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, 1995
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
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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 26, 1995 4,609,658
---------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1995 June 30, 1995
------------------ -------------
(unaudited) (*)
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $ 491,509 $ 358,960
Investments 1,268,557 1,255,627
Receivables 1,307,084 1,632,406
Prepaid expenses 224,630 258,165
Other 152,634 115,334
----------- -----------
TOTAL CURRENT ASSETS 3,444,414 3,620,492
----------- -----------
PROPERTY AND EQUIPMENT 2,292,694 2,269,110
Less accumulated depreciation
and amortization 805,869 784,565
----------- -----------
1,486,825 1,484,545
----------- -----------
OTHER ASSETS
Cost of subsidiary in excess
of net tangible assets acquired 213,817 213,817
Less accumulated amortization 172,774 172,196
----------- -----------
41,043 41,621
Receivables (Long term) 308,000 302,000
Investments (Long term) 764,251 764,090
Other 452,087 384,302
----------- -----------
1,565,381 1,492,013
----------- -----------
TOTAL ASSETS $ 6,496,620 $ 6,597,050
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 25,271 $ 12,669
Accrued expenses 304,709 362,693
Franchisee/licensee
remittance payable 112,696 221,620
Current Portion Long Term Liability 23,370 22,951
Other 87,320 53,811
------------ ------------
TOTAL CURRENT LIABILITIES 553,366 673,744
------------ ------------
LONG TERM LIABILITY 78,653 84,655
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 47,820 47,820
Additional paid in capital 2,148,470 2,148,470
Treasury stock (510,686) (414,869)
Cumulative translation adjustments 12,803 14,642
Retained earnings 4,166,194 4,042,588
------------ ------------
5,864,601 5,838,651
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 6,496,620 $ 6,597,050
============ ============
Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed statements.
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended September 30, 1995 and 1994
1995 1994
---- ----
REVENUES
Continuing licensee and franchisee fees $1,246,895 $1,156,811
Adjusting and other fees 161,771 113,974
---------- ----------
1,408,666 1,270,785
---------- ----------
COST AND EXPENSES
Compensation and fringe benefits 468,369 398,980
Office 109,945 81,628
Advertising and promotion 73,817 49,861
Depreciation and amortization 43,491 28,158
Provision for doubtful accounts 35,000 35,000
Other 240,894 276,994
---------- ----------
971,516 870,621
---------- ----------
INCOME FROM OPERATIONS 437,150 400,164
---------- ----------
OTHER INCOME (EXPENSE)
Interest income 31,513 28,040
Other (Net) 3,126 12,279
---------- ----------
TOTAL OTHER INCOME (EXPENSE) 34,639 40,319
---------- ----------
INCOME BEFORE INCOME TAXES 471,789 440,483
INCOME TAXES 185,751 172,953
---------- ----------
NET INCOME $ 286,038 $ 267,530
========== ==========
Weighted Average Shares outstanding 4,637,943 4,690,898
========== ==========
NET INCOME PER COMMON SHARE $ .06 $ .06
========== ==========
The accompanying notes are an integral part of these condensed statements.
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three Months Ended September 30, 1995 and 1994
1995 1994
---- ----
NET INCOME $ 286,038 $ 267,530
---------- ----------
Adjustments to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization 43,491 28,158
Allowance for doubtful accounts 36,222 35,052
Change in assets and liabilities:
(Increase) decrease in:
Receivables 284,664 38,807
Prepaid expenses 33,535 25,624
Other (52,229) (874)
Increase (decrease) in:
Accounts payable 12,602 (22,478)
Accrued expenses (57,984) 114,746
Franchisee and licensee remittance
payable (108,924) (617,822)
Other 33,509 156
---------- ----------
Total adjustments 224,886 (398,631)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 510,924 (131,101)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
License Acquisition (61,000) (25,000)
Capital expenditures (23,584) (9,074)
Proceeds from sales of investments -- 1,000,000
Payments on License acquisition (5,583) (2,149)
Advances to licensees and franchisees (908,318) (829,578)
Collections of advances to licensees
and franchisees 878,359 848,926
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (120,126) 983,125
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (162,432) (129,000)
Common stock repurchased (95,817) --
---------- ----------
NET CASH PROVIDED BY(USED IN)
FINANCING ACTIVITIES (258,249) (129,000)
---------- ----------
NET INCREASE (DECREASE) IN CASH 132,549 723,024
Cash at beginning of the period 358,960 804,780
---------- ----------
Cash at the end of the period $ 491,509 $1,527,804
========== ===========
Supplemental disclosures of Cash Flow
information
Cash paid during the period
Income taxes $ 68,257 $ 24,161
Interest $ 1,917 $ 351
The accompanying notes are an integral part of these condensed statements.
<PAGE>
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,
1995 are not necessarily indicative of the results to be expected for the
full year.
(2) Supplemental Cash Flow Information
----------------------------------
On August 1, 1995, the Company reacquired its Tucson, Arizona licensee. The
purchase price was $139,807 gross or $116,081 net of the imputed interest. The
purchase price was paid as follows:
Purchase price $116,081
Outstanding purchase loan
(Net of imputed interest of $22,926) (57,626)
Outstanding advance to licensee (22,455)
--------
Net cash $ 36,000
========
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, 1995, the
Company's operations generated $511,000 in cash.
Compared to the last fiscal year, the most significant item affecting cash used
by the Company's operations is the $109,000 reduction 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., loans, 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 amount that is due to licensees and franchisees. The
Company's financial statements as of September 30, 1995 and June 30, 1995,
reflect collections for one day of $113,000 and $222,000 respectively.
In July 1993 the Company's Board of Directors authorized the purchase of shares
of the Company's common stock. In September 1995 the Company acquired 31,240
shares of the Company's common stock at a cost of $ 95,817. The purchases
completed the repurchase plan resulting in total purchases of 122,352 shares.
The repurchases were instituted 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 July 1995, approved an increase in the
Company's annual dividend rate from 12 cents per share to 14 cents per share
effective with the 3.5 cents per share cash dividend paid on September 8, 1995.
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 to maintain or increase the
productivity of the Company and its employees. The Company anticipates investing
$100,000 to $200,000 in fiscal 1996 pursuant to its capital investment program.
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 6.23 to 1 as of
September 30, 1995 and 5.37 to 1 as of June 30, 1995.
Results of Operations - Quarter Ended September 30, 1995 to 1994
- ----------------------------------------------------------------
Revenues
- --------
The Company's revenues increased 11% or $138,000 to $1,409,000 in the current
quarter from $1,271,000 in the same period of the prior fiscal year. The
increase is a combined $48,000 increase in adjusting and other 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 representing 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
11% or $138,000 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 are benefiting from an
increase in claims as insurance companies and self-insureds use them due to an
increase in volume of claims. Also, to a greater degree, the effect of new
licensees and franchisees and rate increases as a result of inflation.
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 revenue from the recently
purchased Tucson operation.
Compensation and Fringe Benefits
- --------------------------------
Compensation and fringe benefits represent 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 current quarter. This increase is 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
- ----------------------------------------------------
The Company's expenses other than compensation and fringe benefits increased
$32,000 during the three months ended September 30, 1994 as compared to the same
quarter of the prior fiscal year. The principal items affecting these expenses
are a $65,000 decrease in legal expenses primarily related to the Company's
litigation in California, a $24,000 increase in advertising and promotion, and a
$28,000 increase in office expenses primarily related to integration of the
Tucson office.
The balance of the Company's costs and expenses have not significantly changed
from the same period of the prior 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 the federal government have not had a material affect on
the Company's overall tax rates, however, this could change at any time.
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 current quarter. 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 current quarter. 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.
Results of Operations - Quarter Ended September 30, 1994 Compared to 1993
- -------------------------------------------------------------------------
Revenues
- --------
The Company's revenues increased 10% or $115,000 to $1,271,000 in the quarter
ended September 30, 1994 from $1,156,000 in the same period of the prior fiscal
year. The increase is a combined $17,000 increase in adjusting and other fees
and a $98,000 increase in continuing licensee and franchisee fees.
The increase of $17,000 in adjusting and other fees of the Company owned offices
from $96,000 to $114,000 in the comparable period of the prior year represents a
19% increase. The increase reflects an increase in the demand for claims
services by the Company's clients.
The Company's revenues from continuing licensee and franchisee fees increased 9%
or $98,000 from $1,059,000 in the three months ended September 30, 1993 to
$1,157,000 in the three months ended September 30, 1994. This increase reflects
the facts that the Company's licensees and franchisees are benefiting from an
increase in claim services as insurance companies and self-insureds use Frontier
Adjusters' licensees and franchisees for increased volumes of claims, as well as
the increase in the number of licensees and franchisees that were established in
the preceding fiscal year.
The Company's revenues are affected by the number of new licensees and
franchisees, inflation, and client companies' staff work loads as more
corporations become self-insured and are outsourcing to meet their needs for
claims management services. The client companies' staff work loads are affected
by, among other things, natural disasters which can create intense short term
demands for claims services
Compensation and Fringe Benefits
- --------------------------------
Compensation and employee benefits represent approximately 46% of the Company's
costs and expenses and are its largest expense item. These expenses increased 6%
or $24,000 in the quarter ended September 30, 1994 from $375,000 in the prior
fiscal year to $399,000. The increase is principally the result of increased
adjusters' compensation which is a function of the increase in revenues of
Company owned adjusting operations.
Expenses Other Than Compensation and Fringe Benefits
- ----------------------------------------------------
The Company's expenses other than compensation and employee benefits increased
$134,000 in quarter ended September 30, 1994. The two principal items other than
compensation and employee benefits are a reduction in expenses because of the
elimination of the subsidy of the London, England franchisee effective July 1,
1994 and an increase in legal expense of $154,000 due primarily to the lawsuit
in California described below. The elimination of the subsidy of the London
franchisee resulted in a $57,000 reduction in costs and expenses.
The balance of the Company's costs and expenses other than compensation and
employee benefits have 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 the prior fiscal year.
Other Income
- ------------
The Company's other income increased $10,000 from $31,000 to $41,000 for the
quarter ended September 30, 1994. Of this increase $6,000 was due to earnings
from additional funds that the Company invested as well as an increase in the
overall interest rates.
Net Income
- ----------
The Company's net income for the quarter ended September 30, 1994, decreased
from $278,000 in the quarter ended September 30, 1993 to $268,000 a decrease of
$10,000 or 4%. The most significant items which affected net income are the
$134,000 increase in revenues and the $154,000 increase in legal fees related to
a dispute over the terms of a license agreement and related to trademark
infringement issues.
PART II: OTHER INFORMATION
Item 1 - Legal Proceedings
A Declaratory Action 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 counterclaims 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. 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 approximately $24,000 for court costs. The Company from
time to time in its normal course of business is named as a defendant in
lawsuits. The Company does not believe that it is subject to any lawsuits or
litigation or threatened lawsuits or litigation that will have a material
adverse affect on the Company or its business.
Item 4 - Submission of Matters to a Vote of Security Holders
On October 13, 1995, the Company held its annual shareholders meeting.
The Company's Board of Directors were reelected with 4,239,567 shares being cast
and 800 shares abstaining and 3,000 shares being cast against all the Directors.
The Directors elected and the numbers of votes each received are as follows:
William J. Rocke 4,240,267
Louis T. Mastos 4,236,410
Jean E. Ryberg 4,240,910
George M. Hill 4,230,141
Scott R. Younker 4,236,410
William W. Strawther, Jr. 4,236,410
Merlin J. Schumann 4,228,535
James S. Rocke 4,236,410
Patric R. Greer 4,236,410
The Company's shareholders ratified the appointment of McGladrey & Pullen,
Certified Public Accountants, as the auditors of the Company for the Company's
fiscal year ending June 30, 1996. A total of 4,239,567 affirmative votes were
cast; 4,455 against and 4,025 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 30, 1995 /s/ William J. Rocke
---------------- --------------------------------------------
William J. Rocke, Executive Officer Director,
/Chairman of the Board, Principal Financial Officer
Date: October 30, 1995 /s/ Jean E. Ryberg
---------------- --------------------------------------------
Jean E. Ryberg, President, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1995 (unaudited) AND
THE CONDENSED CONOSLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 491,509
<SECURITIES> 1,268,557
<RECEIVABLES> 1,307,084
<ALLOWANCES> 259,222
<INVENTORY> 0
<CURRENT-ASSETS> 3,444,414
<PP&E> 2,292,694
<DEPRECIATION> 805,869
<TOTAL-ASSETS> 6,496,620
<CURRENT-LIABILITIES> 553,366
<BONDS> 78,653
<COMMON> 47,820
0
0
<OTHER-SE> 5,816,781
<TOTAL-LIABILITY-AND-EQUITY> 6,496,620
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<TOTAL-REVENUES> 1,408,666
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<OTHER-EXPENSES> 936,516
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<INCOME-PRETAX> 471,789
<INCOME-TAX> 185,751
<INCOME-CONTINUING> 286,038
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<NET-INCOME> 286,038
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</TABLE>
