Item 2 - Properties - -------------------
The Company owns the office building and property located at 45 East Monterey Way, Phoenix, Arizona, where it conducts its licensing and franchising operations and its Phoenix claims adjusting and risk management-related services business. Adjacent to the main office, the Company also owns a small building and property at 51 East Monterey Way which contains two offices. One office is currently occupied by a tenant and the second office is being used for storage. The combined offices contain approximately 1,500 square feet of office space.
The Company also owns a parcel of real property across the street from the Company's principal executive office, which is utilized for employee parking.
Additionally, the Company leases approximately 800 square feet of office space in Tucson, Arizona for its claims adjusting services and 1,000 square feet in Las Vegas, Nevada for its office.
Item 3
Item 3 - Legal Proceedings - --------------------------
In August, 1995, Mark Brockbank 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 arose from the alleged embezzlement of over $700,000 by the former franchisee. The complaint alleged claims against the Company including breach of contract, breach of fiduciary duty, negligence, negligent supervision, negligent misrepresentation and negligent licensing.
In June 1997 the Company entered into an agreement to settle the litigation at a cost to the Company of $525,000 net of insurance proceeds with mutual releases by all parties.
From time to time in the normal course of its business, the Company is named as a defendant in lawsuits. 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. PART II -------
Item 4
Item 4 - Submission of Matter to a Vote of Security Holders - -----------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
Item 5
Item 5 - Market for the Registrant's Common Stock and Related - ------------------------------------------------------------- Security Holders Matters ------------------------
The Company's Common Stock is listed on the American Stock Exchange (AMEX) under the symbol "FAJ". The following table sets forth the range of high and low prices, and the trading volume, during each quarterly period within the Company's two most recent fiscal years.
Price Volume ------------------- -------- High Low ------- -------
Fiscal Year Ended June 30, 1996 First Quarter $3.125 $2.1875 452,800 Second Quarter $3.00 $2.4375 159,300 Third Quarter $2.9375 $2.75 110,800 Fourth Quarter $3.4375 $2.625 436,600
Fiscal Year Ended June 30, 1997 First Quarter $3.25 $2.5625 153,600 Second Quarter $3.875 $3.00 132,600 Third Quarter $3.625 $2.9375 93,700 Fourth Quarter $3.5625 $2.625 157,400
The following shows per share cash dividends declared for each quarter during the Company's two most recent fiscal years.
Cash Dividends Declared -----------------------
Fiscal Year Ended June 30, 1996 First Quarter............................. $.035 Second Quarter............................ $.035 Third Quarter............................. $.035 Fourth Quarter............................ $.035
Fiscal Year Ended June 30, 1997 First Quarter............................. $.0375 Second Quarter............................ $.0375 Third Quarter............................. $.0375 Fourth Quarter............................ $.0375
As of August 15, 1997, there were 255 shareholders of record (approximately 900 including beneficial owners) of the Company's Common Stock. Item 6
Item 6 - Selected Financial Data - --------------------------------
Item 7
Item 7 - Management's Discussion and Analysis of Financial - ---------------------------------------------------------- Condition and Results of Operations -----------------------------------
FINANCIAL CONDITION
The Company continues to finance its growth from funds generated by its current operations. The Company also used such funds it had generated to increase its cash dividends, acquire certain license rights and add new licensees/franchisees.
In fiscal 1997 the Company's continuing operations generated $1,854,198 in cash which was sufficient for the Company's cash requirements. This cash was used to pay cash dividends of $691,351, acquire 14,300 shares of treasury stock at a cost of $44,365, purchase equipment and property at a cost of $302,102 and to acquire operations from one licensee and certain rights from another for a total of $85,500
The Company has continued its policy to pay cash dividends to its shareholders with payments totaling 15 cents per share in the 1997 fiscal year. The Board of Directors has declared a 3.75 cent dividend payable on September 10, 1997 to shareholders of record on August 20, 1997. Additionally, in October 1996 the Company acquired a parcel of land and a building adjacent to its Corporate offices for storage and parking. The purchase price was $170,000 and was paid during the second quarter of the Company's current fiscal year. The Company presently has approximately one third of this building rented until it will be needed for corporate purposes.
The Company anticipates that during fiscal 1998 its operations will generate sufficient cash to fund its operations, dividend payments and equipment acquisitions. The Company projects that its capital expenditures for equipment will be approximately $200,000 to $300,000 in fiscal 1998.
The Company's policy is to maintain a solid financial position. This policy has resulted in the Company's ratio of current assets to current liabilities being 3.52 to 1 as of June 30, 1997 compared to 6.46 to 1 as of June 30, 1996.
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
REVENUES
The Company's revenues increased to $6,165,000 from $5,642,000 in fiscal 1996, resulting in a 9.3% increase as compared to the prior fiscal year. The increase consists of a $288,000 increase in adjusting and other revenues and a $235,000 increase in continuing licensee and franchisee fees.
The increase of $288,000 in adjusting and other fees reflects a 48.2% increase to $886,000 in the current fiscal year compared to $598,000 in the prior fiscal year. The increase reflects $57,000 in revenues from the Las Vegas/Henderson, Nevada office which was acquired by the Company, April 1, 1997. Additionally, the Tucson adjusting office had an increase of $93,000 reflecting the fact that the Company operated the office for the full fiscal year, the office was acquired early in fiscal 1996. The Phoenix operations of the Company had an increase of $142,000 in revenues of which approximately $100,000 was the result of a major storm that occurred in mid August 1996. The balance of the increase represents an increase in the demand for the services of the Company's Phoenix office.
The Company's revenues from continuing licensee and franchisee fees increased 4.7% or $235,000 from $5,044,000 in the prior fiscal year to $5,279,000 in the current fiscal year. The increase reflects the benefit to the Company's licensees and franchisees from an increase in claims assignments from insurance companies and self insureds due to the increase in volume of claims. The increase also reflects new territories opened by 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 as well as claims presented by their clients. The Company has, however, seen growth in licensee and franchisee fees paid. The Company is committed to continue its work to improve existing and to add qualified licensees. The Company has seen increased competition with respect to nationwide purchasers of the Company's licensees and franchisees services and in the fourth quarter of the current fiscal year was advised by a significant client that it would cease purchasing adjusting services from the Company and its Adjusters. The effect of this change will be seen in the coming fiscal year with the transition period expected to be completed within approximately 60 to 90 days. RESULTS OF OPERATIONS 1997 COMPARED TO 1996 (Continued)
REVENUES (continued)
To meet the growing competition, the Company is in the process of developing and implementing a comprehensive marketing strategy to take advantage of its geographic diversity as well as the unique strengths of its individual licensees and franchisees. There is no assurance, however, that the Company will be successful in procuring nationwide accounts on terms as favorable as it has in the past or will be the successful bidder on new or existing accounts, which could materially adversely affect the Company's results of operations.
COMPENSATION AND EMPLOYEE BENEFITS
Compensation and employee benefits represent approximately 52% of the Company's costs and expenses and are the Company's largest expense item. These expenses increased 22% or $440,000 to $2,415,000 in the current fiscal year from $1,975,000 in the prior fiscal year. 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 and cost of living and merit increases given to employees. The cost of compensation and fringe benefits was reduced $35,000 as a result of the decline in the Company's income and a corresponding decline in related bonuses.
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
The Company's expenses other than compensation and fringe benefits increased $307,000 or 16% from fiscal 1996 to fiscal 1997. The most significant items related to this increase were a $525,000 settlement (see Item 3 - Legal Proceedings), a $109,000 decrease in advertising and promotion and a $50,000 increase in depreciation expense. The increase in depreciation reflects the fact that in the last quarter of the prior fiscal year and the current fiscal year the Company replaced computer equipment which had been fully depreciated as well acquired significant other capital assets. The $109,000 decrease in advertising and promotion expense reflects the Company's election to not place certain advertisements in the current year that had been placed in prior years, as part of its overall review of its marketing program.
The balance of the Company's costs and expenses have not changed significantly from the prior fiscal year.
OTHER INCOME
The Company's other income decreased $34,000 or 22% from fiscal 1996 to fiscal 1997. The most significant items related to this decrease were a $75,000 permanent decline in the value of an equity security, a $20,000 gain on the disposition of fixed assets and a $10,000 increase in interest income.
INCOME TAXES
Income taxes were 38.7% and 38.9% of the Company's income before taxes for fiscal year 1997 and 1996 respectively. The Company's income taxes have not been significantly affected by any changes in the federal or state tax laws. However, tax rates can be changed at any time based upon legislation.
NET INCOME
The Company's net income decreased $156,000 to $979,000 in current fiscal year from $1,135,000 in fiscal 1996, a decrease of 13.7%. The most significant items affecting net income were the $523,000 increase in revenues, the $525,000 settlement of litigation and the $440,000 increase in compensation and fringe benefits. RESULTS OF OPERATIONS 1996 COMPARED TO 1995
REVENUES
The Company's revenues increased to $5,642,000 from $5,241,000 in fiscal 1995, resulting in a 7.7% increase when compared to the prior fiscal year. The increase consists of a $141,000 increase in adjusting and risk management revenues and a $260,000 increase in continuing licensee and franchisee fees.
The increase of $141,000 in adjusting and risk management fees reflects a 31% increase to $598,000 in the 1996 fiscal year compared to $457,000 in the prior fiscal year. The increase reflects an increase of $120,000 in revenues as a result of the acquisition of the operations of the Company's former Tucson licensee on August 1, 1995 as well as an increase in the demand of claims services by the Company's clients.
The Company's revenues from continuing licensee and franchisee fees increased 5.4% or $260,000 from $4,784,000 in the 1995 fiscal year to $5,044,000 in the 1996 fiscal year. A significant factor affecting the Company's revenue from continuing licensee and franchisee fees was the termination of one of the Company's licensees in California in January 1995. During fiscal 1995 fees from this licensee contributed $112,000 to the revenues of the Company. The Company granted nine new licenses during fiscal 1996 within the territory of this prior licensee and received $28,000 in continuing licensee and franchisee fees from the new licensees. The increase also reflects the fact that the Company's licensees and franchisees benefited from an increase in claims assignments from insurance companies and self-insureds due to a general increase in volume of claims, and, to a greater degree, the 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, experienced 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 which the Company intends to operate as a Company owned location.
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 21% or $340,000 to $1,975,000 in the 1996 fiscal year from $1,635,000 in the prior fiscal year. This increase is the result of the Company hiring additional employees to staff the recently acquired Tucson location ($90,000) and to handle increased work load in the corporate office ($60,000) and for cost of living and merit raises for employees and incentive bonuses ($190,000).
EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
The Company's expenses other than compensation and employee benefits decreased $138,000 during the fiscal year 1996 as compared to fiscal year 1995. The principal items affecting these expenses were a $443,000 decrease in legal expenses primarily related to the Company's litigation in California, a $98,000 increase in advertising and promotion, and a $90,000 increase in office expenses primarily related to the Company's Tucson office.
The most significant item in the $98,000 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 1996 fiscal year rather than in the fourth quarter of the fiscal year ended June 30, 1995.
OTHER INCOME
The Company's other income decreased $22,000 or 13% from fiscal 1995 to fiscal 1996. The most significant items related to this decrease were a $19,000 decrease in gain on disposition of equipment, a $6,900 decrease in the sale of computer equipment, and a decrease of $3,000 in dividends. INCOME TAXES
Income taxes were 38.9% of the Company's income before taxes for fiscal year 1996 and 1995. The Company's income taxes have not been significantly affected by any changes in the federal or state tax laws.
NET INCOME
The Company's net income increased $108,000 from $1,027,000 in fiscal 1995 to $1,135,000 in the current fiscal year, an increase of 10.5%.
Item 8
Item 8 - Financial Statements and Supplementary Data - ----------------------------------------------------
Reference is made to the Consolidated Financial Statements, the Notes thereto and Report of Independent Public Accountants thereon commencing at page of this Report, which Consolidated Financial Statements, Notes and Reports are incorporated herein by reference.
Item 9
Item 9 - Changes in and Disagreements With Accountants on - --------------------------------------------------------- Accounting and Financial Disclosures ------------------------------------
Not applicable.
PART III --------
Item 10
Item 10 - Directors and Executive Officers of the Registrant - ------------------------------------------------------------
Item 10 - Directors and Executive Officers of the Registrant (continued)
Item 10 - Directors and Executive Officers of the Registrant (Continued) - ------------------------------------------------------------------------
(1) Term will continue through October 10, 1997.
Item 11
Item 11 - Executive Compensation - --------------------------------
The following table sets forth certain information concerning the compensation paid by the Company during its year ended June 30, 1997 to each executive officer whose aggregate compensation exceeded $100,000.
Item 11 - Executive Compensation (continued) - --------------------------------------------
(1) Columns f, g and h have been omitted as there has been no long term compensation awarded to, earned by or paid to any of the named executives in any fiscal year covered by these columns.
(2) No perquisites were received by any person named above greater than the lesser of $50,000 or 10% of salary plus bonus.
(3) "All Other Compensation" includes (i) directors fees of $3,750, $2,250 and $3,000 for Mr. Rocke in years ended June 30, 1997, 1996 and 1995 respectively; $3,750, $3,000 and $3,000 for Mrs. Ryberg in years ended June 30, 1997, 1996 and 1995 respectively; $3,750 for Mr. LaPallo for fiscal 1997 and $3,750, $3,000 and $2,250 for Mr. Greer in years ended June 30, 1997, 1996, and 1995 respectively; (ii) profit sharing contributions of $19,819, $20,469 and $20,670 for Mr. Rocke in years ended June 30, 1997, 1996 and 1995 respectively; $25,818, $26,266 and $26,168 for Mrs. Ryberg in years ended June 30, 1997, 1996 and 1995 respectively; $25,818 for Mr. LaPallo in fiscal year 1997; $18,126, $14,364 and $12,506 for Mr. Greer for years ended June 30, 1997, 1996 and 1995, respectively.
Excluded from all other compensation is the increase and the amortization of the June 30, 1995 cash surrender value of life insurance policies that will transfer to Mr. Rocke and Mrs. Ryberg upon termination of their employment. The amount excluded is $18,119 and $18,203 for Mr. Rocke for the years ended June 30, 1997 and 1996 and $13,678 and $13,511 for Mrs. Ryberg for the years ended June 30, 1997 and 1996.
Option/SAR Exercises and Holdings - ---------------------------------
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table shows Company stock options that were exercised during fiscal 1997 and the number of shares and value of grants outstanding as of June 30, 1997 for each Named Executive.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1997 AND YEAR-END OPTION/SAR VALUES
(a) Value of unexercised, in-the-money Company options based on a fair market value of the Company's common stock of $2.625 per share as of June 30, 1997.
Directors Compensation - ----------------------
Each director, including employees of the Company, is paid $750 per Board meeting attended. During fiscal 1996, each director, except for Mr. Louis T. Mastos and Mr. William W. Strawther, Jr., received $3,750 for attendance to Board Meetings. Mr. Mastos and Mr. Strawther each received $3,000 for attendance to Board Meetings. Item 11 - Executive Compensation (continued) - --------------------------------------------
Employment Agreements - ---------------------
The Company has entered into employment agreements with Mr. Rocke, Mrs. Ryberg, Mr. Greer and Mr. LaPallo each for five-year terms. Mr. Rocke's, Mrs. Ryberg's and Mr. Greer's agreements were effective July 1, 1995 and expire June 30, 2000. Mr. LaPallo's agreement was effective June 23, 1996 and expires June 30, 2001.
Mr. Rocke's agreement provides for an annual salary of $225,000 with annual cost of living increases based upon the U.S. Department of Labor's cost of living index, plus a bonus of three percent (3%) of the Company's income before taxes and bonuses and 5% of the increase in the Company's income before taxes and bonuses from the prior year.
Mrs. Ryberg's agreement provides for an annual salary of $160,000 with annual cost of living increases based upon the U.S. Department of Labor's cost of living index, plus a bonus of three percent (3%) of the Company's income before taxes and bonuses and 5% of the increase in the Company's income before taxes and bonuses from the prior year.
Mr. Greer's agreement provides for an annual salary of $90,000 with annual cost of living increases based upon the U.S. Department of Labor's cost of living index, plus a bonus of .5% of the Company's income before taxes and bonuses in year 1, 1% in year two and 1.5% in years 3, 4 and 5 and .5% of the increase in the Company's income before taxes and bonuses from the prior year in year one and increasing .5% annually to 2.5% in year five of the agreement.
Mr. LaPallo's agreement provides for an annual salary of $180,000 with annual cost of living increases based upon the U.S. Department of Labor's cost of living index for the first two years. For the remaining three years, the agreement provides for an annual salary of $150,000 with annual cost of living increases based upon the U.S. Department of Labor's cost of living index, plus a bonus of three percent (3%) of the Company's income before taxes and bonuses and 3% of the increase in the Company's income before taxes and bonuses from the prior year. In connection with the Company's employment of Mr. LaPallo, the Company sold Mr. LaPallo 20,000 shares of common stock from the treasury for an aggregate of $55,547.
Item 12
Item 12 - Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
Name and Address Amount of Beneficial Ownership Common Stock $.01 Par Value - ------------------------------------ --------------------------- Number of Shares (1) Percent (2) -------------------- -----------
Patric R. Greer (3) 66,316 1.42%
George M. Hill (4) 150,000 3.26%
Francis J. LaPallo and Wendy J. Harrison, his wife (5) 54,782 1.19%
Louis T. Mastos and Eva B. Mastos, his wife (6) 208,703 4.53%
William J. Rocke and Garnet Rocke, his wife (7) 442,268 9.50% P. O. Box 7641 Phoenix, Arizona 85011
James S. Rocke (8) 471,803 10.14% P. O. Box 7641 Phoenix, Arizona 85011
Jean E. Ryberg (9) 160,589 3.45%
Merlin J. Schumann and Donna L. Schumann, his wife 20,114 * Item 12 - Security Ownership of Certain Beneficial Owners and Management - -------------------------------------------------------------------------------- (continued) -----------
Name and Address Amount of Beneficial Ownership - ------------------------------------- Common Stock $.01 Par Value --------------------------- Number of Shares (1) Percent (2) -------------------- ----------- William W. Strawther, Jr. and Marjorie A. Strawther, his wife (10) 444,138 9.60% 7108 North 15th Street Phoenix, Arizona 85020
R. Scott Younker and Sandra L. Younker, his wife 90,669 1.97%
All officers and directors as a group (ten persons) (11) 1,819,382 37.55% - ------------------------------------- *Less than 1%
(1) The number of shares shown in the table, including the notes thereto, have been rounded to the nearest whole share. Includes, when applicable, shares owned of record by such person's minor children and spouse and by other related individuals and entities over whose shares of Common Stock such person has custody, voting control or power of disposition. Also includes shares of Common Stock that the identified person had the right to acquire within 60 days of August 1, 1997 by the exercise of stock options.
(2) The percentages shown include the shares of Common Stock which the person will have the right to acquire within 60 days of August 1, 1997. In calculating the percentage of ownership, all shares of Common Stock which the identified person will have the right to acquire within 60 days of August 1, 1997 are deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of shares of Common Stock owned by any other stockholders.
(3) Includes 51,346 shares subject to a currently exercisable stock options at an average of $3.005 per share.
(4) Excludes 50,000 shares held by Nell S. Hill, Mr. Hill's wife, and 134,258 shares held by Mr. Hill's children and grandchildren, in which shares he disclaims any beneficial interest.
(5) Includes 34,782 shares subject to a currently exercisable stock option at an average of $2.875 per share.
(6) Includes 183,180 shares which are held in a trust under an agreement dated February 10, 1981, in which Mr. and Mrs. Mastos hold equal beneficial interests, and 25,523 shares which are held by the Louis T. Mastos & Associates, Inc. Employees Profit Sharing Plan, of which Mr. Mastos is a trustee and the majority beneficial owner.
(7) Includes 290,000 shares held by Old Frontier Investment, Inc., of Arizona, of which William J. and Garnet Rocke hold 51% of the outstanding stock. Includes 48,654 shares subject to a currently exercisable stock options at $3.2829 per share.
(8) Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona of which James S. Rocke holds 49% of the outstanding stock. Includes 48,653 shares subject to a currently exercisable stock options at an average of $3.2829 per share.
(9) Includes 51,347 shares subject to a currently exercisable stock options at an average of $3.005 per share.
(10) Held as trustees under Trust Agreement, dated June 7, 1989, establishing the William W. Strawther, Jr. and Marjorie A. Strawther Living Trust, of which Mr. and Mrs. Strawther are beneficiaries. Excludes an aggregate of 200,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in which shares Mr. and Mrs. Strawther disclaim any beneficial interest.
(11) Excludes all duplicate reporting of holdings.
To the best of knowledge of the Company, no person or groups of persons, other than officers and directors, beneficially own more than five percent of the Frontier Adjusters of America, Inc. Common Stock (based upon present records of the transfer agent). Item 12 - Security Ownership of Certain Beneficial Owners and Management - -------------------------------------------------------------------------------- (continued) -----------
Based solely on a review of the copies of such forms received by the Company during the fiscal year ended June 30, 1997, and written representations that no other reports were required, the Company believes that each person who, at any time during such fiscal year, was a director, officer or beneficial owner of more than 10% of the Company's Common Stock complies with all Section 16(a) filing requirements during such fiscal year, except that R. Scott Younker filed a late Form 4 covering five transactions for a total of 2,800 shares.
Item 13
Item 13 - Certain Relationships and Related Transactions - --------------------------------------------------------
Old Frontier Investment, Inc. of Arizona, of which William J. Rocke and Garnet Rocke, his wife, are owners of 51% of the issued and outstanding stock of said corporation and James S. Rocke owns the remaining 49%, has entered into a license agreement with the Company pursuant to which it operates, under standard terms and conditions, an insurance adjusting and risk management business located in Scottsdale, Arizona, and is paid a 5% royalty on gross revenues derived from services provided by certain other licensees in other Arizona cities and towns. The Company paid that corporation $15,944 during fiscal year 1997 in connection with such 5% royalty agreement.
George M. Hill, Vice President and Director of the Company, acts as General Counsel to the Company. During the fiscal year 1997, the Company paid Mr. Hill $91,572 for services rendered and disbursements. Such fees will continue to accrue, pursuant to a retainer agreement, at the rate of $6,650 per month effective September 1, 1995.
The Company paid its Vice Chairman, William W. Strawther, Jr., $20,000 during fiscal year 1997 for business and financial consulting services.
The Company believes that the cost to the Company for all of the foregoing were and are competitive with charges for similar services and facilities available from third parties. PART IV -------
Item 14
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
(a) (1) Financial Statements
The following Financial Statements are included at page:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - June 30, 1997 and 1996
Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - June 30, 1997, 1996 and
(a) (2) Financial Statement Schedules
Schedule Number --------
II Valuation and Qualifying Accounts Years Ended June 30, 1997, 1996 and 1995
Schedules I through XIV not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
(a) (3) Exhibits filed with this report. EXHIBIT LIST ------------
Exhibit No. Description of Exhibit - ----------- ----------------------
3(a) Articles of Incorporation of Frontier Adjusters of America, Inc.*
3(b) By-Laws of Frontier Adjusters of America, Inc.**
10(a) Frontier Adjusters of America, Inc. Incentive Stock Option Plan*
10(b) Profit Sharing Plan, as amended***
10(c) Employment Agreement, dated August 10, 1995 between the Registrant and William J. Rocke***
10(d) Employment Agreement, dated August 10, 1995 between the Registrant and Jean E. Ryberg***
10(e) Incentive Stock Option Plan, dated October 10, 1987*
10(f) Form of Franchise Agreement between the Registrant and franchisees*
10(g) Form of License Agreement between the Registrant and licensees*
10(h) Agreement, dated June 1, 1990, between the Registrant and Scottsdale Insurance Company*
10(i) Form of Software Purchase Agreement and Order Form*
10(j) Frontier Adjusters of America, Inc., Stock Option Plan, dated May 21, 1996****
10(k) Employment Agreement, dated April 23, 1996, between the Registrant and Francis J. LaPallo*****
21 List of Subsidiaries of Frontier Adjusters of America, Inc.
23 Consent of McGladrey & Pullen, LLP
* Incorporated by reference to the Registrant's Form S-2 filed July 9, 1991
** Incorporated by reference to the Registrant's Form 10-K for the year ended June 30, 1993
*** Incorporated by reference to the Registrant's Form 10-K for the year ended June 30, 1995
**** Incorporated by reference to the Registrant's Form 10-Q for the quarter ended September 30, 1996.
***** Incorporated by reference to the Registrant's Form 10-K for the year ended June 30, 1996.
(b) The Company filed no reports on Form 8-K with the Securities and Exchange Commission during the last quarter of the fiscal year June 30, 1997 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.
FRONTIER ADJUSTERS OF AMERICA, INC.
/s/ William J. Rocke /s/ Patric R. Greer - ---------------------------------- ---------------------------------- William J. Rocke Patric R. Greer (Chief Executive Officer, (Chief Financial Officer) Chairman of the Board)
August 21, 1997 August 21, 1997 - ---------------------------------- ----------------------------------
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 and in the capacities and on the dates included:
/s/ William J. Rocke August 21, 1997 - --------------------------------------------- ------------------ William J. Rocke, Director
/s/ Jean E. Ryberg August 21, 1997 - --------------------------------------------- ------------------ Jean E. Ryberg, President, Director
/s/ Francis J. LaPallo August 21, 1997 - --------------------------------------------- ------------------ Francis J. LaPallo, Exec. V.P., Director
/s/ George M. Hill August 21, 1997 - --------------------------------------------- ------------------ George M. Hill, V.P., Director
/s/ James S. Rocke August 21, 1997 - --------------------------------------------- ------------------ James S. Rocke, Secretary/Treasurer, Director
/s/ Merlin J. Schumann August 21, 1997 - --------------------------------------------- ------------------ Merlin J. Schumann, Director
- --------------------------------------------- ------------------ William W. Strawther, Jr., Director
/s/ Lou Mastos August 21, 1997 - --------------------------------------------- ------------------ Lou Mastos, Director
/s/ R. Scott Younker August 21, 1997 - --------------------------------------------- ------------------ R. Scott Younker, Director
/s/ Patric R. Greer August 21, 1997 - --------------------------------------------- ------------------ Patric R. Greer, Director FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - June 30, 1997 and 1996
Consolidated Statements of Income for the Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended June 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - June 30, 1997, 1996 and 1995
Supplementary Schedule
Schedule II - Valuation and Qualifying Accounts Years Ended June 30, 1997, 1996 and 1995
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors Frontier Adjusters of America, Inc. Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Frontier Adjusters of America, Inc. and subsidiaries as of June 30, 1997 and 1996, and the related consolidated statements of income, cash flows, and stockholders' equity for each of the three years in the period ended June 30, 1997. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Frontier Adjusters of America, Inc. and subsidiaries as of June 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1997, 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 financial statement Schedule II for the years ended June 30, 1997, 1996, and 1995 included on page of this form 10-K is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth herein in relation to the basic financial data taken as a whole.
McGLADREY & PULLEN, LLP
/s/ McGladrey & Pullen, LLP
Phoenix, Arizona August 4, 1997
CONSOLIDATED BALANCE SHEETS
Frontier Adjusters of America, Inc. and Subsidiaries
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME
Frontier Adjusters of America, Inc. and Subsidiaries
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Frontier Adjusters of America, Inc. and Subsidiaries
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Frontier Adjusters of America, Inc. and Subsidiaries
The accompanying notes are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation -- These financial statements include the accounts of Frontier Adjusters of America, Inc. (Company) and its subsidiaries, all of which are wholly-owned. Intercompany accounts and transactions have been eliminated.
Business -- The Company's operations consist of the licensing and franchising of independent adjusters throughout the United States and Canada and the operation of an independent adjusting business in Arizona and a risk management division out of its Phoenix and Tucson, Arizona and Las Vegas, Nevada offices. The Company grants credit to its licensees and franchisees, all of whom operate within the insurance industry. Revenues from claims adjusted by employees of the Company are recognized as the services are performed; revenues from claims adjusted by independent licensees and franchisees are recognized when they become due under the terms of the license and franchise agreements (Note 8). Included in the revenues are collections received from one customer which provided the Company with revenues representing approximately $990,000 or 18.8%, $1,047,000 or 20.8% and $1,044,000 or 21.8% of the continuing licensee and franchisee fees during the years ended June 30, 1997, 1996 and 1995 respectively. Outstanding licensee and franchisee fees receivable related to this customer were approximately $95,000 at June 30, 1997 and $123,000 at June 30, 1996. In June of 1997 this client elected to place its adjusting service needs with other vendors. The transition will take place over the following 60-90 days.
Consolidated statements of cash flow -- Short term investments which have original maturities of 90 days or less are considered cash equivalents.
Cash concentration -- The Company maintains amounts on deposit in financial institutions in excess of federal deposit insurance limits.
Depreciation and amortization -- Depreciation is computed using straight-line and accelerated methods over estimated useful lives, which range from three to ten years for all property and equipment except the building. The building is depreciated using the straight-line method over 30 years. The cost of a subsidiary in excess of net tangible assets acquired is being amortized over 40 years.
Licenses and franchises -- Licenses and franchises represent Company owned adjusting operations and are stated at cost less amortization. Amortization is computed using the straight-line basis over the period of the relevant contract.
Income taxes -- Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts and assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in the tax laws and rates on the date of enactment.
Use of estimates in the preparation of financial statements -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Investments held-to-maturity securities -- Securities classified as held-to-maturity are those debt securities the Company has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premiums and accretion of discount, computed by the interest method over their contractual lives.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments held-to-maturity securities (continued)
The sale of a security within three months of its maturity date or after at least 85 percent of the principal outstanding has been collected is considered held to maturity for purposes of classification and disclosure.
Available-for-sale securities -- Securities classified as available-for-sale are those debt securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's investments, liquidity needs, and other similar factors. Securities available-for-sale are carried at fair value. Unrealized gains or losses, net of the related deferred tax effect, are reported as increases or decreases in stockholders' equity. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings.
Fair value of financial instruments -- Effective July 1, 1995, the Company adopted FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments, which requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value.
Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at June 30 of the reporting year. The estimated fair value amounts have been measured as of June 30 of the reporting year and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to that date. As such, the estimated fair values of these financial instruments subsequent to the reporting date may be different than the amounts reported at each year end.
The information in Note 6 should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only required for a limited portion of the Company's assets and liabilities. This disclosure of fair value amounts does not include the fair values of any intangibles, licensees and franchisees.
The carrying amounts of all financial instruments approximate fair values.
Current accounting developments -- Effective for financial statements issued after December 15, 1997, the Company will be required to implement FASB Statement No. 128, Earnings per Share. The Statement establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. It replaces the presentation of primary EPS with a presentation of basic EPS and also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures. The Company has not determined what effect the adoption of this Statement will have on its earnings per share calculations.
The FASB has issued Statement No. 130, Reporting Comprehensive Income. Statement No. 130 requires that an enterprise (a) classify items of other comprehensive income (as defined in the Statement) by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the statement of financial position. Management does not believe the application of this Statement will materially affect the Company's financial position and statement of operations.
The FASB has issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 131 modifies the disclosure requirements for reportable segments and is effective for the Company's year ending June 30, 1998. The Company has not determined the effect of the adoption of this Statement would have on the Company's financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings per common share -- Earnings per common share are based on the weighted average number of shares outstanding during the year. The effect of stock options (Note 12) as common stock equivalents is less than 3% dilutive and, therefore, is not included in the computation.
Foreign currency translation -- The functional currency of the Company's foreign operations is the applicable local currency. The foreign currencies are translated to U.S. dollars using applicable exchange rates at the end of each period. The gains or losses resulting from such translations are included in Stockholders' Equity.
Advertising expense -- Advertising expenditures are expensed when incurred.
NOTE 2: SUPPLEMENTAL CASH FLOW INFORMATION
1997 1996 1995 ---------------------------------------------- Cash paid during the year: Interest $ 7,259 $ 8,056 $ 6,745 Income taxes $ 854,741 $ 794,454 $ 668,427
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 ==========
NOTE 3: RECEIVABLES
Receivables consist of: 1997 1996 ---------------------------
Accounts receivable trade $ 145,902 $ 65,098 Licensee and franchisee fees receivable 538,601 568,216 Errors and omissions insurance premium advanced 105,953 124,671 Other 50,616 28,139 --------------------------- Total receivables 841,072 786,124 Less allowance for doubtful accounts 100,500 31,500 --------------------------- $ 740,572 $ 754,624 ========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 4: LONG-TERM RECEIVABLES
Long-term receivables consist of non interest bearing advances to licensees and franchisees which are repayable in the amount equal to a percentage of the monthly licensee and franchisee revenue. Estimated current and long-term maturities are as follows:
1997 1996 ---------------------------
Advances to licensees and franchisees $1,453,164 $1,335,061 Less allowance for doubtful advances 149,637 213,500 --------------------------- 1,303,527 1,121,561 Less current portion 872,527 794,561 --------------------------- Long term portion $ 431,000 $ 327,000 ===========================
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consist of: 1997 1996 ---------------------------
Building and improvements $1,269,288 $1,170,656 Computers and software 171,661 373,419 Furniture and fixtures 285,878 268,147 Automobiles 140,249 123,802 --------------------------- 1,867,076 1,936,024 Less accumulated depreciation and amortization 717,593 881,766 --------------------------- 1,149,483 1,054,258 Land 586,743 500,143 --------------------------- $1,736,226 $1,554,401 ==========================
NOTE 6: INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES
The following is a summary of the Company's investment in debt and marketable equity securities as of June 30, 1997 and 1996:
The Company's investment in local government securities is concentrated in Salt River Project Agricultural Improvement and Power District Municipal Bonds which mature between 2006 and 2031.
The Company's investments available for sale all have contractual maturities of less than one year.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 6: INVESTMENTS IN DEBT AND MARKETABLE EQUITY SECURITIES (continued)
The Company recognized a loss of $74,914 for the year ended June 30, 1997 due to the permanent impairment in value of its available for sale securities.
NOTE 7: LONG TERM DEBT
On August 1, 1994, the Company acquired, from a licensee, certain rights under his license agreement. Those rights were acquired for $25,000 cash and sixty monthly payments of $2,500. The balance is as follows:
-------- Balance Due $ 65,000 Imputed interest @ 7.25% 5,017 -------- 59,983 Less Current Portion 26,521 -------- Long Term Portion $ 33,462 ========
Interest paid on outstanding debt amounted to $7,110 in 1997 and $7,049 in 1996. Aggregate payments for the term of the agreement are as follows:
Year Ending June 30, 1998 26,521 1999 28,509 2000 4,953 -------- $ 59,983 ========
NOTE 8: LICENSING AND FRANCHISING
As of June 30, 1997, the Company has entered into 476 license and franchise agreements with 406 entities, operating 411 offices with 646 advertised locations, whereby the Company grants exclusive ten year licenses or franchises for the right to use the name "Frontier Adjusters" in a particular area. There is no initial license or franchise fee except where the Company resells a previously acquired license or franchise in which case the Company seeks to recover some or all of its acquisition cost. The Company performs advertising, collection and remittance services, and provides the licensees and franchisees with supplies. As compensation for the above, the Company receives a fee based on a percentage of the licensees' or franchisees' gross billings. Gross billings by licensees and franchisees for the years ended June 30, 1997, 1996 and 1995 were approximately $48,060,000, $46,830,000 and $42,690,000, respectively.
The Company's main line of business is providing services, directly and through licensees and franchisees, to the insurance industry and to self-insureds. The revenue and cost components along with identifiable assets and number of advertised locations are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 8: LICENSING AND FRANCHISING (Continued)
NOTE 9: INCOME TAXES
The components of the provision for income taxes are as follows:
1997 1996 1995 --------------------------------------------- Federal Current $ 695,946 $ 600,407 $ 544,580 Deferred (208,979) (34,540) (36,491) State Current 186,406 163,140 154,664 Deferred (54,230) (7,702) (10,513) --------------------------------------------- Income taxes $ 619,143 $ 721,305 $ 652,240 =============================================
A reconciliation of the statutory Federal income tax rate to the Company's effective tax rate follows:
1997 1996 1995 ---------------------------------------------- Statutory rate 35.0% 35.0% 35.0% Increase (decrease) resulting from: State income taxes, net 5.5 5.5 5.7 Non-deductible items 1.6 1.1 1.1 Non-taxable revenues (1.1) (1.0) (1.0) Other (2.3) (1.7) (1.9) --------------------------------------------- Effective rate 38.7% 38.9% 38.9% =============================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 9: INCOME TAXES (Continued)
Net deferred tax assets consist of the following components at June 30, 1997 and 1996:
1997 1996 --------------------------- Deferred tax assets Allowance for doubtful accounts $ 94,443 $ 94,410 Property and equipment 39,323 22,004 Unrealized loss on investments 29,479 -- Other liabilities 243,315 26,937 --------------------------- $ 406,560 $143,351 ===========================
The deferred tax amounts mentioned above have been classified as current assets in the accompanying balance sheets as of June 30, 1997 and 1996.
NOTE 10: RELATED PARTY TRANSACTIONS
A director/officer of the Company is a partner in a law firm that renders legal services to the Company. The Company paid the law firm approximately $92,000 in fiscal 1997, $90,500 in fiscal 1996 and $88,500 in fiscal 1995 for legal services and reimbursement of expenses.
NOTE 11: PROFIT SHARING PLAN
On June 14, 1984, the Company adopted a Profit Sharing Plan (Plan) covering substantially all employees of the Company who have completed one year of service and have reached age 20. The Plan provides for contributions at the discretion of management not to exceed the amount permitted under the Internal Revenue Code as a deductible expense. Participants' benefits vest at the rate of 20% per year. Contributions to the Plan are made to trust accounts for investment at the discretion of the individual participants. Profit sharing expense was $217,601, $175,390 and $160,717 for the years ended June 30, 1997, 1996 and 1995 respectively.
NOTE 12: STOCK OPTIONS
The Company applies APB Option 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized. The Company has elected not to adopt FASB Statement No. 123, Accounting for Stock-based Compensation. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under this plan consistent with the method of Statement No. 123, there would not be a material difference from the Company's reported net income.
On October 9, 1987, the shareholders approved an Incentive Stock Option Plan (1987 Plan) which provides for the granting of options to acquire up to 300,000 shares of common stock to certain officers and key employees of the Company at no less than 100% of the fair market value of the stock on the date of the grant. Options under the Plan are intended to be Incentive Stock Options (ISOs) pursuant to Section 422A of the Internal Revenue Code. Such options may have a maximum term of ten years and are exercisable one year after they are granted.
On October 11, 1996, the shareholders approved a Stock Option Plan (1996 Plan) which had been adopted by the Board of Directors on May 21, 1996 and effective July 1, 1996, which provides for the granting of options to acquire up to 300,000 shares of common stock to certain officers and key employees of the Company. Options under the Plan may be incentive stock options "ISO" pursuant to Section 422A of the Internal Revenue Code. On July 1, 1996, the Company granted ISO's for 100,000 shares of stock at $2.875 per share, the fair value at the grant date.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Frontier Adjusters of America, Inc. and Subsidiaries - --------------------------------------------------------------------------------
NOTE 12: STOCK OPTIONS (continued)
Outstanding options become exercisable in varying amounts beginning one year after grant. Information regarding these option plans are as follows:
Number of Shares -------------------------------------------- 1997 1996 1995 -------------------------------------------- Outstanding July 1 200,000 200,000 113,130 Granted 100,000 -- 86,870 Exercised -- -- -- --------------------------------------------
Outstanding June 30 300,000 200,000 200,000 ============================================
Options were outstanding at June 30, 1997, 1996 and 1995 at average prices per share of $3.05, $3.14 and $3.14 respectively. At June 30, 1997, there are no remaining options available for issuance under the 1987 Plan and the 1996 Plan had options available for granting of 200,000 shares.
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company entered into five-year employment agreements with four key executive officers, three of which expire June 30, 2000 and one that expires June 30, 2001. In addition to a base salary, the agreements provide for bonuses based upon the Company's pre-tax earnings and annual cost of living increases. Total compensation under those employment agreements was $788,605, $635,436 and $452,497 for the years ended June 30, 1997, 1996 and 1995, respectively. The aggregate commitment for future salaries at June 30, 1997, excluding bonuses and cost of living increases, is $2,140,956 as follows:
Year ended June 30, -------------------
1998 $ 687,012 1999 651,972 2000 651,972 2001 150,000
The Company has entered into an agreement with a customer to share a suite in the America West Arena in Phoenix, Arizona for client development purposes. The agreement provides that the Company is responsible for 50% of the costs and expenses of the suite. The Company's commitment began in June, 1992. The Company's minimum required payments are as follows:
Year ended June 30, Amount --------------------------------------
1998 $ 37,960 1999 39,477 ---------- $ 77,437 ==========
During the year ended June 30, 1997, the Company settled a claim made against it and a former franchisee at a cost to the Company of $525,000 net of insurance reimbursement.
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
SUPPLEMENTARY DATA ------------------
Selected Quarterly Financial Data
(Information for all periods shown below is unaudited)
FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS ---------------------------------
For the Years Ended June 30, 1997, 1996 and 1995