-----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, I8XeZqfDwBuXHAITflggRroRMrGdZorvFWSR7JFcIjMSHL6mFwpE/vUwey6WdklK aj+bgRCSuTnOD0wtF4JnbQ== 0000950147-98-000382.txt : 19980515 0000950147-98-000382.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950147-98-000382 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: 98621367 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 QUATERLY REPORT 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, 1998 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 May 6 , 1998 4,605,358 ------------- --------- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements - ----------------------------- FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1998 June 30, 1997 -------------- ------------- (unaudited) (*) ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 1,081,714 $ 1,012,233 Investments 1,284,344 1,288,976 Receivables 1,561,664 1,613,099 Prepaid expenses 216,944 268,192 Other 451,200 433,260 ----------- ----------- TOTAL CURRENT ASSETS 4,595,866 4,615,760 ----------- ----------- PROPERTY AND EQUIPMENT 2,537,663 2,453,819 Less accumulated depreciation and amortization (776,693) (717,593) ----------- ----------- 1,760,970 1,736,226 ----------- ----------- OTHER ASSETS Cost of subsidiary in excess of net tangible assets acquired 213,817 213,817 Less accumulated amortization (178,552) (176,818) ----------- ----------- 35,265 36,999 Receivables (Long term) 431,000 431,000 Investments (Long term) 694,748 714,872 Other 310,702 377,282 ----------- ----------- 1,471,715 1,560,153 ----------- ----------- TOTAL ASSETS $ 7,828,551 $ 7,912,139 =========== =========== LIABILITIES ----------- CURRENT LIABILITIES Accounts payable $ 73,689 $ 33,793 Accrued expenses 412,300 190,510 Franchisee/licensee remittance payable 436,036 396,991 Current portion long term liability 27,998 26,521 Other 180,642 666,669 ----------- ----------- TOTAL CURRENT LIABILITIES 1,130,665 1,314,484 ----------- ----------- LONG TERM LIABILITY 12,275 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 62,893 83,221 Retained earnings 4,956,012 4,814,266 ----------- ----------- 6,685,611 6,564,193 ----------- ----------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,828,551 $ 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)
Nine Months Ended Three Months Ended March 31, March 31, ----------------- ------------------ 1998 1997 1998 1997 ---- ---- ---- ---- REVENUE Continuing licensee and franchisee fees $3,436,123 $3,993,862 $1,094,217 $1,305,133 Adjusting fees 899,259 660,627 346,215 180,632 ---------- ---------- ---------- ---------- 4,335,382 4,654,489 1,440,432 1,485,765 ---------- ---------- ---------- ---------- COST AND EXPENSES Compensation and employee benefits 2,036,412 1,854,557 712,261 591,675 Office 299,019 283,675 116,600 81,316 Advertising and promotion 240,281 261,176 115,698 121,088 Depreciation and amortization 192,083 173,974 66,986 59,807 Provision for doubtful accounts 144,000 135,000 48,000 45,000 Other 481,800 564,655 147,030 195,622 ---------- ---------- ---------- ---------- 3,393,595 3,273,037 1,206,575 1,094,508 ---------- ---------- ---------- ---------- INCOME FROM OPERATIONS 941,787 1,381,452 233,857 391,257 ---------- ---------- ---------- ---------- OTHER INCOME (EXPENSE) Interest income 101,405 113,738 31,555 39,562 Other (Net) 44,596 52,956 9,488 6,419 ---------- ---------- ---------- ---------- TOTAL OTHER INCOME (EXPENSE) 146,001 166,694 41,043 45,981 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,087,788 1,548,146 274,900 437,238 INCOME TAXES 427,938 610,899 108,083 172,101 ---------- ---------- ---------- ---------- NET INCOME $ 659,850 $ 937,247 $ 166,817 $ 265,137 ========== ========== ========== ========== Weighted Average Shares outstanding 4,605,358 4,608,489 4,605,358 4,609,358 ========== ========== ========== ========== BASIC EARNINGS PER SHARE $ .14 $ .20 $ .04 $ .06 ========== ========== ========== ========== DILUTED EARNINGS PER SHARE $ .14 $ .20 $ .04 $ .06 ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed statements. 3 FRONTIER ADJUSTERS OF AMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended March 31, 1998 and 1997
1998 1997 ----------- ----------- NET INCOME $ 659,850 $ 937,247 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: Operations 192,083 173,974 Other 1,639 1,092 (Gain) on sale of investments (4,042) -- (Gain) on disposition of property and equipment (6,708) (24,775) Allowance for doubtful accounts 144,000 (7,542) Change in assets and liabilities: (Increase) decrease in: Receivables 131,763 228,903 Prepaid expenses 51,248 106,769 Other (59,949) (57,130) Increase (decrease) in: Accounts payable 39,896 18,051 Accrued expenses 221,790 121,172 Franchisee and licensee remittance payable 39,045 272,274 Other (486,027) 79,437 ----------- ----------- Total adjustments 264,738 912,225 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 924,588 1,849,472 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (151,434) (283,171) Investments purchased (1,992,855) (1,948,737) Proceeds on Sale of Fixed Assets 16,200 -- Proceeds from sales of investments 2,040,000 2,000,000 License acquisition (5,000) (85,500) Advances to licensees and franchisees (3,092,505) (2,883,089) Collections of advances to licensees and franchisees 2,868,177 2,756,041 ----------- ----------- NET CASH PROVIDED (USED IN) BY INVESTING ACTIVITIES (317,417) (444,456) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends (518,104) (518,650) Common stock repurchased -- (44,365) Payments on long-term liability (19,710) (68,336) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (537,814) (631,351) ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 124 -- ----------- ----------- NET INCREASE (DECREASE) IN CASH 69,481 773,665 Cash at beginning of the period 1,012,233 534,540 ----------- ----------- Cash at the end of the period $ 1,081,714 $ 1,308,205 =========== =========== Supplemental disclosures of Cash Flow information Cash paid during the period Income taxes $ 506,413 $ 632,349 Interest $ 2,833 $ 6,095
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 nine month periods ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. Change of Accounting Principles ------------------------------- Effective December 31, 1997, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings Per Share", which supersedes Accounting Principles Board (APB) Opinion No. 15. Statement No. 128 requires the presentation of earnings per share by all entities that have common stock or potential common stock, such as options, warrants and convertible securities outstanding that trade in a public market. Under Statement No. 128, the Company is required to present basic and diluted earnings per share amounts. Diluted per share amounts assume the conversion, exercise, or issuance of all potential common stock instruments unless the effect is to reduce a loss or increase the income per share from continuing operations. The Company initially applied Statement No. 128 for its interim period ending December 31, 1997 and all prior periods presented with no material effect. The weighted average shares outstanding for computing basic and diluted earnings per share were 4,605,358 and 4,673,590, respectively, for the three months ended March 31, 1998, and 4,608,489 and 4,676,631 for the nine months ended March 31, 1998. The difference in the weighted average shares outstanding for computing basic and diluted earnings per share is due to 43,435 dilutive stock options. (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 document 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, 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 success of the Company's promotional and marketing programs; the Company's ability to successfully manage offices reacquired from existing licensees and franchisees; and uninsured liability for acts or omissions of the Company's employees, 5 licensees, or franchisees. 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, 1998, the Company's operations generated $925,000 in cash. Compared to the last fiscal year, the most significant item affecting cash provided by the Company's operations is the $486,000 decrease in other liabilities. The 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 between $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 funds generated from operations. The Company's ratio of current assets to current liabilities was 4.06 to 1 as of March 31, 1998 and 3.51 to 1 as of June 30, 1997. Results of Operations - Nine Months Ended March 31, 1998 Compared to Nine ---------------------------------------------------------------------------- Months Ended March 31, 1997 --------------------------- Revenue ------- The Company's revenue decreased 6.9% or $320,000 to $4,335,000 during the nine months ended March 31, 1998 from $4,655,000 in the same period of the prior fiscal year. This decrease represents a combined $238,000 increase in adjusting and risk management fees and a $558,000 decrease in continuing licensee and franchisee fees. The increase of $238,000 in adjusting and risk management fees from $661,000 in the nine months ended March 31, 1997 to $899,000 for the nine months ended March 31, 1998 represents a 36% increase. A significant portion of this increase is related to the Company's Las Vegas/Henderson, Nevada office which was acquired during the last quarter of the prior fiscal year from a former licensee. This office generated $270,000 in adjusting fees for the nine months ended March 31, 1998. The Company's revenue from continuing licensee and franchisee fees decreased 14% or $558,000 from $3,994,000 in the nine months ended March 31, 1997 to $3,436,000 in the nine months ended March 31, 1998. This decrease reflects the loss of revenue attributed to a client that contributed 18.8% to the continuing licensee and franchisee fees in 1997. In June 1997, this client elected to purchase its adjusting services from other vendors. The effects of this decision will be reflected in the Company's revenue during the remainder of the 1998 fiscal year. The Company's revenue is 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 revenue. During the current fiscal year, the Company has experienced a decrease in revenue due primarily to the phase out of its business relationship with a client that accounted for 18.8% of continuing licensee and franchisee fees. The Company has responded to this loss of revenue by establishing 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 relationships with one new client and with three existing clients for additional services. In addition, the Company entered into three relationships with new clients in the third quarter of this 6 fiscal year. Compensation and Fringe Benefits -------------------------------- Compensation and fringe benefits represent approximately 60% of the Company's costs and expenses and represent the Company's largest single item of expense. These expenses increased 10% or $182,000 from $1,855,000 in the nine months ended March 31, 1997 to $2,036,000 in the current nine 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 $61,000 during the nine months ended March 31, 1998 as compared to the same period of the prior fiscal year. The principle items affecting these expenses are an $87,000 decrease in legal expense, an $18,000 increase in depreciation expense due to capital expenditures in the current fiscal year, a $21,000 decrease in advertising and promotion expense, and a $15,000 increase in office 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 nine months ended March 31, 1998 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 affect on the Company's current overall tax rates; however, this could change at any time. Other Income ------------ The Company's other income decreased $21,000 or 13% from $167,000 in the nine months ended March 31, 1997 to $146,000 in the current nine month period. The most significant items affecting other income are a $12,000 decrease in interest income, an $18,000 decrease in gains on the disposition of capital equipment, an $18,000 increase in dividend income, a $6,000 decrease in rental income and a $6,000 decrease in miscellaneous income. Net Income ---------- The Company's net income for the nine months ended March 31, 1998, decreased $277,000 or 30% from $937,000 in the nine months ended March 31, 1997 to $660,000 in the current period. The most significant items affecting net income were the $320,000 decrease in revenue, the $181,000 increase in compensation and fringe benefits, and the $61,000 decrease in expenses other than compensation and fringe benefits. Results of Operations - Three Months Ended March 31, 1998 Compared to Three ---------------------------------------------------------------------------- Months Ended March 31, 1997 --------------------------- Revenue ------- The Company's revenue decreased 3% or $46,000 to $1,440,000 in the three months ended March 31, 1998 from $1,486,000 in the same period of the prior fiscal year. This decrease represents a combined $165,000 increase in adjusting and risk management fees and a $211,000 decrease in continuing licensee and franchisee fees. The increase of $165,000 in adjusting and other fees of Company owned offices from $181,000 in the three 7 months ended March 31, 1997 to $346,000 in the three months ended March 31, 1998 represents a 91% increase. The increase reflects an increase in the demand for the Company's services in the Phoenix area as well as revenue from the Company's Tucson, Arizona and Las Vegas/Henderson, Nevada operations. The Company's revenue from continuing licensee and franchisee fees decreased 16% or $211,000 from $1,305,000 in the three months ended March 31, 1997 to $1,094,000 in the three months ended March 31, 1998. 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 purchase its adjusting services from other vendors. The effects of this decision will be reflected in the Company's revenue during the remainder of 1998 fiscal year. The Company's revenue is 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 revenue. During the current fiscal year, the Company has experienced a decrease in revenue 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 establishing 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 relationships with one new client and with three existing clients for additional services. In addition, the Company entered into three relationships with new clients in the third quarter of this fiscal year. Compensation and Fringe Benefits -------------------------------- Compensation and fringe benefits represented approximately 59% of the Company's costs and expenses and represent the largest single item of expense. These expenses increased 20% or $120,000 from $592,000 in the three months ended March 31, 1997 to $712,000 in the three months ended March 31, 1998. 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, 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 $9,000 during the three months ended March 31, 1998 as compared to the same quarter of the prior fiscal year. The principle items affecting these expenses were a $53,000 decrease in legal expense, a $36,000 increase in office expense, and a $7,000 increase in depreciation and amortization. The balance of the Company's costs and expenses did not change significantly from the same period of the prior fiscal year. Income Taxes ------------ The Company's income taxes for the three months ended March 31, 1998, 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 affect on the Company's overall tax rates; however, this could change at any time. Other Income ------------ The Company's other income decreased $5,000 or 11% from $46,000 in the three months ended March 31, 1997 to $41,000 in the three months ended March 31, 1998. The most significant items affecting other income was an $8,000 decrease in interest income and a $3,000 increase in miscellaneous income. Net Income ---------- The Company's net income for the three months ended March 31, 1998 decreased 37% or $98,000 from $265,000 in the three months ended March 31, 1997 to $167,000. The most significant items affecting net income were the $46,000 decrease in revenue, the $120,000 increase in compensation and fringe benefits, and the $9,000 decrease in expenses other than compensation and fringe benefits. 8 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: 5/14/98 /s/ William J. Rocke -------------------------- ---------------------------------------- William J. Rocke, Chief Executive Officer/Chairman of the Board, Director and Acting Chief Accounting Officer Date: 5/14/98 /s/ Jean E. Ryberg -------------------------- ---------------------------------------- Jean E. Ryberg, President, Director 9 EX-27 2 FINANCIAL DATA SCHEDULE FOR 3RD QUARTER 10-Q
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 (Unaudited) AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS 1 U.S. Dollars 9-MOS JUN-30-1998 JUL-01-1997 MAR-31-1998 1 1,081,714 1,284,344 1,959,421 397,757 0 4,595,866 2,537,663 776,693 7,828,551 1,130,665 12,275 0 0 47,820 6,637,791 7,828,551 0 4,335,382 0 0 3,249,595 144,000 2,714 1,087,788 427,938 659,850 0 0 0 659,850 .14 .14
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