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, 1999
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 $.01 per share, as of October 29, 1999 was 11,640,218.
<PAGE>
AMPLICON, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
- ----------------------------- ------
Item 1. Financial Statements
Balance Sheets - September 30, 1999
(unaudited) and June 30, 1999 (audited) 3
Statements of Earnings - Three months
ended September 30, 1999 and 1998 (unaudited) 4
Statements of Cash Flows - Three months
ended September 30, 1999 and 1998 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
<PAGE>
AMPLICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
September 30, June 30,
ASSETS 1999 1999
- ------ ------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 65,139,000 $ 59,337,000
Net receivables 17,832,000 22,785,000
Property acquired for transactions in process 37,554,000 35,398,000
Net investment in capital leases 82,150,000 84,617,000
Net equipment on operating leases 464,000 9,000
Other assets 1,263,000 1,161,000
Discounted lease rentals assigned to lenders 234,735,000 263,462,000
------------ ------------
$439,137,000 $466,769,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts payable $ 2,367,000 $ 7,159,000
Accrued liabilities 6,299,000 5,661,000
Customer deposits 8,973,000 7,507,000
Nonrecourse debt 234,735,000 263,462,000
Income taxes payable, including deferred
taxes 31,539,000 29,405,000
------------ ------------
283,913,000 313,194,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; 2,500,000 shares
authorized; none issued - -
Common stock; $.01 par value;
40,000,000 shares authorized;
11,659,218 and 11,831,918
issued and outstanding as of
September 30, 1999 and
June 30, 1999, respectively 117,000 118,000
Additional paid in capital 4,515,000 6,709,000
Retained earnings 150,592,000 146,748,000
------------ ------------
155,224,000 153,575,000
------------ ------------
$439,137,000 $466,769,000
============ ============
</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,
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Direct financing leases $ 5,425,000 $ 6,922,000
Sales-type leases 4,962,000 5,050,000
Operating leases 491,000 195,000
----------- -----------
Leasing revenues 10,878,000 12,167,000
----------- -----------
Sales of leased property 2,676,000 2,545,000
Interest and other income 903,000 256,000
----------- -----------
14,457,000 14,968,000
----------- -----------
Costs:
Sales-type leases 1,634,000 1,625,000
Operating leases 11,000 1,000
Cost of leased property sold 1,568,000 1,171,000
Provision for credit losses 310,000 -
----------- ------------
3,523,000 2,797,000
----------- ------------
Gross profit 10,934,000 12,171,000
Selling, general and administrative
expenses 3,913,000 4,734,000
----------- -----------
Earnings before income taxes 7,021,000 7,437,000
Income taxes 2,703,000 2,863,000
----------- -----------
Net earnings $ 4,318,000 $ 4,574,000
=========== ===========
Basic earnings per common share $ .36 $ .39
=========== ===========
Diluted earnings per common share $ .35 $ .37
=========== ===========
Dividends declared per common share
outstanding $ .04 $ .04
=========== ===========
Weighted average common shares
outstanding 11,824,000 11,832,000
=========== ===========
Diluted common shares outstanding 12,216,000 12,292,000
=========== ===========
</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,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,318,000 $ 4,574,000
Adjustments to reconcile net earnings
to cash flows provided by (used for)
operating activities:
Depreciation 11,000 1,000
Interest accretion of estimated
unguaranteed residual values ( 1,560,000) ( 1,685,000)
Decrease in estimated unguaranteed
residual values 2,354,000 2,673,000
Provision for credit losses 310,000 -
Net increase in income taxes payable,
including deferred taxes 2,134,000 939,000
Net decrease in net receivables 4,953,000 1,709,000
Net (increase) decrease in property
acquired for transactions in process ( 2,156,000) 19,089,000
Net decrease in accounts payable and
accrued liabilities ( 4,154,000) ( 13,990,000)
Increase in customer deposits 1,466,000 722,000
----------- -----------
Net cash provided by operating activities 7,676,000 14,032,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in minimum lease payments
receivable 2,814,000 4,915,000
Purchase of equipment on operating leases ( 466,000) ( 1,000)
Net increase in other assets ( 102,000) ( 80,000)
Increase in estimated unguaranteed
residual values recorded on leases ( 1,451,000) ( 2,355,000)
----------- -----------
Net cash provided by investing activities 795,000 2,479,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to repurchase common stock ( 2,232,000) -
Dividends to stockholders ( 474,000) ( 473,000)
Proceeds from exercise of stock options 37,000 71,000
----------- -----------
Net cash used for financing activities ( 2,669,000) ( 402,000)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,802,000 16,109,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 59,337,000 15,192,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $65,139,000 $31,301,000
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned
to lenders and related nonrecourse debt ($28,727,000) ($ 5,248,000)
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 7,000 $ 18,000
=========== ===========
Income taxes $ 569,000 $ 1,924,000
=========== ===========
</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,
1999 and the statements of earnings and cash flows for the three month
periods ended September 30, 1999 and 1998. The results of operations for
the three month period ended September 30, 1999 are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year ending June 30, 2000.
Reclassifications
-----------------
In fiscal 1999, the Company changed its presentation of reporting revenue
and cost of sales on certain capital leases. Historically, for all
capital leases, the Company recorded the discounted present value of the
aggregate lease rentals as sales of equipment and the lease property cost
less the discounted value of the residual, if any, as cost of equipment
sold. Under the new approach, for all capital leases that qualify as
direct financing leases, Amplicon no longer records any sales revenue or
cost of sales at lease inception, but will only recognize the gross
profit (unearned income) on the leases as direct financing lease revenue.
The new presentation had no impact on either gross profit or net income.
Total revenues as previously presented in the first quarter of fiscal
1999 were $50,070,000. Total cost of sales as previously presented in the
first quarter of fiscal 1999 were $37,899,000.
Certain reclassifications have been made to the first quarter of fiscal
1999 financial statements to conform with the presentation of the first
quarter of fiscal 2000 financial statements.
6
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
General
- -------
Amplicon generates revenues from its leasing activities, the sale of
leased property and from interest income earned on its cash and liquid
investments. Direct financing lease revenues include interest income
earned on the Company's investment in lease receivables and residuals and
gains recognized on the sale of leases in which the Company retains no
significant continuing interest. Revenues from sales-type leases consist
of the re-lease of off-lease property ("lease extensions") and new lease
transactions that qualify as sales-type leases, generally where the fair
value of the property subject to the lease differs from the Company's
carrying cost. Revenues from operating leases generally involves the
short-term rental of leased property.
The Company's operating results are subject to quarterly and annual
fluctuations resulting from a variety of factors, including the volume of
new lease originations, the volume and profitability from re-marketing
leased property through re-lease or sale, variations in the mix of lease
originations, the credit quality of our portfolio and economic conditions
in general.
The Company conducts its leasing business in a manner designed to
minimize its credit exposures. However, the assumption of risk is a key
source of earnings in the leasing industry and the Company is subject to
risks through its investment in lease transactions in process,
investment in lease receivables held in its own portfolio and residual
investments. The Company establishes reserves to cover such risks and
regularly reviews their adequacy considering levels of non-performing
leases, lessees' financial condition, leased property values as well as
general economic conditions and credit quality indicators.
Three Months Ended September 30, 1999 and 1998
- ----------------------------------------------
REVENUES. Total revenues for the three months ended September 30,
1999 were $14,457,000, a decrease of $511,000, or 3% from the same
quarter of the prior year. The decrease was the result of a reduction in
leasing revenues of $1,289,000, offset by an increase of $647,000 in
interest and other income, and of $131,000 in sales of leased property.
The increase in interest and other income for the quarter ended September
30, 1999 to $903,000, as compared to $256,000 in the quarter ended
September 30, 1998 was a result of the Company maintaining higher levels
of interest bearing cash and cash equivalents.
The 11% decrease in leasing revenues to $10,878,000 for the first
quarter of fiscal 2000 resulted from a decrease of $1,497,000 in direct
financing revenues to $5,425,000 and a decrease of $88,000 in sales-type
lease revenue to $4,962,000, offset by an increase of $296,000 in
operating lease revenue to $491,000. The reduction in direct financing
revenue can be attributed to lower unearned income recognized from
residual investments and assigned capital leases and lower interest
income earned from a smaller investment in lease receivables held in our
own portfolio, reflecting a lower overall investment in capital leases.
The reduction in sales-type lease revenue can be attributed to a decrease
in revenue from new lease transactions structured as sales-type leases.
The increase in operating lease revenue results from an increase in the
volume of short-term lease renewals.
GROSS PROFIT. Gross profit for the first quarter of fiscal 2000
decreased $1,237,000, or 10%, to $10,934,000 when compared to the first
quarter of fiscal 1999. The lower gross profit reflected lower interest
income earned from direct financing leases and an increased provision for
credit losses offset by higher interest income from interest bearing cash
and cash equivalents and increased profits realized from re-lease or sale
of leased property.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the quarter ended September 30, 1999 were
$3,913,000, a reduction of $821,000 or 17%, when compared to the same
quarter of the prior year. The reduction in S,G&A expenses is primarily
due to lower salary and benefit expenses.
TAXES. The Company's tax rate was 38.5% for the quarters ending
September 30, 1999, and 1998 representing its estimated annual tax rate
for the years ending June 30, 2000 and 1999.
(continued)
7
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
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 certain base term lease
payments to banks or other financial institutions. The assigned 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 September 30, 1999, the Company had
outstanding nonrecourse debt aggregating $234,735,000 relating to
property under capital 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, 1999, the Company decreased its minimum
lease payments receivable by $2,991,000. This decrease was primarily due
to fewer new lease transactions being held in the Company's own lease
portfolio.
The Company will often make payments to purchase leased property
prior to the commencement of the lease and assignment to other financial
institutions. The disbursements for such lease transactions in process
are generally made to facilitate the property implementation schedule of
the lessees. The lessee is contractually obligated by the lease to make
rental payments directly to the Company during the period that the
transaction is in process, and the lessee is generally obligated to
reimburse the Company for all disbursements under certain circumstances.
At September 30, 1999, the Company's investment in property acquired for
transactions in process increased by $2,156,000 to $37,554,000 when
compared to June 30, 1999.
The Company generally funds its equity investments in leased
property and transactions in process with internally generated funds and,
if necessary, borrowings under a $20,000,000 general line of credit. At
September 30, 1999, the Company did not have any borrowings outstanding
on this line of credit.
In November 1990 and April 1999, the Board of Directors authorized
management, at its discretion, to repurchase up to 600,000 shares each,
or a total of 1,200,000 of the Company's Common Stock. During the
quarter ended September 30, 1999, the Company repurchased 177,000 shares
at an aggregate cost of $2,232,000. As of September 30, 1999, 471,356
shares remain available under the April 1999 authorization.
The need for cash used for operating activities will increase 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 to
assess, remediate and mitigate the potential impact of the Y2K problem.
The Company is in the process of systematically addressing the Y2K
compliance of its computer related hardware, major application software
programs, externally supplied software, and major debt sources, vendors
and customers.
(continued)
8
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company's computer related hardware consists primarily of
servers and desktop computers incorporated into a local area network and
a telephone switch. The Company has completed its assessment of its
internal hardware related to the local area network and the replacement
of non-compliant hardware has been substantially completed. The Company
completed an upgrade of its telephone switch and related software to
bring it into compliance during the third quarter of fiscal 1999.
The Company's major application software programs include three
operating systems, four database engines, approximately ten vendor
supplied software applications and one internally developed software
application. The Company has completed its assessment of these major
software application programs. Of these applications, all operating
systems and database engines are compliant, as are all but one of the
software applications. The Company is currently in the process of
implementing the replacement for this software application, which should
be completed by November 30, 1999. The total costs of the Company's Y2K
project are estimated to be approximately $270,000, a significant portion
of which would have been incurred within normal operating plans for
maintaining the Company's systems. These costs have been funded through
operating cash flows.
The Company has contacted its major debt sources, vendors and
customers with regard to their Y2K compliance and has received responses
from most. All of the Company's major debt sources have advised the
Company that they are or will be Y2K compliant by December 31, 1999. No
vendors or customers have advised the Company that they do not expect to
be compliant. However, almost all have cautioned the Company that they
cannot predict if there might be a negative impact to their operations
due to the non-compliance of an unrelated third party. The Company is in
the process of addressing any material non-responsive customers and
vendors during the first half of fiscal 2000.
Management believes that the Company's internal systems are in
substantial compliance with the Y2K at this time and that the Company
should not have a material business risk as a result of this issue. It
is difficult, however, to predict the effect of any third party non-
readiness on our business. Significant Y2K failures in our systems or in
the systems of third parties (or third parties upon whom they depend)
could have an adverse effect on our financial results and operations.
Potential problems that might occur could include an increase in credit
losses due to Y2K problems for our lessees and disruption in the business
of our debt sources which may result in lease funding delays for the
Company. The amount of these potential credit losses or the degree of
disruption cannot be determined at this time. The Company is currently
finalizing contingency plans in the event that it does experience any
such disruption.
All Year 2000 information provided herein is a "Year 2000 Readiness
Disclosure" as defined in the Year 2000 Information and Readiness
Disclosure Act and is subject to the terms thereof. This Year 2000
information is provided pursuant to securities law requirements and it
may not be relied upon as a form of express or implied covenant,
warranty, representation or guarantee of any kind.
Forward-Looking Statements
- --------------------------
This document contains forward-looking statements concerning our
operations, business results and financial condition. These statements
involve management assumptions as well as risks and uncertainties that
may be difficult to predict. 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 or implied in those statements. Factors that could cause such
differences include, but are not limited to: economic conditions and
trends; changes in interest rates; industry cycles and trends; changes in
the market for leasing capital assets and other collateral due to market
conditions, oversupply, obsolescence or other factors; disruptions in the
capital markets; changes in laws or regulations, and competitive
conditions and trends.
9
<PAGE>
AMPLICON, INC.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K during the three months ended
September 30, 1999.
(a) Exhibits
27. Financial Data Schedule
10
<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: November 5, 1999 BY: S. LESLIE JEWETT/s/
-------------------
S. LESLIE JEWETT
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000803016
<NAME> AMPLICON, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 65,139
<SECURITIES> 0
<RECEIVABLES> 62,791
<ALLOWANCES> 2,840
<INVENTORY> 37,554
<CURRENT-ASSETS> 0
<PP&E> 3,044
<DEPRECIATION> 2,039
<TOTAL-ASSETS> 439,137
<CURRENT-LIABILITIES> 17,639
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 155,107
<TOTAL-LIABILITY-AND-EQUITY> 439,137
<SALES> 10,878
<TOTAL-REVENUES> 14,457
<CGS> 1,645
<TOTAL-COSTS> 3,213
<OTHER-EXPENSES> 3,913
<LOSS-PROVISION> 310
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,021
<INCOME-TAX> 2,703
<INCOME-CONTINUING> 4,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,318
<EPS-BASIC> .36
<EPS-DILUTED> .35
</TABLE>
