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 December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.: 0-15641
AMPLICON, INC.
(Exact name of registrant as specified in charter)
California 95-3162444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5 Hutton Centre Dr., Ste. 500
Santa Ana, California 92707
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 751-7551
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's Common Stock,
par value $.005 per share, as of February 5, 1999 was 11,865,918.
<PAGE>
AMPLICON, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Balance Sheets - December 31, 1998
(unaudited) and June 30, 1998 3
Statements of Earnings - Three months and six months
ended December 31, 1998 and 1997 (unaudited) 4
Statements of Cash Flows - Six months ended
December 31, 1998 and 1997 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature 11
<PAGE>
AMPLICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
December 31, June 30,
ASSETS 1998 1998
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 44,553,000 $ 15,192,000
Net receivables 83,995,000 87,229,000
Inventories, primarily customer
deliveries in process 2,253,000 2,500,000
Net investment in capital leases 90,647,000 109,149,000
Net equipment on operating leases 10,000 -
Other assets 1,417,000 1,308,000
Discounted lease rentals assigned
to lenders 270,833,000 297,227,000
------------ ------------
$493,708,000 $512,605,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Accounts payable $ 28,851,000 $ 25,766,000
Accrued liabilities 7,240,000 8,038,000
Customer deposits 7,254,000 8,175,000
Nonrecourse debt 246,166,000 269,769,000
Deferred interest income 24,667,000 27,458,000
Net deferred income 6,873,000 7,436,000
Income taxes payable, including
deferred taxes 27,601,000 30,018,000
------------ ------------
348,652,000 376,660,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 2,500,000 shares
authorized; none issued - -
Common stock; $.005 par value;
40,000,000 shares authorized;
11,856,118 and 11,830,618 issued
and outstanding, as of
December 31, 1998 and June 30, 1998,
respectively 59,000 59,000
Additional paid in capital 7,163,000 6,970,000
Retained earnings 137,834,000 128,916,000
------------ ------------
145,056,000 135,945,000
------------ ------------
$493,708,000 $512,605,000
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
3
<PAGE>
AMPLICON, INC.
STATEMENTS OF EARNINGS (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales of equipment $51,195 $71,072 $ 89,068 $140,823
Interest income 11,153 10,879 22,898 20,930
Investment income 494 89 751 179
Rental income 189 146 384 292
------- ------- -------- --------
63,031 82,186 113,101 162,224
------- ------- -------- --------
Costs:
Cost of equipment sold 44,642 63,959 76,920 127,667
Interest expense on
nonrecourse debt 5,641 5,116 11,260 10,290
Depreciation of equipment
on operating leases 5 2 7 5
------- ------- -------- --------
50,288 69,077 88,187 137,962
------- ------- -------- --------
Gross profit 12,743 13,109 24,914 24,262
Selling, general and
administrative expenses 4,111 4,826 8,826 9,387
Interest expense-other 28 18 46 56
------- ------- -------- --------
Earnings before income taxes 8,604 8,265 16,042 14,819
Income taxes 3,313 3,264 6,176 5,853
------- ------- -------- --------
Net earnings $ 5,291 $ 5,001 $ 9,866 $ 8,966
======= ======= ======== ========
Basic earnings per common
share $ .45 $ .42 $ .83 $ .76
======= ======= ======== ========
Diluted earnings per common
share $ .43 $ .40 $ .80 $ .73
======= ======= ======== ========
Weighted average number of
common shares outstanding 11,851 11,799 11,842 11,783
======= ======= ======== ========
Diluted number of common
shares outstanding 12,334 12,360 12,317 12,311
======= ======= ======== ========
Dividends declared per
common share outstanding $ .04 $ .04 $ .08 $ .08
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
4
<PAGE>
AMPLICON, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended December 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 9,866,000 $ 8,966,000
Adjustments to reconcile net earnings to
cash flows (used for) provided by
operating activities:
Depreciation 6,000 5,000
Interest accretion of estimated
unguaranteed residual values ( 3,351,000) ( 2,806,000)
Estimated unguaranteed residual values
recorded on leases ( 2,650,000) ( 5,605,000)
Interest accretion of net deferred income ( 2,538,000) ( 1,934,000)
Increase in net deferred income 1,975,000 3,904,000
Net (decrease) increase in income taxes
payable, including deferred taxes ( 2,417,000) 1,829,000
Net decrease in net receivables 3,234,000 12,108,000
Net decrease in inventories 247,000 757,000
Net increase (decrease) in accounts
payable and accrued liabilities 2,287,000 ( 3,563,000)
----------- -----------
Net cash provided by operating activities 6,659,000 13,661,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities - ( 75,066,000)
Proceeds from sale of available-for-sale
securities - 73,819,000
Net decrease in minimum lease payments
receivable 16,354,000 1,254,000
Purchase of equipment on operating leases ( 16,000) ( 3,000)
Net increase in other assets ( 109,000) ( 37,000)
Decrease in estimated unguaranteed residual
values 8,149,000 5,390,000
----------- ----------
Net cash provided by investing activities 24,378,000 5,357,000
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on note payable to bank - ( 10,000,000)
(Decrease) increase in customer deposits ( 921,000) 2,519,000
Dividends to stockholders ( 948,000) ( 943,000)
Proceeds from exercise of stock options 193,000 407,000
------------ -----------
Net cash used for financing activities ( 1,676,000) ( 8,017,000)
------------ -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 29,361,000 11,001,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 15,192,000 5,780,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44,553,000 $ 16,781,000
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in lease rentals assigned to
lenders and related nonrecourse debt ($ 23,603,000) ($ 1,993,000)
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 46,000 $ 56,000
============ ============
Income taxes $ 8,593,000 $ 4,024,000
============ ============
</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 December 31,
1998 and the statements of earnings and cash flows for the three and six
month periods ended December 31, 1998 and 1997. The results of operations
for the six month period ended December 31, 1998 are not necessarily
indicative of the results of operations to be expected for the entire
fiscal year ending June 30, 1999.
NOTE 2- BALANCE SHEET
- ---------------------
At December 31, 1998, deferred interest income of $24,667,000 is offset
by deferred interest expense related to the Company's discounted lease
rentals assigned to lenders of $24,667,000.
6
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Three Months Ended December 31, 1998 and 1997
- ---------------------------------------------
REVENUES. Total revenues for the three months ended December 31,
1998 were $63,031,000, a decrease of $19,155,000 or 23% as compared to
the three months ended December 31, 1997. The decrease from the prior
year was primarily the result of decreases in sales of equipment. Sales
of equipment decreased by $19,877,000 or 28% to $51,195,000 in the
quarter ended December 31, 1998 as compared to $71,072,000 in the quarter
ended December 31, 1997. The decrease in sales of equipment was
primarily due to the decreased volume of new lease transactions.
Interest income for the quarter ended December 31, 1998 increased by
$274,000 or 3% to $11,153,000 as compared to $10,879,000 in the same
quarter in the prior year. The three months ended December 31, 1998 and
1997 included amounts of $5,641,000 and $5,116,000, respectively, of
interest income on discounted lease rentals assigned to lenders (which is
offset by interest expense on nonrecourse debt). For the three months
ended December 31, 1998, interest income, net of interest expense on
discounted lease rentals assigned to lenders, decreased by $251,000 or 4%
to $5,512,000 as compared to $5,763,000 for the three months ended
December 31, 1997. This decrease is primarily the result of lower
interest income realized from a smaller investment in lease receivables.
Investment income increased by $405,000, or 455%, to $494,000 as
compared to $89,000 for the same period in the prior year. This increase
can be attributed to higher interest bearing cash balances during the
three months ended December 31, 1998. Rental income increased by $43,000
to $189,000 in the three months ended December 31, 1998, compared to
$146,000 for the three months ended December 31, 1997.
GROSS PROFIT. Gross profit for the quarter ended December 31, 1998
decreased 3% to $12,743,000 compared with $13,109,000 for the quarter
ended December 31, 1997. The decrease includes higher profits recognized
from new lease transactions and a small increase in net interest income,
offset by a 14% decrease in gross profit realized from lease extensions
and sales of lease property and increases to credit reserves. For the
quarter ended December 31, 1998, net interest and investment income rose
to $6,006,000, up from $5,852,000 during the quarter ended December 31,
1997. This increase primarily is due to increased accretion of deferred
income and interest on lease residuals, higher earnings on cash
investments, offset by lower interest income from a smaller lease
portfolio.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses during the quarter ended December 31, 1998 were
down by $715,000, a decrease of 15% from the quarter ended December
31, 1997. This improvement is the result of lower legal and selling
related expenses and a slight decrease in salaries and benefits. As a
percentage of revenues, selling, general and administrative expenses
increased to 6.5% of revenues, up from 5.9% for the second quarter of the
prior year.
TAXES. The Company's tax rate was 38.5% and 39.5% for the quarters
ended December 31, 1998 and 1997, respectively, representing its
estimated annual tax rate for the years ending June 30, 1999 and 1998.
Six Months Ended December 31, 1998 and 1997
- -------------------------------------------
REVENUES. Total revenues for the six months ended December 31, 1998
were $113,101,000, a decrease of $49,123,000 or 30% as compared to the
six months ended December 31, 1997. The decrease from the prior year was
primarily the result of decreases in sales of equipment. Sales of
equipment decreased by $51,755,000 or 37% to $89,068,000 in the six
months ended December 31, 1998 as compared to $140,823,000 in the same
period ended December 31, 1997. The decrease in sales of equipment was
primarily due to the decreased volume of new lease transactions.
Interest income for the six months ended December 31, 1998 increased by
$1,968,000 or 9% to $22,898,000 as compared to $20,930,000 in the same
period in the prior year. The six months ended December 31, 1998 and
1997 included amounts of $11,260,000 and $10,290,000, respectively, of
interest income on discounted lease rentals assigned to lenders (which is
offset by interest expense on nonrecourse debt). For the six months
ended December 31, 1998, interest income, net of interest expense on
discounted lease rentals assigned to lenders, increased by $998,000 or 9%
to $11,638,000 as compared to $10,640,000 for the six months ended
December 31, 1997. This increase is the result of increased accretion of
deferred income and interest on lease residuals offset by lower interest
income realized on lease receivables.
(continued)
7
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVENUES (continued). Investment income increased by $572,000 or
320% to $751,000 as compared to $179,000 for the same period in the prior
year. This increase can be attributed to a higher interest bearing cash
balances during the six months ended December 31, 1998. Rental income
increased by $92,000 or 32% to $384,000 in the six months ended December
31, 1998 as compared to $292,000 for the six months ended December 31,
1997 due to an increase in the number of short-term lease renewals.
GROSS PROFIT. Gross profit for the six months ended December 31,
1998 of $24,914,000 increased by $652,000 or 3% as compared to
$24,262,000 for the six months ended December 31, 1997. The improvement
is attributable to an increase in net interest and investment income and
increased profits from new lease transactions offset by a 23% reduction
in gross profit realized from lease extensions and sales of leased
property.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, as a percentage of total revenues, were 7.8% and
5.8% for the six months ended December 31, 1998 and 1997, respectively.
Selling, general and administrative expenses decreased by $561,000 or 6%
primarily due to a reduction in legal and sales related expenses.
TAXES. The Company's tax rate was 38.5% and 39.5% for the six
months ended December 31, 1998 and 1997, respectively, representing its
estimated annual tax rate for the years ending June 30, 1999 and 1998.
Financial and Capital Resources
- -------------------------------
The Company funds its operating activities through nonrecourse debt
and internally generated funds. Capital expenditures for equipment
purchases are primarily financed by assigning the lease payments to banks
or other financial institutions which are discounted at fixed rates such
that the lease payments are sufficient to fully amortize the aggregate
outstanding debt. The Company generally does not purchase property until
it has received a noncancelable lease from its customer and has
determined that the lease can be discounted on a nonrecourse basis. At
December 31, 1998, the Company had outstanding nonrecourse debt
aggregating $246,166,000 relating to property under capital and operating
leases. In the past, the Company has been able to obtain adequate
nonrecourse funding commitments, and the Company believes it will be able
to do so in the future.
From time to time, the Company retains leases in its own portfolio
rather than assigning the leases to financial institutions. During the
six months ended December 31, 1998, the Company's net investment in
leases held in its own portfolio decreased by $16,354,000 from June 30,
1998 as a result of the decreased volume of new lease transactions.
The Company generally funds its equity investments in leased
property and interim property purchases with internally generated funds,
and if necessary, borrowings under a $20,000,000 general line of credit.
At December 31, 1998, the Company did not have any borrowings outstanding
on this line of credit.
In November 1990, the Board of Directors authorized management, at
its discretion to repurchase up to 300,000 shares of the Company's Common
Stock. Under this authorization 121,356 shares remain available for
repurchase.
The need for cash used for operating activities will continue to
grow as the Company's volume of new lease transactions expands. The
Company believes that existing cash balances, cash flows from operations,
cash flows from its financing activities, available borrowings under its
existing credit facility, and assignments (on a nonrecourse basis) of
anticipated lease payments will be sufficient to meet its foreseeable
financing needs.
Inflation has not had a significant impact upon the operations of
the Company.
8
<PAGE>
AMPLICON, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
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 substantially completed its
assessment of its internal hardware related to the local area network and
replacement of non-compliant hardware has been substantially completed.
The Company has completed its assessment of its telephone switch and the
software upgrade to bring it into compliance should be completed 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 substantially completed its assessment of
these major software application programs. Of these applications, all
operating systems and database engines are compliant, as are all but two
of the software applications. One software application will be replaced
during the fourth quarter of fiscal 1999. The Company is still assessing
the other and has yet to make a determination of its compliance. The
costs associated with this program are not anticipated to be material and
should fall within normal operating costs of maintaining those systems.
The Company is in the process of contacting its major debt sources,
vendors and customers with regard to their Y2K compliance and expects the
assessment to be substantially completed by June 30, 1999. The Company
expects to address any material non-compliance issues during the first
half of fiscal 2000.
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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Change in Registrant's Certifying Accountant
- --------------------------------------------
Effective February 11, 1999, Registrant retained
PricewaterhouseCoopers LLP as its independent public accountants.
The change was approved by the Audit Committee of the Board of
Directors of Registrant. During the two fiscal years ended June 30,
1997 and 1998, and since June 30, 1998, Registrant has not consulted
with PricewaterhouseCoopers LLP on the application of accounting
principles to a specified transaction, or type of audit opinion that
might be rendered on the Registrant's financial statement, or an
important factor considered by the Registrant in reaching a decision
as to the accounting, auditing or financial reporting issue, or any
disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K),
or reportable event (as defined in paragraph 304(a)(1)(iv)).
ITEM 6. EXHIBITS AND REPORTS ON FORM
(a) Exhibits
--------
27. Financial Data Schedule
(b) 8-K Reports
-----------
There were no reports on Form 8-K for the three months ended
December 31, 1998.
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: February 12, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 44,553
<SECURITIES> 0
<RECEIVABLES> 132,086
<ALLOWANCES> 1,695
<INVENTORY> 2,253
<CURRENT-ASSETS> 0
<PP&E> 2,863
<DEPRECIATION> 1,714
<TOTAL-ASSETS> 493,708
<CURRENT-LIABILITIES> 70,946
<BONDS> 0
0
0
<COMMON> 59
<OTHER-SE> 144,997
<TOTAL-LIABILITY-AND-EQUITY> 493,708
<SALES> 89,068
<TOTAL-REVENUES> 113,101
<CGS> 76,920
<TOTAL-COSTS> 88,187
<OTHER-EXPENSES> 8,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 16,042
<INCOME-TAX> 6,176
<INCOME-CONTINUING> 9,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,866
<EPS-PRIMARY> .83
<EPS-DILUTED> .80
</TABLE>
