FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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
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FRONTIER ADJUSTERS OF AMERICA, INC.
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(Exact name of registrant as specified in its charter)
Arizona 86-0477573
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 East Monterey Way, Phoenix, AZ 85012
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(Address of principal executive offices)
(602) 264-1061
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(Registrant's telephone number, including area code)
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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
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Number of shares of Common Stock outstanding on November 9, 1998 4,605,358
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1998 June 30, 1998
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(unaudited) (*)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 933,416 $ 929,364
Investments 1,243,831 1,289,519
Receivables 1,570,145 1,582,020
Prepaid expenses 300,788 317,454
Other 289,905 439,638
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TOTAL CURRENT ASSETS 4,338,085 4,557,995
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PROPERTY AND EQUIPMENT 2,582,270 2,543,631
Less accumulated depreciation and
amortization (835,502) (819,302)
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1,746,768 1,724,329
----------- -----------
OTHER ASSETS
Cost of subsidiary in excess
of net tangible assets acquired 213,817 213,817
Less accumulated amortization (179,707) (179,129)
----------- -----------
34,110 34,688
Receivables (Long term) 376,000 431,000
Investments (Long term) 694,831 694,724
Other 336,090 357,964
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1,441,031 1,518,376
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TOTAL ASSETS $ 7,525,884 $ 7,800,700
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 83,166 $ 62,118
Accrued expenses 173,400 513,365
Franchisee/licensee remittance payable 573,089 545,830
Current Portion Long Term Liability 26,527 28,509
Other 162,142 193,684
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TOTAL CURRENT LIABILITIES 1,018,324 1,343,506
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LONG TERM LIABILITY -- 4,953
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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 21,703 49,600
Retained earnings 4,819,151 4,735,935
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6,507,560 6,452,241
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 7,525,884 $ 7,800,700
=========== ===========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed statements.
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FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
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REVENUE
Continuing licensee and franchisee fees $ 1,273,123 $ 1,220,102
Adjusting and risk management fees 360,246 263,606
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1,633,369 1,483,708
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COST AND EXPENSES
Compensation and fringe benefits 717,766 645,048
Office 95,515 94,149
Advertising and promotion 40,587 60,001
Depreciation and amortization 62,475 61,357
Provision for doubtful accounts 48,000 48,000
Other 273,706 187,069
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1,238,049 1,095,624
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INCOME FROM OPERATIONS 395,320 388,084
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OTHER INCOME (EXPENSE)
Interest income 29,434 36,466
Other (Net) (1,491) 1,679
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TOTAL OTHER INCOME (EXPENSE) 27,943 38,145
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INCOME BEFORE INCOME TAXES 423,263 426,229
INCOME TAXES 167,347 167,587
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NET INCOME $ 255,916 $ 258,642
=========== ===========
EARNINGS PER SHARE
Basic $ .06 $ .06
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Diluted $ .06 $ .06
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 4,605,358 4,605,358
=========== ===========
Diluted 4,609,163 4,605,358
=========== ===========
The accompanying notes are an integral part of these condensed statements.
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FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
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NET INCOME $ 255,916 $ 258,642
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Other Comprehensive Income (net of tax)
Foreign currency translation adjustments -- 75
Unrealized gain (loss) on securities (27,897) 5,456
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(27,897) 5,531
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COMPREHENSIVE INCOME $ 228,019 $ 264,173
========= =========
The accompanying notes are an integral part of these condensed statements.
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FRONTIER ADJUSTERS OF AMERICA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
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NET INCOME $ 255,916 $ 258,642
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 63,021 61,903
(Gain) on disposition of property & equipment 4,979 (120)
Allowance for doubtful accounts 48,000 49,038
Change in assets and liabilities:
(Increase) decrease in:
Receivables (26,000) (122,262)
Prepaid expenses 16,666 (34,079)
Other 137,271 (26,537)
Increase (decrease) in:
Accounts payable 21,048 (23,191)
Accrued expenses (339,965) 150,629
Franchisee and licensee remittance payable 27,259 82,595
Other (13,299) (487,666)
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Total adjustments (61,020) (349,690)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 194,896 (91,048)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 21,510 200
Capital expenditures (89,497) (16,308)
Investment purchased (988,096) (989,627)
Proceeds from sales of investments 1,000,000 1,000,000
Payments on License acquisition (6,935) (6,451)
Advances to licensees and franchisees (1,092,284) (1,029,663)
Collections of advances to licensees and
franchisees 1,137,159 944,241
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NET CASH (USED IN) INVESTING ACTIVITIES (18,143) (97,608)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (172,701) (172,701)
Common stock repurchased -- --
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NET CASH PROVIDED BY(USED IN)FINANCING
ACTIVITIES (172,701) (172,701)
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- 123
----------- -----------
NET INCREASE (DECREASE) IN CASH 4,052 (361,234)
Cash at beginning of the period 929,364 1,012,233
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Cash at the end of the period $ 933,416 $ 650,999
=========== ===========
Supplemental disclosures of Cash Flow information
Cash paid during the period
Income taxes $ 3,215 $ 86,910
Interest $ 565 $ 1,048
The accompanying notes are an integral part of these condensed statements.
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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 dilutive effect on weighted average shares outstanding is due to stock
options in the amount of 43,435 for the three months ended September 30,
1998. No stock options were dilutive for three months ended September 30,
1997.
(2) FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 130 REPORTING
COMPREHENSIVE INCOME
Effective September 30, 1998, the Company adopted Financial Accounting
Standard Boards (FASB) Statement No. 130, REPORTING COMPREHENSIVE INCOME.
Statement 130 establishes standards for reporting and displaying
comprehensive income and its components in the full set of financial
statements. Accordingly, the Company's comprehensive income was $228,000 and
$264,000 for the three months ended September 30, 1998 and 1997,
respectively.
The results of operations for the three month period ended September 30,
1998 are not necessarily indicative of the results to be expected for the
full year.
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 1999 and thereafter; improvement of,
and growth in the number of, licensees and franchisees; future spending on
marketing and product development strategy; the transaction with United
Financial Adjusting Company described below; 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 and in the Company's Form 10-K for the year ended
June 30, 1998, 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; and uninsured liability for acts or omissions of
the Company's employees, licensees, or franchisees.
In August 1998, the Company entered into a letter of intent (the "Letter of
Intent") with United Financial Adjusting Company ("UFAC"), a wholly owned
subsidiary of the Progressive Corporation ("Progressive"), whereby UFAC will
purchase newly issued stock representing a minimum of 52% of the Company's
voting securities. Following the purchase by UFAC, the Company's
shareholders will be given the option to retain their shares and receive a
cash distribution of $1.60 per share or to surrender their shares for a
price of $2.90 per share. Up to an aggregate of 1,000,000 shares will be
accepted for repurchase. UFAC will purchase the newly issued securities of
the Company
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at a price of $1.30 per share and will not be entitled to receive the cash
distribution of $1.60 per share. If the transaction contemplated by the
Letter of Intent is consummated, UFAC, and therefore Progressive, will be
able to elect a majority of the board of directors and therefore, will be
able to control the business and affairs of the Company. Consummation of
this transaction is subject to shareholder approval. The Company will
provide its shareholders with a proxy statement containing a detailed
description of the proposed transaction prior to the Company's next
shareholder's meeting.
FINANCIAL CONDITION
The Company has historically financed its growth and on-going operations
with cash generated from operations. In the quarter ended September 30,
1998, Company's operations generated $195,000 in cash. Compared to the last
fiscal year, the most significant item affecting cash used by the Company's
operations is the $340,000 decrease in accrued expenses. This decrease
results from the payout of employee benefits and bonuses in the first
quarter of this fiscal year.
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 1999 for equipment and
furnishings pursuant to its
capital investment program.
Without giving effect to any extraordinary dividend payable should the
Company consummate the transaction with UFAC contemplated in the Letter of
Intent, management believes that the Company will be able to fund all of its
cash requirements (i.e. current operations, capital asset acquisition, and
the payment of dividends) from its current
available cash as well as funds generated by its operations.
The Company's ratio of current assets to current liabilities was 4.26 to 1
as of September 30, 1998 and 3.39 to 1 as of June 30, 1998.
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
REVENUE
The Company's revenue increased 10% or $149,000 to $1,633,000 in the current
quarter from $1,484,000 in the same period of the prior fiscal year. The
increase is a combined $96,000 increase in adjusting and risk management
fees and a $53,000 increase in continuing licensee and franchisee fees.
The increase of $96,000 in adjusting and risk management fees from $264,000
in the quarter ended September 30, 1997 to $360,000 in the quarter ended
September 30, 1998 represents a 36% increase. The Company experienced an
increase of $120,000 in adjusting fees in its Phoenix office, and decreases
of $17,000 and $7,000 in adjusting fees from the Las Vegas/Henderson and
Tucson offices, respectively. The increase in fees from the Phoenix office
primarily reflects fees generated from a new client.
The Company's revenue from continuing licensee and franchisee fees increased
4% or $53,000 from $1,220,000 in the quarter ended September 30, 1997 to
$1,273,000 in the quarter ended September 30, 1998. This increase reflects
the benefit to the Company's licensees and franchisees due to an increase in
the use of their services by insurance companies and self-insureds resulting
from a larger volume of claims and from a greater demand for the Company's
services.
The Company's revenue is affected by numerous factors including the work
loads of other companies and claims presented by their clients. Therefore,
the Company is unable to project its future revenue. The Company has
historically seen growth in licensee and franchisee fees paid. However,
during the prior fiscal year the Company experienced a decrease in revenue
due primarily to the phase out of its business relationship with its then
major client. The Company has responded to this loss by continuing to
develop and implement sales and marketing efforts to take advantage of its
geographic diversity as well as the unique strengths of its individual
licensees and franchisees. For the quarter ended September 30, 1998, the
Company successfully completed negotiations for national/regional
relationships with three new clients and with one existing client for
additional services. In addition, the Company believes that it will continue
to realize growth as it adds additional qualified licensees and
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franchisees. Furthermore, the Company expects to continue to reflect revenue
from its Phoenix, Tucson, and Las Vegas/ Henderson operations.
COMPENSATION AND FRINGE BENEFITS
Compensation and fringe benefits represent approximately 58% of the
Company's costs and expenses during the three months ended September 30,
1998 and represent the largest single item of expense. These expenses
increased 11% or $73,000 from $645,000 in the three months ended September
30, 1997 to $718,000 in the current quarter. This increase is the result of
the addition of a Marketing Director in the second quarter of the last
fiscal year, additional employees hired including temporary employees to
handle increased work loads in the Corporate and Phoenix 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 increased
$70,000 during the three months ended September 30, 1998 as compared to the
same quarter of the prior fiscal year. The principal items affecting these
expenses are a $40,000 increase in audit and accounting fees, a $15,000
increase in computer consulting fees, a $14,000 increase in directors fees,
a $12,000 increase in insurance costs, and a $19,000 decrease in advertising
and promotional expenses.
The increase in audit and accounting fees reflects the Company's decision to
outsource certain accounting functions that were previously performed
in-house. The Company believes that this will enable it to more efficiently
monitor compliance of the constantly changing state and federal laws and
regulations. Furthermore, the Company incurred increased auditing and
accounting consulting fees in the current quarter. The increase in computer
consulting fees relates to the Company's planning for and utilization of
improved technology to provide better services to its franchisees/licensees
and clients. The increase in insurance costs results from an increase in the
cost of insurance as well as increased coverage. The increase in directors
fees reflects the greater number of directors meetings in the first quarter
of this fiscal year due to consideration by the Board of the UFAC
transaction. The decrease in advertising and promotional expenses reflects
the purchase of promotional items in the first quarter of the prior fiscal
year. The Company anticipates similar purchases in the second quarter of the
current fiscal year. The balance of the Company's costs and expenses have
not significantly changed from the same period of the prior year.
INCOME TAXES
The Company's income taxes were 39.5% of its income before taxes, or
approximately the same as they were in the prior fiscal year. Changes made
in the tax laws by various states and by the federal government have not had
a material affect on the Company's current overall tax rates, however, this
could change at any time.
OTHER INCOME
The Company's other income decreased $10,000 or 26% from $38,000 in the
quarter ended September 30, 1997 to $28,000 in the current quarter. The most
significant items affecting other income include a $7,000 decrease in
interest income, and a loss on the sale of fixed assets of $5,000.
NET INCOME
The Company's net income for the quarter ended September 30, 1998, decreased
$3,000 or 1% from $259,000 in the quarter ended September 30, 1997 to
$256,000 in the current quarter. The most significant items affecting net
income were a $149,000 increase in revenue, a $73,000 increase in
compensation and fringe benefits, and a $70,000 increase in expenses other
than compensation and fringe benefits.
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COMPREHENSIVE INCOME
Effective September 30, 1998, the Company adopted Financial Accounting
Standard Board (FASB) Statement No. 130, REPORTING COMPREHENSIVE INCOME.
Accordingly, the Company's comprehensive income was $228,000 and $264,000
for the three months ended September 30, 1998 and 1997, respectively. This
decrease in comprehensive income was due primarily to a drop this quarter in
the market value of the Company's available for sale securities.
RESULTS OF OPERATIONS - QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO 1996
REVENUE
The Company's revenue decreased 10.8% or $180,000 to $1,484,000 in the three
months ended September 30, 1997 from $1,664,000 in the same period of the
prior fiscal year. The decrease is a combined $12,000 decrease in adjusting
and risk management fees and a $168,000 decrease in continuing licensee and
franchisee fees.
The decrease of $12,000 in adjusting and risk management fees from $275,000
in the quarter ended September 30, 1996 to $263,000 in the quarter ended
September 30, 1997 represents a 4.4% decrease. A substantial portion of this
decrease is related to a major storm that occurred in mid August 1996 in the
Phoenix, Arizona metropolitan area where the Company's main offices are
located. Claims resulting from this storm provided the Company with $80,000
in adjusting services revenue in the quarter ended September 30, 1996. The
Company did however, experience a $5,000 increase in fees in its Tucson
office as compared to the same period in the previous fiscal year.
Furthermore, the Company's Las Vegas/Henderson office, which was acquired in
the last quarter of the 1997 fiscal year from a former licensee, provided
$87,000 in adjusting fees during the three months ended September 30, 1997.
The Company's revenue from continuing licensee and franchisee fees decreased
12% or $168,000 from $1,388,000 in the quarter ended September 30, 1996 to
$1,220,000 in the quarter ended September 30, 1997. This decrease reflects
the loss of revenue attributed to a client that 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. This
will be reflected in the Company's 1998 fiscal year.
The Company's revenue is affected by numerous factors including the work
loads of other companies and claims presented by their clients. Therefore,
the Company is unable to project its future revenue. The Company has
historically seen growth in licensee and franchisee fees paid. However,
during the 1998 fiscal year the Company has seen a decrease in revenue due
primarily to the phase out of its business relationship with its major
client. The Company has responded to this loss of revenue by developing and
implementing sales and marketing efforts to take advantage of its geographic
diversity as well as the unique strengths of its individual licensees and
franchisees, and anticipates that over time the lost business will be
replaced. In addition, the Company believes that it will continue to realize
growth as it adds additional qualified licensees and franchisees.
Furthermore, the Company expects to continue to reflect revenue from its
Tucson and Las Vegas operations.
COMPENSATION AND FRINGE BENEFITS
Compensation and fringe benefits represented approximately 59% of the
Company's costs and expenses during the three months ended September 30,
1997 and represent the largest single item of expense. These expenses
decreased 1% or $6,000 from $651,000 in the three months ended September 30,
1996 to $645,000 in the three months ended September 30, 1997.
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EXPENSES OTHER THAN COMPENSATION AND FRINGE BENEFITS
The Company's expenses other than compensation and fringe benefits decreased
$41,000 during the three months ended September 30, 1997 as compared to the
same quarter of the prior fiscal year. The principal items affecting these
expenses are a $28,000 decrease in legal expenses and a $21,000 decrease in
advertising and promotional expenses. The balance of the Company's costs and
expenses did not significantly change from the same period of the prior
year.
INCOME TAXES
The Company's income taxes were 39% of its income before taxes, or
approximately the same as they were in the prior fiscal year. Changes made
in the tax laws by various states and by the federal government have not had
a material affect on the Company's current overall tax rates, however, this
could change at any time.
OTHER INCOME
The Company's other income decreased $6,000 or 14% from $44,000 in the
quarter ended September 30, 1996 to $38,000 in the quarter ended September
30, 1997. The most significant items affecting other income include a $3,000
decrease in the sales of computer software to the Company's licensees and
franchisees and a $1,000 increase
in expenses related to rental property.
NET INCOME
The Company's net income for the quarter ended September 30, 1997, decreased
$83,000 or 24% from $342,000 in the quarter ended September 30, 1996 to
$259,000 in the quarter ended September 30, 1997. The most significant items
affecting net income were the $180,000 decrease in revenue, the $41,000
decrease in expenses other than
compensation and fringe benefits and the $54,000 decrease in income.
YEAR 2000 COMPLIANCE
The "Year 2000" issue creates risk for the Company from unforeseen problems
in its own computer systems and from third parties with whom the Company
deals. Many currently installed computer systems and software products are
coded to accept two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century
dates from 20th century dates. Left uncorrected, time sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000,
resulting in a computer shutdown or incorrect calculations. Failures of the
Company's and/or third parties' computer systems could have a material
adverse effect on the Company's ability to conduct its business.
The Company is examining both its information technology and non-information
technology systems. To date, the Company has determined that certain of the
software used by the Company is not Year 2000 compliant. The Company has
identified and purchased upgraded software that is Year 2000 compliant. In
addition, the Company is currently updating all custom software so that it
is Year 2000 compliant. The Company is also testing its computer servers
internally and plans to have them tested by an external party in the third
quarter of this fiscal year. The Company hopes to finish testing of internal
systems by April, 1999 and expects to complete these upgrades by June 30,
1999.
All of the Company's personal computers that need to be Year 2000 compliant
are currently being updated. The Company expects to complete these updates
by December 31, 1998. The Company has updated its phone system to be Year
2000 compliant. The Company is in the process of determining whether its
alarm, heating, and air conditioning systems will be affected by the Year
2000. The Company is finalizing arrangements with a consulting firm to
undertake a complete analysis of the Company's operations to identify the
remaining Year 2000 issues
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embodied in its operations and facility, and to develop a plan to resolve
such issues. The Company expects this analysis to begin during the second
quarter of this fiscal year and to be completed by December 31, 1998.
Thereafter, the Company will resolve such issues.
Certain software products sold by the Company to certain of its licensees
and franchisees in prior years are not Year 2000 compliant. The Company's
computer staff is developing an upgrade of the software that will be Year
2000 compliant. The Company expects to complete development of the Year 2000
compliant version of its software by March 31, 1999. The Company will
distribute this version to purchasers of the non-compliant version, free of
charge. The Company does not anticipate that the cost of this upgrade will
be material to the Company's operations.
Members of the Company's computer staff are undertaking the task of
contacting the Company's customers and vendors to determine the status of
such customers' and vendors' software for Year 2000 compliance. As the
Company identifies these issues, it will determine the steps necessary to
avoid disruptions due to failures in Year
2000 compliance by its customers and/or vendors.
The Company expects that the cost of analysis and development and
implementation of a plan to address its Year 2000 issues will not exceed
$225,000. The Company's estimate reflects assumptions regarding the extent
of the Year 2000 issues embodied in the Company's operations and facilities,
the availability and cost of personnel trained in this area, the compliance
plans of third parties, and similar uncertainties. However, due to the
complexity and pervasiveness of the Year 2000 issue, and in particular, the
uncertainty regarding the compliance programs of third parties, no assurance
can be given that these estimates will be achieved, and actual results could
differ materially from those anticipated. If the Company is unable to
address the Year 2000 issues successfully, or in a timely fashion, the
Company may need to devote more resources to the process and additional
costs may be incurred. This could have a material adverse effect on the
Company's results of operations. The Company has purchased insurance that
may offset certain losses to the Company for claims based upon
non-compliance with Year 2000 issues.
In its reasonable likely worst case Year 2000 scenario, the Company
anticipates that the software which it uses, despite the completion of
upgrades, will still fail to be Year 2000 compliant. In addition, it is
possible that the software sold by the Company to certain of its licensees
and franchisees will not become Year 2000 compliant despite the Company's
efforts to upgrade this software. Finally, the Company anticipates the
possibility that its customers' and vendors' systems will not be Year 2000
compliant. In the event that any of these scenarios materialize, the Company
expects that it would experience problems processing transactions and
remitting checks to licensees and franchisees. Furthermore, licensees and
franchisees would experience a slow-down in their processing of paperwork.
In the event that the steps being implemented by the Company fail to avoid
problems associated with the Year 2000, the Company is currently developing
its contingency plans. Such plans may include the immediate purchase of
replacement hardware or software at the beginning of the Year 2000, the
switching of vendors who supply goods or services to the Company, or other
alternatives. In addition, the Company plans to purchase a back-up power
generator in 1999 to prepare for the unlikely event of a power grid failure.
The Company anticipates that its contingency plans will be completed no
later than July 1999.
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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: March 10, 1999 /s/ William J. Rocke
--------------------- ------------------------------------------
William J. Rocke, Chief Executive Officer/
Chairman of the Board,
Acting Chief Financial Officer, Director
Date: March 10, 1999 /s/ Jean E. Ryberg
--------------------- ------------------------------------------
Jean E. Ryberg, President, Director
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1998 (Unaudited) AND THE CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 933,416
<SECURITIES> 1,243,831
<RECEIVABLES> 1,988,264
<ALLOWANCES> 418,119
<INVENTORY> 0
<CURRENT-ASSETS> 4,338,085
<PP&E> 2,582,270
<DEPRECIATION> 835,502
<TOTAL-ASSETS> 7,525,884
<CURRENT-LIABILITIES> 1,018,324
<BONDS> 0
47,820
0
<COMMON> 0
<OTHER-SE> 6,459,740
<TOTAL-LIABILITY-AND-EQUITY> 7,525,884
<SALES> 0
<TOTAL-REVENUES> 1,633,369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,238,049
<LOSS-PROVISION> 48,000
<INTEREST-EXPENSE> 523
<INCOME-PRETAX> 423,263
<INCOME-TAX> 167,347
<INCOME-CONTINUING> 255,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,916
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
