UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER: 0-2616
CONSUMERS FINANCIAL CORPORATION
1200 CAMP HILL BY-PASS
CAMP HILL, PA 17011
PENNSYLVANIA 23-1666392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
filing such requirements for the past 90 days.
Yes XX No
Indicate the number of shares outstanding of each of the issuer s classes
of common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock July 31, 1997
$.01 Stated Value 2,597,406 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
Six and Three Months ended June 30, 1997 and 1996 4 - 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management s Discussion and Analysis of Results of
Operations and Financial Condition 12-16
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17-18
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> June 30, 1997 December 31, 1996
(in thousands) (Unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities $28,397 $42,618
Mortgage loans on real estate 2,147 2,286
Policy loans 518
Other invested assets 1,840 1,866
Short-term investments 5,760 3,901
Total investments 38,144 51,189 376 556
Accrued investment income 523 731
Receivables 19,972 20,290
Prepaid reinsurance premiums 12,226 17,338
Deferred policy acquisition costs 16,584 18,949
Property and equipment 2,105 2,168
Other real estate 1,012 1,115
Other assets 2,392 2,283
$93,334 $114,619
Liabilities, Redeemable Preferred Stock and
Shareholders Equity
Liabilities:
Future policy benefits $21,252 $35,386
Unearned premiums 52,228 56,178
Other policy claims and benefits 2,505 2,736
Other liabilities 5,190 5,495
Income taxes:
Current 240 1,185
Deferred 102 296
81,517 101,276
Redeemable preferred stock:
Series A, 8 1/2% cumulative
net of treasury stock 4,703 4,693
Shareholders equity:
Common stock 30 30
Capital in excess of stated value 7,966 7,966
Net unrealized appreciation
of debt and equity securities 122 70
Retained earnings 474 2,009
Treasury stock (1,478) (1,425)
7,114 8,650
$93,334 $114,619
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> Six Months Ended Three Months Ended
(in thousands, except per share data) June 30, June 30,
1997 1996 1997 1996
<S> <C> <C>
Revenues:
Premiums written $13,480 $16,510 $7,285 $8,987
Decrease (increase) in unearned premiums 2,337 (406) 541 (889)
Gross premium income 15,817 16,104 7,826 8,098
Less reinsurance ceded (5,567) (6,235) (2,559) (3,096)
Net premium income 10,250 9,869 5,267 5,002
Net investment income 1,139 1,038 538 505
Net realized investment gains (losses) 246 (22) 318 (22)
Fees and other income 542 752 244 311
12,177 11,637 6,367 5,796
Benefits and expenses:
Death and other benefits 6,636 5,448 3,387 2,570
Amortization of deferred policy
acquisition costs 4,609 4,957 2,194 2,461
Operating expenses 2,719 2,354 1,663 978
13,964 12,759 7,244 6,009
Loss from continuing operations before income
tax expense (benefit) (1,787) (1,122) (877) (213)
Income tax expense (benefit) (597) (77) (166) 176
Loss from continuing operations (1,190) (1,045) (711) (389)
Discontinued operations:
Income from operations of discontinued
businesses (net of income taxes) 378 146
Gain (loss) on disposal of discontinued
businesses (net of income taxes) (118) 13
(118) 378 13 146
Net loss ($1,308) ($667) ($698) ($243)
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION> Six Months Ended Three Months Ended
(in thousands, except per share data) June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Per share data:
Loss from continuing operations ($0.54) ($0.48) ($0.31) ($0.19)
Discontinued operations (0.05) 0.14 0.05
Net loss ($0.59) ($0.34) ($0.31) ($0.14)
Weighted average number of shares
outstanding 2,606 2,662 2,603 2,613
Loss per common share - assuming full * * * *
* Anti-dilutive
Cash dividends declared per common share None None None None
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>(in thousands) 1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,308) ($667)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Deferred policy acquisition costs (4,779) (4,912)
Amortization of deferred policy 4,609 5,267
Other amortization and depreciation 126 231
Change in future policy benefits (2,911) 511
Change in unearned premiums (3,950) 406
Change in amounts due reinsurers (83) 183
Income taxes (1,396) 220
Change in prepaid reinsurance premiums 5,112 (155)
Change in other receivables 3,668 238
Change in other liabilities (179) (317)
Other (411) (676)
Total adjustments (194) 996
Net cash provided by (used in) operating activities (1,502) 329
Cash flows from investing activities:
Purchase of investments (8,962) (4,677)
Maturity of investments 669 3,816
Sale of investments 9,885 2,067
Purchase of property and equipment (14)
Net cash provided by investing activities 1,592 1,192
Cash flows from financing activities:
Principal payments on debt (330)
Receipts from universal life and investment 2,598
Withdrawals on universal life and investment (3,456)
Purchase of treasury stock (61) (47)
Cash dividends to shareholders (209) (205)
Net cash used in financing activities (270) (1,440)
Net increase (decrease) in cash (180) 81
Cash at beginning of period 556 451
Cash at end of period $376 $532
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1. GENERAL:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the Company's consolidated
financial position as of June 30, 1997, the consolidated results of its
operations for the six and three months ended June 30, 1997 and 1996 and
the consolidated changes in its cash flows for the six months ended June
30, 1997 and 1996. Certain prior year amounts have been reclassified to
conform with classifications used for 1997. Such reclassifications had no
impact on operating results.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's 1996 Form 10-K.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. INCOME TAXES:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
Significant components of the Company's deferred tax liabilities and
assets are as follows (in 000's):
<TABLE>
<CAPTION> June 30, December 31,
1997 1996
<S> <C> <C>
Deferred tax liabilities:
Fixed maturities $33
Deferred policy acquisition costs $5,640 6,366.
Other 351 359
5,991 6,758
Deferred tax assets:
Future policy benefits and financial 5,117 5,796
Net operating loss carryforwards 1,589 1,589
Other 407 301
7,113 7,686
Valuation allowance for deferred tax (1,224) (1,224)
5,889 6,462
Net deferred tax liability $102 $296
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
Significant components of the provision for income taxes are as follows
(in 000's):
<TABLE>
<CAPTION> Six Months Three Months
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Current:
Federal ($488) ($387) ($213) ($294)
State 51 85 22 67
Total current (437) (302) (191) (227)
Deferred (160) 225 25 403
Income tax expense
(benefit) related to
continuing (597) (77) (166) 176
Income tax expense
(benefit) included
discontinued
Current (59) 183 (8) 73
Deferred 54 16 25
(59) 237 8 98
Total income tax expense
(benefit) ($656) $160 ($158) $274
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
2. INCOME TAXES (CONTINUED):
The reconciliation of the provision for income taxes and the amount which
would have been provided at statutory rates is as follows (in 000's):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Loss from continuing operations
before income tax benefit ($1,787) ($1,122)
Income tax benefit at 34% statutory rate on
pre-tax loss ($608) ($382)
Dividends received deduction (148) (5)
State income taxes 35 29
Items not includable for tax purposes 28 43
Other, net 96 238
Actual income tax benefit ($597) ($77)
</TABLE>
3. COMMITMENTS AND CONTINGENCIES:
In connection with the cancellation of a joint venture agreement in 1996, the
Company had agreed to pay $500,000 in cash to its former joint venture partner
at the time the merger with LaSalle Group, Inc. (LaSalle) was consummated. As
a result of the termination of the merger agreement, as discussed in Note 5,
the $500,000 payment will not be made. The agreement with the joint venture
partner provides that in the event the merger with LaSalle was not completed,
any payment to the joint venture partner would be determined under a separate
calculation as follows: (a) if the Company enters into a transaction similar
to the LaSalle transaction in which it is acquired by or merged with another
entity, the parties have agreed to negotiate a mutually acceptable termination
price; (b) if the Company enters into a transaction whereby, as part of a plan
to terminate its insurance operations and sell all of its assets, it sells its
credit insurance marketing organization to an unrelated third party, the
Company has agreed to pay its former partner a pro rata share of the proceeds,
if any, it receives from the sale of the marketing organization. The Company
agreed to make such payments to the joint venture partner as consideration for
terminating the venture, which will allow the Company or its successors to
retain the profits or losses on credit insurance premiums previously reinsured
to the partner.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Reinsured risks would give rise to liability to the insurance
subsidiaries only in the event that the reinsuring company might be unable to
meet its obligations under the reinsurance agreements in force.
In March 1997, the Company received a demand for arbitration and statement of
claim from a former general agency with whom the Company had a partnership
agreement. The partnership agreement provided that the agency would market
universal life insurance business for the Company, pursuant to specific
criteria established by the Company, and would also be entitled to a share of
the profits, if any, which arose from the business produced. The claimant is
seeking monetary damages to compensate it for the Company s alleged failure to
share profits and for other alleged losses resulting from the Company s
rejection of policy applications involving unacceptable risks. While
management believes this claim is completely without merit and intends to
vigorously defend itself in this matter, the ultimate outcome of this claim
cannot be determined at this time.
In connection with the sale of the business and related operating assets of
Interstate Auto Auction, Inc. in November 1996, the Company provided the buyer
with limited indemnifications with respect to certain potential environmental
liabilities asserted within two years from the closing date. The Company does
not believe that these limited indemnifications will have a materially adverse
effect on the Company s financial position or results of operations.
Certain claims, suits and complaints arising in the ordinary course of business
have been filed or are pending against the Company or its subsidiaries. In the
opinion of management, based on opinions of legal counsel, adequate reserves,
if deemed necessary, have been established for these matters and their outcome
will not result in a significant effect on the financial condition or future
operating results of the Company or its subsidiaries. The Company has taken
certain income tax positions in previous years that it believes are
appropriate. If such positions were to be successfully challenged by the
Internal Revenue Service, the Company could incur additional income taxes as
well as interest and penalties. Management believes that the ultimate outcome
of any such challenges will not have a material effect on the Company s
financial statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
4. REINSURANCE:
The effect of reinsurance on premiums written and earned for the periods
ended June 30, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
(in 000's) Written Earned Written Earned
<S> <C> <C> <C> <C>
Direct $13,963 $16,078 $17,286 $16,913
Assumed 520 742 1,217 1,184
Ceded 3,071 (6,570) 7,987 7,832
Net $11,412 $10,250 $10,516 $10,265
</TABLE>
Ceded benefits incurred through June 30, 1997 and 1996 are $4,537,280 and
$5,507,541, respectively. These losses were deducted in arriving at death
and other benefits and the increase in future policy benefits in the
Consolidated Statements of Operations.
5. SUBSEQUENT EVENT
On July 25, 1997, the Company terminated its merger agreement with LaSalle
because, despite continued assurances to the contrary, LaSalle was unable
to provide the cash funds necessary to complete the merger transaction,
which would have provided the Company s common shareholders with cash of
$3.78 per share. On July 28, 1997, the Company signed a letter of intent
to sell its credit insurance operations, which includes its inforce block
of credit insurance policies and its marketing organization and accounts,
along with the Company s principal life insurance subsidiary to Life of
the South Corporation. The sale transaction is subject to the completion
of a due diligence review by Life of the South, insurance regulatory
approval and the approval of the Company s common shareholders.
The selling price for the marketing organization is contingent upon the
amount of premiums produced by the Company s current accounts in the
future and will be received over a five-year period. During this period,
the Company intends to liquidate its remaining assets and pay all
creditors and preferred shareholders. All remaining assets will then be
distributed to the Company s common shareholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The Company reported a net loss in the second quarter of 1997 of $697,000
($.31 per share) compared to a $243,000 loss ($.14 per share) in the same
period of 1996. For the first six months of 1997, the Company's loss totaled
$1.3 million ($.59 per share) versus a loss of $667,000 ($.34 per share) in
the first half of 1996. The Company's year-to-date loss from continuing
operations was $1.2 million in 1997 compared to a $1 million loss in 1996. The
poorer results are attributable to higher life and disability claims in the
Company's credit insurance operations in the second quarter. A more detailed
discussion of the operating performance of the Automotive Resource Division
and a brief discussion of certain items which affected the two discontinued
businesses are presented later in this analysis under Results of Operations.
The Company's planned merger with LaSalle Group, Inc. was terminated on
July 25, 1997 as a result of LaSalle's inability to provide the funding
necessary to complete the merger transaction. On July 28, 1997, the Company
signed a letter of intent to sell its credit insurance operations and its
principal insurance subsidiary to Life of the South Corporation, a Georgia-
based insurance holding company with administrative offices in Florida.
Closing on the transaction is subject to completion of due diligence by Life of
the South, insurance regulatory approval and the approval of the Company's
shareholders.
The Company intends to liquidate its remaining assets, pay all creditors and
preferred shareholders and distribute the remaining cash to its common
shareholders. Since the selling price for the Company's marketing
organization will be received over a five-year period, the final distribution
to common shareholders cannot be made until the end of the five-year period.
The planned sale of the Company's insurance operations and the
liquidation of its remaining assets are essential to preserving shareholder
value in light of the continuing losses the Company has incurred in recent
years.
The following table presents year-to-date and second quarter revenues and
operating results for 1997 and 1996. All amounts relating to the Individual
Life Insurance Division and the Auto Auction Division for 1996 have been
presented as discontinued operations for comparative purposes.
<TABLE>
<CAPTION> Six Months Second Quarter
(in thousands, except per share amounts) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Total revenues by source:
Premiums written $10,250 $9,869 $5,268 $5,002
Net investment income 1,139 1,038 538 505
Realized investment gains (losses) 246 (22) 318 (21)
Fees and other income 542 752 243 310
$12,177 $11,637 $6,367 $5,796
Pre-tax loss from continuing operations:
Automotive Resource Division ($1,932) ($930) ($1,099) ($140)
Other (101) (170) (96) (52)
(2,033) (1,100) (1,195) (192)
Realized investment gains (losses) 246 (22) 318 (21)
Pre-tax loss from continuing operations (1,787) (1,122) (877) (213)
Income tax expense (benefit) (597) (77) (166) 176
Loss from continuing operation (1,190) (1,045) (711) (389)
Discontinued operations, net of income (118) 378 13 146
Net loss ($1,308) ($667) ($698) ($243)
Income (loss) per common share:
Loss from continuing operations ($0.54) ($0.48) ($0.31) ($0.19)
Discontinued operations (0.05) 0.14 0.05
Net Loss ($0.59) ($0.34) ($0.31) ($0.14)
</TABLE>
RESULTS OF OPERATIONS
The Company's pre-tax operating results can be best understood through an
analysis of each of its three business units. The Automotive Resource
Division, the Company's core business, is now the only continuing business
segment. The Division's principal product is credit insurance, which it
markets primarily through automobile dealers in six key states. It also
markets automobile extended service contracts in a general agency capacity and
generates other revenues from services it provides to its 900 automobile dealer
customers. The Individual Life Insurance Division has not written any new
business since 1992. The Company completed the sale of the Division's
remaining block of insurance business on March 27, 1997. The transaction was
effective January 1, 1997. Auto auction operations were conducted through the
Company's subsidiary, Interstate Auto Auction, Inc. until the sale of
Interstate's business and related operating assets in late 1996.
CONTINUING OPERATIONS - AUTOMOTIVE RESOURCE DIVISION
Credit insurance premium revenues in the second quarter decreased by 17.5% to
$7.3 million, following a 15.6% decline in the first quarter of 1997. For
the year, premium revenues totaled $13.5 million, a 16.6% drop from the $16.2
million in revenues reported in the first half of 1996. A significant portion
of the decline in revenues is attributable to the cancellation of unprofitable
business by the Company. In mid-1996, the Company cancelled all of its
business in the state of North Carolina. Later in that year, all of the
accounts in Tennessee and certain unprofitable accounts in Virginia and Ohio
were also cancelled. However, even without the effects of the cancelled
business, the Division's credit insurance premium production is significantly
below pre-1990 levels due to the declines which occurred during the economic
recession of the early 1990's and due to the increase in automobile leasing,
for which credit insurance is generally not sold. A consequence of the decline
in written premiums has been a reduction in earned premiums, which in turn has
resulted in a substantial increase in operating expense ratios. Higher
expense ratios are a key reason for the unprofitable operating results the
Division has experienced in recent years.<PAGE>
The Division's pre-tax operating
results for the first six months of 1997 declined significantly from a
$930,000 loss in 1996 to a $1.9 million loss in 1997. All of the decline
occurred in the second quarter, as a result of substantially higher life and
disability claims. A decrease in earned premiums due to a decline in the
written premium base, as discussed above, also contributed to the poorer
results.
The continued unprofitable results have led to the planned sale of the
Company's insurance operations (its inforce block of insurance business, its
marketing organization and its principal insurance subsidiary) to Life of the
South Corporation, as stated above.
DISCONTINUED OPERATIONS - INDIVIDUAL LIFE INSURANCE DIVISION
As indicated above, effective January 1, 1997, the Company sold its remaining
block of individual life insurance business. The Company continued to
administer the business for the purchaser through June 1997 and received an
administrative fee to cover its expenses. In March, the Company sold
approximately $8.3 million in bonds in order to close the transaction and
deliver to the buyer cash and other assets sufficient to cover the policy
liabilities on the business less the buyer's purchase price.
Those sales resulted in a loss of approximately $123,000, which has been
included with discontinued operations as an additional loss on the disposal of
the business. The after-tax loss on the disposal of this discontinued business
had originally been estimated to be approximately $914,000, which was included
in the Company's 1996 financial statements.
DISCONTINUED OPERATIONS - AUTO AUCTION DIVISION
In late 1996, the Company sold the auto auction business and related operating
assets (property and equipment and inventories) of Interstate Auto Auction for
cash of $4.85 million. The Division's net income for the first six months of
1996, which excludes any continuing overhead, was $248,000. This amount has
been presented in the current financial statements as income from discontinued
operations. Approximately $1.7 million of the proceeds from the sale of the
auto auction business was used to repay the remaining amount due on the
Company's bank loans. The Company also contributed $1 million of the proceeds
to its principal insurance subsidiary.
FINANCIAL CONDITION
<TABLE>
<CAPTION>(in thousands, except per share June 30, December 31,
amounts) 1997 1996
<S> <C> <C>
Invested assets $38,144 $51,189
Total assets $93,334 $114,619
Total debt $0 $0
Total shareholders' equity and redeemable
preferred stock $11,817 $13,343
Shareholders' equity per common share $2.74 $3.31
</TABLE>
INVESTED ASSETS
Invested assets at June 30, 1997 were $38.1 million compared to $51.2 million
in investments at the end of 1996. A substantial portion of the decline is the
result of the settlement on the sale of the individual life insurance business,
in which the Company transferred approximately $8.8 million in cash and
investments to the buyer. In addition, the invested asset base at year-end<PAGE>
included approximately $500,000 which was required in the first quarter of 1997
to pay the Federal and state income taxes on the gain from the sale of the auto
auction business in 1996.
The Company s bond portfolio is carried at fair value (which approximates
amortized cost at June 30, 1997) pursuant to the requirements of Statement of
Financial Accounting Standards No. 115, based on the Company's determination
that all of its bonds should be considered as "available-for-sale", although
the Company has no current intentions to sell any of these securities. The
unrealized appreciation or depreciation on available-for-sale securities is
reported as a separate component of shareholders' equity. The planned sale of
the Company s credit insurance business, as discussed previously, will result
in the sale of substantially all of the Company s bond investments, since the
Company must deliver cash to the buyer to cover the policy reserve liabilities
being transferred less the buyer s purchase price.
LIQUIDITY
The Company's operating subsidiaries have historically met most of their cash
requirements from funds generated from operations, although reduced credit
insurance revenues over the past several years have had an adverse impact on
the insurance companies' operating cash flows. The Company has generally
relied on its operating subsidiaries to provide it with sufficient cash funds
to maintain an adequate liquidity position. In that regard, the life
insurance subsidiaries are also subject to restrictions imposed by law on
their ability to transfer cash to the Company in the form of dividends, loans
or advances. Consumers Car Care Corporation provides the Company with sources
of cash which are not subject to insurance regulations that restrict its
ability to transfer cash. Similarly, prior to the sale of its business,
Interstate Auto Auction also provided an unrestricted source of cash. The net
cash provided by or used in operating activities for the six months ended June
30, 1997 and 1996 is presented in the Consolidated Statements of Cash Flows.
CAPITAL RESOURCES
The Company's total equity, including redeemable preferred stock, decreased by
approximately $1.5 million in the first six months of 1997. The decrease is
attributable to (1) the year-to-date loss of $1.3 million and (2) $209,000 in
dividends to preferred shareholders. Shareholders' equity per common share
dropped from $3.31 at year end to $2.74 at June 30, 1997.
The Company s insurance subsidiaries utilize reinsurance agreements to finance
their credit insurance operations and maintain adequate levels of statutory
capital and surplus. These agreements minimize reductions of statutory surplus
which result from new premium production.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters discussed in Note 3 of the Notes to Consolidated
Financial Statements included elsewhere in this Form 10-Q, neither the
registrant nor its subsidiaries are involved in any pending legal proceedings
other than routine litigation incidental to the normal conduct of its business
nor have any such proceedings been terminated during the three months ended
June 30, 1997.
ITEM 2. CHANGES IN SECURITIES
During the three months ended June 30, 1997, there have been no limitations or
qualifications, through charter documents, loan agreements or otherwise, placed
upon the holders of the registrant's common or preferred stock to receive
dividends.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES<PAGE>
The registrant has not defaulted in
the payment of principal, interest or in any other manner on any indebtedness
and is current with all its accounts. There is no arrearage in the payment
of dividends on the registrant's preferred stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the registrant
during the three months ended June 30, 1997.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
(11) Computation of Earnings per Common Share.
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(b) Reports on Form 8-K:
On April 8, 1997, the registrant filed a Form 8-K with respect to
certain amendments which were made to the Agreement and Plan of Merger
(the "Merger Agreement") between the registrant and LaSalle Group,
Inc. dated October 30, 1996.The amendments (a) extended the time
period for closing the merger transaction and (b) changed the formula
for determining the final merger consideration to be received by the
registrant's common shareholders.
The registrant also filed a Form 8-K on May 8, 1997 in which it
reported that the parties had agreed to forbear on exercising their
respective rights to terminate the Merger Agreement until after June
15, 1997. LaSalle further agreed that if, by May 15, 1997, it could
not provide the Registrant with satisfactory evidence of the cash
funds necessary to complete the merger, LaSalle would waive the
exclusivity provision of the Merger Agreement, thereby allowing the
registrant to solicit, after May 15, 1997, other offers for the sale
of its assets or shares of its common stock.
On August 11, 1997, the registrant filed another Form 8-K to report
the July 25, 1997 termination of the Merger Agreement as a result of
LaSalle s inability to provide the funding necessary to complete the
merger transaction. The August 11 filing also reported that the
registrant had signed a letter of intent to sell its credit insurance
operations to Life of the South Corporation.
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.
CONSUMERS FINANCIAL CORPORATION
Registrant
Date August 19, 1997 By /S/ James C. Robertson
James C. Robertson, President
(Chief Executive Officer)
Date August 19, 1997 By /S/ R. Fredric Zullinger
R. Fredric Zullinger
Senior Vice President, Chief Financial
Officer and Treasurer
EXHIBIT 11
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Six Months Ended June 30, Three Months Ended June 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Reconciliation of net loss per Statements of
Operations to amount used in primary
earnings per share computation:
Net loss ($1,308) ($667) ($697) ($243)
Preferred dividend requirement (209) (205) (107) (102)
Accretion in carrying value of preferred (18) (18) (9) (9)
Net loss, as adjusted ($1,535) ($890) ($813) ($354)
Reconciliation of weighted average number of shares
outstanding to amount used in primary earnings
share computation:
Weighted average number of common shares
outstanding 2,606 2,615 2,603 2,613
Add weighted average number of shares
from assumed exercise of stock 0 0 0 0
Weighted average number of shares of
stock and equivalents outstanding 2,606 2,615 2,603 2,613
Net loss per common and common equivalent share ($0.59) ($0.34) ($0.31) ($0.14)
</TABLE>
EXHIBIT 11
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Six Months Ended June 30, Three Months Ended June 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Fully Diluted Earnings Per Share
Reconciliation of net loss per Statements of
Operations to amount used in fully diluted
earnings per share computation:
Net loss ($1,308) ($667) ($697) ($243)
Reconciliation of weighted average number of shares
outstanding, as adjusted, per primary
on preceding page, to amount used in fully
earnings per share computation:
Weighted average number of shares
as adjusted per primary computation
preceding page 2,606 2,615 2,603 2,613
Add shares issuable from assumed
8 1/2 % cumulative convertible 713 713 713 713
Weighted average number of shares of
stock and equivalents outstanding 3,319 3,328 3,316 3,326
Fully diluted earnings per share * * * *
* Anti-dilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
12-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996 JUN-30-1997 JUN-30-1996
DEC-31-1996
<PERIOD-START> JUN-30-1997 JUN-30-1996 JUN-30-1997 JUN-30-1996
DEC-31-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996 JUN-30-1997 JUN-30-1996
DEC-31-1996
<DEBT-HELD-FOR-SALE> 0 0 28,396,650 0
42,617,840
<DEBT-CARRYING-VALUE> 0 0 0 0
0
<DEBT-MARKET-VALUE> 0 0 0 0
0
<EQUITIES> 0 0 0 0
0
<MORTGAGE> 0 0 2,147,394 0
2,285,721
<REAL-ESTATE> 0 0 0 0
0
<TOTAL-INVEST> 0 0 38,144,263 0
51,188,651
<CASH> 0 0 376,060 0
556,349
<RECOVER-REINSURE> 0 0 0 0
0
<DEFERRED-ACQUISITION> 0 0 16,583,810 0
18,948,551
<TOTAL-ASSETS> 0 0 93,334,378 0
114,618,553
<POLICY-LOSSES> 0 0 21,252,187 0
35,385,867
<UNEARNED-PREMIUMS> 0 0 52,227,726 0
56,177,708
<POLICY-OTHER> 0 0 2,505,401 0
2,735,866
<POLICY-HOLDER-FUNDS> 0 0 5,532,098 0
6,976,720
<NOTES-PAYABLE> 0 0 0 0
0
0 0 0 0
0
0 0 4,703,289 0
4,692,610
<COMMON> 0 0 30,215 0
30,215
<OTHER-SE> 0 0 7,083,462 0
8,619,567
<TOTAL-LIABILITY-AND-EQUITY> 0 0 93,334,378 0
114,618,553
5,267,245 5,002,224 10,249,682 9,868,748
0
<INVESTMENT-INCOME> 538,143 505,101 1,139,341 1,038,127
0
<INVESTMENT-GAINS> 318,405 (21,763) 245,900 (22,267)
0
<OTHER-INCOME> 243,427 310,867 542,035 752,746
0
<BENEFITS> 3,386,863 2,569,886 6,635,991 5,448,250
0
<UNDERWRITING-AMORTIZATION> 2,194,123 2,460,864 4,608,915 4,956,986
0
<UNDERWRITING-OTHER> 1,663,160 978,393 2,719,023 2,354,354
0
<INCOME-PRETAX> (876,926) (212,714) (1,786,971) (1,122,236)
0
<INCOME-TAX> (166,677) 176,573 (597,237) (76,763)
0
<INCOME-CONTINUING> 0 0 0 0
0
<DISCONTINUED> 12,976 146,185 (118,007) 378,308
0
<EXTRAORDINARY> (697,273) (243,102) (1,307,741) (667,165)
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> (697,273) (243,102) (1,307,741) (667,165)
0
<EPS-PRIMARY> (.31) (.14) (.59) (.34)
0
<EPS-DILUTED> 0 0 0 0
0
<RESERVE-OPEN> 0 0 0 0
0
<PROVISION-CURRENT> 0 0 0 0
0
<PROVISION-PRIOR> 0 0 0 0
0
<PAYMENTS-CURRENT> 0 0 0 0
0
<PAYMENTS-PRIOR> 0 0 0 0
0
<RESERVE-CLOSE> 0 0 0 0
0
<CUMULATIVE-DEFICIENCY> 0 0 0 0
0
</TABLE>
