000 4,560,000
Interest expense-other 18,000 38,000
----------- -----------
Earnings before income taxes 7,437,000 6,554,000
Income taxes 2,863,000 2,589,000
----------- -----------
Net earnings $ 4,574,000 $ 3,965,000
=========== ===========
Basic earnings per common share $ .39 $ .34
=========== ===========
Diluted earnings per common share $ .37 $ .32
=========== ===========
Dividends declared per common share $ .04 $ .04
=========== ===========
Weighted average number of common
shares outstanding 11,832,000 11,768,000
=========== ===========
Diluted number of common shares
outstanding 12,292,000 12,323,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AMPLICON, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,574,000 $ 3,965,000
Adjustments to reconcile net earnings
to cash flows provided by (used for)
operating activities:
Depreciation 1,000 3,000
Interest accretion of estimated
unguaranteed residual values ( 1,685,000) ( 1,353,000)
Estimated unguaranteed residual
values recorded on leases ( 782,000) ( 2,340,000)
Interest accretion of net deferred
income ( 1,407,000) ( 848,000)
Increase in net deferred income 1,104,000 2,356,000
Net increase in income taxes payable,
including deferred taxes 939,000 1,647,000
Net decrease (increase) in net
receivables 17,910,000 ( 6,484,000)
Net increase in inventories ( 37,000) ( 180,000)
Net (decrease) increase in accounts
payable and accrued liabilities ( 14,226,000) 932,000
----------- -----------
Net cash provided by (used for)
operating activities 6,391,000 ( 2,302,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale
securities - ( 34,629,000)
Proceeds from sale of
available-for-sale securities - 34,629,000
Net decrease (increase) in minimum
lease payments receivable 6,200,000 ( 1,253,000)
Purchase of equipment on operating
leases ( 1,000) ( 1,000)
Net increase in other assets ( 79,000) ( 100,000)
Decrease in estimated unguaranteed
residual values 2,963,000 2,527,000
----------- -----------
Net cash provided by investing
activities 9,083,000 1,173,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in customer deposits 1,037,000 861,000
Dividends to stockholders ( 473,000) ( 471,000)
Proceeds from exercise of stock
options 71,000 304,000
----------- -----------
Net cash provided by financing
activities 635,000 694,000
----------- -----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 16,109,000 ( 435,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 15,192,000 5,780,000
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $31,301,000 $ 5,345,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned
to lenders and related nonrecourse
debt ($ 4,967,000) ($ 591,000)
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 18,000 $ 38,000
=========== ===========
Income taxes $ 1,924,000 $ 942,000
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
5
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1- BASIS OF PRESENTATION
- -----------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's latest Annual Report on
Form 10-K.
In the opinion of management, the unaudited financial statements contain
all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the balance sheet as of September 30,
1998 and the statements of earnings and cash flows for the three month
periods ended September 30, 1998 and 1997. The results of operations for
the three month period ended September 30, 1998 are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year ending June 30, 1999.
Leases
------
Effective January 1, 1997, the Company has adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125").
Under the requirements set forth in SFAS No. 125, the Company has
accounted for qualifying transfers of financial assets occurring on or
after January 1, 1997 by derecognizing all assets sold.
Common Stock
------------
On September 12, 1997, the Company's Board of Directors announced a
2-for-1 Common Stock split to be effected on October 17, 1997, to
stockholders of record as of September 26, 1997. These financial
statements have been adjusted to reflect this stock split.
NOTE 2- BALANCE SHEET
- ---------------------
At September 30, 1998, deferred interest income of $27,177,000 is offset
by deferred interest expense related to the Company's discounted lease
rentals assigned to lenders of $27,177,000.
6
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Three Months Ended September 30, 1998 and 1997
- ----------------------------------------------
REVENUES. Total revenues for the three months ended September 30,
1998 were $50,070,000, a decrease of $29,968,000 or 37% as compared to
the three months ended September 30, 1997. The decrease from the prior
year was primarily the result of a decrease in sales of equipment. Sales
of equipment decreased by $31,878,000 or 46% to $37,874,000 in the
quarter ended September 30, 1998 as compared to $69,752,000 in the
quarter ended September 30, 1997. The decrease in sales of equipment was
due to a 49% decrease in sales from new lease transactions together with
a 24% decrease in sales related to lease extensions and property sales.
Interest income for the quarter ended September 30, 1998 increased by
$1,694,000 or 17% to $11,745,000 as compared to $10,051,000 in the same
quarter of the prior year. The three months ended September 30, 1998 and
1997, included amounts of $5,620,000 and $5,175,000, respectively, of
interest income on discounted lease rentals assigned to lenders (which is
offset by interest expense on nonrecourse debt). Interest income for the
three months ended September 30, 1998, net of interest expense on
discounted lease rentals assigned to lenders, increased by $1,249,000 or
26% to $6,125,000 as compared to $4,876,000 for the three months ended
September 30, 1997. This increase is primarily due to increased accretion
of deferred income and higher interest income realized from a larger
investment in lease residuals. Investment income increased by $166,000
or 184% to $256,000 as compared to $90,000 for the same period in the
prior year. This increase can be attributed to the Company maintaining
higher cash balances during the three months ended September 30, 1998.
Rental income increased by $50,000 to $195,000 in the three months ended
September 30, 1998 as compared to $145,000 for the three months ended
September 30, 1997 due to an increase in the number of short-term lease
renewals.
GROSS PROFIT. Gross profit for the first quarter of fiscal 1999
increased 9% to $12,171,000 compared to $11,152,000 for the first quarter
of fiscal 1998. The improvement is primarily attributable to a 28%
increase in net interest and investment income and higher income
recognized from new lease transactions offset by a 31% decrease in gross
profit from lease extensions and sales of leased property.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the quarter ended September 30, 1998
increased by 3% to $4,715,000 compared to $4,560,000 incurred during the
first quarter of the prior year. The increase in S,G&A expenses reflects
higher personnel and building expenses, offset by lower general expenses.
As a percentage of revenues, S,G&A expenses increased to 9.5% of
revenues, compared to 5.7% during the first quarter of the prior year,
reflecting the lower revenue level.
TAXES. The Company's tax rate was 38.5% and 39.5% for the quarter
ended September 30, 1998 and 1997, respectively, representing its
estimated annual tax rate for the years ending June 30, 1999 and 1998.
(continued)
7
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
Financial and Capital Resources
- -------------------------------
The Company funds its operating activities through nonrecourse debt
and internally generated funds. Capital expenditures for equipment
purchases are primarily financed by assigning the lease payments to banks
or other financial institutions which are discounted at fixed rates such
that the lease payments are sufficient to fully amortize the aggregate
outstanding debt. The Company generally does not purchase property until
it has received a noncancelable lease from its customer and has
determined that the lease can be discounted on a nonrecourse basis. At
September 30, 1998, the Company had outstanding nonrecourse debt
aggregating $264,802,000 relating to property under capital and operating
leases. In the past, the Company has been able to obtain adequate
nonrecourse funding commitments, and the Company believes it will be able
to do so in the future.
From time to time, the Company retains leases in its own portfolio
rather than assigning the leases to financial institutions. During the
three months ended September 30, 1998, the Company decreased its net
investment in leases held in its own portfolio by $6,200,000 from June
30, 1998. This decrease was primarily due to a decline in lease
extensions.
The Company generally funds its equity investments in leased
equipment and interim equipment purchases with internally generated
funds, and if necessary, borrowings under a $20,000,000 general line of
credit. At September 30, 1998, the Company did not have any borrowings
outstanding on this line of credit.
In November 1990, the Board of Directors authorized management, at
its discretion, to repurchase up to 600,000 shares of the Company's
Common Stock. Under this authorization 121,356 shares remain available
for repurchase.
The need for cash used for operating activities will continue to
grow as the Company's volume of new lease transactions expands. The
Company believes that existing cash balances, cash flows from operations,
cash flows from its financing activities, available borrowings under its
existing credit facility, and assignments (on a nonrecourse basis) of
anticipated lease payments will be sufficient to meet its foreseeable
financing needs.
Inflation has not had a significant impact upon the operations of
the Company.
Forward-Looking Statements
- --------------------------
This document contains forward-looking statements which involve
management assumptions, risks and uncertainties. Consequently, if such
management assumptions prove to be incorrect or such risks or
uncertainties materialize, the Company's actual results could differ
materially from the results forecast in the forward-looking statements.
8
<PAGE>
AMPLICON, INC.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 5. OTHER INFORMATION
Changes in Registrant's Certifying Accountant
- ---------------------------------------------
On October 26, 1998 the Company received notification from its
certifying accountants, Arthur Andersen LLP, that they would
not stand for re-election for the Fiscal 1999 audit engagement.
The reports of Arthur Andersen LLP on the financial statements
for the two years ended June 30, 1998 and 1997, did not contain
an adverse opinion or disclaimer of opinion and were not
qualified as to uncertainty, audit scope or accounting
principles. During the Company's most recent fiscal years
ending June 30, 1998 and 1997 and since June 30, 1998, there
were no disagreements with Arthur Andersen LLP on any matter of
accounting principles or practices, financial statements
disclosure or auditing scope or procedure, which disagreements
would have caused the former accountant to make a reference to
the subject matter of the disagreement in any of its reports.
During the Company's two fiscal years ending June 30, 1998 and
1997, there had been no "reportable events" within the meaning
of Item 304(a) (1) (v) of Regulations S-K.
A letter from the former accountant, which indicates
concurrence with the statements submitted in this Item 5 above,
is submitted as Exhibit 16.1 to this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
16.1 Letter, dated October 30, 1998, from the Registrant's
former certifying accountant regarding their
concurrence with statements made by Registrant
regarding the change in certifying accountants.
27. Financial Data Schedule
9
<PAGE>
AMPLICON, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMPLICON, INC.
Registrant
DATE: October 30, 1998 BY: S. LESLIE JEWETT/s/
-------------------
S. LESLIE JEWETT
Chief Financial Officer
(Principal Financial and
Accounting Officer)
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000803016
<NAME> AMPLICON, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 31,301
<SECURITIES> 0
<RECEIVABLES> 127,563
<ALLOWANCES> 1,695
<INVENTORY> 2,537
<CURRENT-ASSETS> 0
<PP&E> 2,797
<DEPRECIATION> 1,610
<TOTAL-ASSETS> 498,976
<CURRENT-LIABILITIES> 66,880
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 140,058
<TOTAL-LIABILITY-AND-EQUITY> 498,976
<SALES> 37,874
<TOTAL-REVENUES> 50,070
<CGS> 32,278
<TOTAL-COSTS> 37,899
<OTHER-EXPENSES> 4,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 7,437
<INCOME-TAX> 2,863
<INCOME-CONTINUING> 4,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,574
<EPS-PRIMARY> .39
<EPS-DILUTED> .37
</TABLE>
ARTHUR
ANDERSEN
October 30, 1998 Arthur Andersen LLP
Office of the Chief Accountant Suite 800
Securities and Exchange Commission 18207 Von Karman Ave.
450 Fifth Street, N.W. Irvine, CA 92617-1005
Washington, D.C. 20549 714-757-3100
Dear Sir/Madam:
We have read Item 5 included in the Form 10-Q dated October 30, 1998
of Amplicon, Inc. filed with the Securities and Exchange Commission
and are in agreement with the statements contained therein.
Very truly yours,
ARTHUR ANDERSEN LLP/s/
ARTHUR ANDERSEN LLP
LAB/L808044MM
Copies to:
Ms. Leslie Jewett, Amplicon, Inc.
