-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AvvjncpmhbUEF7g02B0cv1DNnz2GW7dav8N6HeMoAS4uY2i93Rf9pENEKK/NQOg3 2RCujndJgHxJEa+q4MwtZA== 0000950147-98-000054.txt : 19980130 0000950147-98-000054.hdr.sgml : 19980130 ACCESSION NUMBER: 0000950147-98-000054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980129 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER ADJUSTERS OF AMERICA INC CENTRAL INDEX KEY: 0000735349 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 860477573 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12902 FILM NUMBER: 98516790 BUSINESS ADDRESS: STREET 1: 45 E MONTEREY WAY STREET 2: STE 202 CITY: PHOENIX STATE: AZ ZIP: 85012 BUSINESS PHONE: 6022641061 MAIL ADDRESS: STREET 1: P O BOX 7610 CITY: PHOENIX STATE: AZ ZIP: 85011 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER FINANCIAL CORP /AZ DATE OF NAME CHANGE: 19861114 10-Q 1 QUARTERLY REPORT 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 December 31, 1997 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 January 29, 1998 4,605,358 ----------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements - ----------------------------- FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1997 June 30, 1997 ----------------- ------------- (unaudited) (*) ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 890,856 $ 1,012,233 Investments 1,262,554 1,288,976 Receivables 1,618,823 1,613,099 Prepaid expenses 232,248 268,192 Other 447,600 433,260 ----------- ----------- TOTAL CURRENT ASSETS 4,452,081 4,615,760 ----------- ----------- PROPERTY AND EQUIPMENT 2,513,902 2,453,819 Less accumulated depreciation and amortization (792,858) (717,593) ----------- ----------- 1,721,044 1,736,226 ----------- ----------- OTHER ASSETS Cost of subsidiary in excess of net tangible assets acquired 213,817 213,817 Less accumulated amortization (177,974) (176,818) ----------- ----------- 35,843 36,999 Receivables (Long term) 412,000 431,000 Investments (Long term) 694,643 714,872 Other 331,405 377,282 ----------- ----------- 1,473,891 1,560,153 ----------- ----------- TOTAL ASSETS $ 7,647,016 $ 7,912,139 =========== =========== LIABILITIES ----------- CURRENT LIABILITIES Accounts payable $ 32,929 $ 33,793 Accrued expenses 330,343 190,510 Franchisee/licensee remittance payable 418,951 396,991 Current portion long term liability 27,497 26,521 Other 159,697 666,669 ----------- ----------- TOTAL CURRENT LIABILITIES 969,417 1,314,484 ----------- ----------- LONG TERM LIABILITY 19,465 33,462 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 47,820 47,820 Additional paid in capital 2,148,470 2,148,470 Treasury stock (529,584) (529,584) Other 29,532 83,221 Retained earnings 4,961,896 4,814,266 ----------- ----------- 6,658,134 6,564,193 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,647,016 $ 7,912,139 =========== =========== *Condensed from audited financial statements. The accompanying notes are an integral part of these condensed statements.
2 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Six Months Ended Three Months Ended December 31, December 31, ---------------------- --------------------- 1997 1996 1997 1996 ---- ---- ---- ---- REVENUES Continuing licensee and franchisee fees $2,341,906 $2,688,729 $1,121,804 $1,300,431 Adjusting fees 553,044 479,995 289,438 204,764 ---------- ---------- ---------- ---------- 2,894,950 3,168,724 1,411,242 1,505,195 ---------- ---------- ---------- ---------- COST AND EXPENSES Compensation and employee benefits 1,324,151 1,262,882 679,103 611,726 Office 182,419 202,359 88,270 101,995 Advertising and promotion 124,583 140,088 64,582 58,891 Depreciation and amortization 125,097 114,168 63,740 58,213 Provision for doubtful accounts 96,000 90,000 48,000 45,000 Other 334,770 369,032 147,701 159,626 ---------- ---------- ---------- ---------- 2,187,020 2,178,529 1,091,396 1,035,451 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 707,930 990,195 319,846 469,744 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE) Interest income 69,850 74,176 33,384 37,985 Other (Net) 35,108 46,537 33,429 39,184 ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (EXPENSE) 104,958 120,713 66,813 77,169 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 812,888 1,110,908 386,659 546,913 INCOME TAXES 319,855 438,798 152,268 217,066 ---------- ---------- ---------- ---------- NET INCOME $ 493,033 $ 672,110 $ 234,391 $ 329,847 ========== ========== ========== ========== Weighted Average Shares outstanding 4,605,358 4,610,021 4,605,358 4,605,358 ========== ========== ========== ========== NET INCOME PER COMMON SHARE $ .11 $ .15 $ .05 $ .07 ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed statements. 3 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended December 31, 1997 and 1996
1997 1996 ----------- ----------- NET INCOME $ 493,033 $ 672,110 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Operations 125,048 114,168 Other 1,092 546 (Gain) on sale of investments (4,042) -- (Gain) on disposition of property and equipment (120) (24,775) Allowance for doubtful accounts 96,000 (50,295) Change in assets and liabilities: (Increase) decrease in: Receivables 90,342 220,935 Prepaid expenses 35,944 86,760 Other (71,656) (45,959) Increase (decrease) in: Accounts payable (864) 20,993 Accrued expenses 139,833 13,170 Franchisee and licensee remittance payable 21,960 258,363 Other (506,972) 14,304 ----------- ----------- Total adjustments (73,435) 608,210 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 419,598 1,280,320 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (60,183) (275,599) Investments purchased (989,627) (974,115) Proceeds from sales of investments 1,040,000 1,000,000 Proceeds on sale of fixed assets 200 -- License acquisition -- (25,000) Payments on License acquisition (13,021) (18,113) Advances to licensees and franchisees (2,048,708) (1,914,581) Collections of advances to licensees and franchisees 1,875,642 1,825,397 ----------- ----------- NET CASH PROVIDED (USED IN) BY INVESTING ACTIVITIES (195,697) (382,011) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends (345,403) (345,949) Common stock repurchased -- (44,365) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (345,403) (390,314) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 125 -- NET INCREASE (DECREASE) IN CASH (121,377) 507,995 Cash at beginning of the period 1,012,233 534,540 ----------- ----------- Cash at the end of the period $ 890,856 $ 1,042,535 =========== =========== Supplemental disclosures of Cash Flow information Cash paid during the period Income taxes $ 377,887 $ 515,344 Interest $ 1,980 $ 4,442
The accompanying notes are an integral part of these condensed statements. 4 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (1) Basis of Presentation --------------------- The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results of operations for the interim periods. The results of operations for the three and six month periods ended December 31, 1997 are not necessarily indicative of the results to be expected for the full year. (2) Supplemental Cash Flow Information ---------------------------------- Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained in this Report on Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company's "expectations", "anticipation", "intentions", "beliefs", or "strategies" regarding the future. Forward looking statements include statements regarding revenue, margins, expenses, and earnings analysis with regard to the Company or with regard to the Company's licensees and franchisees for the remainder of fiscal 1998 and thereafter; improvement of, and growth in the number of, licensees and franchisees; future spending on marketing and product development strategy; and liquidity and anticipated availability of cash for operations, acquisitions, or payment of dividends. All forward looking statements included in this Report are based on information available to the Company on the date of this Report, and the Company assumes no obligation to update any such forward looking statement. It is important to note that the Company's actual results could differ materially from those in such forward looking statements. Among the factors that could cause actual results to differ materially are the factors discussed in this Report and any other reports on file with the SEC, including but not limited to the extent and nature of natural disasters in geographic areas serviced by the Company or by its licensees and franchisees; management decisions by insurance companies and self-insureds to increase or decrease the degree to which they contract for services offered by the Company, its licensees or franchisees; the Company's ability to identify and attract new qualified licensees and franchisees; the Company's ability to successfully manage offices reacquired from existing licensees and franchisees; the Company's ability to attract and retain national and regional clients for the services of the Company and its licensees; and uninsured liability for acts or omissions of the Company's employees, licensees, or franchisees. Financial Condition ------------------- The Company has historically financed its growth and on going operations with cash generated from operations. In the six months ended December 31, 1997, the Company's operations generated $420,000 in cash. Compared to the last fiscal year, the most significant item affecting cash provided by the Company's operations is the $507,000 decrease in other liabilities. This decrease results from a $525,000 payment during the first quarter of fiscal 1998 pursuant to an agreement the Company had entered in June 1997 to settle litigation. Through its capital investment program, the Company replaces obsolete or outdated equipment and invests in new equipment and furnishings to maintain or increase the productivity of the Company and its employees. The Company anticipates investing $200,000 to $300,000 in fiscal 1998 for equipment and furnishings 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 currently available cash generated from operations. The Company's ratio of current assets to current liabilities was 4.59 to 1 as of December 31, 1997 and 3.51 to 1 as of June 30, 1997. 5 Results of Operations - Six Months Ended December 31, 1997 Compared to Six - -------------------------------------------------------------------------------- Months Ended December 31, 1996 - ------------------------------ Revenues - -------- The Company's revenues decreased 8.6% or $274,000 to $2,895,000 during the six months ended December 31, 1997 from $3,169,000 in the same period of the prior fiscal year. This decrease represents a combined $73,000 increase in adjusting and risk management fees and a $347,000 decrease in continuing licensee and franchisee fees. The increase of $73,000 in adjusting and risk management fees from $480,000 in the six months ended December 31, 1996 to $553,000 for the six months ended December 31, 1997 represents a 15.2% increase. A significant portion of this increase is related to the Company's Las Vegas/Henderson, Nevada office, which was acquired in the last quarter of the prior fiscal year from a former licensee. This office generated $191,000 in adjusting fees for the six months ended December 31, 1997. The Company's revenues from continuing licensee and franchisee fees decreased 12.9% or $347,000 from $2,689,000 in the six months ended December 31, 1996 to $2,342,000 in the six months ended December 31, 1997. This decrease reflects the loss of revenues attributed to a client which contributed 18.8% to the continuing licensee and franchisee fees in fiscal 1997. In June 1997, this client elected to place its adjusting service needs with other vendors. The effects of this decision will be reflected in the Company's revenues during the remainder of 1998 fiscal year. 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. During the current fiscal year, the Company has experienced a decrease in revenues due primarily to the phase out of its business relationship with a client which accounted for 18.8% of continuing licensee and franchisee fees. The Company has responded to this loss of revenue by investing substantial resources to establish a new promotional and marketing program and anticipates that over time the lost business will be replaced. As a result, the Company hopes to see growth in licensee and franchisee fees paid from other sources. During December 1997, the Company successfully completed negotiations for national/regional agreements, with one new client and with three existing clients for additional services. In addition, the Company believes that it will continue to realize growth as it adds additional qualified licensees and franchisees. Compensation and Fringe Benefits - -------------------------------- Compensation and fringe benefits represent approximately 61% of the Company's costs and expenses and represent the largest single item of expense. These expenses increased 5% or $61,000 from $1,263,000 in the six months ended December 31, 1996 to $1,324,000 in the current six month period. This increase is the result of the addition of a Marketing Director to the Company's corporate staff, the new employees in Las Vegas/Henderson, Nevada, as a result of that acquisition, 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. Expenses Other Than Compensation and Fringe Benefits - ---------------------------------------------------- The Company's expenses other than compensation and fringe benefits decreased $53,000 during the six months ended December 31, 1997 as compared to the same period of the prior fiscal year. The principal items affecting these expenses are a $34,000 decrease in legal expenses, a $11,000 increase in depreciation expense due to capital expenditures in the prior fiscal year, $20,000 decrease in office expenses, and a $15,000 decrease in advertising and promotion expense. 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 for the six months ended December 31, 1997, were 39% of its income before taxes, or approximately the same as they were in the same period of the prior fiscal year. Changes made in the tax laws by various states and by the federal government have not had a material effect on the Company's current overall tax rates, however, there is no assurance that such changes will not occur in the future. 6 Other Income - ------------ The Company's other income decreased $16,000 or 13.2% from $121,000 in the six months ended December 31, 1996 to $105,000 in the current six month period. The most significant items affecting other income are a $4,000 decrease in investment income, a $25,000 decrease in gains on the disposition of capital equipment and an $18,000 increase in dividend income. Net Income - ---------- The Company's net income for the six months ended December 31, 1997, decreased $179,000 or 26.6% from $672,000 in the six months ended December 31, 1996 to $493,000 in the current period. The most significant items affecting net income were a $274,000 decrease in revenues, a $61,000 increase in compensation and fringe benefits and a $53,000 decrease in expenses other than compensation and fringe benefits. Results of Operations - Three Months Ended December 31, 1997 Compared to Three - -------------------------------------------------------------------------------- Months Ended December 31, 1996 - ------------------------------ Revenues - -------- The Company's revenues decreased 6.2% or $94,000 to $1,411,000 in the three months ended December 31, 1997 from $1,505,000 in the same period of the prior fiscal year. This decrease represents a combined $84,000 increase in adjusting and risk management fees and a $178,000 decrease in continuing licensee and franchisee fees. The increase of $84,000 in adjusting and other fees of Company owned offices from $205,000 in the three months ended December 31, 1996 to $289,000 in the three months ended December 31, 1997 represented a 41% increase. The increase reflects an increase in the demand for the Company's services in the Phoenix area as well as revenues from the Company's Tucson, Arizona and Las Vegas/Henderson, Nevada operations. The Company's revenues from continuing licensee and franchisee fees decreased 13.7% or $178,000 from $1,300,000 in the three months ended December 31, 1996 to $1,122,000 in the three months ended December 31, 1997. This decrease reflects the loss of revenues attributed to a client which contributed 18.8% to the continuing licensee and franchisee fees in fiscal 1997. In June 1997, this client elected to place its adjusting service needs with other vendors. The effects of this decision will be reflected in the Company's revenues during the 1998 fiscal year. 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. During the current fiscal year, the Company has experienced a decrease in revenues due primarily to the phase out of its business relationship with its major client. The Company has responded to this loss of revenue by investing substantial resources to establish a new promotional and marketing program and anticipates that over time the lost business will be replaced. As a result, the Company hopes to see growth in licensee and franchisee fees paid from other sources. During December 1997, the Company successfully completed negotiations for national/regional agreements, with one new client and with three existing clients for additional services. In addition, the Company believes that it will continue to realize growth as it adds additional qualified licensees and franchisees. Compensation and Fringe Benefits - -------------------------------- Compensation and fringe benefits represented approximately 62% of the Company's costs and expenses and represent the largest single item of expense. These expenses increased 10.9% or $67,000 from $612,000 in the three months ended December 31, 1996 to $679,000 in the three months ended December 31, 1997. The increase is the result of the addition of a Marketing Director to the Company's corporate staff, the new employees in Las Vegas/Henderson, Nevada, as a result of that acquisition, the addition of employees 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 decreased $12,000 during the three months ended December 31, 1997 as compared to the same quarter of the prior fiscal year. The principal items affecting these expenses were a $6,000 decrease in legal expenses, a $6,000 increase in advertising and promotion expenses, a $14,000 decrease in office expenses and a $6,000 increase in depreciation and amortization. The balance of the Company's costs and expenses did not significantly changed from the same period of the prior fiscal year. 7 Income Taxes - ------------ The Company's income taxes for the three months ended December 31, 1997, were 39% of its income before taxes, or approximately the same as they were in the same period of the prior fiscal year. Changes made in the tax laws by various states and by federal government did not have a material effect on the Company's overall tax rates. Other Income - ------------ The Company's other income decreased $10,000 or 13% from $77,000 in the three months ended December 31, 1996 to $67,000 in the three months ended December 31, 1997. The most significant items affecting other income are the decrease in gains on disposition of fixed assets of $24,000, an $18,000 increase in dividend income, and a $5,000 decrease in interest income. Net Income - ---------- The Company's net income for the three months ended December 31, 1997, decreased $96,000 or 29.1% from $330,000 in the three months ended December 31, 1996 to $234,000. The most significant items affecting net income were the $94,000 decrease in revenues, the $67,000 increase in compensation and fringe benefits and the $12,000 decrease in other expenses. PART II: OTHER INFORMATION Item 1 - Legal Proceedings 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. 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: 1/29/98 /s/ William J. Rocke ------------ ---------------------------------------------------- William J. Rocke, Chief Executive Officer/Chairman of the Board, Director, Principal Financial Officer Date: 1/29/98 /s/ Patric R. Greer ------------ ---------------------------------------------------- Patric R. Greer, Chief Financial Officer, Controller 8 EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 (Unaudited) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 890,856 1,262,554 1,952,322 333,499 0 4,452,081 2,513,902 792,858 7,647,016 969,417 19,465 47,820 0 0 6,610,314 7,647,016 0 2,894,950 0 0 2,187,020 96,000 1,900 812,888 319,855 493,033 0 0 0 493,033 .11 .11
-----END PRIVACY-ENHANCED MESSAGE-----