ITEM 1. BUSINESS
General
Amplicon leases and sells mid-range computers, peripherals, work stations, 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 production 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 in 1981 after having determined that a centralized telemarketing program would be more cost effective than the field sales representatives it had previously used to conduct its marketing activities. 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 customized 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 telemarketing 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 91.4% and 83.6% of the total dollar amount of new leases entered into by the Company during the fiscal years ended June 30, 1994 and 1993, 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 credit 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 to nonrecourse lenders on a lease by lease basis or in a portfolio debt placement or securitization. During the year ended June 30, 1994, the Company completed three debt placements of lease receivable portfolios accumulated under such investment guidelines for aggregate cash proceeds of $23,406,774. At June 30, 1994 and 1993, the discounted minimum lease payments receivable relative to leases maintained in the Company's portfolio amounted to $31,123,678 and $31,052,728, respectively.
Customers
The Company's customers are primarily subsidiaries and divisions of Fortune 1000 companies and middle-market companies with credit ratings acceptable to the lenders providing nonrecourse loans. The Company does not believe that the loss of any one customer would have a material adverse effect on its operations taken as a whole.
Competition
The Company competes in the distribution and lease financing of 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, 1994, had 196 employees, including 125 sales managers and account executives and 15 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.
ITEM 2. PROPERTIES
At June 30, 1994, Amplicon occupied approximately 27,000 square feet of office space in Santa Ana, California leased from unaffiliated parties. The lease covering the majority of the space provides for monthly rental payments which average $30,377 from inception through January 1998.
ITEM 3.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
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.:
The Company had approximately 48 stockholders of record and in excess of 500 beneficial owners as of September 16, 1994.
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 will be $.05 per share and issued on October 7, 1994 to stockholders of record at the close of business on September 23, 1994.
AMPLICON, INC. AND SUBSIDIARIES
ITEM 6.
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.
AMPLICON, INC. AND SUBSIDIARIES
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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 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 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 90.4% for the fiscal year ended June 30, 1994 versus 91.1% 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 both the fiscal years ended June 30, 1994 and 1993 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
Results of Operations (continued)
Fiscal Years Ended June 30, 1993 and 1992
REVENUES. Total revenues for the fiscal year ended June 30, 1993 were $163,828,230, an increase of $33,388,084 or 25.6% from the prior year. This change was primarily the result of increases in sales of equipment of $35,415,050 offset by lower interest income of $1,970,989. 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, 1993 decreased to $23,696,531 as compared to $25,667,520 for the fiscal year ended June 30, 1992, partially due to lower interest income on discounted lease rentals assigned to lenders (which is offset by interest expense on nonrecourse debt) of $11,452,119 in the fiscal year ended June 30, 1993 versus $12,818,915 for the prior year.
Net interest income (interest income less interest expense on discounted lease rentals assigned to lenders) for the fiscal year ended June 30, 1993 decreased by $604,193 or 4.7% as compared to the fiscal year ended June 30, 1992. This net decrease resulted primarily from lower amortization of deferred income and lower investment income, offset by increases in interest accretion due to a larger residual value base, and increases in interest recognition on greater minimum lease payments receivable.
Rental income for the fiscal year ended June 30, 1993 of $747,229 decreased by $55,977 or 7.0% as compared to the fiscal year ended June 30, 1992, as a result of decreases in the volume of short-term lease renewals.
GROSS PROFIT. Gross profit for the fiscal year ended June 30, 1993 increased by $2,888,741, or 12.5%, to $26,083,067 compared to $23,194,326 for the fiscal year ended June 30, 1992. Gross profit as a percent of total revenues decreased to 15.9% of total revenues for fiscal 1993 compared to 17.8% of total revenues for the prior year. Additionally, the cost of equipment sold as a percentage of sales of equipment increased to 91.1% for the fiscal year ended June 30, 1993 versus 90.8% for the fiscal year ended June 30, 1992. The principal factors which contributed to higher gross profit were (i) increased profits from lease renewals and extensions, (ii) higher profits from larger volume of new lease transactions, and (iii) gains realized from the debt placement of lease portfolios, offset by (iv) decreases in net interest income as described above. The lower gross profit margin and higher cost of equipment percentages reflect a greater percentage of the Company's revenues derived from new lease transactions and a decrease in the proportion of revenues from interest income during the most recent fiscal year.
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, 1993 as compared to 6.6% for the fiscal year ended June 30, 1992. Selling, general and administrative expenses for the fiscal year ended June 30, 1993 increased by $1,967,227 or 22.9% 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 $89,067 for the year ended June 30, 1993 as compared to $102,044 for the year ended June 30, 1992. The decrease of $12,977 is primarily the result of fewer fiscal year 1993 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% and 37.1% for the fiscal years ended June 30, 1993 and 1992, respectively, representing its estimated annual tax rates for the years ending June 30, 1993 and 1992.
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, 1994, the Company had outstanding nonrecourse debt aggregating $225,746,187 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 which is secured by an in process lease transaction. The Company has a nonrecourse debt commitment from the same financial institution to finance the lease transaction once the lease transaction is completed. The lease is anticipated to be assigned on a nonrecourse basis prior to the due date of the note and the commencement of the assignment, at which time the recourse note will be 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 1994, the Company increased its net investment in leases held in its own portfolio by $70,950. This minimal increase was primarily due to i) a higher percentage of new lease transactions being assigned on a non-recourse basis, ii) the assignment of three lease portfolios during fiscal 1994 and iii) the cash flow from the Company's lease portfolio during fiscal 1994 exceeded the volume of new leases and renewals.
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, 1994, 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, 1994, the Company repurchased 10,000 shares at an aggregate cost of $188,750. During the year ended June 30, 1993, the Company repurchased 2,322 shares at an aggregate cost of $43,988. As of August 20, 1994, 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 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.
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, 1994 and 1993 12
Consolidated Statements of Earnings for the years ended June 30, 1994, 1993 and 1992 13
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1994, 1993 and 1992 14
Consolidated Statements of Cash Flows for the years ended June 30, 1994, 1993 and 1992 15
Notes to Consolidated Financial Statements 16-23
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, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years ended June 30, 1994, 1993 and 1992. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1994, 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 schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state 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 16, 1994
AMPLICON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated balance sheets.
AMPLICON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
The accompanying notes are an integral part of these consolidated financial statements.
AMPLICON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
AMPLICON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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, 1994
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
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.
Leases Capital Leases
The Company engages in the lease and sale of computer hardware and software, and other equipment. The Company adopted Financial Accounting Standards Board Technical Bulletin No. 88-1 ("88-1") in fiscal year 1989 which addressed certain issues relating to accounting for leases. 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. Under 88-1, 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 as operating income prior to commencement of capital leases.
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 values of the leased equipment. 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 equipment, with no further recourse against the Company.
Effective July 1, 1988, the Company adopted Statement of Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees and Costs Associated With Originating or Acquiring Loans and Initial Direct Costs of Leases." A portion of the Company's selling, general and administrative costs directly related to originating capital leases 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. Equipment 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 equipment 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 (5,848,594 in 1994, 5,830,561 in 1993 and 5,813,291 in 1992).
Reclassifications
Certain reclassifications have been made to the fiscal 1993 and 1992 consolidated financial statements to conform with the presentation of the fiscal 1994 consolidated financial statements.
Note 2 - Receivables:
The Company's net receivables consist of the following:
Note 3 - Capital Leases:
The Company's net investment in capital leases consists of the following:
The interest rates used to discount lease payments reflect the underlying lease rates and range from 6.3% to 14.95%.
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, 1994, 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:
Nonrecourse debt, which relates to the discounting of capital lease receivables, bears interest at rates ranging from 5.87% to 16.5%. Maturities of such obligations at June 30, 1994 are as follows:
Note 4 - Notes Payable to Bank:
In August 1993, 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, 1994 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, 1995, and one final payment on December 31, 1995 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, 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, as amended in August 1994, to borrow $10,000,000 (the "Note") at an interest rate equal to the prime rate. This Note is secured by an in-process lease transaction (the "Lease"). This Lease is secured by an $11,000,000 letter of credit issued by a different financial institution. Interest is payable monthly commencing January 15, 1994 and the Note is due on October 31, 1994. The financial institution which issued the Note has agreed to finance the Lease on a nonrecourse basis through the due date of the Note.
Note 5 - Deferred Interest Income and Net Deferred Income:
At June 30, 1994, deferred interest income of $24,192,113 is offset by deferred interest expense related to the Company's discounted lease rentals assigned to lenders of $24,192,113. See Note 3.
At June 30, 1994, the expected recognition of net deferred income (deferred gross margin of $9,870,422 less deferred selling expenses of $6,126,943) on the Company's future statements of earnings is as follows:
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:
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
Deferred income tax liabilities (assets) are composed of the following:
The sources of differences between the federal statutory income tax rate and the Company's effective tax rate are as follows:
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.
AMPLICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the Plan for the periods indicated:
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, 1994 based on relevant market information.
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.
The estimated fair value of financial instruments and the valuation techniques used to estimate the fair value were as follows:
Cash and Cash Equivalents: For cash, the book value is a reasonable estimate of fair value. For cash equivalents with original maturities less than three months, the estimated fair value is based on the respective market prices.
Note Payable to Bank: The fair value of the Note payable to bank approximates 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.
AMPLICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Commitments and Contingencies:
Leases
The Company leases the majority of its corporate offices under an operating lease which expires in fiscal 1998. Rent expense was $419,526 (1994), $427,327 (1993) and $386,500 (1992).
Future minimum lease payments under operating leases are as follows:
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, 1994 and 1993 of $39,602 and $27,622, respectively.
AMPLICON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Selected Quarterly Financial Data (Unaudited):
Summarized quarterly financial data for the fiscal years ended June 30, 1994 and 1993 is as follows:
AMPLICON, INC. AND SUBSIDIARIES
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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, 1994 with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 11.
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, 1994 with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 12.
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, 1994 with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13.
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, 1994 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.
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. Amounts receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties................................. 27
VIII. 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 1994.
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: Sept. 27, 1994 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 Sept. 27, 1994 Patrick E. Paddon Officer and Director
Glen T. Tsuma /s/ Vice President, Treasurer, Chief Sept. 26, 1994 Glen T. Tsuma Operating Officer and Director
S. Leslie Jewett /s/ Chief Financial Officer Sept. 27, 1994 S. Leslie Jewett
Michael H. Lowry /s/ Director Sept. 22, 1994 Michael H. Lowry
Harris Ravine /s/ Director Sept. 23, 1994 Harris Ravine
AMPLICON, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
AMPLICON, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
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 32-44 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.
11 Computation of Earnings per Share of Common Stock 45
22 List of Subsidiaries (incorporated by reference to Exhibit 22 to the Registrant's 1988 Form 10-K)