UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year ended June 30, 1998
[ ] 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 0-15641
AMPLICON, INC.
(Exact name of registrant as specified in its charter)
California 95-3162444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Hutton Centre Drive, Suite 500
Santa Ana, CA 92707
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 751-7551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
(Title of each class)
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
and 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________________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of 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. _________________________
The aggregate market value of the Common Stock held by nonaffiliates of
the Registrant as of September 11, 1998 was $54,747,134.
Number of shares outstanding as of September 11, 1998:
Common Stock 11,833,518
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from Registrant's
definitive Proxy Statement to be filed with the Commission within 120
days after the close of the Registrant's fiscal year.
<PAGE>
AMPLICON, INC.
TABLE OF CONTENTS
PART I PAGE
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Item 8. Financial Statements and Supplementary Data 10-25
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 26
Signatures 27
Schedule II 28
Exhibit Index 29-31
1
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AMPLICON, INC.
PART I
ITEM 1. BUSINESS
General
Amplicon leases and sells mid-range computers, peripherals,
workstations, personal computer networks, telecommunications equipment,
computer automated design and manufacturing equipment, office automation
equipment, computer software and other items of personal property to
customers located throughout the United States. The Company was
incorporated in California in 1977. Unless the context otherwise requires,
the terms "Amplicon" and "Company" as used herein refer to Amplicon, Inc.
Mid-Range Computers and Computer Networks. The Company concentrates
on the market for mid-range computers and computer networks since this
market is particularly receptive to leasing services. A growing portion of
the Company's business consists of personal computers, workstations,
printers, and software which are integrated into complete networks.
Computer networks typically consist of a central server, which may be a
mid-range computer or high-end microcomputer, multiple personal computers
and workstations, network communications hardware and software, printers
and associated products for microcomputer based networks. Computer
networks generally range in cost from $100,000 to $3,000,000. Mid-range
computers generally cost between $100,000 and $750,000 and are used
primarily by subsidiaries and divisions of large companies to supplement
mainframe computer systems, by middle-market companies for centralized
data processing, and to upgrade personal computer networks. Mid-range
computer systems typically consist of a central processing unit, multiple
display terminals, printers, disk and tape drives, communications
equipment and operating software.
Mid-range systems and computer networks are modular and can be
expanded to satisfy additional data processing requirements and perform
additional functions by upgrading the central processing unit and/or
server, and adding data storage devices and workstations to support
additional users. Advances in microcomputer technology and enhancements
to the capabilities of mid-range computer systems have led to the
development of systems that better integrate data processing with word
processing, file and retrieval systems, and electronic mail. The Company
leases and sells mid-range computer systems manufactured primarily by
International Business Machines Corporation ("IBM"), Digital Equipment
Corporation ("DEC"), and Hewlett-Packard Co. ("HP"). Vendors of computer
network products include IBM, DEC and HP, as well as Compaq Computer
Corporation, Dell Computer Corporation and Gateway 2000, Inc., among many
others, and software vendors such as Microsoft Corporation and Novell,
Inc.
Other Electronic Equipment. Advances in microcomputer technology
have also expanded the scope of other electronic equipment utilized by
Amplicon's existing and targeted customer base. Amplicon leases and sells
telecommunications equipment, computer automated design and computer
automated manufacturing ("CAD/CAM") equipment, and office automation
equipment. The telecommunications equipment leased by the Company
consists primarily of digital private branch equipment, switching
equipment and voice mail systems manufactured by AT&T Corporation, Siemens
Business Communications Systems, Inc. and ITT Corporation, and generally
costs between $50,000 and $500,000. The CAD/CAM systems leased by the
Company include those produced by IBM, HP, Intergraph Corporation and Sun
Microsystems, Inc. and cost between $50,000 and $700,000 per system. The
Company also leases imaging systems, testing equipment, copying equipment,
retail point-of-sale systems and bank automatic teller machines.
Production Equipment and Other Personal Property. The Company also
leases technology related manufacturing and distribution management
systems. These systems include complex computer controlled manufacturing
and production systems, printing presses and warehouse distribution
systems. In addition, the Company leases a wide variety of personal
property in the "non-high technology" area, including machine tools,
trucks and office furniture.
2
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AMPLICON, INC.
General (continued)
Software. Amplicon leases operating system software products and
specialized application software packages. These application software
packages typically cost between $50,000 and $500,000. In addition to
leasing stand-alone software packages, an increasing percentage of the
cost of mid-range computer systems and networks consists of operating and
application software.
Marketing Strategy
The Company has developed and refined a direct marketing system
utilizing a centralized telemarketing program. The program includes a
system which maintains a confidential database of current and potential
users of business property, a comprehensive formal training program to
introduce new marketing employees to Amplicon's telemarketing techniques,
and an in-house computer and telecommunications system.
The Company implemented its current marketing system after having
determined that a centralized telemarketing program would be more cost
effective than field sales representatives. The use of telemarketing
techniques rather than field sales representatives has enabled the Company
to limit selling, general and administrative expenses to seven percent
(7%) or less of revenues during each of its last five fiscal years and,
consequently, allows the Company to offer more competitive rates to its
customers.
Amplicon identifies potential customers through a variety of
methods. The Company purchases lists of computer users from private
sources, conducts direct mail and telephone campaigns to generate sales
leads, and maintains proprietary records of contacts made with potential
customers by its account executives. Amplicon utilizes prospect management
software to further enhance the productivity of the sales force. Specific
information about potential customers is entered into an on-line
confidential database accessible to each account executive through the
personal computer network. As potential customers are contacted by account
executives, the database is updated and supplemented with information
about what computer and other equipment they are using, related lease
expiration dates and any future equipment needs or replacement plans. The
database allows account executives to identify efficiently the most
likely purchaser or lessee of capital assets and to concentrate efforts on
these prospective customers.
Amplicon's database, combined with the prospect management software,
and an integrated in-house telecommunications system, permit the Company's
sales management to monitor account executive activity, daily prospect
status and pricing information. The ability to monitor account activity
and offer immediate assistance in negotiating or pricing a transaction
makes it possible for Amplicon to be responsive to its customers and
prospects.
Leasing and Sales Activities
The Company's leases are generally for terms ranging from two to
five years. All of the Company's leases are noncancelable "net" leases
which contain "hell-or-high-water" provisions under which the lessee must
make all lease payments regardless of any defects in the property, and
which require the lessee to maintain and service the property, insure the
property against casualty loss and pay all property, sales and other
taxes. The Company retains ownership of the property it leases, and in the
event of default by the lessee, the Company or the lender to whom the
lease had been assigned may declare the lessee in default, accelerate all
lease payments due under the lease and pursue other available remedies,
including repossession of the property. Upon the expiration of the leases,
the lessee typically has an option, which is dependent upon each lease's
defined end of term options, to either purchase the property at a mutually
agreeable price, or in the case of a "conditional sales contract," at a
predetermined minimum price, or to renew the lease. If the purchase option
is not exercised by the original lessee, once the leased property is
returned to the Company, the Company will endeavor to locate a new lessee;
however, if a new lessee cannot be located, then the Company seeks to sell
the leased property. The terms of the Company's software leases are
substantially similar to its equipment leases.
3
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AMPLICON, INC.
Leasing and Sales Activities (Continued)
The Company conducts its leasing business in a manner designed to
conserve its working capital and minimize its credit exposure. The Company
does not purchase property until it has received a noncancelable lease
from its customer and, generally, has determined that the lease can be
discounted with a bank or financial institution on a nonrecourse basis.
Accordingly, a substantial portion of the Company's leases are discounted
to banks or finance companies on a nonrecourse basis at fixed interest
rates that reflect the customers' financial condition. Approximately 92.2%
and 68.3% of the total dollar amount of new leases entered into by the
Company during the fiscal years ended June 30, 1998 and 1997,
respectively, were discounted to financial institutions. The lender to
which a lease has been assigned has no recourse against the Company,
unless the Company is in default of the terms under the agreement by which
a lease was assigned to the lender. The lender to which a lease has been
assigned may take title to the leased property in the event the lessee
fails to make lease payments or initiates certain other defaults under the
terms of the lease. If this occurs, the Company may not realize its
residual investment in the leased property.
From time to time, the Company retains in its own portfolio lease
transactions that meet credit standards set by the Company. Some of these
transactions are entered into when the value of the underlying property,
or the credit profile of the lessee, would not be acceptable to a
financial institution for purposes of making a nonrecourse loan to the
Company. Each of these transactions must meet or exceed certain
profitability requirements as established, on a case by case basis, by the
Company's senior management. In addition, the Company invests in lease
transactions which the Company believes could be placed at a later date
with nonrecourse lenders on a lease-by-lease basis or in a portfolio debt
placement or securitization. At June 30, 1998 and 1997, the discounted
minimum lease payments receivable relative to leases maintained in the
Company's portfolio amounted to $62,749,612 and $63,366,848, respectively.
Customers
The Company's customers are primarily subsidiaries and divisions of
Fortune 1000 companies and middle-market companies with credit ratings
acceptable to the lenders providing nonrecourse loans. The Company does
not believe that the loss of any one customer would have a material
adverse effect on its operations taken as a whole.
Competition
The Company competes in the distribution and lease financing of
computer systems and networks, software, and other equipment with
equipment brokers and dealers, other leasing companies, banks and other
financial institutions and credit corporations which are affiliated with
equipment manufacturers, such as, IBM, DEC and HP. The Company believes
that there is increased competition for new business and that such
competition is heightened during periods when key vendors introduce
significant new products. Changes by the manufacturers of systems leased
by the Company with respect to pricing, maintenance or marketing practices
could materially affect the Company. In addition, if credit corporations
affiliated with manufacturers become more aggressive with respect to the
financing terms offered, the Company's operations could be adversely
affected. Many of the Company's competitors have substantially greater
resources, capital, and more extensive and diversified operations than
Amplicon. The Company believes the principal competitive factors in the
industry which it serves are price, responsiveness to customer needs,
flexibility in structuring lease financing arrangements, financial
technical proficiency and the offering of a broad range of lease financing
options.
Employees
The Company, as of June 30, 1998, had 236 employees, including 153
sales managers and account executives and 13 professionals engaged in
finance and credit. None of the Company's employees are represented by a
labor union. The Company believes that its relations with its employees
are satisfactory.
4
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AMPLICON, INC.
ITEM 2. PROPERTIES
At June 30, 1998, Amplicon occupied approximately 49,000 square feet
of office space in Santa Ana, California leased from an unaffiliated
party. The lease which covers this office space provides for monthly
rental payments which average $77,224 from July 1998 through February
2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is sometimes named as a defendant in litigation relating
to its business operations. Management does not expect the outcome of any
existing suit to have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of Amplicon, Inc. trades on the NASDAQ National
Market System under the symbol AMPI. The following high and low closing
sale prices for the periods shown reflect interdealer prices without
retail markup, markdown or commissions and may not necessarily reflect
actual transactions (adjusted for the Company's 2-for-1 common stock split
effective October 17, 1997).
High Low
Fiscal year ended June 30, 1998
First Quarter.........................................$16.25 $11.945
Second Quarter.........................................17.25 15.25
Third Quarter..........................................24.00 16.50
Fourth Quarter.........................................24.00 11.875
Fiscal year ended June 30, 1997
First Quarter.........................................$ 9.375 $ 8.00
Second Quarter.........................................10.5625 9.1875
Third Quarter..........................................11.625 10.25
Fourth Quarter.........................................12.00 11.125
The Company had approximately 40 stockholders of record and in
excess of 500 beneficial owners as of September 11, 1998.
In September 1994, after considering the Company's profitability,
liquidity and future operating cash requirements, the Board of Directors
authorized a regular quarterly cash dividend policy. During each of the
fiscal years ended June 30, 1998, 1997 and 1996 the Company declared cash
dividends totaling $.16, $.10 and $.10, respectively, per common share.
5
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AMPLICON, INC.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and operating
information of the Company. Common share data has been adjusted for the
Company's 2-for-1 common stock split effective October 17, 1997. The
selected financial data should be read in conjunction with the Financial
Statements and notes thereto and Management's Discussion and Analysis of
Results of Operations and Financial Condition contained herein.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------------------
INCOME STATEMENT DATA 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of equipment $267,972 $261,082 $224,818 $178,413 $156,740
Interest and investment
income 45,101 37,151 31,141 25,794 24,357
Rental income 716 1,657 1,280 2,313 263
-------- -------- -------- -------- --------
Total revenues 313,789 299,890 257,239 206,520 181,360
Gross profit 51,092 47,058 39,280 32,751 29,453
Earnings before income
taxes 31,769 26,017 21,480 19,088 17,352
Net earnings $ 19,220 $ 15,740 $ 12,996 $ 11,548 $ 11,019
======== ======== ======== ======== ========
COMMON SHARE DATA
Basic earnings per share $ 1.63 $ 1.35 $ 1.11 $ .99 $ .95
======== ======== ======== ======== ========
Diluted earnings per
share $ 1.55 $ 1.31 $ 1.09 $ .96 $ .91
======== ======== ======== ======== ========
Weighted average number of
common shares outstanding 11,800 11,689 11,698 11,720 11,698
Diluted number of common
shares outstanding 12,368 12,021 11,894 11,986 12,057
Cash dividends per share $ .16 $ .10 $ .10 $ .10 $ -
======== ======== ======== ======== ========
SELECTED ANNUAL GROWTH RATES
Sales of equipment 3% 16% 26% 14% 12%
Total revenues 5 17 25 14 11
Net interest and investment
income 26 29 14 (4) 4
Gross profit 9 20 20 11 13
Net earnings 22 21 13 5 13
Basic earnings per share 21 21 13 4 13
AS OF JUNE 30,
------------------------------------------------
BALANCE SHEET DATA 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share data)
Total assets $512,605 $488,915 $461,749 $402,100 $384,584
Note payable to bank - 10,000 - - 10,000
Nonrecourse debt 269,769 262,516 279,109 238,614 225,746
Stockholders' equity 135,945 117,754 102,665 91,364 80,875
Book value per common
share $ 11.49 $ 10.02 $ 8.79 $ 7.79 $ 6.91
</TABLE>
6
<PAGE>
AMPLICON, INC.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Fiscal Years Ended June 30, 1998 and 1997
REVENUES. Total revenues for the fiscal year ended June 30, 1998
were $313,789,037, an increase of $13,898,559 or 5% from the prior year.
This change was primarily the result of increases in sales of equipment of
$6,890,030 and interest income of $8,004,374. The increase in sales of
equipment was primarily due to a 4% increase in sales from new lease
transactions offset by a 6% decrease in sales revenue from residual
investments. Interest income for the fiscal year ended June 30, 1998
increased to $44,519,284 as compared to $36,514,910 for the fiscal year
ended June 30, 1997, and included interest income on discounted lease
rentals assigned to lenders (which is offset by interest expense on
nonrecourse debt) of $22,439,529 in the fiscal year ended June 30, 1998
versus $19,130,121 for the prior year. Investment income for fiscal year
ended June 30, 1998 decreased by $55,200 to $581,524 as compared to
$636,724 in the prior year primarily as a result of the Company
maintaining lower investment balances throughout fiscal year 1998.
While total revenues for the year ended June 30, 1998 were up, total
revenues for the fourth quarter ended June 30, 1998 decreased 15%, or
$12,574,091 to $69,735,625 compared to the fourth quarter ended June 30,
1997. This decrease was due to a $14,453,174 drop in sales of equipment
offset by a $2,276,756 increase in interest income. This decline in sales
of equipment reflected a 21% decrease in sales from new lease transactions
and a 19% decrease in sales revenue from lease extensions and sales of
leased property.
Net interest income (interest and investment income less interest
expense on discounted lease rentals assigned to lenders) for the fiscal
year ended June 30, 1998 increased by $4,639,766, or 26%, to $22,661,279
as compared to $18,021,513 for fiscal year ended June 30, 1997. This net
increase resulted primarily from higher recognition of net deferred income
and higher interest income from Amplicon's portfolio of lease receivables
and residuals.
Rental income for the fiscal year ended June 30, 1998 of $716,153
decreased by $940,645 as compared to the fiscal year ended June 30, 1997,
as a result of decreases in the volume of short-term lease renewals.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1998
increased by $4,034,044, or 9%, to $51,091,701 compared to $47,057,657 for
the fiscal year ended June 30, 1997. Gross profit as a percent of total
revenues increased to 16.3% of total revenues for fiscal 1998 compared to
15.7% of total revenues for the prior year. The principal factor that
contributed to the increase in gross profit was the 26% increase in net
interest income described above offset by a 7% decline in gross profit
from lease extensions and leased property sales during the fiscal year and
lower profits from new lease transactions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of total revenues were 6.1% for
the fiscal year ended June 30, 1998 as compared to 6.9% for the fiscal
year ended June 30, 1997. Selling, general and administrative expenses for
the fiscal year ended June 30, 1998 decreased by $1,587,492, or 7.6%, as
compared to the prior year. This decrease is the result of lower legal,
salary and benefit expenses.
INTEREST EXPENSE-OTHER. Interest expense-other was $85,733 for the
year ended June 30, 1998 as compared to $216,182 for the year ended June
30, 1997. The decrease of $130,449 was primarily the result of lower
fiscal year 1998 interest assessments made as the result of regulatory
audits with various federal, state and local agencies.
TAXES. The Company's tax rate was 39.5% for each of the fiscal years
ended June 30, 1998 and 1997 representing its estimated annual tax rates
for each respective year.
7
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AMPLICON, INC.
Fiscal Years Ended June 30, 1997 and 1996
REVENUES. Total revenues for the fiscal year ended June 30, 1997
were $299,890,478, an increase of $42,651,438 or 17% from the prior year.
This change was primarily the result of increases in sales of equipment of
$36,263,935 and interest income of $6,242,365. The increase in sales of
equipment was primarily due to sales from new lease transactions but
benefited also from a 47% increase in sales from residual investments.
Interest income for the fiscal year ended June 30, 1997 increased to
$36,514,910 as compared to $30,272,545 for the fiscal year ended June 30,
1996, and included interest income on discounted lease rentals assigned to
lenders (which is offset by interest expense on nonrecourse debt) of
$19,130,121 in the fiscal year ended June 30, 1997 versus $17,162,307 for
the prior year. Investment income for fiscal year ended June 30, 1997
decreased by $231,732 to $636,724 as compared to $868,456 in the prior
year primarily as a result of the Company maintaining lower investment
balances throughout fiscal year 1997.
Net interest income (interest and investment income less interest
expense on discounted lease rentals assigned to lenders) for the fiscal
year ended June 30, 1997 increased by $4,042,819, or 29%, to $18,021,513
as compared to $13,978,694 for fiscal year ended June 30, 1996. This net
increase resulted primarily from increases in the amortization of net
deferred income, higher interest income from a larger investment in lease
receivables and higher interest income earned on larger residual
investments.
Rental income for the fiscal year ended June 30, 1997 of $1,656,798
increased by $376,870 as compared to the fiscal year ended June 30, 1996,
as a result of increases in the volume of short-term lease renewals.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1997
increased by $7,777,723, or 20%, to $47,057,657 compared to $39,279,934
for the fiscal year ended June 30, 1996. Gross profit as a percent of
total revenues increased to 15.7% of total revenues for fiscal 1997
compared to 15.3% of total revenues for the prior year. The principal
factors which contributed to the increase in gross profit were strong
increases in earnings from lease extensions, renewals and sales of
property at the end of the lease term, and the 29% increase in net
interest income described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of total revenues were 6.9% for
the fiscal year ended June 30, 1997 as compared to 6.8% for the fiscal
year ended June 30, 1996. Selling, general and administrative expenses for
the fiscal year ended June 30, 1997 increased by $3,271,119, or 18.6%, as
compared to the prior year. This increase resulted primarily from higher
employee salaries and benefit costs and higher legal expenses.
INTEREST EXPENSE-OTHER. Interest expense-other was $216,182 for the
year ended June 30, 1997 as compared to $246,590 for the year ended June
30, 1996. The decrease of $30,408 was primarily the result of lower fiscal
year 1997 interest assessments made as the result of regulatory audits
with various federal, state and local agencies.
TAXES. The Company's tax rate was 39.5% for each of the fiscal years
ended June 30, 1997 and 1996 representing its estimated annual tax rates
for each respective year.
Liquidity and Capital Resources
The Company funds its operating activities through nonrecourse debt
and internally generated funds. Capital expenditures for leased property
purchases are primarily financed by assigning the lease payments to banks
or other financial institutions. The lease payments are discounted at
fixed rates such that the lease payments are sufficient to fully amortize
the aggregate outstanding debt. The Company does not purchase property
until it has received a noncancelable lease from its customer and,
generally, has determined that the lease can be discounted on a
nonrecourse basis. At June 30, 1998, the Company had outstanding
nonrecourse debt aggregating $269,769,090 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.
8
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AMPLICON, INC.
From time to time, the Company retains leases in its own portfolio
rather than assigning the leases to financial institutions. During the
fiscal year 1998, the Company decreased its net investment in leases by
$617,236. This decrease was primarily due to fewer new lease transactions
being held in the Company's own lease portfolio.
The Company generally funds its equity investments in leased
property and interim purchases with internally generated funds and, if
necessary, borrowings under a $20,000,000 general line of credit. At June
30, 1998, the Company did not have any borrowings 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. During the year ended June 30, 1998, the Company did not repurchase
any Common Stock. During the year ended June 30, 1997, the Company
repurchased 10,000 shares at an aggregate cost of $81,875. As of
September 11, 1998, 121,356 shares remain available under this
authorization.
The need for cash used for operating activities will continue to
grow as the Company expands. The Company believes that existing cash
balances, cash flow from operations, cash flows from its financing and
investing 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.
Year 2000
The Year 2000 issue ("Y2K") is a problem that relates to the way
that computers store, manipulate, and interpret dates that define the year
using only two digits. These systems may experience problems handling
dates beyond 1999 and therefore, could cause computer or other systems to
fail or provide erroneous results. Date information can exist at any
level of hardware or software from micro code to application programs, in
files and databases, and might be present on any operating platform.
The Company has addressed this issue by implementing a program which
will attempt to assess, remediate and mitigate the potential impact of the
Y2K problem. The Company is in the process of systematically determining
Y2K compliance of its computer related hardware, major application
software programs, externally supplied software, and major debt source
vendors and customer compliance.
The Company has substantially completed its assessment of its
internal hardware and major software application programs and determined
that the Company is in material compliance with most of its internal
systems. For those systems in noncompliance, the Company is in the process
of either upgrading or replacing those systems to current Y2K compliance
standards. The costs associated with this program are not anticipated to
be material and should fall within normal operating costs of maintaining
those systems.
Management believes that the Company's internal systems will be in
substantial compliance with the Y2K problems prior to the Year 2000 and
that the Company should not have a material business risk as a result of
this issue. The Company is in the process of monitoring its major
suppliers, service providers, debt sources and customers, over which the
Company has no control, to determine that they address their own Y2K
issues. If appropriate modifications are not made by them on a timely
basis, the Company's operations and financial results could be adversely
affected.
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.
9
<PAGE>
AMPLICON, INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary financial information
are included herein at the pages indicated below:
Page Number
-----------
Report of Independent Public Accountants 11
Balance Sheets at June 30, 1998 and 1997 12
Statements of Earnings for the years ended
June 30, 1998, 1997 and 1996 13
Statements of Stockholders' Equity for the
years ended June 30, 1998, 1997 and 1996 14
Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996 15
Notes to Financial Statements 16-25
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Amplicon, Inc.:
We have audited the accompanying balance sheets of Amplicon, Inc. (a
California corporation) as of June 30, 1998 and 1997, and the related
statements of earnings, stockholders' equity and cash flows for each of
the three years in the period ended June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Amplicon,
Inc. as of June 30, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended June
30, 1998, in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January
1, 1997, the Company changed its method of accounting for transfers of
financial assets.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, fairly states in all material respects,
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Irvine, California
July 31, 1998
11
<PAGE>
AMPLICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------------
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 15,192,477 $ 5,779,960
Net receivables (Note 2) 87,228,472 87,743,287
Inventories, primarily customer deliveries
in process 2,500,352 1,558,063
Net investment in capital leases (Note 3) 109,148,826 103,961,072
Equipment on operating leases, less
accumulated depreciation of $29,708 (1998)
and $117,262 (1997) - 1,512
Other assets 1,308,140 1,189,067
Discounted lease rentals assigned to
lenders (Note 3) 297,226,530 288,682,289
------------ ------------
$512,604,797 $488,915,250
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank (Note 4) $ - $ 10,000,000
Accounts payable 25,766,493 27,608,587
Accrued liabilities 8,037,617 5,928,825
Customer deposits 8,174,972 6,072,248
Nonrecourse debt (Note 3) 269,769,090 262,515,988
Deferred interest income (Note 5) 27,457,440 26,166,301
Net deferred income (Note 5) 7,436,294 5,819,424
Income taxes payable, including
deferred taxes (Note 6) 30,018,030 27,049,601
------------ ------------
376,659,936 371,160,974
------------ ------------
Commitments and contingencies (Note 8)
Stockholders' equity (Notes 4 & 7):
Preferred stock; 2,500,000 shares
authorized; none issued - -
Common stock; $.005 par value; 40,000,000
shares authorized; 11,830,618 (1998) and
11,752,518 (1997) issued and outstanding 59,153 58,763
Additional paid in capital 6,970,065 6,109,745
Retained earnings 128,915,643 111,585,768
------------ ------------
135,944,861 117,754,276
------------ ------------
$512,604,797 $488,915,250
============ ============
</TABLE>
The accompanying notes are an integral
part of these balance sheets.
12
<PAGE>
AMPLICON, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales of equipment $267,972,076 $261,082,046 $224,818,111
Interest income (Notes 1, 3 & 5) 44,519,284 36,514,910 30,272,545
Investment income 581,524 636,724 868,456
Rental income 716,153 1,656,798 1,279,928
------------ ------------ ------------
313,789,037 299,890,478 257,239,040
------------ ------------ ------------
Costs:
Cost of equipment sold 240,229,320 233,591,971 200,531,313
Interest expense on nonrecourse
debt (Notes 1, 3 & 5) 22,439,529 19,130,121 17,162,307
Depreciation of equipment on
operating leases 28,487 110,729 265,486
------------ ------------ ------------
262,697,336 252,832,821 217,959,106
------------ ------------ ------------
Gross profit 51,091,701 47,057,657 39,279,934
Selling, general and
administrative expenses 19,237,342 20,824,834 17,553,715
Interest expense-other 85,733 216,182 246,590
------------ ------------ ------------
Earnings before income taxes 31,768,626 26,016,641 21,479,629
Income taxes (Note 6) 12,549,000 10,277,000 8,484,000
------------ ------------ ------------
Net earnings $ 19,219,626 $ 15,739,641 $ 12,995,629
============ ============ ============
Basic earnings per common share $ 1.63 $ 1.35 $ 1.11
============ ============ ============
Diluted earnings per common share $ 1.55 $ 1.31 $ 1.09
============ ============ ============
Dividends declared per common
share outstanding $ .16 $ .10 $ .10
============ ============ ============
Weighted average number of common
shares outstanding 11,800,206 11,688,980 11,697,694
============ ============ ============
Diluted number of common shares
outstanding 12,367,752 12,021,488 11,893,952
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
13
<PAGE>
AMPLICON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Investment
Additional securities
Common Stock paid in Retained valuation
Shares Amount capital earnings adjustment Total
------------------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
June 30,
1995 11,735,918 $58,680 $6,091,910 $ 85,191,545 $21,542 $ 91,363,677
Shares
issued -
Stock
options
exer-
cised 12,000 60 41,940 - - 42,000
Shares re-
purchased ( 70,000)( 350)( 546,563) - - ( 546,913)
Dividends
declared - - - ( 1,169,911) - ( 1,169,911)
Invest-
ment
secu-
rities
valua-
tion
adjust-
ment - - - - ( 19,946) (19,946)
Net
earnings - - - 12,995,629 - 12,995,629
---------- ------- ---------- ------------ ------- ------------
Balance,
June 30,
1996 11,677,918 58,390 5,587,287 97,017,263 1,596 102,664,536
Shares
issued -
Stock
options
exer-
cised 84,600 423 604,283 - - 604,706
Shares re-
purchased ( 10,000)( 50)( 81,825) - - ( 81,875)
Dividends
declared - - - ( 1,171,136) - ( 1,171,136)
Invest-
ment
secu-
rities
valua-
tion
adjust-
ment - - - - ( 1,596)( 1,596)
Net
earnings - - - 15,739,641 - 15,739,641
--------- ------- ---------- ------------ ------- ------------
Balance,
June 30,
1997 11,752,518 58,763 6,109,745 111,585,768 - 117,754,276
Shares
issued -
Stock
options
exer-
cised 78,100 390 652,875 - - 653,265
Income
tax
benefit
from
exercise
of non-
qualified
stock
options - - 207,445 - - 207,445
Dividends
declared - - - ( 1,889,751) - ( 1,889,751)
Net
earnings - - - 19,219,626 - 19,219,626
---------- ------- ---------- ------------ ------- ------------
Balance,
June 30,
1998 11,830,618 $59,153 $6,970,065 $128,915,643 $ - $135,944,861
========== ======= ========== ============ ======= ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
14
<PAGE>
AMPLICON, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ------------ ------------ ------------
ACTIVITIES:
<S> <C> <C> <C>
Net earnings $ 19,219,626 $ 15,739,641 $ 12,995,629
Adjustments to reconcile net
earnings to cash flows used for
operating activities:
Depreciation 28,487 110,729 265,486
Sale or lease of equipment
previously on operating
leases, net - - 106,076
Interest accretion of estimated
unguaranteed residual values ( 5,893,522) ( 4,634,756) ( 3,471,891)
Estimated unguaranteed residual
values recorded on leases ( 11,550,576) ( 12,439,845) ( 11,622,505)
Interest accretion of net
deferred income ( 4,233,252) ( 3,862,195) ( 2,351,292)
Increase in net deferred
income 5,850,122 5,402,116 6,065,845
Net increase (decrease) in
income taxes payable,
including deferred taxes 3,175,874 7,542,529 ( 862,378)
Net decrease (increase) in
net receivables 514,815 ( 28,965,862) ( 4,818,201)
Net (increase) decrease in
inventories ( 942,289) 898,130 3,195,017
Net increase (decrease) in
accounts payable and accrued
liabilities 266,698 19,253,668 ( 1,850,239)
------------ ------------ ------------
Net cash provided by
(used for) operating
activities 6,435,983 ( 955,845) ( 2,348,453)
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of
available-for-sale
securities ( 180,997,695) ( 235,370,644) ( 221,323,828)
Proceeds from sale of
available-for-sale
securities 180,997,695 236,551,015 229,365,713
Net decrease (increase) in
minimum lease payments
receivable 617,236 ( 22,190,647) ( 21,570,280)
Purchase of equipment on
operating leases ( 26,975) ( 77,674) ( 370,119)
Net (increase) decrease in
other assets ( 119,073) 247,470 ( 41,502)
Decrease in estimated
unguaranteed residual values 11,639,108 11,248,836 7,286,531
------------ ------------ ------------
Net cash provided by (used for)
investing activities 12,110,296 ( 9,591,644) ( 6,653,485)
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Assignment of discounted
lease rentals - - 12,120,298
(Payment) borrowing on note
payable ( 10,000,000) 10,000,000 -
Payments to repurchase
common stock - ( 81,875) ( 546,913)
Increase (decrease) in
customer deposits 2,102,724 ( 1,638,603) 859,133
Dividends to stockholders ( 1,889,751) ( 1,171,136) ( 1,169,911)
Proceeds from exercise of
stock options 653,265 604,706 42,000
------------ ------------ ------------
Net cash (used for) provided
by financing activities ( 9,133,762) 7,713,092 11,304,607
------------ ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 9,412,517 ( 2,834,397) 2,302,669
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,779,960 8,614,357 6,311,688
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 15,192,477 $ 5,779,960 $ 8,614,357
============ ============ ============
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
Increase (decrease) in lease
rentals assigned to lenders
and related nonrecourse debt $ 7,253,102 ($ 20,531,979) $ 40,495,045
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 85,733 $ 216,182 $ 246,590
============ ============ ============
Income taxes $ 9,373,126 $ 2,734,471 $ 9,346,378
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
15
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1998
Note 1 - Summary of Significant Accounting Policies:
Nature of Operations
Amplicon leases and sells mid-range computers, peripherals, workstations,
personal computer networks, telecommunications equipment, computer
automated design and manufacturing equipment, office automation equipment,
computer software and other items of business property to customers
located throughout the United States.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of these statements, cash and cash equivalents includes cash
in banks and cash in demand deposit accounts.
Fair Value of Financial Instruments
The Company has estimated the fair value of its financial instruments in
compliance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107").
For cash, the book value is a reasonable estimate of fair value. For cash
equivalents, the estimated fair value is based on respective market prices
which was equal to book value for all periods presented. The fair value
of the Company's net investment in capital leases is not a required
disclosure under SFAS No. 107.
Leases
Capital Leases
The Company engages in the lease and sale of computer hardware and
software, and other equipment. The discounted value of the aggregate lease
rentals is recorded as sales revenue. The property cost, less the
discounted value of the residual, if any, is recorded as cost of sales.
Except for capital lease transactions in which the Company no longer has a
continuing interest in the leased property, the Company defers gross
profit on capital leases through a reduction of sales revenue recognized
at lease origination. Gross profit which is deferred together with the
unearned interest income (and interest expense if assigned) is recognized
as interest income (and expense) over the lease term based on an internal
rate of return method.
At the time of closing capital leases, the Company records on its balance
sheet the present value of the lease receivable as minimum lease payments
receivable and, if appropriate, the estimated residual value of the leased
property. The Company typically assigns, on a nonrecourse basis, the
noncancelable lease rentals to financial institutions at fixed interest
rates. When leases are assigned to financial institutions, without
recourse, the discounted value of the lease rentals is recorded on the
balance sheet as discounted lease rentals assigned to lenders. The related
obligation resulting from the discounting of the leases is recorded as
nonrecourse debt. In the event of default by a lessee, the lender has a
first lien against the underlying leased property with no further recourse
against the Company. If this occurs, the Company may not realize its
residual investment in the leased property.
16
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
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. Qualifying
transfers which occurred prior to January 1, 1997 were precluded from
adoption of SFAS No. 125 and the discounted value of the lease rentals
have been recognized as discounted lease rentals assigned to lenders.
A portion of the Company's selling, general and administrative costs
directly related to originating capital lease transactions during the
period is deferred as an increase in revenues and amortized over the lease
term utilizing the effective interest method. See Note 5.
Operating Leases
Lease contracts which do not meet the criteria of capital leases are
accounted for as operating leases. Property on operating leases is
recorded at cost and depreciated on a straight-line basis over the lease
term to the estimated residual value at the termination of the lease.
Rental income is recorded monthly or quarterly when due. Selling costs
directly associated with the operating leases are deferred and amortized
over the lease term.
Inventories
Inventories, which primarily represent partial deliveries of property on
in-process lease transactions where the lessee is legally obligated to
accept, are stated at cost.
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.
Earnings Per Share
Effective December 31, 1997 the Company adopted Statement of Financial
Accounting Standard No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS
No. 128 requires the presentation of both basic and diluted net income per
share for financial statement purposes. Basic net income per share is
computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding. Diluted net income
per share includes the effect of the potential shares outstanding,
including dilutive stock options using the treasury stock method. The
table following reconciles the components of the basic net income per
share calculation to diluted net income per share.
17
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings $19,219,626 $15,739,641 $12,995,629
=========== =========== ===========
Weighted average number of
common shares outstanding
assuming no exercise of
outstanding options 11,800,206 11,688,980 11,697,694
Dilutive stock options
using the treasury stock
method 567,546 332,508 196,258
----------- ----------- -----------
12,367,752 12,021,488 11,893,952
=========== =========== ===========
Basic earnings per common share $ 1.63 $ 1.35 $ 1.11
=========== =========== ===========
Diluted earnings per share $ 1.55 $ 1.31 $ 1.09
=========== =========== ===========
</TABLE>
Reclassifications
Certain reclassifications have been made to the fiscal 1997 financial
statements to conform with the presentation of the fiscal 1998 financial
statements.
Note 2 - Receivables:
The Company's net receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Financial institutions $ 4,955,428 $ 8,043,353
In-process lease receivables 69,451,152 68,250,717
Lessees 12,868,990 11,131,001
Other 791,759 1,157,073
----------- -----------
88,067,329 88,582,144
Less allowance for doubtful accounts ( 838,857) ( 838,857)
----------- -----------
Net receivables $87,228,472 $87,743,287
=========== ===========
</TABLE>
18
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Capital Leases:
The Company's net investment in capital leases consists of the following:
<TABLE>
<CAPTION>
June 30,
------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Minimum lease payments receivable,
less allowance for doubtful
accounts of $856,585 in each year $ 70,266,276 $ 70,992,751
Estimated unguaranteed residual
value, less valuation allowance
of $1,273,793 in 1998 and
$1,394,274 in 1997 59,584,083 53,128,404
------------ ------------
129,850,359 124,121,155
Less unearned income ( 20,701,533) ( 20,160,083)
------------ ------------
Net investment in capital leases $109,148,826 $103,961,072
============ ============
</TABLE>
The interest rates used to discount lease payments reflect the underlying
lease rates and range from 7.20% to 14.50%.
The estimated unguaranteed residual value is discounted using the internal
rate of return related to each specific capital lease.
At June 30, 1998, a summary of the installments due on minimum lease
payments receivable and the expected maturity of the Company's estimated
unguaranteed residual value, net of allowances, is as follows:
<TABLE>
<CAPTION>
Estimated
Minimum unguaranteed
Years ending lease payments residual
June 30, receivable value Total
------------ -------------- ------------ ------------
<S> <C> <C> <C>
1999 $36,000,609 $17,670,433 $ 53,671,042
2000 18,064,772 19,024,909 37,089,681
2001 10,033,620 15,720,351 25,753,971
2002 3,663,364 4,677,977 8,341,341
2003 2,483,637 2,451,641 4,935,278
Thereafter 20,274 38,772 59,046
----------- ----------- ------------
70,266,276 59,584,083 129,850,359
Less unearned income ( 7,516,664) ( 13,184,869) ( 20,701,533)
----------- ----------- ------------
Net investment in
capital leases $62,749,612 $46,399,214 $109,148,826
=========== =========== ============
</TABLE>
19
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Nonrecourse debt, which relates to the discounting of capital lease
receivables, bears interest at rates ranging from 5.87% to 18.5%.
Maturities of such obligations at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Years ending Capital
June 30, leases
------------ ------------
<S> <C>
1999 $125,852,334
2000 88,105,252
2001 42,632,430
2002 10,645,315
2003 2,480,703
Thereafter 53,056
------------
Total nonrecourse debt 269,769,090
Deferred interest income (Note 5) 27,457,440
------------
Discounted lease rentals assigned
to lenders $297,226,530
============
</TABLE>
Note 4 - Note Payable to Bank:
In December 1997, the Company negotiated a $20,000,000 general business
loan agreement (the "Agreement") with a Bank. The Agreement, which
provides for borrowings at the Bank's reference rate or the Bank's
Offshore rate plus 1.00%, allows for advances through December 31, 1999
with rollover provisions to a term note, provided certain conditions are
met by the Company. The term note is to be secured by certain qualifying
leases and is to bear interest at the Bank's reference rate plus .25% or
the Bank's Offshore rate plus 1.75%. The term note requires repayment in
three equal quarterly installments of one eighth of the outstanding
balance at the expiration date, commencing April 1, 2000, and one final
payment on December 31, 2000, for the remaining balance.
The Agreement is unsecured and excludes any arrangements for compensating
balances; however, the Bank requires a commitment fee on the daily average
unused amount of the Bank's $20,000,000 commitment. Under the provisions
of the Agreement, the Company must maintain certain net worth
requirements, a defined debt to net worth ratio and a defined ratio of
certain assets to defined debt. As of June 30, 1998, there was no
borrowing outstanding on this Agreement.
Note 5 - Deferred Interest Income and Net Deferred Income:
At June 30, 1998, deferred interest income of $27,457,440 is offset by
deferred interest expense related to the Company's discounted lease
rentals assigned to lenders of $27,457,440. See Note 3.
At June 30, 1998, the expected recognition of net deferred income
(deferred gross margin of $17,314,989 less deferred selling expenses of
$9,878,695) on the Company's future statements of earnings is as follows:
<TABLE>
<CAPTION>
Years ending
June 30,
------------
<S> <C>
1999 $4,676,306
2000 2,163,488
2001 275,550
2002 232,145
2003 88,805
----------
$7,436,294
==========
</TABLE>
20
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Income Taxes:
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Among other
provisions, this standard requires deferred tax balances to be determined
using the enacted income tax rate for the years in which taxes will be
paid or refunds received. From time to time, the Company is audited by
various governmental taxing authorities. The Company believes that its
accrual for income taxes is adequate for adjustments, if any, which may
result from these examinations.
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Current tax expense:
Federal $ 7,697,441 $ 5,407,310 $1,626,390
State 2,200,000 1,500,000 1,186,017
----------- ----------- ----------
9,897,441 6,907,310 2,812,407
----------- ----------- ----------
Deferred tax expense:
Federal 2,620,156 3,177,690 5,460,980
State 31,403 192,000 210,613
----------- ----------- ----------
2,651,559 3,369,690 5,671,593
----------- ----------- ----------
$12,549,000 $10,277,000 $8,484,000
=========== =========== ==========
</TABLE>
Deferred taxes result principally from the method of recording lease
income on capital leases and depreciation methods for tax reporting, which
differ from financial statement reporting.
Deferred income tax liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
June 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred income tax liabilities:
Tax operating leases $33,353,407 $32,337,212
Deferred selling expenses 4,050,265 3,794,585
Payments due 1,315,834 710,524
----------- -----------
Total liabilities 38,719,506 36,842,321
----------- -----------
Deferred income tax assets:
Allowances and reserves ( 3,968,978) ( 3,093,965)
Minimum tax credits/carryforwards ( 3,537,117) ( 5,673,009)
Depreciation other than on
operating leases ( 425,381) ( 433,546)
State income taxes ( 770,000) ( 592,200)
----------- -----------
Total assets ( 8,701,476) ( 9,792,720)
----------- -----------
Net deferred income tax liabilities $30,018,030 $27,049,601
=========== ===========
</TABLE>
The sources of differences between the federal statutory income tax rate
and the Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
Years ended June 30,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of federal benefit 4.6 4.8 4.8
Other ( .1) ( .3) ( .3)
---- ---- ----
Effective rate 39.5% 39.5% 39.5%
==== ==== ====
</TABLE>
21
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7 - Capital Structure:
In September 1986, the Board of Directors and stockholders approved an
increase in the number of authorized shares of Common Stock to 40,000,000.
The Board of Directors and stockholders further authorized the issuance of
2,500,000 shares of preferred stock, from time to time, in one or more
series and to fix the voting powers, designations, preferences and the
relative participating, optional or other rights, if any, of any wholly
unissued series of preferred stock.
In August 1985, the Company's stockholders approved a Stock Option Plan
(the "1985 Plan"), which, as amended, provided that stock options would be
granted to officers, employees, consultants and other persons who had made
major contributions toward the growth and development of the Company.
Stock options that were granted entitled the recipient to purchase shares
of the Company's common stock at prices greater than, equal to or less
than the estimated fair market value at the date of the grant. Under the
1985 Plan, stock options become exercisable over a three or five year
period, commencing with the first anniversary of the date of the grant,
and expire ten years from the date of the grant. The Company had reserved
1,300,000 shares of common stock for issuance under the 1985 Plan. No
further grants will be made under the 1985 Plan.
In November 1995, the Company's stockholders approved the 1995 Equity
Participation Plan (the "1995 Plan") which succeeds the 1985 Plan. The
1995 Plan provides for the granting of options, restricted stock and stock
appreciation rights ("SARs") to key employees, directors and consultants
of the Company. Under the 1995 Plan, the maximum number of shares of
Common Stock that may be issued upon the exercise of options or SARs, or
upon the vesting of restricted stock awards, is 1,000,000. The maximum
number of available shares of Common Stock will increase by an amount
equal to 1% of the total number of issued and outstanding shares of Common
Stock as of June 30 of the fiscal year immediately preceding such fiscal
year. Each grant or issuance under the 1995 Plan will be set forth in a
separate agreement and will indicate, as determined by the stock option
committee, the type, terms, vesting period and conditions of the award.
The following table summarizes the activity in the 1985 and 1995 Plans for
the periods indicated:
<TABLE>
<CAPTION>
For the year ended June 30,
-------------------------------------------------------
1998 1997 1996
----------------- ---------------- ------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding at
the beginning of
the year 993,900 $ 6.97 969,700 $6.61 1,024,100 $6.68
Granted 64,750 17.18 182,000 9.61 - N/A
Exercised ( 78,100) 8.36 ( 84,600) 7.14 ( 12,000) 3.50
Canceled ( 42,200) 8.26 ( 73,200) 8.57 ( 42,400) 9.27
------- ------ ------- ----- --------- -----
Options
outstanding at
the end of the
year 938,350 $ 7.49 993,900 $6.97 969,700 $6.61
======= ====== ======= ===== ======= =====
Options
exercisable 656,466 631,832 601,766
======= ======= =======
Weighted average
fair value of
options granted $ 6.07 $ 3.41
======= =======
</TABLE>
22
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------- ----------------------
Weighted
average
remaining Weighted Weighted
contractual average average
Range of Number life exercise Number exercise
exercise prices outstanding (in years) price exercisable price
----------------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 3.50 - $ 4.125 317,000 2.21 $ 3.50 317,000 $ 3.50
5.875 - 7.875 287,366 5.46 7.44 190,899 7.22
8.00 - 10.50 202,634 6.03 9.44 135,567 9.59
11.375 - 22.75 131,350 9.17 14.24 13,000 11.38
---------------- ------- ---- ------ ------- ------
$ 3.50 - $22.75 938,350 5.00 $ 7.49 656,466 $ 6.00
================ ======= ==== ====== ======= ======
</TABLE>
The Company accounts for these Plans under APB Opinion No. 25, "Accounting
for Stocks Issued to Employees," under which no compensation cost has been
recognized. Had compensation cost for these plans been determined
consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company's
net income and earnings per share would have been reduced to the following
proforma amounts:
<TABLE>
<CAPTION>
For the year ended June 30,
1998 1997
-------------------------------
<S> <C> <C>
Net earnings $19,219,626 $15,739,641
Proforma compensation cost ( 48,266) ( 27,392)
----------- -----------
Proforma net earnings $19,171,360 $15,712,249
=========== ===========
Proforma Basic EPS $ 1.62 $ 1.34
=========== ===========
Proforma Diluted EPS $ 1.55 $ 1.31
=========== ===========
</TABLE>
Since the FASB No. 123 method of accounting has not been applied to
options granted prior to July 1, 1995, the resulting proforma compensation
cost may not be indicative of that to be expected in future periods.
The fair value of each grant is estimated on the grant date using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997.
<TABLE>
<CAPTION>
For the year ended June 30,
1998 1997
---------------------------
<S> <C> <C>
Risk free interest rate 5.47% 6.40%
Option life (in years) 5 5
Dividend yield 1.00% 1.00%
Volatility 33.29% 29.60%
</TABLE>
23
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 8 - Commitments and Contingencies:
Leases
The Company leases its corporate offices under an operating lease which
expires in fiscal 2003. Rent expense was $774,165 (1998), $604,559 (1997)
and $577,416 (1996).
Future minimum lease payments under the operating lease are as follows:
<TABLE>
<CAPTION>
Years ending Future minimum
June 30, lease payments
------------ --------------
<S> <C>
1999 $ 819,386
2000 860,843
2001 883,604
2002 1,082,761
2003 691,764
----------
$4,338,358
==========
</TABLE>
Litigation
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising out of the Company's
normal business activities. Management does not expect the outcome of any
of these matters, individually and in the aggregate, to have a material
adverse effect on the financial condition and results of operations of the
Company.
401(k) Plan
Employees of the Company may participate in a voluntary defined
contribution plan (the "401K Plan") qualified under Section 401(k) of the
Internal Revenue Code of 1986. Under the 401K Plan, employees who have met
certain age and service requirements may contribute up to a certain
percentage of their compensation. Beginning in calendar year 1996, the
Company increased their contribution to the 401K Plan on behalf of
eligible participants. The Company has made contributions during the
years ended June 30, 1998, 1997, and 1996 of $107,172, $131,573, and
$16,036, respectively.
Note 9- Selected Quarterly Financial Data (Unaudited):
Summarized quarterly financial data for the fiscal years ended June 30,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
(In thousands, except per share amounts)
1998
----
<S> <C> <C> <C> <C>
Total revenues $80,038 $82,186 $81,829 $69,736
Gross profit 11,153 13,109 13,010 13,820
Net earnings $ 3,965 $ 5,001 $ 4,809 $ 5,445
Basic earnings per
common share $ .34 $ .42 $ .41 $ .46
Diluted earnings per
common share $ .32 $ .40 $ .39 $ .44
Dividends declared per
common share $ .04 $ .04 $ .04 $ .04
</TABLE>
24
<PAGE>
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
(In thousands, except per share amounts)
1997
----
<S> <C> <C> <C> <C>
Total revenues $66,457 $74,432 $76,692 $82,309
Gross profit 10,172 11,720 12,629 12,537
Net earnings $ 3,172 $ 3,837 $ 4,156 $ 4,575
Basic earnings per
common share $ .27 $ .33 $ .36 $ .39
Diluted earnings per
common share $ .26 $ .32 $ .35 $ .38
Dividends declared per
common share $ .025 $ .025 $ .025 $ .025
</TABLE>
25
<PAGE>
AMPLICON, INC.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement to be filed not later than
October 28, 1998 with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement to be filed not later than
October 28, 1998, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement to be filed not later than
October 28, 1998 with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Company's definitive proxy statement to be filed not later than
October 28, 1998 with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this Report
(1) Financial Statements
All financial statements of the Registrant as set forth under
Part II Item 8 of this report on Form 10-K
(2) Financial Statement Schedules:
Schedule Number Description Page Number
--------------- ----------- -----------
II. Valuation and Qualifying Accounts 28
All other schedules are omitted because of the absence of conditions under
which they are required or because all material information required to be
reported is included in the financial statements and notes thereto.
(3) Exhibits:
See Index to Exhibits filed as part of this Form 10-K 29-31
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of
fiscal 1998.
26
<PAGE>
AMPLICON, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
AMPLICON, INC.
By S. Leslie Jewett/s/ Date: September 21, 1998
------------------
S. Leslie Jewett
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes each of
Patrick E. Paddon, S. Leslie Jewett and Glen T. Tsuma as attorney-in-fact
to sign on his behalf, individually in each capacity stated below, and
to file all amendments and/or supplements to this Annual Report on
Form 10-K.
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 in the capacities and on the dates indicated.
Signature Title Date
- -------------------- -------------------------- ------------------
Patrick E. Paddon/s/ September 22, 1998
- -------------------- President, Chief Executive
Patrick E. Paddon Officer and Director
Glen T. Tsuma/s/ September 22, 1998
- ---------------- Vice President, Treasurer, Chief
Glen T. Tsuma Operating Officer and Director
S. Leslie Jewett/s/ September 21, 1998
- ------------------- Chief Financial Officer
S. Leslie Jewett
Michael H. Lowry/s/ September 22, 1998
- ------------------- Director
Michael H. Lowry
Harris Ravine/s/ September 24, 1998
- ---------------- Director
Harris Ravine
27
<PAGE>
AMPLICON, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance charged to Accounts Balance
beginning costs and written at end of
Classifications of period expense off period
- --------------- ---------- -------- -------- ----------
Year ended
June 30, 1996:
- ---------------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts $1,695,442 $ - $ - $1,695,442
Allowance for
valuation of
unguaranteed
residual value $ 542,274 $ - $ - $ 542,274
Year ended
June 30, 1997:
- ---------------
Allowance for
doubtful accounts $1,695,442 $ - $ - $1,695,442
Allowance for
valuation of
unguaranteed
residual value $ 542,274 $852,000 $ - $1,394,274
Year ended
June 30, 1998:
- ---------------
Allowance for
doubtful accounts $1,695,442 $ - $ - $1,695,442
Allowance for
valuation of
unguaranteed
residual value $1,394,274 $ - $120,481 $1,273,793
</TABLE>
Note: The allowance for doubtful accounts includes balances related to
receivables and capital leases described in Notes 2 and 3 of the Notes to
Financial Statements.
28
<PAGE>
AMPLICON, INC.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page No.
- -----------------------------------------------------------------------------
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-1
File No. 33-9094 (the "Registration Statement on
Form S-1"))
3.2 Certificate of Amendment of Articles of
Incorporation of the Company, filed April 15, 1988
(incorporated by reference to Exhibit 3.2 to
Registrant's 1988 Form 10-K)
3.3 Bylaws of the Company (incorporated by reference
to Exhibit 3.3 to the Registration
Statement on Form S-1)
3.4 Amendment and Restatement of Article VI of the
Bylaws of the Company (incorporated by reference
to Exhibit 3.4 to Registrant's 1988 Form 10-K)
10.1 1984 Stock Option Plan, as amended to date
(incorporated by reference to Exhibit 10.1 to
Registrant's Statement on Form S-8 File No. 33-27283)
10.2 Master Agreement for Lease Arrangement Transactions,
dated as of October 14, 1985, between the Company
and Chrysler Financial Corporation (incorporated
by reference to Exhibit 10.4 to the Registration
Statement on Form S-1)
10.3 Master Loan Agreement, dated as of July 18, 1986,
between the Company and General Electric Credit
Corporation (incorporated by reference to Exhibit
10.5 to the Registration Statement
on Form S-1)
10.4 Master Agreement for Rental Payment Purchase
Transactions, dated as of July 8, 1982, between the
Company and Wells Fargo Bank, N.A. (incorporated
by reference to Exhibit 10.6 to the Registration
Statement on Form S-1)
10.5 Form of Assignment of Lease - Without Recourse
between the Company and The CIT
Group/Equipment Financing, Inc. (incorporated by
reference to Exhibit 10.10 to the Registration
Statement on Form S-1)
10.6 Form of Assignment of Lease - Without Recourse between
the Company and Circle Business Credit, Inc. (incorporated
by reference to Exhibit 10.11 to the Registration
Statement on Form S-1)
29
AMPLICON, INC.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page No.
- -----------------------------------------------------------------------------
10.7 Master Agreement for Rental Payment Purchase
Transactions, dated as of February 27, 1990, between
the Company and Security Pacific Credit Corporation
(incorporated by reference to Exhibit 10.7 to the
Registrant's 1990 Form 10-K)
10.8 Credit Agreement, dated as of April 13, 1990 (the
"Credit Agreement"), between the Company and Security
Pacific National Bank (now Bank of America National
Trust and Savings Association, and together with
Security Pacific National Bank, "Bank of America")
(incorporated by reference to Exhibit 10.8 to the
Registrant's 1990 Form 10-K)
10.9 First Amendment to the Credit Agreement, dated
November 19, 1990, between the Company and Bank
of America (incorporated by reference to Exhibit 10.9
to the Registrant's 1991 Form 10-K)
10.10 Second Amendment to the Credit Agreement, dated
December 17, 1991, between the Company and Bank
of America (incorporated by reference to Exhibit 10.10
to the Registrant's 1992 Form 10-K)
10.11 Third Amendment to the Credit Agreement, dated
February 25, 1992, between the Company and Bank
of America (incorporated by reference to Exhibit 10.11
to the Registrant's 1992 Form 10-K)
10.12 Fourth Amendment to the Credit Agreement, dated
April 27, 1992, between the Company and Bank
of America (incorporated by reference to Exhibit 10.12
to the Registrant's 1992 Form 10-K)
10.13 Sublease Agreement and Amendment No. 1, dated
October 31, 1990 and November 28, 1990, respectively,
between the Company and Griffin Financial Services
(incorporated by reference to Exhibit 10.13 to the
Registrant's 1992 Form 10-K)
10.14 Fifth Amendment to the Credit Agreement, dated
June 28, 1993, between the Company and Bank of America
(incorporated by reference to Exhibit 10.14 to the
Registrant's 1993 Form 10-K)
10.15 Business Loan Agreement, dated as of August 12, 1993,
between the Company and Bank of America (incorporated
by reference to Exhibit 10.15 to the Registrant's
1993 Form 10-K)
30
<PAGE>
AMPLICON, INC.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit Page No.
- -----------------------------------------------------------------------------
10.16 Security Agreement dated as of December 23, 1993
and all amendments C, D, & E, dated April 19, 1994,
July 18, 1994 and August 30, 1994, respectively
between the Company and The CIT Group/Equipment
Financing, Inc. (incorporated by reference to Exhibit
10.16 to the Registrant's 1994 Form 10-K)
10.17 Amendment One to Business Loan Agreement, dated as of
December 16, 1994, between the Company and Bank of
America (incorporated by reference to Exhibit 10.17
to the Registrant's 1995 Form 10-K)
10.18 Amendment Two to Business Loan Agreement, dated as
of January 23, 1996, between the Company and Bank of
America (incorporated by reference to Exhibit 10.18
to the Registrant's December 31, 1995 Form 10-Q)
10.19 Business Loan Agreement dated as of December 23, 1997
between the Company and Bank of America (incorporated
by reference to Exhibit 10.19 to the Registrant's
December 31, 1997 Form 10-Q)
10.20 Office Lease dated September 17, 1997, between the
Company and GT Partners (incorporated by reference
to Exhibit 10.20 to the Registrant's March 31, 1998
Form 10-Q)
22 List of Subsidiaries (incorporated by reference
to Exhibit 22 to the Registrant's 1988 Form 10-K)
31
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000803016
<NAME> AMPLICON, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,192
<SECURITIES> 0
<RECEIVABLES> 151,674
<ALLOWANCES> 1,695
<INVENTORY> 2,500
<CURRENT-ASSETS> 0
<PP&E> 2,715
<DEPRECIATION> 1,503
<TOTAL-ASSETS> 512,605
<CURRENT-LIABILITIES> 79,433
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 135,886
<TOTAL-LIABILITY-AND-EQUITY> 512,605
<SALES> 267,972
<TOTAL-REVENUES> 313,789
<CGS> 240,229
<TOTAL-COSTS> 262,697
<OTHER-EXPENSES> 19,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86
<INCOME-PRETAX> 31,769
<INCOME-TAX> 12,549
<INCOME-CONTINUING> 19,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,220
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.55
</TABLE>
