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 March 31, 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 April 22, 1996 4,609,658
----------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
(unaudited) (*)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 809,266 $ 358,960
Investments 1,244,252 1,255,627
Receivables 1,375,512 1,632,406
Prepaid expenses 201,866 258,165
Other 131,534 115,334
---------- ----------
TOTAL CURRENT ASSETS 3,762,430 3,620,492
---------- ----------
PROPERTY AND EQUIPMENT 2,360,643 2,269,110
Less accumulated depreciation and amortization 852,870 784,565
---------- ----------
1,507,773 1,484,545
---------- ----------
OTHER ASSETS
Cost of subsidiary in excess of net tangible assets acquired 213,817 213,817
Less accumulated amortization 173,930 172,196
---------- ----------
39,887 41,621
Receivables (Long term) 333,000 302,000
Investments (Long term) 764,570 764,090
Other 404,827 384,302
---------- ----------
1,542,284 1,492,013
---------- ----------
TOTAL ASSETS $6,812,487 $6,597,050
========== ==========
LIABILITIES
-----------
CURRENT LIABILITIES
Accounts payable $ 89,321 $ 12,669
Accrued expenses 327,846 362,693
Franchisee/licensee remittance payable 155,335 221,620
Current portion long term liability 24,230 22,951
Other 88,388 53,811
---------- ----------
TOTAL CURRENT LIABILITIES 685,120 673,744
---------- ----------
LONG TERM LIABILITY 66,319 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)
Other (18,610) 14,642
Retained earnings 4,394,054 4,042,588
---------- ----------
6,061,048 5,838,651
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $6,812,487 $6,597,050
========== ==========
*Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed statements.
</TABLE>
2
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------ ------------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
REVENUES
Continuing licensee and
franchisee fees $3,695,428 $3,426,854 $1,253,200 $1,112,164
Adjusting fees 462,202 334,222 143,434 120,771
----------- ----------- ----------- -----------
4,157,630 3,761,076 1,396,634 1,232,935
----------- ----------- ----------- -----------
COST AND EXPENSES
Compensation and fringe benefits 1,457,540 1,212,075 508,900 412,116
Office 286,646 218,931 81,816 74,622
Advertising and promotion 320,333 254,129 134,397 159,805
Depreciation and amortization 136,297 94,904 47,740 34,819
Provision for doubtful accounts 115,000 110,000 45,000 30,000
Other 588,100 856,244 157,786 322,903
----------- ----------- ----------- -----------
2,903,916 2,746,283 975,639 1,034,265
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 1,253,714 1,014,793 420,995 198,670
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 105,272 99,812 35,149 36,771
Other (Net) 20,570 51,005 4,272 7,450
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 125,842 150,817 39,421 44,221
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,379,556 1,165,610 460,416 242,891
INCOME TAXES 542,982 458,425 181,475 96,183
----------- ----------- ----------- ----------
NET INCOME $ 836,574 $ 707,185 $ 278,941 $ 146,708
=========== =========== =========== ==========
Weighted Average Shares
outstanding 4,619,120 4,669,913 4,609,658 4,640,898
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE $ .18 $ .15 $ .06 $ .03
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed statements.
</TABLE>
3
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
NET INCOME $ 836,574 $ 707,185
---------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 136,297 94,904
(Gain) on disposition of property and equipment (1,667) (19,416)
Allowance for doubtful accounts 115,000 110,000
Change in assets and liabilities:
(Increase) decrease in:
Receivables 333,495 (13,591)
Prepaid expenses 56,299 20,223
Other (58,833) (36,974)
Increase (decrease) in:
Accounts payable 59,425 14,005
Accrued expenses (34,847) 172,273
Franchisee and licensee remittance payable (66,285) (588,962)
Other 34,577 (16,238)
----------- ----------
Total adjustments 573,461 (263,776)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,410,035 443,409
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (74,306) (113,126)
Investments purchased (1,982,602) (2,007,931)
Proceeds from sales of investments 2,000,000 2,000,000
License acquisition (64,000) (92,000)
Payments on License acquisition (17,057) (12,823)
Advances to licensees and franchisees (2,951,987) (2,473,766)
Collections of advances to licensees and franchisees 2,711,148 2,424,469
---------- ----------
NET CASH PROVIDED (USED IN) BY INVESTING ACTIVITIES (378,804) (275,177)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (485,108) (397,227)
Common stock repurchased (95,817) (136,377)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (580,925) (533,604)
---------- ----------
NET INCREASE (DECREASE) IN CASH 450,306 (365,372)
Cash at beginning of the period 358,960 804,780
---------- ----------
Cash at the end of the period $ 809,266 $ 439,408
========= =========
Supplemental disclosures of Cash Flow information
Cash paid during the period
Income taxes $ 577,767 $ 501,807
Interest $ 5,457 $ 4,707
The accompanying notes are an integral part of these condensed statements.
</TABLE>
4
<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 nine month period ended March 31, 1996 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 loan to licensee
(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 nine months ended March 31,
1996, the Company's operations generated $1,410,000 in cash.
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. This
completed the repurchase plan with total purchase of 122,352 shares. The
repurchases were instituted by the Board of Directors as they believed that
the price level of the Company's common stock resulted in 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.
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 has invested
$92,000 in computers and software in fiscal 1996 and anticipates investing
an additional $15,000 to $25,000 in fiscal 1996 for new office equipment
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 5.49 to 1
as of March 31, 1996 and 5.37 to 1 as of June 30, 1995.
5
<PAGE>
Results of Operations - Nine Months Ended March 31, 1996 Compared to Nine Months
- --------------------------------------------------------------------------------
Ended March 31, 1995
- --------------------
Revenues
- --------
The Company's revenues increased 10.5% or $397,000 to $4,158,000 in the current
period compared with $3,761,000 in the same period of the prior fiscal year. The
increase is composed of a $128,000 increase in adjusting and other fees and a
$269,000 increase in continuing licensee and franchisee fees.
The increase of $128,000 in adjusting and other fees reflects an 38% increase to
$462,000 in the current period compared to $334,000 in the comparable period of
the prior year. The increase reflects an increase in the demand for claims
services by the Company's clients as well as $90,000 in revenues as a result of
the acquisition of the operations of the Company's former Tucson licensee on
August 1, 1995.
The Company's revenues from continuing licensee and franchisee fees increased 8%
or $269,000 from $3,427,000 to $3,695,000 in the same period of the prior fiscal
year. A significant factor affecting the Company's revenue from continuing
licensee and franchisee fees is the termination of one of the Company's
licensees in California in January 1995. During the nine months ended March 31,
1995 this licensee contributed $112,000 to the revenues of the Company.
In addition, the Company granted nine new licenses during the quarter ended
December 31,1995 within the territory of its prior licensee and received $19,000
in continuing licensee and franchisee fees from the new licensees. The Company
anticipates growth in these revenues. The increase also 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 and, to a greater degree, the indicated increase reflects 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 Employee Benefits
- ----------------------------------
Compensation and employee benefits represent approximately 50% of the Company's
costs and expenses and are its largest expense item. These expenses increased
20% or $245,000 to $1,458,000 in the current fiscal period from $1,212,000 in
the prior fiscal period. This increase is the result of the Company hiring
additional employees to staff the recently acquired Tucson location ($68,000)
and to handle increased work load in the corporate office ($45,000) and for cost
of living and merit raises for employees and incentive bonuses ($132,000).
Expenses Other Than Compensation and Employee Benefits
- ------------------------------------------------------
The Company's expenses other than compensation and employee benefits decreased
$88,000 during the nine months ended March 31, 1996 as compared to the same
period in 1995. The principal items affecting these expenses are a $334,000
decrease in legal expenses primarily related to the Company's litigation in
California, a $66,000 increase in advertising and promotion, and a $68,000
increase in office expenses primarily related to the Tucson office.
The most significant item in the $66,000 increase in advertising and promotion
was $60,000 relative to listings in a publication directed at the claims
industry. This expense was historically paid in the fourth quarter of the
Company's fiscal year. However, due to changes in the publisher's printing and
billing cycles this expense was incurred in the second quarter of the current
fiscal year rather than in the fourth quarter of the fiscal year ended June 30,
1995.
6
<PAGE>
Results of Operations - Nine Months Ended March 31, 1996 Compared to Nine Months
- --------------------------------------------------------------------------------
Ended March 31, 1995 (continued)
- --------------------------------
Expenses Other Than Compensation and Employee Benefits (continued)
- ------------------------------------------------------------------
The balance of the Company's costs and expenses other than compensation and
employee benefits have not significantly changed during the current period as
compared to the same period of the prior fiscal year.
Other Income
- ------------
The Company's other income decreased $25,000 from $151,000 for the nine months
ended March 31, 1995 to $126,000 for the nine months ended March 31, 1996. The
most significant decreases in other income were a $6,000 decrease in the sales
of computer software to the Company's licensee and a $18,000 decrease in the
gain on the disposition of fixed assets from the prior year.
Income Taxes
- ------------
The Company's income taxes was 39% of its income before taxes, which is
approximately the same as in the prior fiscal year. Changes made in the tax laws
by various states and by the federal government have not affected the Company's
overall tax rates, however, this could change at any time.
Net Income
- ----------
The Company's net income for the nine months ended March 31, 1996, increased
from $707,000 in the prior comparable period to $837,000 in the current period
an increase of $129,000 or 18%. The most significant items which affected net
income are a $396,000 increase in revenues and $334,000 decrease in legal fees
related to the litigation in California.
Results of Operations - Three Months Ended March 31, 1996 Compared to Three
- --------------------------------------------------------------------------------
Months Ended March 31, 1995
- ---------------------------
Revenues
- --------
During the three months ended March 31, 1996, the Company's revenues increased
to $1,397,000 from $1,232,000, in the same period of 1995, representing an
increase of $164,000 or 13%.
The increase of $23,000 in adjusting and other fees of the Company owned offices
from $121,000 to $143,000 in the comparable period of the prior year represents
a 19% increase. The increase reflects an increase of $27,000 in revenues as a
result of the acquisition of the operations of the Company's former Tucson
license on August 1, 1995 as well as a reduction in claims being handled by the
Company's Phoenix operations.
The Company's revenues from continuing licensee and franchisee fees increased
13% or $141,000 from $1,112,000 in the three months ended March 31, 1995 to
$1,253,000 in the three months ended March 31, 1996. A significant factor
affecting the Company's revenue from continuing licensee and franchisee fees is
the termination of one of the Company's licensees in California in January 1995.
During the three months ended March 31, 1995 this licensee contributed $14,000
to the revenues of the Company which reflects post termination billing of
licensed activity.
In addition, the Company granted nine new licenses during the quarter ended
December 31, 1995 within the territory of its prior licensee and in the current
quarter ended March 31, 1996, received $15,000 in continuing licensee and
franchisee fees from the new licensees. The Company anticipates growth in these
revenues. The increase also 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 the Company's 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.
7
<PAGE>
Results of Operations - Three Months Ended March 31, 1996 Compared to Three
- --------------------------------------------------------------------------------
Months Ended March 31, 1995 (continued)
- ---------------------------------------
Compensation and Employee Benefits
- ----------------------------------
Compensation and employee benefits represent approximately 50% of the Company's
costs and expenses and are its largest expense item. These expenses increased
23% or $97,000 in the quarter ended March 31, 1996 from $412,000 in the three
months ended March 31, 1995 to $509,000. The increase is principally the result
of additional employees to staff the recently acquired Tucson location and to
handle increased work load in the corporate office.
Expenses Other Than Compensation and Employee Benefits
- ------------------------------------------------------
The Company's expenses other than compensation and employee benefits decreased
$155,000 in the current fiscal quarter as compared to the same quarter in 1995.
The principal items affecting these expenses are an $181,000 decrease in legal
expense primarily related to the Company's litigation in California, and a
$7,000 increase in office expense primarily related to integration of the Tucson
office.
The balance of the Company's costs and expenses other than compensation and
employee benefits have not significantly changed during the current period as
compared to the same period of the prior fiscal year.
Other Income
- ------------
The Company's other income was substantially unchanged from $39,000 in the
current quarter as compared to $44,000 in the same quarter of the prior year.
Income Taxes
- ------------
Income taxes was 39% of the Company's income before taxes for the quarter ended
March 31, 1995 which is substantially the same as it was in the prior year. The
Company was not affected by any significant changes in the federal or state
income tax laws increasing the rates.
Net Income
- ----------
The Company's net income increased from $147,000 to $279,000, a increase of
$132,000 or 90% during the three months ended March 31, 1996 as compared to the
same period in 1995, primarily due to the increase in licensee and franchisee
fees of $141,000, and the $181,000 decrease in legal fees.
8
<PAGE>
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 Judgment regarding all outstanding claims by the
plaintiff. On June 19, 1995, the Court granted the Company's Summary Judgment
motion regarding its claims against the former licensee including $204,144 in
unpaid licensee fees and approximately $24,000 for court costs. In July 1995,
the plaintiff appealed this judgment. 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 effect on the Company
or its business.
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: 4/24/96 /s/ William J. Rocke
-------------- ---------------------------------------------------
William J. Rocke, Chief Executive Officer/Chairman
of the Board, Director, Principal Financial Officer
Date: 4/24/96 /s/ Jean E. Ryberg
--------------- ---------------------------------------------------
Jean E. Ryberg, President, Director
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE
SHEET AT MARCH 31, 1996 (Unaudited) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE
NINE MONTHS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 809,266
<SECURITIES> 1,244,252
<RECEIVABLES> 1,623,338
<ALLOWANCES> 247,826
<INVENTORY> 0
<CURRENT-ASSETS> 3,762,430
<PP&E> 2,360,643
<DEPRECIATION> 852,870
<TOTAL-ASSETS> 6,812,487
<CURRENT-LIABILITIES> 685,120
<BONDS> 66,319
0
0
<COMMON> 47,820
<OTHER-SE> 6,013,228
<TOTAL-LIABILITY-AND-EQUITY> 6,812,487
<SALES> 0
<TOTAL-REVENUES> 4,157,630
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,788,916
<LOSS-PROVISION> 115,000
<INTEREST-EXPENSE> 5,354
<INCOME-PRETAX> 1,379,556
<INCOME-TAX> 542,982
<INCOME-CONTINUING> 836,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 836,574
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
