-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIVf16TK+ekpu5gVht0QqesQemg4K9/rd3K0WFDQrLKWdwRC6gmXX0XO5Ouq5Hkl KrkWm+LavOFikWA490eMrg== 0000803016-95-000007.txt : 19951002 0000803016-95-000007.hdr.sgml : 19951002 ACCESSION NUMBER: 0000803016-95-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950928 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMPLICON INC CENTRAL INDEX KEY: 0000803016 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER RENTAL & LEASING [7377] IRS NUMBER: 953162444 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15641 FILM NUMBER: 95577096 BUSINESS ADDRESS: STREET 1: 5 HUTTON CENTRE DR STE 500 CITY: SANTA ANA STATE: CA ZIP: 92707 BUSINESS PHONE: 7147517551 MAIL ADDRESS: STREET 1: 5 HUTTON CENTER DRIVE STREET 2: SUITE 500 CITY: SANTA ANA STATE: CA ZIP: 92707 10-K 1 FORM 10-K 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, 1995 [ ] 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 15, 1995 was $34,396,408. Number of shares outstanding as of September 15, 1995: Common Stock 5,867,959. 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. AND SUBSIDIARIES TABLE OF CONTENTS PAGE PART I 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 10-24 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 25 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 25 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 25 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26 Signatures 27 Schedule 28 Exhibit Index 29-31 AMPLICON, INC. AND SUBSIDIARIES 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. and its subsidiaries. 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. 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. 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 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 and HP, as well as AST Research, Compaq, Gateway, among many others, and software vendors such as Microsoft and Novell. 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 American Telephone & Telegraph Company, Rolm Corporation and International Telephone & Telegraph Company and generally costs between $50,000 and $500,000. The CAD/CAM systems leased by the Company include those produced by IBM, Hewlett Packard, and Sun Microsystems, Inc. and cost between $50,000 and $700,000 per system. The Company also leases word processing systems, copying equipment, retail point of sale equipment 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 equipment, printing presses and warehouse distribution systems. In addition, the Company leases a wide variety of personal property in the "non-high technology" area, including manufacturing equipment, trucks and office furniture. Software. Amplicon leases 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. AMPLICON, INC. AND SUBSIDIARIES Marketing Strategy The Company has developed and refined a direct marketing system utilizing a centralized telemarketing program. The program includes a system which creates and maintains a data base of current and potential users of personal 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 records of contacts made with potential customers by its account executives. In 1991, Amplicon installed a personal computer network, and in 1995, installed new prospect management software to further enhance the productivity of the sales force. Specific information about potential customers is entered into an on-line data base 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 data base allows account executives to identify efficiently the most likely purchaser or lessee of equipment 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 equipment, and which require the lessee to maintain and service the equipment, insure the equipment against casualty loss and pay all property, sales and other taxes on the equipment. The Company retains ownership of the equipment 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 equipment. 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 equipment 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 equipment 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 equipment. The terms of the Company's software leases are substantially similar to its equipment leases. AMPLICON, INC. AND SUBSIDIARIES 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 equipment 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 88.8% and 91.4% of the total dollar amount of new leases entered into by the Company during the fiscal years ended June 30, 1995 and 1994, 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 equipment 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 equipment. From time to time, the Company invests cash generated from its activities into lease transactions meeting credit standards set by the Company. Some of these transactions are entered into when the value of the underlying property, or the profile rating 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 executive 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, 1995 and 1994, the discounted minimum lease payments receivable relative to leases maintained in the Company's portfolio amounted to $32,107,922 and $31,123,678, 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 theloss 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 mid- range computer equipment and software and other equipment with equipment brokers and dealers, 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 equipment 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 financing arrangements, financial technical proficiency and the offering of a broad range of financial options. Employees The Company, as of June 30, 1995, had 195 employees, including 127 sales managers and account executives and 14 professionals engaged in finance and credit. None of the Company's employees is represented by a labor union. The Company believes that its relations with its employees are satisfactory. AMPLICON, INC. AND SUBSIDIARIES ITEM 2. PROPERTIES At June 30, 1995, 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 $48,555 from July 1995 through February 1998. ITEM 3. LEGAL PROCEEDINGS The Company is sometimes named as a defendant in litigation relating to the services it provides. 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, 1995 First Quarter $21.50 $18.00 Second Quarter 18.75 17.50 Third Quarter 17.875 16.25 Fourth Quarter 16.25 14.00 Fiscal year ended June 30, 1994 First Quarter $20.00 $18.00 Second Quarter 20.25 18.25 Third Quarter 21.50 18.75 Fourth Quarter 21.50 20.00
The Company had approximately 50 stockholders of record and in excess of 500 beneficial owners as of September 15, 1995. 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. The first quarterly cash dividend was $.05 per common share and issued on October 7, 1994 to stockholders of record at the close of business on September 23, 1994. During the fiscal year ended June 30, 1995 the Company declared cash dividends totaling $.20 per common share. AMPLICON, INC. AND SUBSIDIARIES ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial data and operating information of the Company. The selected consolidated financial data should be read in conjunction with the Consolidated 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 1995 1994 1993 1992 1991 (in thousands, except per share amounts) Revenues: Sales of equipment $178,413 $156,740 $139,384 $103,969 $132,414 Interest and investment income 25,794 24,357 23,697 25,668 22,161 Rental income 2,313 263 747 803 1,153 Total revenues 206,520 181,360 163,828 130,440 155,728 Gross profit 32,751 29,453 26,083 23,194 20,312 Earnings before income taxes 19,088 17,352 15,421 14,487 12,118 Net earnings $ 11,548 $ 11,019 $ 9,793 $ 9,111 $ 7,440 COMMON SHARE DATA Net earnings per share $ 1.97 $ 1.89 $ 1.68 $ 1.57 $ 1.26 Weighted average number of common shares outstanding 5,860 5,849 5,831 5,813 5,925 Cash dividends per share $ .20 $ -0- $ -0- $ -0- $ -0- SELECTED ANNUAL GROWTH RATES Sales of equipment 14% 12% 34% (21)% ( 7)% Total revenues 14 11 26 (16) ( 2) Net interest and investment income ( 4) 4 ( 5) 22 28 Gross profit 11 13 12 14 10 Net earnings 5 13 7 22 32 Net earnings per share 4 13 7 25 35
AS OF JUNE 30, BALANCE SHEET DATA 1995 1994 1993 1992 1991 (in thousands, except per share data) Total assets $404,516 $384,584 $347,308 $307,529 $306,399 Note payable to bank -0- 10,000 -0- -0- -0- Nonrecourse debt 238,614 225,746 211,191 193,611 192,748 Stockholders' equity 91,364 80,875 69,772 59,955 50,724 Book value per common share $ 15.57 $ 13.81 $ 11.96 $ 10.29 $ 8.75
AMPLICON, INC. AND SUBSIDIARIES ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Fiscal Years Ended June 30, 1995 and 1994 REVENUES. Total revenues for the fiscal year ended June 30, 1995 were $206,520,250, an increase of $25,159,959 or 13.9% from the prior year. This change was primarily the result of increases in sales of equipment of $21,672,608 and rental income of $2,050,314. The Company believes the increase in sales of equipment was primarily due to increased effectiveness of a larger and more experienced salesforce at obtaining new business. Interest income for the fiscal year ended June 30, 1995 increased to $24,760,159 as compared to $24,003,426 for the fiscal year ended June 30, 1994, partially due to higher interest income on discounted lease rentals assigned to lenders (which is offset by interest expense on nonrecourse debt) of $13,580,355 in the fiscal year ended June 30, 1995 versus $11,659,414 for the prior year. Investment income for fiscal year ended June 30, 1995 increased by $680,304 to $1,033,771 as compared to $353,467 in the prior year primarily as a result of the Company maintaining higher investment balances throughout fiscal year 1995. Net interest income (interest and investment income less interest expense on discounted lease rentals assigned to lenders) for the fiscal year ended June 30, 1995 decreased by $483,904 or 3.8% to $12,213,575 as compared to $12,697,479 for fiscal year ended June 30, 1994. This net decrease resulted primarily from lower interest income earned on the lease portfolio as more cash was invested in lower yielding investment securities. Rental income for the fiscal year ended June 30, 1995 of $2,313,374 increased by $2,050,314 as compared to the fiscal year ended June 30, 1994, as a result of increases in the volume of short-term lease renewals and increases in post term renewal rentals. GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1995 increased by $3,297,460, or 11.2%, to $32,750,884 compared to $29,453,424 for the fiscal year ended June 30, 1994. Gross profit as a percent of total revenues decreased to 15.9% of total revenues for fiscal 1995 compared to 16.2% of total revenues for the prior year. Additionally, the cost of equipment sold as a percentage of sales of equipment increased to 89.7% for the fiscal year ended June 30, 1995 versus 89.4% for the fiscal year ended June 30, 1994. The principal factors which contributed to higher gross profit were increased profits from lease renewals, extensions and sales of equipment at the end of the lease term and greater income earned on new lease transactions, offset by, decreases in net interest income as described above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses as a percentage of total revenues were 6.5% for the fiscal year ended June 30, 1995 as compared to 6.6% for the fiscal year ended June 30, 1994. Selling, general and administrative expenses for the fiscal year ended June 30, 1995 increased by $1,585,026 or 13.3% as compared to the prior year. This increase resulted primarily from higher sales and finance staff personnel costs, and higher variable office costs related to the greater business volume. INTEREST EXPENSE-OTHER. Interest expense-other was $149,967 for the year ended June 30, 1995 as compared to $174,059 for the year ended June 30, 1994. The decrease of $24,092 is primarily the result of lower fiscal year 1995 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% and 36.5% for the fiscal years ended June 30, 1995 and 1994, respectively, representing its estimated annual tax rates for the years ending June 30, 1995 and 1994. AMPLICON, INC. AND SUBSIDIARIES Results of Operations (continued) Fiscal Years Ended June 30, 1994 and 1993 REVENUES. Total revenues for the fiscal year ended June 30, 1994 were $181,360,291, an increase of $17,532,061 or 10.7% from the prior year. This change was primarily the result of increases in sales of equipment of $17,355,868 and interest income of $660,362 offset by lower rental income of $484,169. The Company believes the increase in sales of equipment was primarily due to increased effectiveness of a larger and more experienced salesforce at obtaining new business. Interest and investment income for the fiscal year ended June 30, 1994 increased to $24,356,893 as compared to $23,696,531 for the fiscal year ended June 30, 1993, partially due to higher interest income on discounted lease rentals assigned to lenders (which is offset by interest expense on nonrecourse debt) of $11,659,414 in the fiscal year ended June 30, 1994 versus $11,452,119 for the prior year. Net interest income (interest and investment income less interest expense on discounted lease rentals assigned to lenders) for the fiscal year ended June 30, 1994 increased by $453,067 or 3.7% to $12,697,479 as compared to $12,244,412 for fiscal year ended June 30, 1993. This net increase resulted primarily from higher amortization of deferred income and increases in interest accretion due to a larger residual value base. Rental income for the fiscal year ended June 30, 1994 of $263,060 decreased by $484,169 or 64.8% as compared to the fiscal year ended June 30, 1993, as a result of decreases in the volume of short-term lease renewals. GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1994 increased by $3,370,357, or 12.9%, to $29,453,424 compared to $26,083,067 for the fiscal year ended June 30, 1993. Gross profit as a percent of total revenues increased to 16.2% of total revenues for fiscal 1994 compared to 15.9% of total revenues for the prior year. Additionally, the cost of equipment sold as a percentage of sales of equipment decreased to 89.4% for the fiscal year ended June 30, 1994 versus 90.6% for the fiscal year ended June 30, 1993. The principal factors which contributed to higher gross profit were increased profits from lease renewals and extensions, sales of equipment at the end of the lease term 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 6.6% for the fiscal year ended June 30, 1994 as compared to 6.5% for the fiscal year ended June 30, 1993. Selling, general and administrative expenses for the fiscal year ended June 30, 1994 increased by $1,354,840 or 12.8% as compared to the prior year. This increase resulted primarily from higher sales and finance staff personnel costs, higher variable office costs related to the greater business volume and additions made to the management organization to support future growth. INTEREST EXPENSE-OTHER. Interest expense-other was $174,059 for the year ended June 30, 1994 as compared to $89,067 for the year ended June 30, 1993. The increase of $84,992 is primarily the result of greater fiscal year 1994 interest assessments made as the result of regulatory audits with various federal, state and local agencies. TAXES. The Company's tax rate was 36.5% for the fiscal years ended June 30, 1994 and 1993, respectively, representing its estimated annual tax rates for the years ending June 30, 1994 and 1993. The Company expects that its tax rate for fiscal years beginning after July 1, 1994 will increase to reflect, as applicable, changes in the Federal statutory tax rate, various State tax rates and the expiration of certain tax benefits. AMPLICON, INC. AND SUBSIDIARIES Liquidity 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. 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 equipment 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, 1995, the Company had outstanding nonrecourse debt aggregating $238,614,209 relating to equipment 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. The Company borrowed $10,000,000 in December 1993 (the "Note") which was secured by an in process lease transaction. Prior to the due date of the Note the lease was assigned on a nonrecourse basis at which time the Note was paid in full (see Note 4 in the Notes to Consolidated Financial Statements). From time to time, the Company retains equipment leases in its own portfolio rather than assigning the leases to financial institutions. During the fiscal year 1995, the Company increased its net investment in leases held in its own portfolio by $984,293. This increase was primarily due to a higher percentage of lease extensions which are retained in the Company's portfolio. The Company generally funds its equity investments in leased equipment and interim equipment purchases with internally generated funds and, if necessary, borrowings under a $20,000,000 general line of credit. At June 30, 1995, 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. During the year ended June 30, 1995, the Company did not repurchase any shares. During the year ended June 30, 1994, the Company repurchased 10,000 shares at an aggregate cost of $188,750. As of September 15, 1995, 100,678 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. AMPLICON, INC. AND SUBSIDIARIES ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and supplementary financial information are included herein at the pages indicated below: Page Number Report of Independent Public Accountants 11 Consolidated Balance Sheets at June 30, 1995 and 1994 12 Consolidated Statements of Earnings for the years ended June 30, 1995, 1994 and 1993 13 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1995, 1994 and 1993 14 Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1994 and 1993 15 Notes to Consolidated Financial Statements 16-24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Amplicon, Inc.: We have audited the accompanying consolidated balance sheets of Amplicon, Inc. (a California corporation) and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended June 30, 1995, 1994 and 1993. 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. and subsidiaries as of June 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. 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 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 /s/ Irvine, California August 11, 1995 AMPLICON, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, ASSETS 1995 1994 Cash and cash equivalents (Notes 1 & 8) $ 6,311,688 $ 10,255,360 Investment securities (Notes 8 & 9) 9,243,797 19,079,554 Net receivables (Note 2) 55,993,943 39,905,181 Inventories, primarily customer deliveries in process 5,651,210 4,975,392 Net investment in capital leases (Note 3) 59,068,566 59,304,999 Equipment on operating leases, less accumulated depreciation of $173,647 (1995) and $211,848 (1994) 36,009 50,364 Other assets 1,395,035 1,074,912 Discounted lease rentals assigned to lenders (Note 3) 66,815,903 249,938,300 $404,516,151 $384,584,062 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Note payable to bank (Notes 4 & 8) $ -0- $ 10,000,000 Accounts payable 13,393,415 14,246,006 Accrued liabilities 3,809,317 3,149,416 Customer deposits 6,851,718 7,369,952 Nonrecourse debt (Note 3) 238,614,209 225,746,187 Deferred interest income (Note 5) 28,201,694 24,192,113 Net deferred income (Note 5) 1,912,671 3,743,479 Income taxes payable, including deferred taxes (Note 6) 20,369,450 15,261,498 313,152,474 303,708,651 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; 5,867,959 (1995) and 5,857,022 (1994) issued and outstanding 58,680 58,570 Additional paid in capital 6,091,910 6,001,240 Retained earnings 85,191,545 74,815,601 Investment securities valuation adjustment (Note 9) 21,542 -0- 91,363,677 80,875,411 $404,516,151 $384,584,062
The accompanying notes are an integral part of these consolidated balance sheets. AMPLICON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Years ended June 30, 1995 1994 1993 Revenues: Sales of equipment $178,412,946 $156,740,338 $139,384,470 Interest income (Notes 1, 3 & 5) 24,760,159 24,003,426 23,316,170 Investment income (Note 9) 1,033,771 353,467 380,361 Rental income 2,313,374 263,060 747,229 206,520,250 181,360,291 163,828,230 Costs: Cost of equipment sold 160,065,968 140,186,036 126,276,178 Interest expense on nonrecourse debt (Notes 1, 3 & 5) 13,580,355 11,659,414 11,452,119 Depreciation of equipment on operating leases 123,043 61,417 16,866 173,769,366 151,906,867 137,745,163 Gross profit 32,750,884 29,453,424 26,083,067 Selling, general and administrative expenses 13,512,852 11,927,826 10,572,986 Interest expense-other 149,967 174,059 89,067 Earnings before income taxes 19,088,065 17,351,539 15,421,014 Income taxes (Note 6) 7,540,000 6,333,000 5,628,000 Net earnings $ 11,548,065 $ 11,018,539 $ 9,793,014 Net earnings per common share $ 1.97 $ 1.89 $ 1.68 Dividends declared per common share outstanding $ .20 $ -0- $ -0- Weighted average number of common shares outstanding 5,859,898 5,848,594 5,830,561
The accompanying notes are an integral part of these consolidated financial statements. AMPLICON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Investment Additional securities Common Stock paid in Retained valuation Shares Amount capital earnings adjustment Total Balance, June 30, 1992 5,825,536 $58,255 $5,892,528 $54,004,048 $ -0- $59,954,831 Shares issued - Stock options exercised 11,642 117 68,185 -0- -0- 68,302 Shares repurchased ( 2,322) ( 23) (43,965) -0- -0- ( 43,988) Net Earnings -0- -0- -0- 9,793,014 -0- 9,793,014 Balance, June 30, 1993 5,834,856 58,349 5,916,748 63,797,062 -0- 69,772,159 Shares issued - Stock options exercised 32,166 321 273,142 -0- -0- 273,463 Shares Repurchased ( 10,000) ( 100)( 188,650) -0- -0- ( 188,750) Net earnings -0- -0- -0- 11,018,539 -0- 11,018,539 Balance, June 30, 1994 5,857,022 58,570 6,001,240 74,815,601 -0- 80,875,411 Shares issued - Stock options exercised 10,937 110 90,670 -0- -0- 90,780 Dividends declared -0- -0- -0- ( 1,172,121) -0- ( 1,172,121) Investment securities valuation adjustment -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
The accompanying notes are an integral part of these consolidated financial statements. AMPLICON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 11,548,065 $ 11,018,539 $ 9,793,014 Adjustments to reconcile net earnings to cash flows used for operating activities: Depreciation 123,043 61,417 16,866 Sale or lease of equipment previously on operating leases, net 14,200 13,646 59,867 Interest accretion of estimated unguaranteed residual values ( 3,136,893) ( 3,115,186) ( 2,869,943) Estimated unguaranteed residual values recorded on leases ( 5,325,599) ( 7,733,445) ( 6,406,835) Interest accretion of net deferred income ( 556,823) ( 984,918) ( 1,241,855) (Decrease) increase in net deferred income ( 1,273,986) 2,691,736 1,424,429 Net increase in income taxes payable, including deferred taxes 5,107,952 988,676 2,992,800 Net increase in net receivables ( 16,088,762) ( 6,835,242) ( 19,260,057) Net (increase) decrease in inventories ( 675,817) 865,601 ( 2,972,596) Net (decrease) increase in accounts payable and accrued liabilities ( 192,690) ( 6,493,379) 9,300,441 Net cash used for operating activities ( 10,457,310) ( 9,522,555) ( 9,163,869) CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in short term investments -0- -0- 2,513,813 Purchases of available-for-sale securities (236,143,494) (197,206,966) -0- Proceeds from sale of available- for-sale securities 246,000,793 178,127,412 -0- Net increase in minimum lease payments receivable ( 984,293) ( 23,476,863) ( 27,353,268) Purchase of equipment on operating leases ( 122,889) ( 61,433) ( 57,372) Net (increase) decrease in other assets( 320,123) 67,181 ( 97,312) Decrease in estimated unguaranteed residual values 9,683,219 7,313,130 4,580,601 Net cash provided by (used for) investing activities 18,113,213 ( 35,237,539) ( 20,413,538) CASH FLOWS FROM FINANCING ACTIVITIES: Assignment of discounted lease rentals -0- 23,406,774 36,346,343 (Payment) borrowing on note payable secured by lease ( 10,000,000) 10,000,000 -0- Payments to repurchase common stock -0- ( 188,750) ( 43,988) Payments to reduce nonrecourse debt, excluding lease rentals assigned to lenders -0- -0- ( 10,159) (Decrease) increase in customer deposits ( 518,234) 3,440,128 837,047 Dividends to stockholders ( 1,172,121) -0- -0- Proceeds from exercise of stock options 90,780 273,463 68,302 Net cash (used for) provided by financing activities ( 11,599,575) 36,931,615 37,197,545 NET CHANGE IN CASH AND CASH EQUIVALENTS ( 3,943,672) ( 7,828,479) 7,620,138 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,255,360 18,083,839 10,463,701 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,311,688 $ 10,255,360 $18,083,839 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Increase in lease rentals assigned to lenders and related nonrecourse debt $ 12,868,022 $ 14,555,482 $17,589,394 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 149,967 $ 174,059 $ 88,725 Income taxes $ 3,034,283 $ 5,366,715 $ 2,635,200
The accompanying notes are an integral part of these consolidated financial statements. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JUNE 30, 1995 Note 1 - Summary of Significant Accounting Policies: Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. 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. Equipment 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 equipment, 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. The Company recognizes certain interim rentals received prior to commencement of capital leases as operating income. 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. 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 whereby the lessee is legally obligated to accept, are stated at the lower of cost (first-in, first-out method) or market value. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net Earnings per Common Share Net earnings per common share are computed based on the weighted average number of common shares outstanding during each fiscal year (5,859,898 in 1995, 5,848,594 in 1994 and 5,830,561 in 1993). Reclassifications Certain reclassifications have been made to the fiscal 1994 and 1993 consolidated financial statements to conform with the presentation of the fiscal 1995 consolidated financial statements. Note 2 - Receivables: The Company's net receivables consist of the following:
June 30, 1995 1994 Financial institutions $42,061,586 $32,241,312 Lessees 12,179,795 7,640,218 Other 2,590,919 868,976 56,832,300 40,750,506 Less allowance for doubtful accounts ( 838,357) ( 845,325) Net receivables $55,993,943 $39,905,181
Note 3 - Capital Leases: The Company's net investment in capital leases consists of the following:
June 30, 1995 1994 Minimum lease payments receivable, less allowance for doubtful accounts of $856,585 and $475,000, respectively $36,009,508 $34,370,750 Estimated unguaranteed residual value, less valuation allowance of $542,274 in each year 33,758,208 35,252,670 69,767,716 69,623,420 Less unearned income ( 10,699,150) ( 10,318,421) Net investment in capital leases $59,068,566 $59,304,999
The interest rates used to discount lease payments reflect the underlying lease rates and range from 6.35% to 14.50%. The estimated unguaranteed residual value represents the estimated amount to be received at lease termination from the disposition of equipment under the capital leases, discounted using the internal rate of return related to each specific capital lease. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 1995, a summary of the installments due on minimum lease payments receivable and the expected realization of the Company's estimated unguaranteed residual value is as follows:
Estimated Minimum unguaranteed Years ending lease payments residual June 30, receivable value Total 1996 $18,611,609 $11,204,093 $ 9,815,702 1997 9,947,068 8,691,983 18,639,051 1998 4,350,613 7,219,014 11,569,627 1999 1,550,656 3,711,688 5,262,344 2000 1,215,604 1,934,686 3,150,290 Thereafter 333,958 996,744 1,330,702 36,009,508 33,758,208 69,767,716 Less unearned income ( 3,901,536) ( 6,797,614) ( 10,699,150) Net investment in capital leases and estimated unguaranteed residual value excluding deferred interest income $32,107,972 $26,960,594 $59,068,566
Nonrecourse debt, which relates to the discounting of capital lease receivables, bears interest at rates ranging from 5.87% to 16.0%. Maturities of such obligations at June 30, 1995 are as follows:
Years ending Capital June 30, leases 1996 $100,282,007 1997 71,649,712 1998 38,872,073 1999 18,034,025 2000 6,646,485 Thereafter 3,129,907 Total nonrecourse debt 238,614,209 Deferred interest (Note 5) 28,201,694 Total discounted lease rentals assigned to lenders $266,815,903
Note 4 - Notes Payable to Bank: In August 1993 and as amended in December 1994, 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, 1996 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 1.75%. The term note requires repayment in three equal quarterly installments of one eighth of the outstanding balance at the expiration date, commencing April 1, 1997, and one final payment on December 31, 1997 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, 1995 and 1994 there were no outstanding balances on this Agreement. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In December 1993, the Company entered into an agreement to borrow $10,000,000 (the "Note") at an interest rate equal to the prime rate. This Note was secured by an in-process lease transaction (the "Lease"). This Lease was secured by an $11,000,000 letter of credit issued by a different financial institution. Interest was payable monthly commencing January 15, 1994 and the Note was due on January 31, 1995. The financial institution which issued the Note has financed the Lease on a nonrecourse basis at which time the Note was paid in full. Note 5 - Deferred Interest Income and Net Deferred Income: At June 30, 1995, deferred interest income of $28,201,694 is offset by deferred interest expense related to the Company's discounted lease rentals assigned to lenders of $28,201,694. See Note 3. At June 30, 1995, the expected recognition of net deferred income (deferred gross margin of $7,818,864 less deferred selling expenses of $5,906,193) on the Company's future statements of earnings is as follows:
Years ending June 30, 1996 $1,207,371 1997 436,845 1998 138,139 1999 88,971 2000 33,766 Thereafter 7,579 $1,912,671
Note 6 - Income Taxes: Effective July 1, 1993, the Company adopted Financial Accounting Standards No. 109 on Accounting for Income Taxes ("SFAS No. 109"). 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. The adoption of SFAS No. 109 did not result in a charge to net income in 1994. Prior year financial statements were not restated to reflect the new accounting standard. The provision for income taxes is summarized as follows:
Years ended June 30, 1995 1994 1993 Current tax expense: Federal $4,618,165 $2,667,000 $3,161,000 State 2,032,998 600,000 1,000,000 6,651,163 3,267,000 4,161,000 Deferred tax expense: Federal 750,594 2,371,000 1,360,000 State 138,243 695,000 107,000 888,837 3,066,000 1,467,000 $7,540,000 $6,333,000 $5,628,000
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. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the deferred income tax provision (benefit) for the year ended June 30, 1995 are as follows:
1995 Tax operating leases $669,126 Deferred selling expenses ( 90,508) Allowances and reserves ( 514,163) Alternative minimum tax credits 957,968 Depreciation other than on operating leases ( 45,519) State income taxes ( 88,067) Deferred tax expense $888,837
Deferred income tax liabilities (assets) are composed of the following:
June 30, 1995 1994 Deferred income tax liabilities: Tax operating leases $22,068,849 $21,637,389 Deferred selling expenses 2,421,539 2,512,047 Payments due 3,458,971 -0- Total liabilities 27,949,359 24,149,436 Deferred income tax assets: Allowances and reserves ( 1,629,348) ( 1,115,185) Minimum tax credits/carryforwards ( 5,559,133) ( 6,517,101) Refunds due -0- ( 997,810) Depreciation other than on operating leases ( 183,760) ( 138,241) State income taxes ( 207,668) ( 119,601) Total assets ( 7,579,909) ( 8,887,938) Net deferred income tax liabilities $20,369,450 $15,261,498
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, 1995 1994 1993 Federal statutory rate 35.0% 35.0% 34.0% State tax, net of federal benefit 4.8 4.8 4.8 Other ( .3) ( 3.3) ( 2.3) Effective rate 39.5% 36.5% 36.5%
AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED 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 September 1984, the Company's stockholders approved a Stock Option Plan (the "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 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 has reserved 650,000 shares of common stock for issuance under the Plan. The following table summarizes the activity in the Plan for the periods indicated:
Exercise Options price Options outstanding per share exercisable Outstanding at June 30, 1992 336,133 $ .28 - 15.00 Granted 100,500 11.75 - 19.50 Canceled ( 8,734) 7.00 - 13.00 Exercised ( 11,642) 1.68 - 9.50 Outstanding at June 30, 1993 416,257 .28 - 19.50 Granted 124,667 18.00 - 20.25 Canceled ( 52,867) 7.00 - 20.25 Exercised ( 32,166) 7.00 - 17.25 Outstanding at June 30, 1994 455,891 .28 - 20.25 Granted 149,000 15.75 - 21.00 Canceled (124,604) .28 - 20.25 Exercised ( 10,937) 1.68 - 13.00 Outstanding at June 30, 1995 469,350 $ 7.00 - 21.00 219,013
Note 8 - Fair Value of Financial Instruments: The Company has estimated the fair value of its financial instruments in compliance with Financial Accounting Standards No. 107 on Disclosure About Fair Value of Financial Instruments. The estimates were made as of June 30, 1995 and 1994 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 judgement 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. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of financial instruments and the valuation techniques used to estimate the fair value were as follows:
June 30, 1995 1995 1994 1994 Estimated Estimated Book Value Fair Value Book Value Fair Value Financial Assets: Cash and cash equivalents $ 6,311,688 $ 6,311,688 $10,255,360 $10,255,360 Investment securities 9,222,255 9,243,797 19,079,554 19,152,485 Financial Liabilities: Note payable to bank -0- -0- 10,000,000 10,000,000
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 SFAS 115 (see Note 9). Book value is based upon cost. Note Payable to Bank: The fair value of the Note payable to bank approximated book value because the interest rate on this instrument adjusts with changes in market interest rates due to its short-term maturity. 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 Effective with the beginning of fiscal year 1995, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (the "Statement"). The Statement requires certain disclosures for investments in debt and equity securities regardless of maturity. The Company had previously classified investments with original maturities of three months of less as cash and cash equivalents. The Statement requires that all investments be classified as trading securities, available-for- sale securities and held-to-maturity securities. Under the criteria established by the Statement, the Company has classified all of its investments as available-for-sale securities. The Statement 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, 1995:
Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Available-for-sale securities U.S. Treasury securities and obligations of U.S. government agencies $ 7,262,255 $21,542 $ -0- $ 7,283,797 Corporate debt securities 1,960,000 -0- -0- 1,960,000 $ 9,222,255 $21,542 $ -0- $ 9,243,797
AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of the available-for-sale securities at June 30, 1995, by contractual maturity, are shown below. Cost Fair Value Available-for-sale securities Due in 3 months or less $ 9,222,255 $ 9,243,797 Investment income for the year ended June 30, 1995 consisted of the following:
June 30, 1995 Interest income $ 655,716 Gross realized gains 378,055 $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 $472,036 (1995), $419,526 (1994) and $427,327 (1993). Future minimum lease payments under operating leases are as follows:
Years Ending Future Minimum June 30, Lease Payments 1996 $ 629,580 1997 645,324 1998 411,847 $1,686,751
Litigation The Company has been named in lawsuits arising out of the Company's normal business activities. The Company is vigorously defending such actions. Management does not expect the outcome of any of these lawsuits, 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 Effective July 1, 1992, 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. The Company will make contributions equal to 25 percent of employee contributions which will completely vest over a seven year period. The Company has made contributions during the years ended June 30, 1995, 1994, and 1993 of $38,183, $39,602, and $27,622, respectively. AMPLICON, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 - Selected Quarterly Financial Data (Unaudited): Summarized quarterly financial data for the fiscal years ended June 30, 1995 and 1994 is as follows:
Three Months Ended September 30, December 31, March 31, June 30, (In thousands, except per share amounts) 1995 Total revenues $44,725 $51,637 $53,503 $56,655 Gross profit 7,479 8,068 8,389 8,815 Net earnings 2,511 3,001 2,940 3,096 Net earnings per common share $ .43 $ .51 $ .50 $ .53 Dividends declared per common share $ .05 $ .05 $ .05 $ .05 1994 Total revenues $45,746 $50,398 $49,090 $36,126 Gross profit 6,515 7,224 7,749 7,965 Net earnings 2,344 2,712 2,999 2,964 Net earnings per common share $ .40 $ .47 $ .51 $ .51 Dividends declared per common share $ -0- $ -0- $ -0- $ -0-
AMPLICON, INC. AND SUBSIDIARIES 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, 1995 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, 1995 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, 1995 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, 1995 with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. AMPLICON, INC. AND SUBSIDIARIES PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of documents filed as part of this Report (1) Financial Statements All financial statements of the Registrant as set forth under Part II Item 8 of this report on Form 10-K (2) Financial Statement Schedules: Schedule Number Description Page Number II. Valuation and Qualifying Accounts.............28 All other schedules are omitted because of the absence of conditions under which they are required or because all material information required to be reported is included in the consolidated financial statements and notes thereto. (3) Exhibits: See Index to Exhibits filed as part of this Form 10-K 29-31 (b) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter of fiscal 1995. AMPLICON, INC. AND SUBSIDIARIES 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 27, 1995 S. Leslie Jewett Chief Financial Officer 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/ President, Chief Executive September 27, 1995 Patrick E. Paddon Officer and Director Glen T. Tsuma /s/ Vice President, Treasurer, Chief September 27, 1995 Glen T. Tsuma Operating Officer and Director S. Leslie Jewett /s/ Chief Financial Officer September 27, 1995 S. Leslie Jewett Michael H. Lowry /s/ Director September 27, 1995 Michael H. Lowry Harris Ravine /s/ Director September 27, 1995 Harris Ravine AMPLICON, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions Balance Charged to Accounts Balance Beginning Costs and Written at End of of Period Expenses Off Period Year ended June 30, 1993: Allowance for doubtful accounts $1,020,125 $ -0- $ -0- $1,020,125 Allowance for valuation of unguaranteed residual value $ 394,403 $ -0- $ -0- $ 394,403 Year ended June 30, 1994: Allowance for doubtful accounts $1,020,125 $ 300,200 $ -0- $1,320,325 Allowance for valuation of unguaranteed residual value $ 394,403 $ 147,871 $ -0- $ 542,274 Year ended June 30, 1995: Allowance for doubtful accounts $1,320,325 $ 381,085 $ 6,468 $1,694,942 Allowance for valuation of unguaranteed residual value $ 542,274 $ -0- $ -0- $ 542,274
Note: The allowance for doubtful accounts includes balances related to receivables and capital leases described in Notes 2 and 3 of the Notes to Consolidated Financial Statements. AMPLICON, INC. AND SUBSIDIARIES 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 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 CircleBusiness Credit, Inc. (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1) AMPLICON, INC. AND SUBSIDIARIES 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) AMPLICON, INC. AND SUBSIDIARIES 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. 32-33 11 Computation of Earnings per Share of Common Stock 34 22 List of Subsidiaries (incorporated by reference to Exhibit 22 to the Registrant's 1988 Form 10-K) EX-10 2 EXHIBIT 10 AMENDMENT NO. ONE TO LOAN AGREEMENT This Amendment No. One (the "Amendment") dated as of December 16, 1994, is between Bank of America National Trust and Savings Association (the "Bank") and Amplicon, Inc. (the "Borrower"). RECITALS A. The Bank and the Borrower entered into a certain Loan Agreement dated as of August 12, 1993 (the "Agreement"). B. The Bank and the Borrower desire to amend the Agreement. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement. 2. Amendments. The Agreement is hereby amended as follows: 2.1 Paragraph 1.2 is amended by substituting the date "December 31, 1996" for the date "December 31, 1994" appearing therein. 2.2 Paragraph 1.4 (b) is amended by substituting the date "April 1, 1997" for the date "April 1, 1995" appearing therein and by substituting the date "December 31, 1997" for the date "December 31, 1995" appearing therein. 2.3 The following Paragraph 7.2(h) is hereby added to the Agreement: "(h) Within 100 days of the Borrower's 1995 fiscal year end, a financial forecast for the next two fiscal years to include a balance sheet, income and expense information, and cash flow, along with the underlying assumptions in the format previously provided to Bank. 2.4 Paragraph 7.3 is hereby amended in full to read as follows: "7.3 Tangible Net Worth. To maintain on a consolidated basis tangible net worth equal to at least Seventy Five Million Dollars ($75,000,000) from September 30, 1994, increasing on a cumulative basis on the first day of each calendar quarter, commencing April 1, 1995 by an amount equal to 50% of the positive net income for previous calendar quarter." 3. Representations and Warranties. When the Borrower signs this Amendment, the Borrower represents and warrants to the Bank that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Agreement, and (b) the representations and warranties in the Agreement are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment is within the Borrower's powers, has been duly authorized, and does not conflict with any of the Borrower's organizational papers, and (d) this Amendment does not conflict with any law, agreement, or obligation by which the Borrower is bound. 4. Conditions. This Amendment will be effective when the Bank receives the following items, in form and content acceptable to the Bank: 4.1 This Amendment executed by the Borrower. 5. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. This Amendment is executed as of the date stated at the beginning of this Amendment. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: Deborah L. Miller /s/ Deborah L. Miller Title: Vice President AMPLICON, INC. By: Patrick E. Paddon /s/ Patrick E. Paddon Title: President and Chief Executive Officer By: Glen T. Tsuma /s/ Glen T. Tsuma Title: Vice President and Chief Operating Officer EX-11 3 EXHIBIT 11 AMPLICON, INC. AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Years Ended June 30, 1995 1994 1993 Net earnings $11,548,065 $11,018,539 $9,793,014 Weighted average number of common shares outstanding assuming no exercise of outstanding options 5,859,898 5,848,594 5,830,561 Dilutive stock options using the treasury stock method (A) (A) (A) 5,859,898 5,848,594 5,830,561 Net earnings per common share $ 1.97 $ 1.89 $ 1.68
(A) Dilution is less than 3% and deemed immaterial; therefore, stock options are not included for earnings per share calculation. EX-27 4 FINANCIAL DATA SCHEDULE
5 0000803016 AMPLICON, INC. 1000 YEAR JUN-30-1995 JUN-30-1995 6312 9243 92841 1695 5651 0 3313 2052 404516 44424 0 59 0 0 91305 404516 178413 206520 160066 173769 13513 0 150 19088 7540 11548 0 0 0 11548 1.97 1.97
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