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 SEPTEMBER 30, 1998
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 November 13, 1998
$.01 Stated Value 2,583,835 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements:
Consolidated Statement of Net Assets in Liquidation - 3
September 30, 1998
Consolidated Statement of Changes in Net Assets in Liquidation - 4
For the Period from March 25, 1998 to September 30, 1998
and for the Three Months Ended September 30, 1998
Consolidated Balance Sheet - December 31, 1997 5
Consolidated Statements of Operations - 6
For the Period from January 1, 1998 to March 24, 1998
and for the Nine and Three Months Ended September 30, 1997
Consolidated Statements of Cash Flows - 7
For the Period from January 1, 1998 to March 24, 1998
and for the Nine Months Ended September 30, 1997
Notes to Consolidated Financial Statements 8 - 14
Item 2. Management s Discussion and Analysis of Results of 15-17
Operations and Financial Condition
PART 2. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>(in thousands)
<S> <C>
Assets
Investments:
Fixed maturities $1,050
Mortgage loans on real estate 1,589
Other invested assets 74
Short-term investments 2,558
Total investments 5,271
Cash 208
Accrued investment income 46
Receivables 21,275
Prepaid reinsurance premiums 36,405
Deferred policy acquisition costs 25
Property and equipment 1,180
Other real estate 189
Other assets 572
Total assets 65,171
Liabilities and Redeemable Preferred Stock
Liabilities:
Future policy benefits 17,476
Unearned premiums 37,342
Other policy claims and benefits payable 3,367
Other liabilities 1,247
Income taxes:
Current 2
Deferred (361)
59,073
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible 4,815
Total liabilities and redeemable preferred stock 63,888
Net assets in liquidation $1,283
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
<CAPTION> FOR THE PERIOD
FROM MARCH 25, THREE MONTHS
1998 ENDED
TO SEPTEMBER 30, SEPTEMBER 30,
(in thousands) 1998 1998
<S> <C> <C>
Operating income:
Net investment income $394 $122
Fees from sale of customer accounts 215 60
Joint venture fees 223 45
Net realized investment losses (3) (5)
Gain (loss) on disposal of discontinued business 84 (40)
Miscellaneous 128 63
1,041 245
Operating expenses:
Rent and related costs 181 109
Salaries, wages and employee benefits 265 113
Professional fees 274 108
Taxes, licenses and fees 164 30
Miscellaneous 80 30
964 390
Operating income (loss) before income taxes 77 (145)
Income tax expense (143) (30)
Decrease in unrealized appreciation of debt securities (37) (22)
Preferred stock dividends (204) (102)
Adjustment of preferred stock to redemption value (175)
Retirement of treasury shares-preferred 57
Purchase of treasury shares-common (7)
Decrease in net assets for the period (432) (299)
Net assets at beginning of period 1,715 1,582
Net assets at September 30, 1998 $1,283 $1,283
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>(in thousands)
<S> <C>
Assets
Investments:
Fixed maturities $5,857
Mortgage loans on real estate 2,086
Other invested assets 295
Short-term investments 32,763
Total investments 41,001
Cash 641
Accrued investment income 268
Receivables 16,639
Prepaid reinsurance premiums 9,572
Deferred policy acquisition costs 13,570
Property and equipment 1,350
Other real estate 783
Other assets 1,211
$85,035
Liabilities, Redeemable Preferred Stock and Shareholders Equity
Liabilities:
Future policy benefits $21,467
Unearned premiums 49,994
Other policy claims and benefits payable 2,539
Other liabilities 4,556
Income taxes:
Current 430
Deferred (445)
78,541
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, net of treasury stock 4,688
Shareholders equity:
Common stock 30
Capital in excess of stated value 7,989
Net unrealized appreciation of debt securities 54
Deficit (4,796)
Treasury stock (1,471)
1,806
$85,035
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION> For the Period
from Nine Months Three Months
January 1, 1998 Ended Ended
to March 24, September 30, September 30,
(in thousands, except per share data) 1998 1997 1997
<S> <C> <C> <C>
Revenues:
Premiums written ($27) ($10)
Decrease in unearned premiums 296 99
Premium income 269 89
Net investment income $112 50 12
Net realized investment gains 24 8 (184)
(losses)
Fees and other income 181 173 164
317 500 81
Benefits and expenses:
Death and other benefits 374 143
Amortization of deferred policy
acquisition costs 7 2
Operating expenses 420 571 40
420 952 185
Loss from continuing operations
before income tax benefit (103) (452) (104)
Income tax benefit (15) (196) (80)
Loss from continuing operations (88) (256) (24)
Discontinued operations:
Gain (loss) from operations of
discontinued businesses (net of
income taxes) (825) 133
Gain (loss) on disposal of
discontinued businesses
(net of income taxes) 112 (125) (7)
112 (950) 126
Net income (loss) $24 ($1,206) $102
Basic and diluted income (loss) per
common share:
Loss from continuing operations ($0.08) ($0.23) ($0.05)
Discontinued operations 0.04 (0.37) 0.04
Net loss ($0.04) ($0.60) ($0.01)
Weighted average number of
shares outstanding 2,596 2,602 2,597
Cash dividends declared per common share NONE NONE NONE
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> For the Period from Nine Months Ended
January 1, 1998 to September 30,
(in thousands) March 24, 1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $24 ($1,206)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Deferred policy acquisition costs incurred (7,543)
Amortization of deferred policy costs 7,080
Other amortization and depreciation 24 318
Change in future policy benefits (3,089)
Change in unearned premiums (4,342)
Change in amounts due reinsurers (142) (1,022)
Income taxes (15) (1,828)
Change in prepaid reinsurance premiums 6,411
Change in other receivables 1,497 4,303
Change in other liabilities (376) (307)
Net assets transferred in sale of credit
insurance business (3,647)
Other (434) 42
Total adjustments (3,093) 23
Net cash used in operating activities (3,069) (1,183)
Cash flows from investing activities:
Purchase of investments (3) (12,061)
Maturity of investments 1,000 738
Sale of investments 1,829 12,832
Net cash provided by investing activities 2,826 1,509
Cash flows from financing activities:
Purchase of treasury stock (63)
Cash dividends to shareholders (109) (316)
Net cash used in financing activities (109) (379)
Net decrease in cash (352) (53)
Cash at beginning of period 641 556
Cash at end of period $289 $503
</TABLE>
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. OVERVIEW AND BASIS OF ACCOUNTING:
The operating losses incurred by the Company over the past five years have
significantly reduced its net worth and liquidity position. As a result, in
late 1997, the Company signed an agreement to sell its core credit insurance
and related products business, which had been its only remaining business
operation, following the sales in 1994 and 1997 of all of its universal life
insurance business and the 1996 sale of its auto auction business. Settlement
on the sale of the credit insurance business took place in May 1998. The
Company s income or loss from operations now consists principally of (i) earned
premium and related costs associated with a small, closed block of extended
service contract business, (ii) fee revenues received from Life of the South
Corporation (LOTS), a Georgia-based financial services holding company which
acquired the Company s credit insurance customer accounts, (iii) investment
income on remaining assets and (iv) corporate expenses.
On March 24, 1998, the Company s shareholders approved a Plan of
Liquidation and Dissolution, as discussed in Note 2 below. Accordingly, the
Company has adopted a liquidation basis of accounting for the period subsequent
to March 24, 1998. Under the liquidation basis of accounting, assets are stated
at their estimated net realizable values and liabilities are stated at
their anticipated settlement amounts. Prior to March 25, 1998, the Company
reported the results of its operations and its asset and liability amounts
using accounting principles applicable to going concern entities.
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 1997 Form 10-K.
The changes in net assets for the period from March 25, 1998 to September
30, 1998 are not necessarily indicative of the changes to be expected for the
full year.
2. DISCONTINUED OPERATIONS AND PLAN OF LIQUIDATION:
On December 30, 1997, the Company entered into an agreement with LOTS,
pursuant to which the Company would (i) sell its credit insurance and fee
income accounts to LOTS effective October 1, 1997, (ii) sell its
September 30, 1997 inforce block of credit insurance business to American
Republic Insurance Company (American Republic), LOTS financial partner in the
transaction, effective January 1, 1998 and (iii) sell one of its wholly-owned
reinsurance subsidiaries to LOTS as of January 1, 1998. LOTS and the Company
also agreed that, with respect to the Company s principal insurance
subsidiary, new credit insurance business produced by that subsidiary s former
customer accounts, which were transferred to LOTS, will continue to be written
on the policy or certificate forms of the subsidiary until September 30, 1999,
or an earlier date which may be agreed to by the parties. This premium and
the related insurance risk are also being reinsured 100% to American Republic.
The sale of the inforce block of business referred to in (ii) above was
completed on May 13, 1998 after the required approvals of the Company s
preferred and common shareholders and state insurance regulators in the states
of Delaware and Ohio were received. Settlement on the sale of the reinsurance
subsidiary referred to in (iii) above occurred on September 28, 1998, following
the approval in late August of the insurance regulators in the state of
Arizona.
The sale of the inforce block of business resulted in an after-tax loss of
approximately $3,665,000, of which $3,919,000 was reflected in the Company s
fourth quarter 1997 financial statements through a write-down of deferred
policy acquisition costs. The 1997 loss included an $819,000 loss from
operations from September 30, 1997 (the measurement date) to December 31,
1997. An offsetting gain on disposal of $254,000, which results from
adjustments to certain estimates made in 1997, has been included in the
Company s 1998 financial statements.
In addition to approving the sale of the inforce credit insurance business,
at the Special Meeting of Shareholders held on March 24, 1998, the Company s
shareholders also approved a Plan of Liquidation and Dissolution, pursuant to
which the Company intends to liquidate its remaining assets, provide for all of
its liabilities, redeem its preferred stock at par value and distribute all
remaining cash to its common shareholders. Pursuant to the terms of its
agreement with LOTS, the Company will receive payments from LOTS over a five-
year period based on the amount of credit insurance premiums produced by the
customer accounts sold by the Company to LOTS. The Company may also receive a
payment from a contingency fund established by the parties based on the claims
experience on the inforce credit insurance business from October 1, 1997 to
September 30, 2002. Because of these future payments and potential future
payments, the final distribution to the Company s common shareholders will not
be made until late in 2002 when the amounts due from LOTS have been received.
The Company has made substantial reductions in its number of employees during
the past several years as a result of the discontinuation of its various
businesses. As of November 11, 1998, six people are employed by the Company.
During the liquidation period, the Company intends to outsource most of the
functions which will continue to be required.
3. 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> September 30, December 31,
1998 1997
<S> <C> <C>
Deferred tax liabilities:
Fixed maturities $11 $28
Deferred policy acquisition costs 9 4,614
Other 41 168
61 4,810
Deferred tax assets:
Future policy benefits and financial 70 5,252
reinsurance
Net operating loss carryforwards 2,464 2,011
Other 199 225
2,733 7,488
Valuation allowance for deferred 2,311 (2,233)
tax assets
422 5,255
Net deferred tax asset ($361) ($445)
</TABLE>
Significant components of the provision for income taxes are as follows (in
000's):
<TABLE>
<CAPTION> For the Period Nine Months Three Months
from January 1, Ended Ended
1998 September 30, September 30,
to March 24, 1998 1997 1997
<S> <C> <C> <C>
Current:
Federal ($18) ($186) ($51)
State 2 82 31
Total current (16) (104) (20)
Deferred 1 (92) (60)
Income tax benefit related
to continuing operations (15) (196) (80)
Income tax benefit included
with discontinued operations:
Current (470) (58)
Deferred (235) (107)
0 (705) (165)
Total income tax benefit ($15) ($901) ($245)
</TABLE>
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> For the Period
from Nine Months
January 1, 1998 Ended
to March 24, September 30,
1998 1997
<S> <C> <C>
Loss from continuing operations before
income tax benefit ($103) ($452)
Income tax benefit at 34% statutory rate
on pre-tax loss ($35) ($154)
State income taxes 2 13
Items not includable for tax purposes 79 7
Other, net (61) (62)
Actual income tax benefit ($15) ($196)
4. COMMITMENTS AND CONTINGENCIES:
In 1989, the Company entered into an agreement for the lease of office
space. The facility contains approximately 44,500 square feet of office space.
The term of the lease is ten years with an option to renew for one additional
term of five years. Until March 1994, monthly lease payments were $35,000. In
March 1994, the Company exercised its option to acquire a 50% interest in this
property at a price of $1,750,000. The Company continues to lease the entire
building, which is classified as an operating lease, but at monthly rent of
$17,000 through July 1999, although the Company has subleased a portion of the
office space which it does not otherwise occupy. The Company has no other
significant leases.
In August 1997, the Company received a notice of proposed adjustment from
the Internal Revenue Service (IRS) as a result of a tax examination for the
years ended December 31, 1992 and 1993. In November 1998, the IRS notified the
Company that virtually all of the proposed adjustment had been rescinded.
In connection with the cancellation of a joint venture agreement in 1996,
the Company agreed to pay its former joint venture partner a pro rata share of
the proceeds, if any, it receives from the sale of its credit insurance
accounts. Accordingly, over the next five years the Company will pay its former
partner approximately 19% of any gross fee revenues received from LOTS for the
sale of its customer accounts.
Reinsured risks would give rise to liability to the insurance subsidiaries
only in the event that the reinsuring company is unable to meet its obligations
under the reinsurance agreements in force.
In November 1997, the Company and a third party reinsurer were sued by 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.
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.
5. PER SHARE INFORMATION:
The following table sets forth the computation of basic and diluted per
share data.
</TABLE>
<TABLE>
<CAPTION> For the Period
from Nine Months Three Months
January 1, 1998 Ended Ended
to March 24, September 30, September 30,
(in thousands, except per share amounts) 1998 1997 1997
<S> <C> <C> <C>
Loss from continuing operations ($88) ($256) ($24)
Preferred stock dividends (109) (316) (107)
Accretion of carrying value of
preferred stock (9) (27) (9)
Numerator for basic loss per share -
loss attributable to
common shareholders (206) (599) (140)
Effect of dilutive securities 0 0 0
Numerator for diluted loss per share ($206) ($599) ($140)
Denominator for basic loss per share -
weighted average shares 2,596 2,602 2,597
Effect of dilutive securities 0 0 0
Denominator for diluted loss per share 2,596 2,602 2,597
Basic and diluted loss per common share ($0.08) ($0.23) ($0.05)
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
A review of the significant factors which affected the Company's 1998
operating performance as well as its financial position at September 30, 1998
is presented below. Information relating to 1997 is also presented for
comparative purposes. This analysis should be read in conjunction with the
Consolidated Financial Statements and the related Notes appearing elsewhere in
this Form 10-Q.
OVERVIEW
At a Special Meeting of Shareholders held on March 24, 1998, the Company's
preferred and common shareholders approved the sale of the Company's core
credit insurance and related products business, which was the Company's
only remaining business operation, following various sales over the past six
years of its traditional and universal life insurance business and its auto
auction business.
At the Special Meeting, the shareholders also approved a Plan of
Liquidation and Dissolution, pursuant to which the Company plans to liquidate
its remaining assets, provide for all of its liabilities, redeem its preferred
stock at par value and distribute all remaining cash to its common
shareholders. Because payments for the sale of the credit insurance customer
accounts will be received from the purchaser over a five-year period, and
since any potential distribution from a contingency fund established by the
Company and the purchaser will not be made to the Company until 2002, the
final liquidating distribution to the common shareholders cannot be made until
late in 2002 when all amounts due from the purchaser have been received. The
Company has reduced its number of employees to six and will eventually
outsource most of the functions which will continue to be required to
complete the liquidation process.
As a result of the approval of the Plan of Liquidation, the Company has
adopted a liquidation basis of accounting in its financial statements for
periods subsequent to March 24, 1998. Under liquidation accounting rules,
assets are stated at their estimated net realizable values and liabilities
are stated at their anticipated settlement amounts. Prior to March 25, 1998,
the Company reported the results of its operations and its asset and liability
amounts using accounting principles applicable to going concern entities.
RESULTS OF OPERATIONS
As a result of the sale of its remaining business and the adoption of the
Plan of Liquidation, as discussed above, the Company's operating income and
expenses now consist principally of (i) fee income from Life of the South
Corporation (LOTS) for the sale of the Company's customer accounts, (i)
investment income on existing assets and (iii) corporate expenses, primarily
salaries, legal and accounting fees and building rent and related costs. A
discussion of the material factors which affected the Company's results from
both continuing operations and discontinued operations (for the period prior to
March 25, 1998) and its changes in net assets (for the period from March 25,
1998 to September 30, 1998) is presented below. Information for 1997 is also
presented for comparative purposes.
During the period from March 25, 1998 through September 30, 1998, the
Company's excess of operating income over operating expenses before income
taxes totaled $77,000. A key reason for the excess is the fact that settlement
on the sale of the Company's credit insurance business to LOTS, which
involved the transfer of approximately $30 million to the purchaser, did not
occur until May 13, 1998. The Company therefore earned investment income on
these assets until they were transferred. Investment income will decline
substantially in future periods. The Company also reported a significant
increase in joint venture fees earned on a now terminated venture due to
improved claims experience. Fees from LOTS for the sale of the customer
accounts were $215,000 from March 25 to September 30. Operating expenses
during this period were $964,000, which included $265,000 in salaries and
related benefits and $274,000 in legal, accounting and other fees. Both
salaries and fees are expected to decline in future periods. The Company also
reported income tax expense of $143,000 for the March 25 to September 30
period.
In the third quarter of 1998, the Company incurred operating expenses which
exceeded its operating income by $145,000 on a pre-tax basis. The loss is
attributable to lower investment income, for the reasons described above, and
to a further write-down of certain real estate.
During the period from January 1, 1998 to March 24, 1998, the Company
reported an $88,000 loss from continuing operations, income of $112,000 from
discontinued operations (representing an adjustment to certain estimates made
in 1997 with respect to the loss on the sale of the credit insurance
business) and net income of $24,000 ( a loss of $.04 per share).
On a year-to-date basis, the Company's total net loss for 1998 was $42,000
compared to a $1.2 million net loss in the first nine months of 1997. Virtually
all of the improvement results from the elimination of the losses which were
being incurred in the credit insurance business prior to its sale and from
further reductions of overhead expenses.
ESTIMATED NET EXPENSES DURING LIQUIDATION PERIOD
As indicated above, the Company's liquidation process is expected to
continue for a period of approximately five years, at which time all fee
payments and other potential distributions will have been received from LOTS.
During this period, certain corporate expenses will continue to be incurred and
investment income will continue to earn on any assets which have not been
distributed to shareholders. Further, the Board of Directors may determine
during this period that distributions to the common shareholders would be
increased by transferring all of the Company's remaining net assets into a
liquidating trust, in which case the trustees of such trust would be
responsible for liquidating all remaining assets, paying all liabilities and
making the final distributions to shareholders. Based on current estimates
which exclude any potential savings, if any, from the use of a liquidating
trust, the Company believes that its future operating expenses and other
costs, including preferred stock dividends, will exceed fee income and other
revenues during the five-year period by approximately $300,000 to $400,000.
Actual income and expenses could vary significantly from the present estimates
due to uncertainties as to when certain assets will be liquidated, when the
preferred stock will be redeemed, the level of actual expenses which will be
incurred and the ultimate resolution of various contingencies which may arise.
YEAR 2000 COMPLIANCE
Because the Company is no longer conducting any business operations and is
in the process of liquidating its remaining assets, it is therefore relying,
both directly and indirectly, on fewer computer systems than in the past to
complete its day to day activities. Consequently, management believes that the
impact of any potential failure of its own computer systems or those of its
relatively few service providers to properly distinguish the year 2000 from the
year 1900 will not be significant. However, management has reviewed its own
computer systems (consisting principally of a general ledger account system and
a shareholder data base system) and determined that those systems are currently
year 2000 compliant. Further, management is in the process of determining,
through inquiry and documentation, that the systems used by certain third party
vendors are or will be year 2000 compliant before December 31, 1999.
FINANCIAL CONDITION
The Company's net assets in liquidation were $1,715,000 at March 24, 1998
compared to $1,283,000 at September 30, 1998. Net assets decreased by $66,000
as a result of the excess of operating expenses and income taxes over operating
income during the period. Additional decreases resulted from $204,000 in
preferred stock dividends and a $175,000 adjustment to reflect the preferred
stock at its redemption value of $10 per share. In May, the Company reduced
both its assets and liabilities by approximately $30 million when it closed on
the sale of its credit insurance business. Similarly, in September, the Company
utilized the $3 million in proceeds it received from the sale of one of its
insurance subsidiaries to pay the remaining amount due to the purchaser of the
credit insurance business.
INVESTED ASSETS
Total investments decreased from $41 million at the end of 1997 to $5.3
million at September 30, 1998. The decrease is the result of the transfer of
approximately $36 million to the purchaser of the Company s credit insurance
business.
PART 2. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except for the matters discussed in Note 4 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 September 30, 1998.
ITEM 2. CHANGES IN SECURITIES
During the three months ended September 30, 1998, 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
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 September 30, 1998.
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:
None
(b) No reports on Form 8-K were filed by the Company during the three
months ended September 30, 1998.
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 November 17, 1998 By /S/
James C. Robertson, President
(Chief Executive Officer)
Date November 17, 1998 By /S/
R. Fredric Zullinger
Senior Vice President,
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997 SEP-30-1998 SEP-30-1997
DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997 SEP-30-1998 SEP-30-1997
DEC-31-1997
<DEBT-HELD-FOR-SALE> 0 0 1,050,311 0
5,856,835
<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 1,588,871 0
2,085,760
<REAL-ESTATE> 0 0 0 0
0
<TOTAL-INVEST> 0 0 5,271,401 0
41,000,598
<CASH> 0 0 207,742 0
641,234
<RECOVER-REINSURE> 0 0 0 0
0
<DEFERRED-ACQUISITION> 0 0 25,075 0
13,569,943
<TOTAL-ASSETS> 0 0 65,170,501 0
85,035,320
<POLICY-LOSSES> 0 0 17,476,040 0
21,466,953
<UNEARNED-PREMIUMS> 0 0 37,342,306 0
49,994,397
<POLICY-OTHER> 0 0 3,367,114 0
2,538,593
<POLICY-HOLDER-FUNDS> 0 0 0 0
0
<NOTES-PAYABLE> 0 0 0 0
0
0 0 0 0
0
0 0 4,814,610 0
4,687,913
<COMMON> 0 0 29,492 0
30,191
<OTHER-SE> 0 0 1,253,432 0
1,775,167
<TOTAL-LIABILITY-AND-EQUITY> 0 0 65,170,501 0
85,035,320
0 0 233,671 15,622,203
0
<INVESTMENT-INCOME> 0 0 862,832 1,589,007
0
<INVESTMENT-GAINS> 0 0 20,094 224,367
0
<OTHER-INCOME> 0 0 729,753 901,943
0
<BENEFITS> 0 0 0 9,445,642
0
<UNDERWRITING-AMORTIZATION> 0 0 0 7,079,717
0
<UNDERWRITING-OTHER> 0 0 1,973,795 3,711,242
0
<INCOME-PRETAX> 0 0 (127,445) (1,909,081)
0
<INCOME-TAX> 0 0 127,629 (827,706)
0
<INCOME-CONTINUING> 0 0 0 0
0
<DISCONTINUED> 0 0 213,786 (124,378)
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 0 0 (41,288) (1,205,753)
0
<EPS-PRIMARY> 0 0 0 0
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>
