-----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, HJotwfDNb1nXqsulgTANk3JaPA3LpuA3z3gr7a/dI0HDzT3ERhPs4lMmf179HImC ptbdrkVJHlzRj3gjLBz7Kw== 0000950147-96-000485.txt : 19961027 0000950147-96-000485.hdr.sgml : 19961027 ACCESSION NUMBER: 0000950147-96-000485 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961024 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER ADJUSTERS OF AMERICA INC CENTRAL INDEX KEY: 0000735349 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 860477573 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12902 FILM NUMBER: 96647318 BUSINESS ADDRESS: STREET 1: 45 E MONTEREY WAY STREET 2: STE 202 CITY: PHOENIX STATE: AZ ZIP: 85012 BUSINESS PHONE: 6022641061 MAIL ADDRESS: STREET 1: P O BOX 7610 CITY: PHOENIX STATE: AZ ZIP: 85011 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER FINANCIAL CORP /AZ DATE OF NAME CHANGE: 19861114 10-Q 1 FORM 10-Q CONFORMED FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to ----------------------- ------------------------- Commission File Number 1-12902 ------------- FRONTIER ADJUSTERS OF AMERICA, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Arizona 86-0477573 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 45 East Monterey Way, Phoenix, AZ 85012 - -------------------------------------------------------------------------------- (Address of principal executive offices) (602) 264-1061 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of Common Stock outstanding on October 15, 1996 4,605,358 --------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1996 June 30, 1996 ------------------ ------------- (unaudited) (*) ASSETS ------ CURRENT ASSETS Cash and cash equivalents $1,110,529 $ 534,540 Investments 1,248,130 1,249,463 Receivables 1,504,923 1,549,185 Prepaid expenses 268,166 288,893 Other 171,351 159,451 ---------- ---------- TOTAL CURRENT ASSETS 4,303,099 3,781,532 ---------- ---------- PROPERTY AND EQUIPMENT 2,251,868 2,436,167 Less accumulated depreciation and amortization 650,395 881,766 ---------- ---------- 1,601,473 1,554,401 ---------- ---------- OTHER ASSETS Cost of subsidiary in excess of net tangible assets acquired 213,817 213,817 Less accumulated amortization 175,085 174,508 ---------- ---------- 38,732 39,309 Receivables (Long term) 368,000 327,000 Investments (Long term) 750,890 750,730 Other 425,666 422,780 ---------- ---------- 1,583,288 1,539,819 ---------- ---------- TOTAL ASSETS $7,487,860 $6,875,752 ========== ========== LIABILITIES ----------- CURRENT LIABILITIES Accounts payable $ 80,117 $ 11,666 Accrued expenses 374,540 263,806 Franchisee/licensee remittance payable 377,301 135,518 Current Portion Long Term Liability 25,122 24,672 Other 209,021 149,308 ---------- ---------- TOTAL CURRENT LIABILITIES 1,066,101 584,970 ---------- ---------- LONG TERM LIABILITY 53,532 59,983 ---------- ----------- STOCKHOLDERS' EQUITY Common stock 47,820 47,820 Additional paid in capital 2,148,470 2,148,470 Treasury stock (529,584) (485,219) Other 6,087 (6,691) Retained earnings 4,695,434 4,526,419 ---------- ---------- 6,368,227 6,230,799 ---------- ---------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $7,487,860 $6,875,752 ========== ==========
*Condensed from audited financial statements. The accompanying notes are an integral part of these condensed statements. 2 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended September 30, 1996 and 1995
1996 1995 ---------- ---------- REVENUES Continuing licensee and franchisee fees $1,388,298 $1,246,895 Adjusting and risk management fees 275,231 161,771 ---------- ---------- 1,663,529 1,408,666 ---------- ---------- COST AND EXPENSES Compensation and fringe benefits 651,156 468,369 Office 100,364 109,945 Advertising and promotion 81,197 73,817 Depreciation and amortization 55,955 43,491 Provision for doubtful accounts 45,000 35,000 Other 209,406 240,894 ---------- ---------- 1,143,078 971,516 ---------- ---------- INCOME FROM OPERATIONS 520,451 437,150 ---------- ---------- OTHER INCOME (EXPENSE) Interest income 36,191 31,513 Other (Net) 7,353 3,126 ---------- ---------- TOTAL OTHER INCOME (EXPENSE) 43,544 34,639 ---------- ---------- INCOME BEFORE INCOME TAXES 563,995 471,789 INCOME TAXES 221,732 185,751 ---------- ---------- NET INCOME $ 342,263 $ 286,038 ========== ========== Weighted Average Shares outstanding 4,614,684 4,637,943 ========== ========== NET INCOME PER COMMON SHARE $ .07 $ .06 ========== ==========
The accompanying notes are an integral part of these condensed statements. 3 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three Months Ended September 30, 1996 and 1995
1996 1995 ----------- ----------- NET INCOME $ 342,263 $ 286,038 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 55,955 43,491 (Gain) on disposition of property & equipment (905) -- Allowance for doubtful accounts 45,930 36,222 Change in assets and liabilities: (Increase) decrease in: Receivables 60,444 284,664 Prepaid expenses 20,727 33,535 Other (23,834) (52,229) Increase (decrease) in: Accounts payable 68,451 12,602 Accrued expenses 110,734 (57,984) Franchisee and licensee remittance payable 241,783 (108,924) Other 59,713 33,509 ----------- ----------- Total adjustments 638,998 224,886 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 981,261 510,924 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: License Acquisition (25,000) (61,000) Capital expenditures (78,195) (23,584) Investment purchased (974,115) -- Proceeds from sales of investments 1,000,000 -- Payments on License acquisition (6,001) (5,583) Advances to licensees and franchisees (1,021,884) (908,318) Collections of advances to licensees and franchisees 917,536 878,359 ----------- ----------- NET CASH (USED IN) INVESTING ACTIVITIES (187,659) (120,126) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends (173,248) (162,432) Common stock repurchased (44,365) (95,817) ----------- ----------- NET CASH PROVIDED BY(USED IN)FINANCING ACTIVITIES (217,613) (258,249) ----------- ----------- NET INCREASE IN CASH 575,989 132,549 Cash at beginning of the period 534,540 358,960 ----------- ----------- Cash at the end of the period $ 1,110,529 $ 491,509 =========== =========== Supplemental disclosures of Cash Flow information Cash paid during the period Income taxes $ 72,130 $ 68,257 Interest $ 1,498 $ 1,917
The accompanying notes are an integral part of these condensed statements. 4 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (1) Basis of Presentation --------------------- The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results of operations for the interim periods. The results of operations for the three month period ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition ------------------- The Company has historically financed its growth and on-going operations with cash generated from operations. In the quarter ended September 30, 1996, the Company's operations generated $981,000 in cash. Compared to the last fiscal year, the most significant item affecting cash provided by the Company's operations is the $242,000 increase in franchisee and licensee remittance payable. The Company, pursuant to agreements with its licensees and franchisees, acts as a collection agent for all of its licensees. The Company remits to its licensees the collections, less the on-going license fee and any amounts due the Company, i.e., loan repayments, errors and omissions insurance premium. The date of the week that the Company's fiscal period ends, therefore, can have a significant effect on the reported amount that is due to licensees and franchisees. The Company's financial statements as of September 30, 1996 reflect collections for two days of $377,000 and June 30, 1996 reflect collections for one day of $136,000. In August 1996 the Company acquired 14,300 shares of the Company's common stock at a cost of $44,365. The repurchase was authorized by the Board of Directors as they believed that at the current price level the Company's common stock was an excellent investment. The Company's Board of Directors in May 1996, approved an increase in the Company's annual dividend rate from 14 cents per share to 15 cents per share effective with the 3.75 cents per share cash dividend paid on June 10, 1996. The increase reflects the Board's policy that shareholders participate in the Company's growth. Through its capital investment program, the Company replaces obsolete or outdated equipment and invests in new equipment and furnishings to maintain or increase the productivity of the Company and its employees. The Company anticipates investing $100,000 to $200,000 in fiscal 1997 for equipment and furnishings pursuant to its capital investment program. The Company, additionally, entered into an agreement in October 1996 to acquire a parcel of land and building adjacent to its Corporate offices. The purchase price is $170,000 and will be paid during the second quarter of the Company's current fiscal year. Management believes that the Company will be able to fund all of its cash requirements (i.e. current operations, capital asset acquisition and the payment of dividends) from its current available cash as well as funds generated by its operations. The Company's ratio of current assets to current liabilities was 4.04 to 1 as of September 30, 1996 and 6.46 to 1 as of June 30, 1996. 5 Results of Operations - Quarter Ended September 30, 1996 Compared to 1995 ------------------------------------------------------------------------- Revenues -------- The Company's revenues increased 18% or $255,000 to $1,664,000 in the current quarter from $1,409,000 in the same period of the prior fiscal year. The increase is a combined $113,000 increase in adjusting and risk management fees and a $141,000 increase in continuing licensee and franchisee fees. The increase of $113,000 in adjusting and risk management fees from $162,000 in the quarter ended September 30, 1995 to $275,000 in the quarter ended September 30, 1996 represents a 70% increase. A substantial portion of this increase is related to a major storm that occurred in mid August 1996 in the Phoenix, Arizona metropolitan area where the Company's main offices are located. Claims resulting from this storm provided the Company with $80,000 in adjusting services revenues in the current quarter and will provide additional revenues in the following quarter as not all the claims received had been concluded and billed during the current quarter. Additionally, the Company had a $22,000 increase in fees in its Tucson office as this office was acquired from a licensee in the first quarter of the prior fiscal year. The balance of the increase represents an increase in the demand for the services provided by Company owned offices. The Company's revenues from continuing licensee and franchisee fees increased 11% or $141,000 from $1,247,000 in the quarter ended September 30, 1995 to $1,388,000 in the quarter ended September 30, 1996. This increase reflects the fact that the Company's licensees and franchisees are benefiting from an increase in claims as insurance companies and self-insureds use their services due to an increase in volume of claims. Also, to a greater degree, this increase reflects the effect of new licensees and franchisees and rate increases. The Company's revenues are affected by numerous matters including the work loads of other companies and claims presented by their clients. The Company, therefore, is unable to project its future revenues. The Company has, however, seen growth in licensee and franchisee fees paid and management believes that the Company will continue to realize growth in continuing licensing and franchising fees in the future as it adds qualified licensees and franchisees. Additionally, the Company will continue to reflect revenues from the recently purchased Tucson operation. Compensation and Fringe Benefits -------------------------------- Compensation and fringe benefits represent approximately 57% of the Company's costs and expenses and represent the largest single item of expense. These expenses increased 39% or $183,000 from $468,000 in the three months ended September 30, 1995 to $651,000 in the current quarter. This increase is the result of the addition of an Executive Vice President to the Company's management team, additional employees hired including temporary employees to handle increased work loads in the Corporate office, increased bonus related to the Company's rising income and cost of living and merit increases given to employees. Expenses Other Than Compensation and Fringe Benefits ---------------------------------------------------- The Company's expenses other than compensation and fringe benefits decreased $11,000 during the three months ended September 30, 1996 as compared to the same quarter of the prior fiscal year. The principal items affecting these expenses are a $37,000 decrease in legal expenses and a $12,000 increase in depreciation expense due to capital expenditures in the prior fiscal year. The balance of the Company's costs and expenses have not significantly changed from the same period of the prior year. Income Taxes ------------ 6 The Company's income taxes were 39% of its income before taxes, or approximately the same as they were in the prior fiscal year. Changes made in the tax laws by various states and by the federal government have not had a material affect on the Company's current overall tax rates, however, this could change at any time. Other Income ------------ The Company's other income increased $9,000 or 25% from $35,000 in the quarter ended September 30, 1995 to $44,000 in the current quarter. The most significant items affecting other income a $4,000 increase in the sales of computer software to the Company's licensees and franchisees and a $5,000 increase in interest income. Net Income ---------- The Company's net income for the quarter ended September 30, 1996, increased $56,000 or 20% from $286,000 in the quarter ended September 30, 1995 to $342,000 in the current quarter. The most significant items affecting net income were the $255,000 increase in revenues, the $183,000 increase in compensation and fringe benefits and the $11,000 decrease in other expenses. Results of Operations - Quarter Ended September 30, 1995 Compared to 1994 ------------------------------------------------------------------------- Revenues -------- The Company's revenues increased 11% or $138,000 to $1,409,000 in the quarter ended September 30, 1995 from $1,271,000 in the same period of the prior fiscal year. The increase was a combined $48,000 increase in adjusting and risk management fees and a $90,000 increase in continuing licensee and franchisee fees. The increase of $48,000 in adjusting and other fees of Company owned offices from $114,000 in the quarter ended September 30, 1994 to $162,000 in the quarter ended September 30, 1995 represented a 42% increase. The increase reflects an increase in the demand for the Company's services as well as $29,000 in revenues as a result of the acquisition on August 1, 1995 of the operations of the Company's former Tucson licensee. The Company's revenues from continuing licensee and franchisee fees increased 10% or $129,000 from $1,271,000 in the quarter ended September 30, 1994 to $1,400,000 in the quarter ended September 30, 1995. This increase reflects the fact that the Company's licensees and franchisees benefited from an increase in claims as insurance companies and self-insureds used their services due to an increase in volume of claims. Also, to a greater degree, this increase reflects the effect of new licensees and franchisees and rate increases. The Company's revenues are affected by numerous matters including the work loads of other companies and claims presented by their clients. The Company, therefore, is unable to project its future revenues. The Company has, however, seen growth in licensee and franchisee fees paid and management believes that the Company will continue to realize growth in continuing licensing and franchising fees in the future as it adds qualified licensees and franchisees. Compensation and Fringe Benefits -------------------------------- Compensation and fringe benefits represented approximately 48% of the Company's costs and expenses and represent the largest single item of expense. These expenses increased 17% or $69,000 from $399,000 in the three months ended September 30, 1994 to $468,000 in the quarter ended September 30, 1995. The increase was the result of the Company hiring additional employees to staff the recently acquired Tucson location and to handle the increased work load in the corporate office and for cost of living and merit raises given to employees. Expenses Other Than Compensation and Fringe Benefits ---------------------------------------------------- 7 The Company's expenses other than compensation and fringe benefits increased $32,000 during the three months ended September 30, 1995 as compared to the same quarter of the prior fiscal year. The principal items affecting these expenses were a $65,000 decrease in legal expenses primarily related to the Company's litigation in California with a former licensee, a $24,000 increase in advertising and promotion expenses, and a $28,000 increase in office expenses primarily related to integration of the Tucson office. Expenses Other Than Compensation and Fringe Benefits (continued) ---------------------------------------------------------------- The balance of the Company's costs and expenses did not significantly changed from the same period of the prior fiscal year. Income Taxes ------------ The Company's income taxes were 39% of its income before taxes, or approximately the same as they were in the prior fiscal year. Changes made in the tax laws by various states and by federal government did not have a material affect on the Company's overall tax rates. Other Income ------------ The Company's other income decreased $5,000 or 13% from $40,000 in the quarter ended September 30, 1994 to $35,000 in the quarter ended September 30, 1995. The most significant decrease in other income was the decline in the sales of computer software to the Company's licensees. Net Income ---------- The Company's net income for the quarter ended September 30, 1995, increased $18,000 or 7% from $268,000 in the quarter ended September 30, 1994 to $286,000 in the quarter ended September 30, 1995. The most significant items affecting net income were the $138,000 increase in revenues, the $69,000 increase in compensation and fringe benefits and the $32,000 increase in other expenses. PART II: OTHER INFORMATION Item 1 - Legal Proceedings A Declaratory Judgment was filed in May 1994 against the Company in the Superior Court of Los Angeles, California, regarding the interpretation of certain sections of the Company's license agreement with the plaintiff, a licensee. In June 1994 the Company removed the case to U.S. District Court and raised certain counter claims for violation of the Company's license agreement. The Company terminated the licensee's agreement effective January 1, 1995. Subsequent to the termination, the plaintiff amended his complaint to include wrongful termination of his license agreement. On May 1, 1995, the U.S. District Court granted the Company's motion for Summary Judgement regarding all outstanding claims by the plaintiff. On June 19, 1995, the Court granted the Company's Summary Judgement motion regarding its claims against the former licensee including $204,144 in unpaid licensee fees and for court costs which amounted to approximately $24,000. In July 1995, the plaintiff appealed this judgment and that appeal is currently pending before the U.S. Court of Appeals for the Ninth Circuit. In August 1995, Mark Brockband and Alan Bird individually and on behalf of certain Underwriters at Lloyd's, London, a client of a former franchisee of the Company, filed a complaint against multiple defendants including the Company in the District Court of Dallas County, Texas. The complaint arises from the alleged embezzlement of over $700,000 by the former franchisee. The complaint alleges claims against the Company including breach of contract, breach of fiduciary duty, negligence, negligent supervision, negligent misrepresentation and negligent licensing. The complaint seeks unspecified damages from the Company. The Company's insurance carrier is defending the suit. The Company is vigorously contesting the plaintiff's allegations as to the Company and believes that its defenses are meritorious. The Company does not believe that the results of this litigation will have a material adverse effect on the Company's results of operations. From time to time in the normal course of its business, the Company is named as a defendant in lawsuits. 8 The Company does not believe that it is subject to any such lawsuits or litigation or threatened lawsuits or litigation that will have a material adverse effect on the Company or its business. Item 3 - Submission of Matters to a Vote of Security Holders On October 11, 1996, the Company held its annual shareholders meeting. The Company's Board of Directors were reelected with 4,327,851 shares being cast and 200 shares abstaining. The Directors elected and the numbers of votes each received are as follows: Patric R. Greer 4,290,104 George M. Hill 4,292,835 Francis J. LaPallo 4,294,346 Louis T. Mastos 4,292,585 James S. Rocke 4,294,596 William J. Rocke 4,306,911 Jean E. Ryberg 4,307,671 Merlin J. Schumann 4,294,596 William W. Strawther, Jr. 4,607,835 Scott R. Younker 4,294,896 The Company's shareholders approved the adoption of the Frontier Adjusters of America, Inc. 1996 Stock Option Plan with 3,196,454 affirmative votes, 142,197 against and 3,350 abstaining. The Company's shareholders ratified the appointment of McGladrey & Pullen, LLP, Certified Public Accountants, as the auditors of the Company for the Company's fiscal year ending June 30, 1997, with 4,301,901 affirmative votes, 400 against and 25,550 abstaining. Response to items one through five not listed above are omitted since these items are either inapplicable or the response thereto would be negative. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FRONTIER ADJUSTERS OF AMERICA, INC. Date: October 24, 1996 /s/ William J. Rocke ----------------------- ----------------------- William J. Rocke, Chief Executive Officer/Chairman of the Board, Director, Principal Financial Officer Date: October 24, 1996 /s/ Jean E. Ryberg ----------------------- ---------------------- Jean E. Ryberg, President, Director
EX-27 2 FDS --
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996 (Unaudited) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 1,110,529 1,248,130 1,795,853 290,930 0 4,303,099 2,251,868 650,395 7,487,860 1,066,101 53,532 0 0 47,820 6,320,407 7,487,860 0 1,663,529 0 0 1,098,078 45,000 1,462 563,995 221,732 342,263 0 0 0 342,263 .07 .07
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