-----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, OxoyabIdQ8fKbDN6b4jfBqDlXla8A7heEubX7fpTlEU95wtZapVtVBwL06Wr51oF tklaSXuB8rP/xdcjAGI7Kg== 0000803016-96-000009.txt : 19960925 0000803016-96-000009.hdr.sgml : 19960925 ACCESSION NUMBER: 0000803016-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960924 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: 96633898 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, 1996 [ ] 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 incorporation or organization) (I.R.S. Employer Identification No.) 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 16, 1996 was $36,215,794 Number of shares outstanding as of September 16, 1996: Common Stock 5,833,959. 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. AMPLICON, INC. 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 10-25 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 29 Exhibit Index 30-32 1 AMPLICON, INC. PART I ITEM 1. BUSINESS General Amplicon leases 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. 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 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, Inc., 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 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, 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. 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. 2 AMPLICON, INC. 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 confidential data base 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 records of contacts made with potential customers by its account executives. In 1995, Amplicon installed new prospect management software to further enhance the productivity of its sales force. Specific information about potential customers is entered into an on-line proprietary 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 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 equipment. 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 binding noncancelable lease from its customer and, generally, has determined that the lease can be discounted with a bank or financial institution on a nonrecourse basis. Accordingly, a substantial portion of the Company's leases are discounted to banks or finance companies on a nonrecourse basis at fixed interest rates that reflect the customers' financial condition. Approximately 92.4% and 88.8% of the total dollar amount of new leases entered into by the Company during the fiscal years ended June 30, 1996 and 1995, 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 otherwise defaults under certain 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 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 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, 1996 and 1995, the discounted minimum lease payments receivable relative to leases maintained in the Company's portfolio amounted to $39,427,656 and $32,107,972, 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 lease financing of computer systems and networks, 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 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 financing arrangements, financial technical proficiency and the offering of a broad range of financial options. Employees The Company, as of June 30, 1996, had 227 employees, including 145 sales managers and account executives and 17 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. 4 AMPLICON, INC. ITEM 2. PROPERTIES At June 30, 1996, 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 $52,859 from July 1996 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, 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 Fiscal year ended June 30, 1995 First Quarter $21.50 $18.00 Second Quarter 19.75 17.25 Third Quarter 18.50 16.25 Fourth Quarter 17.25 14.00
The Company had approximately 50 stockholders of record and in excess of 500 beneficial owners as of September 16, 1996. 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, 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 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 1996 1995 1994 1993 1992 (in thousands, except per share amounts) Revenues: Sales of equipment $224,818 $178,413 $156,740 $139,384 $103,969 Interest and investment income 31,141 25,794 24,357 23,697 25,668 Rental income 1,280 2,313 263 747 803 Total revenues 257,239 206,520 181,360 163,828 130,440 Gross profit 39,280 32,751 29,453 26,083 23,194 Earnings before income taxes 21,480 19,088 17,352 15,421 14,487 Net earnings $ 12,996 $ 11,548 $ 11,019 $ 9,793 $ 9,111 COMMON SHARE DATA Net earnings per share $ 2.22 $ 1.97 $ 1.89 $ 1.68 $ 1.57 Weighted average number of common shares outstanding 5,849 5,860 5,849 5,831 5,813 Cash dividends per share $ .20 $ .20 $ -0- $ -0- $ -0- SELECTED ANNUAL GROWTH RATES Sales of equipment 26% 14% 12% 34% (21)% Total revenues 25 14 11 26 (16) Net interest and investment income 14 ( 4) 4 ( 5) 22 Gross profit 20 11 13 12 14 Net earnings 13 5 13 7 22 Net earnings per share 13 4 13 7 25
AS OF JUNE 30, BALANCE SHEET DATA 1996 1995 1994 1993 1992 (in thousands, except per share data) Total assets $460,000 $402,100 $384,584 $347,308 $307,529 Note payable to bank -0- -0- 10,000 -0- -0- Nonrecourse debt 279,109 238,614 225,746 211,191 193,611 Stockholders' equity 102,665 91,364 80,875 69,772 59,955 Book value per common share $ 17.58 $ 15.57 $ 13.81 $ 11.96 $ 10.29
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, 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 margin were improved profits from lease extensions, renewals and sales of equipment 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 is 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. 7 AMPLICON, INC. Results of Operations (continued) 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. 8 AMPLICON, INC. 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 property until it has received a binding noncancelable lease from its customer and, generally, has determined that the lease can be discounted on a nonrecourse basis. At June 30, 1996, the Company had outstanding nonrecourse debt aggregating $279,109,254 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 equipment leases in its own portfolio rather than assigning the leases to financial institutions. During the fiscal year 1996, the Company increased its net investment in leases by $7,701,437. This increase was primarily due to a higher volume of leases which the Company retained in its own lease 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, 1996, 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, 1996, the Company repurchased 35,000 shares at an aggregate cost of $546,913. During the year ended June 30, 1995, the Company did not repurchase any shares. As of September 16, 1996, 60,678 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 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, 1996 and 1995 12 Consolidated Statements of Earnings for the years ended June 30, 1996, 1995 and 1994 13 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994 14 Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994 15 Notes to Consolidated Financial Statements 16-25 10 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) as of June 30, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended June 30, 1996, 1995 and 1994. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1996, 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 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 August 7, 1996 11 AMPLICON, INC. CONSOLIDATED BALANCE SHEETS
June 30, ASSETS 1996 1995 Cash and cash equivalents (Notes 1 & 8) $ 8,614,357 $ 6,311,688 Investment securities (Notes 8 & 9) 1,181,967 9,243,797 Net receivables (Note 2) 58,777,425 53,959,224 Inventories, primarily customer deliveries in process 2,456,193 5,651,210 Net investment in capital leases (Note 3) 74,196,115 58,686,813 Equipment on operating leases, less accumulated depreciation of $152,391 (1996) and $173,647 (1995) 34,567 36,009 Other assets 1,436,537 1,395,035 Discounted lease rentals assigned to lenders (Note 3) 313,303,087 266,815,903 $460,000,248 $402,099,679 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Note payable to bank (Note 4) $ -0- $ -0- Accounts payable 10,287,123 11,411,175 Accrued liabilities 3,996,621 4,722,808 Customer deposits 7,710,851 6,851,718 Nonrecourse debt (Note 3) 279,109,254 238,614,209 Deferred interest income (Note 5) 34,193,833 28,201,694 Net deferred income (Note 5) 2,530,958 564,950 Income taxes payable, including deferred taxes (Note 6) 19,507,072 20,369,450 357,335,712 310,736,002 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; 5,838,959 (1996) and 5,867,959 (1995) issued and outstanding 58,390 58,680 Additional paid in capital 5,587,287 6,091,910 Retained earnings 97,017,263 85,191,545 Investment securities valuation adjustment (Note 9) 1,596 21,542 102,664,536 91,363,677 $460,000,248 $402,099,679
The accompanying notes are an integral part of these consolidated balance sheets. 12 AMPLICON, INC. CONSOLIDATED STATEMENTS OF EARNINGS
Years ended June 30, 1996 1995 1994 Revenues: Sales of equipment $224,818,111 $178,412,946 $156,740,338 Interest income (Notes 1, 3 & 5) 30,272,545 24,760,159 24,003,426 Investment income (Note 9) 868,456 1,033,771 353,467 Rental income 1,279,928 2,313,374 263,060 257,239,040 206,520,250 181,360,291 Costs: Cost of equipment sold 200,531,313 160,065,968 140,186,036 Interest expense on nonrecourse debt (Notes 1, 3 & 5) 17,162,307 13,580,355 11,659,414 Depreciation of equipment on operating leases 265,486 123,043 61,417 217,959,106 173,769,366 151,906,867 Gross profit 39,279,934 32,750,884 29,453,424 Selling, general and administrative expenses 17,553,715 13,512,852 11,927,826 Interest expense-other 246,590 149,967 174,059 Earnings before income taxes 21,479,629 19,088,065 17,351,539 Income taxes (Note 6) 8,484,000 7,540,000 6,333,000 Net earnings $ 12,995,629 $ 11,548,065 $ 11,018,539 Net earnings per common share $ 2.22 $ 1.97 $ 1.89 Dividends declared per common share outstanding $ .20 $ .20 $ -0- Weighted average number of common shares outstanding 5,848,847 5,859,898 5,848,594
The accompanying notes are an integral part of these consolidated financial statements. 13 AMPLICON, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Investment Additional securities Common Stock paid in Retained valuation Shares Amount capital earnings adjustment Total 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 Shares issued - Stock options exercised 6,000 60 41,940 -0- -0- 42,000 Shares repurchased ( 35,000) ( 350) ( 546,563) -0- -0- ( 546,913) Dividends declared -0- -0- -0- ( 1,169,911) -0- ( 1,169,911) Investment securities valuation adjustment -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
The accompanying notes are an integral part of these consolidated financial statements. 14 AMPLICON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 12,995,629 $ 11,548,065 $ 11,018,539 Adjustments to reconcile net earnings to cash flows used for operating activities: Depreciation 265,486 123,043 61,417 Sale or lease of equipment previously on operating leases, net 106,076 14,200 13,646 Interest accretion of estimated unguaranteed residual values ( 3,471,891) ( 3,136,893) ( 3,115,186) Estimated unguaranteed residual values recorded on leases ( 11,622,505) ( 5,325,599) ( 7,733,445) Interest accretion of net deferred income ( 2,351,292) ( 556,823) ( 984,918) Increase (decrease) in net deferred income 4,317,300 ( 2,621,706) 2,691,736 Net (decrease) increase in income taxes payable, including deferred taxes ( 862,378) 5,107,952 988,676 Net increase in net receivables ( 4,818,201) ( 14,054,043) ( 6,835,242) Net decrease (increase) in inventories 3,195,017 ( 675,817) 865,601 Net decrease in accounts payable and accrued liabilities ( 1,850,239) ( 1,261,439) ( 6,493,379) Net cash used for operating activities ( 4,096,998) ( 10,839,060) ( 11,253,757) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities (221,323,828) (236,143,494) (197,206,966) Proceeds from sale of available-for-sale securities 229,365,713 246,000,793 178,127,412 Net increase in minimum lease payments receivable ( 19,821,735) ( 602,543) ( 23,476,863) Purchase of equipment on operating leases ( 370,119) ( 122,889) ( 61,433) Net (increase) decrease in other assets ( 41,502) ( 320,123) 67,181 Decrease in estimated unguaranteed residual values 7,286,531 9,683,219 7,313,130 Net cash (used for) provided by investing activities ( 4,904,940) 18,494,963 ( 35,237,539) CASH FLOWS FROM FINANCING ACTIVITIES: Assignment of discounted lease rentals 12,120,298 -0- 23,406,774 (Payment) borrowing on note payable secured by lease -0- ( 10,000,000) 10,000,000 Payments to repurchase common stock ( 546,913) -0- ( 188,750) Increase (decrease) in customer deposits 859,133 ( 518,234) 3,440,128 Dividends to stockholders ( 1,169,911) ( 1,172,121) -0- Proceeds from exercise of stock options 42,000 90,780 273,463 Net cash provided by (used for) financing activities 11,304,607 ( 11,599,575) 36,931,615 NET CHANGE IN CASH AND CASH EQUIVALENTS 2,302,669 ( 3,943,672) ( 7,828,479) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,311,688 10,255,360 18,083,839 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,614,357 $ 6,311,688 $ 10,255,360 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Increase in lease rentals assigned to lenders and related nonrecourse debt $ 40,495,045 $ 12,868,022 $ 14,555,482 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 246,590 $ 149,967 $ 174,059 Income taxes $ 9,346,378 $ 3,034,283 $ 5,366,715
The accompanying notes are an integral part of these consolidated financial statements. 15 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JUNE 30, 1996 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 accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. Use of Estimates 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. 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. 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. 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 the lower of cost (first-in, first-out method) or market value. 16 AMPLICON, INC. 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 (5,848,847 in 1996, 5,859,898 in 1995 and 5,848,594 in 1994). Reclassifications Certain reclassifications have been made to the fiscal 1995 consolidated financial statements to conform with the presentation of the fiscal 1996 consolidated financial statements. Recent Accounting Pronouncements The Company is required to adopt Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in fiscal year 1997. The Company expects that the adoption of this pronouncement will not have a material impact on its financial position or results of operations. In fiscal 1997, the Company will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). This statement establishes financial accounting and reporting standards for stock-based compensation plans. The Company expects to continue to account for stock-based employee compensation plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", as is permitted under SFAS No. 123, and to follow the pro forma net income and earnings per share disclosure requirements set forth in SFAS No. 123. The adoption of SFAS No. 123 will not impact the Company's results of operations, financial position or cash flows. Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," will be adopted by the Company for certain lease transactions occurring after January 1, 1997. The Company does not believe this adoption will have a material impact on its results of operations or financial position. Note 2 - Receivables: The Company's net receivables consist of the following:
June 30, 1996 1995 Financial institutions $45,991,788 $40,026,866 Lessees 13,161,437 12,179,795 Other 463,057 2,591,420 59,616,282 54,798,081 Less allowance for doubtful accounts ( 838,857) ( 838,857) Net receivables $58,777,425 $53,959,224
17 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Capital Leases: The Company's net investment in capital leases consists of the following:
June 30, 1996 1995 Minimum lease payments receivable, less allowance for doubtful accounts of $856,585 in each year $45,351,427 $36,009,508 Estimated unguaranteed residual value, less valuation allowance of $542,274 in each year 46,246,743 33,758,208 91,598,170 69,767,716 Less unearned income (17,402,055) (11,080,903) Net investment in capital leases $74,196,115 $58,686,813
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. At June 30, 1996, 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 1997 $20,804,976 $13,368,633 $34,173,609 1998 11,929,008 8,990,176 20,919,184 1999 7,954,049 12,990,134 20,944,183 2000 2,289,875 6,186,232 8,476,107 2001 2,004,575 3,729,005 5,733,580 Thereafter 368,944 982,563 1,351,507 45,351,427 46,246,743 91,598,170 Less unearned income ( 5,923,771) (11,478,284) (17,402,055) Net investment in capital leases and estimated unguaranteed residual value $39,427,656 $34,768,459 $74,196,115
18 AMPLICON, INC. NOTES TO CONSOLIDATED 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, 1996 are as follows:
Years ending Capital June 30, leases 1997 $116,226,867 1998 82,167,946 1999 46,674,354 2000 23,210,595 2001 9,218,157 Thereafter 1,611,335 Total nonrecourse debt 279,109,254 Deferred interest (Note 5) 34,193,833 Total discounted lease rentals assigned to lenders $313,303,087
Note 4 - Notes 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 1.75%. The term note requires repayment in three equal quarterly installments of one eighth of the outstanding balance at the expiration date, commencing April 1, 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, 1996 and 1995, there were no outstanding balances on this Agreement. Note 5 - Deferred Interest Income and Net Deferred Income: At June 30, 1996, deferred interest income of $34,193,833 is offset by deferred interest expense related to the Company's discounted lease rentals assigned to lenders of $34,193,833. See Note 3. At June 30, 1996, the expected recognition of net deferred income (deferred gross margin of $9,976,115 less deferred selling expenses of $7,445,157) on the Company's future statements of earnings is as follows:
Years ending June 30, 1997 $1,423,640 1998 691,373 1999 259,486 2000 108,039 2001 41,351 Thereafter 7,069 $2,530,958
19 AMPLICON, INC. NOTES TO CONSOLIDATED 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" ("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. From time to time, the Company is audited by various governmental taxing authorities and is currently under examination for fiscal years 1992 through 1994 by the Internal Revenue Service. 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, 1996 1995 1994 Current tax expense: Federal $1,626,390 $4,618,165 $2,667,000 State 1,186,017 2,032,998 600,000 2,812,407 6,651,163 3,267,000 Deferred tax expense: Federal 5,460,980 750,594 2,371,000 State 210,613 138,243 695,000 5,671,593 888,837 3,066,000 $8,484,000 $7,540,000 $6,333,000
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. The components of the deferred income tax provision (benefit) for the years ended June 30, 1996 and 1995 are as follows:
1996 1995 Tax operating leases $7,387,427 $669,126 Deferred selling expenses 630,975 ( 90,508) Allowances and reserves 62,486 (514,163) Alternative minimum tax credits (2,011,064) 957,968 Depreciation other than on operating leases ( 377,176) ( 45,519) State income taxes ( 21,055) ( 88,067) Deferred tax expense $5,671,593 $888,837
20 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax liabilities (assets) are comprised of the following:
June 30, 1996 1995 Deferred income tax liabilities: Tax operating leases $29,456,276 $22,068,849 Deferred selling expenses 3,052,514 2,421,539 Payments due -0- 3,458,971 Total liabilities 32,508,790 27,949,359 Deferred income tax assets: Allowances and reserves ( 1,566,862) ( 1,629,348) Minimum tax credits/carryforwards ( 7,570,197) ( 5,559,133) Refunds due ( 3,075,000) -0- Depreciation other than on operating leases ( 560,936) ( 183,760) State income taxes ( 228,723) ( 207,668) Total assets (13,001,718) ( 7,579,909) Net deferred income tax liabilities $19,507,072 $20,369,450
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, 1996 1995 1994 Federal statutory rate 35.0% 35.0% 35.0% State tax, net of federal benefit 4.8 4.8 4.8 Other ( .3) ( .3) ( 3.3) Effective rate 39.5% 39.5% 36.5%
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 has reserved 650,000 shares of common stock for issuance under the 1985 Plan. No further grants will be made under the 1985 Plan. 21 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity in the 1985 Plan for the periods indicated:
Exercise Options price Options outstanding per share exercisable 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 Granted -0- N/A Canceled ( 11,200) 16.25 - 21.00 Exercised ( 6,000) 7.00 Outstanding at June 30, 1996 452,150 $ 7.00 - 21.00 258,183
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 one percent (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. There have been no grants or issuances during the year ended June 30, 1996 under the 1995 Plan. 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, "Disclosure About Fair Value of Financial Instruments" ("SFAS No. 107"). The estimates were made as of June 30, 1996 and 1995 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 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, 1996 1996 1995 1995 Estimated Estimated Book Value Fair Value Book Value Fair Value Financial Assets: Cash and cash equivalents $ 8,614,357 $8,614,357 $ 6,311,688 $6,311,688 Investment securities 1,180,371 1,181,967 9,222,255 9,243,797
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 Effective with the beginning of fiscal year 1995, 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 and 1995:
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 June 30, 1995 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
23 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The estimated fair value of the available-for-sale securities at June 30, 1996 and 1995, by contractual maturity, are shown below.
1996 1995 Cost Fair Value Cost Fair Value Available-for-sale securities Due in 3 months or less $1,180,371 $1,181,967 $9,222,255 $9,243,797
Investment income for the year ended June 30, 1996 and 1995 consisted of the following:
1996 1995 Interest income $ 830,873 $ 655,716 Gross realized gains 37,583 378,055 $ 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 $577,416 (1996), $472,036 (1995) and $419,526 (1994). Future minimum lease payments under operating leases are as follows:
Years Ending Future Minimum June 30, Lease Payments 1997 $ 645,324 1998 411,847 $1,057,171
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 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, 1996, 1995, and 1994 of $16,036, $38,183, and $39,602, respectively. 24 AMPLICON, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 11 - Selected Quarterly Financial Data (Unaudited): Summarized quarterly financial data for the fiscal years ended June 30, 1996 and 1995 is as follows:
Three Months Ended September 30, December 31, March 31, June 30, (In thousands, except per share amounts) 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 Net earnings per common share $ .45 $ .55 $ .57 $ .65 Dividends declared per common share $ .05 $ .05 $ .05 $ .05 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
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, 1996 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, 1996 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, 1996 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, 1996 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 consolidated 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 1996. 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 24, 1996 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 24, 1996 Patrick E. Paddon Officer and Director Glen T. Tsuma /s/ Vice President, Treasurer, September 24, 1996 Glen T. Tsuma Chief Operating Officer and Director S. Leslie Jewett /s/ Chief Financial Officer September 24, 1996 S. Leslie Jewett Michael H. Lowry /s/ Director September 18, 1996 Michael H. Lowry Harris Ravine /s/ Harris Ravine Director September 20, 1996 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, 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 $381,585 $ 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
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. 29 AMPLICON, INC. INDEX OF 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 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) 32 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) 33 AMPLICON, INC. EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Years Ended June 30, 1996 1995 1994 Net earnings $12,995,629 $11,548,065 $11,018,539 Weighted average number of common shares outstanding assuming no exercise of outstanding options 5,848,847 5,859,898 5,848,594 Dilutive stock options using the treasury stock method (A) (A) (A) 5,848,847 5,859,898 5,848,594 Net earnings per common share $ 2.22 $ 1.97 $ 1.89
(A) Dilution is less than 3% and deemed immaterial; therefore, stock options are not included for earnings per share calculation. 33 EX-11 2 EXHIBIT 11 AMPLICON, INC. EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Years Ended June 30, 1996 1995 1994 Net earnings $12,995,629 $11,548,065 $11,018,539 Weighted average number of common shares outstanding assuming no exercise of outstanding options 5,848,847 5,859,898 5,848,594 Dilutive stock options using the treasury stock method (A) (A) (A) 5,848,847 5,859,898 5,848,594 Net earnings per common share $ 2.22 $ 1.97 $ 1.89
(A) Dilution is less than 3% and deemed immaterial; therefore, stock options are not included for earnings per share calculation. 33 EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 YEAR JUN-30-1996 JUN-30-1996 8614 1182 99901 1695 2456 0 2451 1127 460000 41502 0 0 0 58 102606 460000 224818 257239 200531 217959 17554 0 246 21480 8484 12996 0 0 0 12996 2.22 2.22
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