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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, 1997
[ ] 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 12, 1997 was $60,125,324.
Number of shares outstanding as of September 12, 1997:
Common Stock 5,890,359.
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.
Total Number of Pages ___________
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 27
Signatures 28
Schedule II 29
Exhibit Index 30-32
1
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 Samsung Electronics
Co., Compaq Computer Corporation, Dell Computer Corporation, 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, Rolm
Corporation 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 testing
equipment, copying equipment, retail point-of-sale systems and bank
automatic teller machines.
Production Equipment and Other Personal Property. The Company is
leasing an increasing amount of 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
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 data base, 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
potential customers.
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
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 82.5%
and 92.4% of the total dollar amount of new leases entered into by the
Company during the fiscal years ended June 30, 1997 and 1996,
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, 1997 and 1996, the discounted
minimum lease payments receivable relative to leases maintained in the
Company's portfolio amounted to $63,366,848 and $41,176,200, 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, 1997, had 204 employees, including 118
sales managers and account executives and 15 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
AMPLICON, INC.
ITEM 2. PROPERTIES
At June 30, 1997, Amplicon occupied approximately 35,000 square feet
of office space in Santa Ana, California leased from unaffiliated parties.
The leases which cover the majority of the office space provide for
monthly rental payments which average $52,322 from July 1997 through
February 1998.
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 Stock Market
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:
High Low
Fiscal year ended June 30, 1997
First Quarter............................................$18.75 $16.00
Second Quarter............................................21.125 18.375
Third Quarter.............................................23.25 20.50
Fourth Quarter............................................24.00 22.25
Fiscal year ended June 30, 1996
First Quarter............................................$17.75 $15.75
Second Quarter............................................17.00 14.125
Third Quarter.............................................16.00 14.25
Fourth Quarter............................................16.75 15.00
The Company had approximately 50 stockholders of record and in excess
of 500 beneficial owners as of September 12, 1997.
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, 1997, 1996 and 1995 the Company declared cash
dividends totaling $.20 per common share.
5
AMPLICON, INC.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and operating
information of the Company. 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.
YEARS ENDED JUNE 30,
--------------------------------------------
INCOME STATEMENT DATA 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share amounts)
Revenues:
Sales of equipment $261,082 $224,818 $178,413 $156,740 $139,384
Interest and investment
income 37,151 31,141 25,794 24,357 23,697
Rental income 1,657 1,280 2,313 263 747
-------- -------- -------- -------- --------
Total revenues 299,890 257,239 206,520 181,360 163,828
Gross profit 47,058 39,280 32,751 29,453 26,083
Earnings before income taxes 26,017 21,480 19,088 17,352 15,421
Net earnings $ 15,740 $ 12,996 $ 11,548 $ 11,019 $ 9,793
======== ======== ======== ======== ========
COMMON SHARE DATA
Primary earnings per share $ 2.69 $ 2.22 $ 1.97 $ 1.89 $ 1.68
======== ======== ======== ======== ========
Fully diluted earnings
per share $ 2.60 $ 2.22 $ 1.97 $ 1.89 $ 1.68
======== ======== ======== ======== ========
Primary weighted average
number of common shares
outstanding 5,844 5,849 5,860 5,849 5,831
Fully diluted weighted
average number of common
shares outstanding 6,055 5,849 5,860 5,849 5,831
Cash dividends per share $ .20 $ .20 $ .20 $ -0- $ -0-
======== ======== ======== ======== ========
SELECTED ANNUAL GROWTH RATES
Sales of equipment 16% 26% 14% 12% 34%
Total revenues 17 25 14 11 26
Net interest and investment
income 29 14 ( 4) 4 ( 5)
Gross profit 20 20 11 13 12
Net earnings 21 13 5 13 7
Net primary earnings per
share 21 13 4 13 7
AS OF JUNE 30,
------------------------------------------------
BALANCE SHEET DATA 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
Total assets $491,455 $461,749 $402,100 $384,584 $347,308
Note payable to bank 10,000 -0- -0- 10,000 -0-
Nonrecourse debt 258,577 279,109 238,614 225,746 211,191
Stockholders' equity 117,754 102,665 91,364 80,875 69,772
Book value per common share $ 20.04 $ 17.58 $ 15.57 $ 13.81 $ 11.96
6
AMPLICON, INC.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
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.
7
AMPLICON, INC.
Results of Operations (continued)
Fiscal Years Ended June 30, 1996 and 1995
REVENUES. Total revenues for the fiscal year ended June 30, 1996 were
$257,239,040, an increase of $50,718,790 or 25% from the prior year. This
change was primarily the result of increases in sales of equipment by
$46,405,165 and interest income by $5,512,386 offset by a decrease in
rental income by $1,033,446. The increase in sales of equipment was
primarily due to increased sales from new lease transactions which
increased by 29%. Interest income for the fiscal year ended June 30, 1996
increased to $30,272,545 as compared to $24,760,159 for the fiscal year
ended June 30, 1995, partially due to higher interest income on discounted
lease rentals assigned to lenders (which is offset by interest expense on
nonrecourse debt) of $17,162,307 in the fiscal year ended June 30, 1996
versus $13,580,355 for the prior year. Investment income for fiscal year
ended June 30, 1996 decreased by $165,315 to $868,456 as compared to
$1,033,771 in the prior year primarily as a result of the Company
maintaining lower investment balances throughout fiscal year 1996.
Net interest income (interest and investment income less interest
expense on discounted lease rentals assigned to lenders) for the fiscal
year ended June 30, 1996 increased by $1,765,119, or 14%, to $13,978,694
as compared to $12,213,575 for fiscal year ended June 30, 1995. This net
increase resulted primarily from increases in the amortization of net
deferred income and higher interest income earned on larger residual
investments.
Rental income for the fiscal year ended June 30, 1996 of $1,279,928
decreased by $1,033,446 as compared to the fiscal year ended June 30,
1995, as a result of decreases in the volume of short-term lease renewals.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1996
increased by $6,529,050, or 19.9%, to $39,279,934 compared to $32,750,884
for the fiscal year ended June 30, 1995. Gross profit as a percent of
total revenues decreased to 15.3% of total revenues for fiscal 1996
compared to 15.9% of total revenues for the prior year. The principal
factors which contributed to the increase in gross profit were from lease
extensions, renewals and sales of property at the end of the lease term,
greater income recognized on new lease transactions, and increases in net
interest income as described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of total revenues were 6.8% for
the fiscal year ended June 30, 1996 as compared to 6.5% for the fiscal
year ended June 30, 1995. Selling, general and administrative expenses for
the fiscal year ended June 30, 1996 increased by $4,040,863, or 29.9%, as
compared to the prior year. This increase resulted primarily from higher
sales personnel costs, and higher legal, administrative and variable
office costs related to the increased business volume.
INTEREST EXPENSE-OTHER. Interest expense-other was $246,590 for the
year ended June 30, 1996 as compared to $149,967 for the year ended June
30, 1995. The increase of $96,623 was primarily the result of higher
fiscal year 1996 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, 1996 and 1995 representing its estimated annual tax rates
for the years ending June 30, 1996 and 1995.
8
AMPLICON, INC.
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, 1997, the Company had outstanding
nonrecourse debt aggregating $258,577,275 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
fiscal year 1997, the Company increased its net investment in leases by
$22,190,647. This increase was primarily due to a higher volume of new
lease transactions which the Company retained in its 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, 1997,
the Company had $10,000,000 in 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. During the year ended June 30, 1997, the Company repurchased 5,000
shares at an aggregate cost of $81,875. During the year ended June 30,
1996, the Company repurchased 35,000 shares at an aggregate cost of
$546,913. As of September 12, 1997, 55,678 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.
9
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, 1997 and 1996 12
Statements of Earnings for the years ended
June 30, 1997, 1996 and 1995 13
Statements of Stockholders' Equity for the
years ended June 30, 1997, 1996 and 1995 14
Statements of Cash Flows for the years
ended June 30, 1997, 1996 and 1995 15
Notes to Financial Statements 16-25
Schedule II - Valuation and Qualifying Accounts 29
10
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, 1997 and 1996, and the related
statements of earnings, stockholders' equity and cash flows for each of
the three years in the period ended June 30, 1997. 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, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended June
30, 1997, 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, 1997
11
AMPLICON, INC.
BALANCE SHEETS
June 30,
-------------------------------
ASSETS 1997 1996
-------------- ------------
Cash and cash equivalents (Notes 1 & 8) $ 5,779,960 $ 8,614,357
Investment securities (Notes 8 & 9) -0- 1,181,967
Net receivables (Note 2) 87,743,287 58,777,425
Inventories, primarily customer
deliveries in process 1,558,063 2,456,193
Net investment in capital leases (Note 3) 103,961,072 75,944,660
Equipment on operating leases,
less accumulated depreciation of
$117,262 (1997) and $152,391 (1996) 1,512 34,567
Other assets 1,189,067 1,436,537
Discounted lease rentals assigned to
lenders (Note 3) 291,222,208 313,303,087
------------ ------------
$491,455,169 $461,748,793
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank (Note 4) $ 10,000,000 $ -0-
Accounts payable 27,608,587 10,287,123
Accrued liabilities 5,928,824 3,996,621
Customer deposits 7,872,249 7,710,851
Nonrecourse debt (Note 3) 258,577,275 279,109,254
Deferred interest income (Note 5) 32,644,933 34,193,833
Net deferred income (Note 5) 4,019,424 4,279,503
Income taxes payable, including
deferred taxes (Note 6) 27,049,601 19,507,072
------------ ------------
373,700,893 359,084,257
------------ ------------
Commitments and contingencies (Note 10)
Stockholders' equity (Notes 4 & 7):
Preferred stock; 2,500,000 shares
authorized; none issued -0- -0-
Common stock; $.01 par value;
20,000,000 shares authorized;
5,876,259 (1997) and 5,838,959 (1996)
issued and outstanding 58,763 58,390
Additional paid in capital 6,109,745 5,587,287
Retained earnings 111,585,768 97,017,263
Investment securities valuation
adjustment (Note 9) -0- 1,596
------------ ------------
117,754,276 102,664,536
------------ ------------
$491,455,169 $461,748,793
============ ============
The accompanying notes are an integral
part of these balance sheets.
12
AMPLICON, INC.
STATEMENTS OF EARNINGS
Years ended June 30,
-----------------------------------------
1997 1996 1995
------------ ------------ ------------
Revenues:
Sales of equipment $261,082,046 $224,818,111 $178,412,946
Interest income
(Notes 1, 3 & 5) 36,514,910 30,272,545 24,760,159
Investment income (Note 9) 636,724 868,456 1,033,771
Rental income 1,656,798 1,279,928 2,313,374
------------ ------------ ------------
299,890,478 257,239,040 206,520,250
------------ ------------ ------------
Costs:
Cost of equipment sold 233,591,971 200,531,313 160,065,968
Interest expense on
nonrecourse debt
(Notes 1, 3 & 5) 19,130,121 17,162,307 13,580,355
Depreciation of equipment
on operating leases 110,729 265,486 123,043
------------ ------------ ------------
252,832,821 217,959,106 173,769,366
------------ ------------ ------------
Gross profit 47,057,657 39,279,934 32,750,884
Selling, general and
administrative expenses 20,824,834 17,553,715 13,512,852
Interest expense-other 216,182 246,590 149,967
------------ ------------ ------------
Earnings before income taxes 26,016,641 21,479,629 19,088,065
Income taxes (Note 6) 10,277,000 8,484,000 7,540,000
------------ ------------ ------------
Net earnings $ 15,739,641 $ 12,995,629 $ 11,548,065
============ ============ ============
Primary earnings per common
share $ 2.69 $ 2.22 $ 1.97
============ ============ ============
Fully diluted earnings per
common share $ 2.60 $ 2.22 $ 1.97
============ ============ ============
Dividends declared per common
share outstanding $ .20 $ .20 $ .20
============ ============ ============
Primary weighted average number
of common shares outstanding 5,844,490 5,848,847 5,859,898
============ ============ ============
Fully diluted weighted average
number of common shares
outstanding 6,055,228 5,848,847 5,859,898
============ ============ ============
The accompanying notes are an integral
part of these financial statements.
13
AMPLICON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Investment
Additional securities
Common Stock paid in Retained valuation
Shares Amount capital earnings adjustment Total
------------------- ---------- ----------- ----------- ------------
Balance,
June 30,
1994 5,857,022 $58,570 $6,001,240 $ 74,815,601 $ -0- $ 80,875,411
Shares
issued-
Stock
options
exer-
cised 10,937 110 90,670 -0- -0- 90,780
Dividends
declared -0- -0- -0- (1,172,121) -0- (1,172,121)
Invest-
ment
secu-
rities
valua-
tion
adjust-
ment -0- -0- -0- -0- 21,542 21,542
Net
earnings -0- -0- -0- 11,548,065 -0- 11,548,065
--------- ------- ---------- ----------- -------- -----------
Balance,
June 30,
1995 5,867,959 58,680 6,091,910 85,191,545 21,542 91,363,677
Shares
issued-
Stock
options
exer-
cised 6,000 60 41,940 -0- -0- 42,000
Shares re-
purchased (35,000) (350) (546,563) -0- -0- (546,913)
Dividends
declared -0- -0- -0- (1,169,911) -0- (1,169,911)
Invest-
ment
secu-
rities
valua-
tion
adjust-
ment -0- -0- -0- -0- (19,946) (19,946)
Net
earnings -0- -0- -0- 12,995,629 -0- 12,995,629
--------- ------- ---------- ----------- --------- -----------
Balance,
June 30,
1996 5,838,959 58,390 5,587,287 97,017,263 1,596 102,664,536
Shares
issued-
Stock
options
exer-
cised 42,300 423 604,283 -0- -0- 604,706
Shares re-
purchased (5,000) (50) (81,825) -0- -0- (81,875)
Dividends
declared -0- -0- -0- (1,171,136) -0- (1,171,136)
Invest-
ment
secu-
rities
valua-
tion
adjust-
ment -0- -0- -0- -0- (1,596) (1,596)
Net
earnings -0- -0- -0- 15,739,641 -0- 15,739,641
--------- ------- ---------- ------------ ---------- ------------
Balance,
June 30,
1997 5,876,259 $58,763 $6,109,745 $111,585,768 $ -0- $117,754,276
========= ======= ========== ============ ========== ============
The accompanying notes are an integral
part of these financial statements.
14
AMPLICON, INC.
STATEMENTS OF CASH FLOWS
Years ended June 30,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 15,739,641 $ 12,995,629 $ 11,548,065
Adjustments to reconcile
net earnings to cash flows
used for operating
activities:
Depreciation 110,729 265,486 123,043
Sale or lease of equipment
previously on operating
leases, net -0- 106,076 14,200
Interest accretion of
estimated unguaranteed
residual values ( 4,634,756) ( 3,471,891) ( 3,136,893)
Estimated unguaranteed
residual values recorded
on leases ( 12,439,845) ( 11,622,505) ( 5,325,599)
Interest accretion of net
deferred income ( 3,862,195) ( 2,351,292) ( 556,823)
Increase (decrease) in
net deferred income 3,602,116 6,065,845 ( 2,621,706)
Net increase (decrease) in
income taxes payable,
including deferred taxes 7,542,529 ( 862,378) 5,107,952
Net increase in net
receivables ( 28,965,862) ( 4,818,201) ( 14,054,043)
Net decrease (increase)
in inventories 898,130 3,195,017 ( 675,817)
Net increase (decrease) in
accounts payable and
accrued liabilities 19,253,667 ( 1,850,239) ( 1,261,439)
------------ ------------ ------------
Net cash used for operating
activities ( 2,755,846) ( 2,348,453) ( 10,839,060)
------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of available-
for-sale securities ( 235,370,644) ( 221,323,828) ( 236,143,494)
Proceeds from sale of
available-for-sale
securities 236,551,015 229,365,713 246,000,793
Net increase in minimum
lease payments receivable ( 22,190,647) ( 21,570,280) ( 602,543)
Purchase of equipment on
operating leases ( 77,674) ( 370,119) ( 122,889)
Net decrease (increase)
in other assets 247,470 ( 41,502) ( 320,123)
Decrease in estimated
unguaranteed residual values 11,248,836 7,286,531 9,683,219
------------ ------------ ------------
Net cash (used for) provided
by investing activities ( 9,591,644) ( 6,653,485) 18,494,963
------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Assignment of discounted
lease rentals -0- 12,120,298 -0-
Borrowing (payment) on note
payable 10,000,000 -0- ( 10,000,000)
Payments to repurchase common
stock ( 81,875) ( 546,913) -0-
Increase (decrease) in
customer deposits 161,398 859,133 ( 518,234)
Dividends to stockholders ( 1,171,136) ( 1,169,911) ( 1,172,121)
Proceeds from exercise of
stock options 604,706 42,000 90,780
------------ ------------ ------------
Net cash provided by (used
for) financing activities 9,513,093 11,304,607 ( 11,599,575)
------------ ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS ( 2,834,397) 2,302,669 ( 3,943,672)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 8,614,357 6,311,688 10,255,360
------------ ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 5,779,960 $ 8,614,357 $ 6,311,688
============ ============ ============
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES
(Decrease) increase in lease
rentals assigned to lenders
and related nonrecourse debt ($ 20,531,979) $ 40,495,045 $12,868,022
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 216,182 $ 246,590 $ 149,967
============ ============ ===========
Income taxes $ 2,734,471 $ 9,346,378 $ 3,034,283
============= ============ ===========
The accompanying notes are an integral
part of these financial statements.
15
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 1997
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.
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 new 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.
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.
16
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
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.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"), was issued in February 1997. The Company will be
required to adopt SFAS No. 128 in fiscal 1998 (earlier adoption is
prohibited). The standard adopts a simpler calculation methodology for
determining the number of shares outstanding. The Company has determined
that calculations of earnings per share consistent with SFAS No. 128 will
not have a significant impact.
Reclassifications
Certain reclassifications have been made to the fiscal 1996 financial
statements to conform with the presentation of the fiscal 1997 financial
statements.
Note 2 - Receivables:
The Company's net receivables consist of the following:
June 30,
---------------------------
1997 1996
----------- -----------
Financial institutions $76,294,070 $45,991,788
Lessees 11,131,001 13,161,437
Other 1,157,073 463,057
----------- -----------
88,582,144 59,616,282
Less allowance for doubtful accounts ( 838,857) ( 838,857)
----------- -----------
Net receivables $87,743,287 $58,777,425
=========== ===========
17
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Capital Leases:
The Company's net investment in capital leases consists of the following:
June 30,
-----------------------------
1997 1996
------------ -------------
Minimum lease payments
receivable, less allowance
for doubtful accounts of
$856,585 in each year $ 70,992,751 $ 45,351,427
Estimated unguaranteed
residual value, less valuation
allowance of $1,394,274 in
1997 and $542,274 in 1996 53,128,404 46,246,743
------------ ------------
124,121,155 91,598,170
Less unearned income (20,160,083) (15,653,510)
------------ ------------
Net investment in capital leases $103,961,072 $ 75,944,660
============ ============
The interest rates used to discount lease payments reflect the underlying
lease rates and range from 7.53% 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, 1997, 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:
Estimated
Minimum unguaranteed
Years ending lease payments residual
June 30, receivable value Total
------------ -------------- ------------- -------------
1998 $35,544,892 $13,364,199 $ 48,909,091
1999 18,844,525 15,481,945 34,326,470
2000 10,809,278 16,105,816 26,915,094
2001 3,046,116 4,999,895 8,046,011
2002 2,661,602 3,136,951 5,798,553
Thereafter 86,338 39,598 125,936
----------- ----------- ------------
70,992,751 53,128,404 124,121,155
Less unearned income ( 7,625,903) ( 12,534,180) ( 20,160,083)
----------- ----------- ------------
Net investment in
capital leases and
estimated unguaranteed
residual value $63,366,848 $40,594,224 $103,961,072
=========== =========== ============
18
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, 1997 are as follows:
Years ending Capital
June 30, leases
------------ ------------
1998 $111,983,069
1999 79,692,830
2000 36,623,176
2001 22,804,129
2002 6,554,099
Thereafter 919,972
------------
Total nonrecourse debt 258,577,275
Deferred interest (Note 5) 32,644,933
------------
Total discounted lease rentals assigned to lenders $291,222,208
============
Note 4 - Note Payable to Bank:
In August 1993, and as amended in December 1994 and January 1996, 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 1.25%, allows
for advances through December 31, 1997 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 .50% or the Bank's Offshore rate plus 1.25%.
The term note requires repayment in three equal quarterly installments of
one eighth of the outstanding balance at the expiration date, commencing
April 1, 1998, and one final payment on December 31, 1998 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, 1997, there was $10,000,000
outstanding on this Agreement. There was no balance outstanding
as of June 30, 1996.
Note 5 - Deferred Interest Income and Net Deferred Income:
At June 30, 1997, deferred interest income of $32,644,933 is offset by
deferred interest expense related to the Company's discounted lease
rentals assigned to lenders of $32,644,933. See Note 3.
At June 30, 1997, the expected recognition of net deferred income
(deferred gross margin of $13,274,510 less deferred selling expenses of
$9,255,086) on the Company's future statements of earnings is as follows:
Years ending
June 30,
--------
1998 $2,695,812
1999 964,203
2000 225,468
2001 94,578
2002 39,363
----------
$4,019,424
==========
19
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:
Years ended June 30,
---------------------------------------
1997 1996 1995
----------- ---------- ----------
Current tax expense:
Federal $ 5,407,310 $1,626,390 $4,618,165
State 1,500,000 1,186,017 2,032,998
----------- ---------- ----------
6,907,310 2,812,407 6,651,163
----------- ---------- ----------
Deferred tax expense:
Federal 3,177,690 5,460,980 750,594
State 192,000 210,613 138,243
----------- ---------- ----------
3,369,690 5,671,593 888,837
----------- ---------- ----------
$10,277,000 $8,484,000 $7,540,000
=========== ========== ==========
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:
June 30,
---------------------------
1997 1996
----------- ------------
Deferred income tax liabilities:
Tax operating leases $32,337,212 $29,456,276
Deferred selling expenses 3,794,585 3,052,514
Payments due 710,524 -0-
----------- -----------
Total liabilities 36,842,321 32,508,790
----------- -----------
Deferred income tax assets:
Allowances and reserves ( 3,093,965) ( 1,566,862)
Minimum tax credits/carryforwards ( 5,673,009) ( 7,570,197)
Refunds due -0- ( 3,075,000)
Depreciation other than on
operating leases ( 433,546) ( 560,936)
State income taxes ( 592,200) ( 228,723)
----------- -----------
Total assets ( 9,792,720) ( 13,001,718)
----------- -----------
Net deferred income tax
liabilities $27,049,601 $19,507,072
=========== ===========
The sources of differences between the federal statutory income tax rate
and the Company's effective tax rate are as follows:
Years ended June 30,
------------------------
1997 1996 1995
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
State tax, net of federal benefit 4.8 4.8 4.8
Other ( .3) ( .3) ( .3)
---- ---- ----
Effective rate 39.5% 39.5% 39.5%
==== ==== ====
20
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 20,000,000.
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, provides that stock options may be
granted to officers, employees, consultants and other persons who have
made, or will make, major contributions toward the growth and development
of the Company. Stock options that are granted may entitle 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 650,000 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 500,000. 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:
For the year ended June 30,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------- -------- ------ -------- ------- --------
Options outstanding
at the beginning
of the year 484,850 $13.21 512,050 $13.36 455,891 $12.69
Granted 91,000 19.21 -0- N/A 149,000 16.51
Exercised (42,300) 14.28 ( 6,000) 7.00 ( 10,937) 8.30
Canceled (36,600) 17.14 ( 21,200) 18.53 ( 81,904) 16.08
------ ------ ------- ------ ------- ------
Options outstanding
at the end of the
year 496,950 $13.93 484,850 $13.21 512,050 $13.36
======= ====== ======= ====== ======= ======
Options exercisable 315,916 300,883 261,713
======= ======= =======
Weighted average
fair value of
options granted $ 6.81
=======
21
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Options outstanding Options exercisable
------------------------------------------------- ---------------------
Weighted
average
remaining Weighted Weighted
Range of contractual average average
exercise Number life exercise Number exercise
prices outstanding (in years) price exercisable price
------------- ----------- ----------- -------- ----------- --------
$ 7.00-$ 8.25 160,550 3.21 $ 7.01 160,550 $ 7.01
12.00- 15.75 168,833 6.63 14.96 83,466 14.36
16.00- 22.75 167,567 7.62 19.51 71,900 18.94
------------- ------- ---- ------ ------- ------
$ 7.00-$22.75 496,950 5.86 $13.93 315,916 $11.67
============= ======= ==== ====== ======= ======
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:
For the year ended June 30,
1997 1996
---------------------------
Net income $15,739,641 $12,995,629
Proforma compensation cost (27,392) -0-
----------- -----------
Proforma net income $15,712,249 $12,995,629
=========== ===========
Proforma primary EPS $ 2.69 $ 2.22
=========== ===========
Proforma fully diluted EPS $ 2.59 $ 2.22
=========== ===========
The SFAS No. 123 method of accounting has not been applied to options
granted prior to July 1, 1995; therefore, 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 1997: risk free interest rate of 6.4%,
expected life of five years, expected dividend yield of 1% and expected
volatility of 29.6%.
Note 8 - 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").
The estimates were made as of June 30, 1997 and 1996 based on relevant
market information at these respective times.
Fair value is a subjective and imprecise measurement that is based on
assumptions and market data which require significant judgment and may
only be valid at a particular point in time. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts. Accordingly, management cannot provide
assurance that the fair values presented are indicative of the amounts
that the Company could realize in a current market exchange.
22
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
The estimated fair value of financial instruments and the valuation
techniques used to estimate the fair value were as follows:
June 30,
--------------------------------------------------------
1997 1997 1996 1996
---- ---- ---- ----
Estimated Estimated
Book value fair value Book value fair value
----------- ----------- ----------- -----------
Financial Assets:
Cash and cash
equivalents $ 5,779,960 $ 5,779,960 $ 8,614,357 $ 8,614,357
Investment
securities -0- -0- 1,180,371 1,181,967
Cash and Cash Equivalents: For cash, the book value is a reasonable
estimate of fair value. For cash equivalents, the estimated fair value is
based on the respective market prices.
Investment Securities: The fair value of investment securities is based
upon the criteria established under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115," see Note 9). Book value is based upon cost.
The fair value of the Company's net investment in capital leases is not a
required disclosure under SFAS No. 107.
Note 9 - Investment Securities:
The Company adopted SFAS No. 115 which requires certain disclosures for
investments in debt and equity securities regardless of maturity. SFAS
No. 115 requires that all investments be classified as trading securities,
available-for-sale securities and held-to-maturity securities. Under the
criteria established by SFAS No. 115, the Company has classified all of
its investments as available-for-sale securities. SFAS No. 115 requires
that available-for-sale securities be reported at fair value and that the
unrealized gain or loss be reported as a separate component of
stockholders' equity (net of the effect of income taxes) until the
investments are sold. At the time of the sale, the respective gain or
loss, calculated by the specific identification method, will be recognized
as a component of operating results.
The following is a summary of investment securities as of June 30, 1996.
The Company did not have any investment security balances as of June 30,
1997.
Gross Gross Estimated
Amortized unrealized unrealized fair
June 30, 1996 cost gains losses value
----------- ---------- ---------- -----------
Available-for-sale
securities
Corporate debt
securities $ 1,180,371 $ 1,596 $ -0- $ 1,181,967
=========== ========== ========== ===========
The estimated fair value of the available-for-sale securities at June 30,
1996, by contractual maturity, are shown below.
1996
-------------------------
Cost Fair value
---- ----------
Available-for-sale securities
Due in 3 months or less $1,180,371 $1,181,967
========== ==========
23
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Investment income for the years ended June 30, 1997, 1996 and 1995
consisted of the following:
1997 1996 1995
-------- -------- ----------
Interest income $600,926 $830,873 $ 655,716
Gross realized gains 35,798 37,583 378,055
-------- -------- ----------
$636,724 $868,456 $1,033,771
======== ======== ==========
Note 10 - Commitments and Contingencies:
Leases
The Company leases its corporate offices under several operating leases
which all expire in fiscal 1998. Rent expense was $604,559 (1997),
$577,416 (1996) and $472,036 (1995). The Company is negotiating operating
leases for its corporate offices beyond 1998.
Future minimum lease payments under operating leases are as follows:
Year ending Future minimum
June 30, lease payments
----------- --------------
1998 $ 418,575
=========
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, 1997, 1996, and 1995 of $131,573, $16,036, and
$38,183, respectively.
Note 11 - Subsequent Events (Unaudited):
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. As of September 12, 1997
the Company had 5,890,359 shares of Common Stock outstanding, which
following the split would increase to 11,780,718. The effect of the
2-for-1 Common Stock split is not included in the financial statements.
24
AMPLICON, INC.
NOTES TO FINANCIAL STATEMENTS
Note 12 - Selected Quarterly Financial Data (Unaudited):
Summarized quarterly financial data for the fiscal years ended June 30,
1997 and 1996 is as follows:
Three months ended
---------------------------------------------------
September 30, December 31, March 31, June 30,
------------- ------------ --------- --------
(In thousands, except per share amounts)
1997
----
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
Primary earnings
per common share $ .54 $ .66 $ .71 $ .78
Fully diluted earnings
per common share $ .53 $ .64 $ .69 $ .74
Dividends declared
per common share $ .05 $ .05 $ .05 $ .05
1996
----
Total revenues $56,416 $65,634 $66,842 $68,347
Gross profit 8,611 9,322 10,439 10,908
Net earnings 2,654 3,191 3,348 3,803
Primary earnings
per common share $ .45 $ .55 $ .57 $ .65
Fully diluted earnings
per common share $ .45 $ .55 $ .57 $ .65
Dividends declared
per common share $ .05 $ .05 $ .05 $ .05
25
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, 1997 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, 1997 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, 1997 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, 1997, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
26
AMPLICON, INC.
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 29
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 30-32
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of
fiscal 1997.
27
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 19, 1997
-------------------
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 19, 1997
- -------------------- President, Chief Executive
Patrick E. Paddon Officer and Director
Glen T. Tsuma/s/ September 19, 1997
- -------------------- Vice President, Treasurer, Chief
Glen T. Tsuma Operating Officer and Director
S. Leslie Jewett/s/ September 19, 1997
- -------------------- Chief Financial Officer
S. Leslie Jewett
Michael H. Lowry/s/ September 18, 1997
- -------------------- Director
Michael H. Lowry
Harris Ravine/s/ September 18, 1997
- -------------------- Director
Harris Ravine
28
AMPLICON, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance charged to Accounts Balance
beginning costs and written at end of
Classifications of period expenses off period
- --------------- ---------- ---------- -------- -----------
Year ended June 30, 1995:
Allowance for doubtful
accounts $1,320,325 $381,585 $6,468 $1,695,442
Allowance for valuation
of unguaranteed
residual value $ 542,274 $ -0- $ -0- $ 542,274
Year ended June 30, 1996:
Allowance for doubtful
accounts $1,695,442 $ -0- $ -0- $1,695,442
Allowance for valuation
of unguaranteed
residual value $ 542,274 $ -0- $ -0- $ 542,274
Year ended June 30, 1997:
Allowance for doubtful
accounts $1,695,442 $ -0- $ -0- $1,695,442
Allowance for valuation
of unguaranteed
residual value $ 542,274 $852,000 $ -0- $1,394,274
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.
29
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)
30
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)
31
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).
11 Computation of Earnings per Share of Common Stock 33
22 List of Subsidiaries (incorporated by reference
to Exhibit 22 to the Registrant's 1988 Form 10-K)
32