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, 1999
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, 1999
$.01 Stated Value 2,578,295 shares
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements:
Consolidated Statements of Net Assets in Liquidation - 3
June 30, 1999 and December 31, 1998
Consolidated Statements of Changes in Net Assets in Liquidation - 4
For the Six and Three Months Ended June 30, 1999 and
for the Period from March 25, 1998 to June 30, 1998
Consolidated Statement of Operations - 5
For the Period from January 1, 1998 to March 24, 1998
Consolidated Statement of Cash Flows - 6
For the Period from January 1, 1998 to March 24, 1998
Notes to Consolidated Financial Statements 7-12
Item 2. Management s Discussion and Analysis of Results of 13-16
Operations and Financial Condition
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
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
<TABLE>
<CAPTION> JUNE 30,
1999 December 31,
(in thousands) (UNAUDITED) 1998
<S> <C> <C>
Assets
Investments:
Fixed maturities $1,023 $1,043
Mortgage loans on real estate 1,568 1,600
Other invested assets 5 75
Short-term investments 1,507 1,732
Total investments 4,103 4,450
Cash 160 172
Accrued investment income 29 36
Receivables 20,825 21,590
Prepaid reinsurance premiums 32,563 34,840
Deferred policy acquisition costs 25 50
Property and equipment 994 1,018
Other real estate 182 187
Other assets 325 345
Total assets 59,206 62,688
Liabilities and Redeemable Preferred Stock
Liabilities:
Future policy benefits 17,068 17,645
Unearned premiums 32,625 35,163
Other policy claims and benefits payable 2,775 2,882
Other liabilities 1,867 1,800
54,335 57,490
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible 4,815 4,815
Total liabilities and redeemable preferred stock 59,150 62,305
Net assets in liquidation $56 $383
</TABLE>
See Notes to Consolidated Financial Statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(UNAUDITED)
<TABLE>
FOR THE PERIOD
<CAPTION> Six Months Three Months FROM MARCH 25,
Ended Ended 1998 TO
(in thousands) June 30, 1999 June 30, 1999 JUNE 30, 1998
<S> <C> <C> <C>
Operating income:
Earned premiums $201 $90 $79
Net investment income 109 35 263
Net fees from sale of customer accounts 199 121 155
Joint venture experience refunds - (41) 178
Gain on disposal of discontinued business - - 125
Miscellaneous 117 75 81
626 280 881
Operating expenses:
Policyholder benefits 211 94 79
Rent and related costs 102 42 79
Salaries, wages and employee benefits 182 90 153
Professional fees 106 44 165
Taxes, licenses and fees 23 (1) 134
Miscellaneous 106 53 48
730 322 658
Operating income (loss) before income taxes (104) (42) 223
Income tax benefit (expense) 3 - (113)
Decrease in unrealized appreciation of debt (21) (9) (16)
Preferred stock dividends (205) (103) (102)
Adjustment of preferred stock to redemption - - (175)
Retirement of treasury shares-preferred - - 57
Purchase of treasury shares-common - - (7)
Decrease in net assets for the period (327) (154) (133)
Net assets at beginning of period 383 210 1,715
Net assets at end of period $56 $56 $1,582
</TABLE>
See Notes to Consolidated Financial Statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 24, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands, except per share data)
<S> <C>
Revenues:
Premiums written ($4)
Decrease in unearned premiums 87
Premium income 83
Net investment income 60
Net realized investment gains 24
Fees and other income 181
348
Benefits and expenses:
Death and other benefits 83
Operating expenses 368
451
Loss from continuing operations before income tax benefit (103)
Income tax benefit (15)
Loss from continuing operations (88)
Discontinued operations:
Gain on disposal of discontinued business (net of income taxes) 112
Net income $24
Basic and diluted income (loss) per common share:
Loss from continuing operations ($0.08)
Discontinued operations 0.04
Net loss ($0.04)
Weighted average number of shares outstanding 2,596
Cash dividends declared per common share NONE
See Notes to Consolidated Financial Statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 24, 1998
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Cash flows from operating activities:
Net income $24
Adjustments to reconcile net income to net cash provided by operating
Other amortization and depreciation 24
Change in amounts due reinsurers (142)
Income taxes (15)
Change in other receivables 1,497
Change in other liabilities (376)
Other (434)
Total adjustments 554
Net cash provided by operating activities 578
Cash flows from investing activities:
Purchase of investments (3)
Maturity of investments 1,000
Sale of investments 1,829
Net assets transferred in sale of credit insurance business (3,647)
Net cash used in investing activities (821)
Cash flows from financing activities:
Cash dividends to shareholders (109)
Net cash used in financing activities (109)
Net decrease in cash (352)
Cash at beginning of period 641
Cash at end of period $289
</TABLE>
See Notes to Consolidated Financial Statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN PROCESS OF LIQUIDATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1. OVERVIEW AND BASIS OF ACCOUNTING:
The operating losses incurred by Consumers Financial Corporation and its
wholly-owned subsidiaries (the Company) over the past five years have
significantly reduced its net worth and liquidity position. As a result, in
May 1998, the Company completed the sale of 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. 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), the 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 preferred and common shareholders approved
a Plan of Liquidation and Dissolution, as discussed in Note 2 below.
Accordingly, the Company adopted a liquidation basis of accounting for
periods 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 note 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 1998 Form 10-K.
The changes in net assets for the six and three month periods ended
June 30, 1999 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 (i) sold its credit insurance and fee income
accounts to LOTS effective October 1, 1997, (ii) sold 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) sold one of its wholly-
owned reinsurance subsidiaries to LOTS as of August 31, 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. The sale of the reinsurance
subsidiary was approved by the insurance regulators in the State of Arizona
in August 1998 and closing on the sale occurred in September 1998.
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. An offsetting gain on disposal of
$254,000, which resulted from adjustments to certain estimates made in
1997, was 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 and distribute all remaining cash to its common shareholders.
Pursuant to the terms of its agreement with LOTS, the Company is receiving
and will receive payments from LOTS until September 30, 2002 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 (see Note 4). As a result, 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
personnel reductions during the past several years as a result of the
discontinuation of its various businesses.
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. Signifi-
cant components of the Company's deferred tax liabilities and assets were
as follows (in 000's):
<TABLE>
<CAPTION> June 30, December 31,
1999 1998
<S> <C> <C>
Deferred tax liabilities:
Fixed maturities $2 $9
Deferred policy acquisition costs 8 17
Other 40 41
50 67
Deferred tax assets:
Future policy benefits and financial reinsurance 65 64
Net operating loss carryforwards 2,258 2,175
Other 309 259
2,632 2,498
Valuation allowance for deferred tax assets (2,582) (2,431)
50 67
Net deferred tax asset $0 $0
</TABLE>
Significant components of the provision (benefit) for income taxes are as
follows (in 000's):
<TABLE>
<CAPTION> Six Months FOR THE PERIOD
Ended Three Months FROM MARCH 25,
June 30, Ended 1998 TO
1999 June 30, 1999 JUNE 30, 1998
<S> <C> <C> <C>
Current ($3) - $25
Deferred - - 88
Total income tax expense (benefit) ($3) - $113
</TABLE>
The reconciliation of the provision (benefit) 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
January 1,
1998
to March 24,
1998
<S> <C>
Loss from continuing operations before income tax benefit ($103)
Income tax benefit at 34% statutory rate on pre-tax loss ($35)
Dividends received deduction (4)
State income taxes 2
Items not includable for tax purposes 79
Other, net (57)
Actual income tax benefit ($15)
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 portion of the building it does not own for $17,000
per month through July 1999, although the Company has subleased a portion
of the office space which it does not otherwise occupy. The building lease
is classified as an operating lease. The Company has no other significant
leases.
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 it receives from the sale of its credit insurance
accounts. Accordingly, over the next three and one-half 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 which 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. The Company has filed two counterclaims against this agency seeking
damages for losses the Company sustained as a result of the agency s
alleged breach of the partnership agreement and to recover an unpaid loan
made to the agency.
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
common share data for the period prior to the adoption of the liquidation
basis of accounting:
</TABLE>
<TABLE>
<CAPTION> For the Period
from
(in thousands, except per share amounts) January 1, 1998
to March 24,
1998
<S> <C>
Loss from continuing operations ($88)
Preferred stock dividends (109)
Accretion of carrying value of preferred stock (9)
Numerator for basic loss per share - loss attributable to
common shareholders (206)
Effect of dilutive securities 0
Numerator for diluted loss per share ($206)
Denominator for basic loss per share - weighted average shares 2,596
Effect of dilutive securities 0
Denominator for diluted loss per share 2,596
Basic and diluted loss per common share ($0.08)
</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 net assets
in liquidation at June 30, 1999 and the changes in its net assets in liquida-
tion for the six and three month periods ended June 30, 1999 is presented
below. This analysis should be read in conjunction with the Consolidated
Financial Statements and the related Notes appearing elsewhere in this Form
10-Q and in the Company s 1998 Form 10-K.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. This Form 10-Q may include forward-
looking statements which reflect the Company s current views with respect to
future events and financial performance. These forward-looking statements are
identified by their use of such terms and phrases as intends, intend,
intended, goal, estimate, estimates, expects, expect, expected,
project, projected, projections, plans, anticipates, anticipated,
should, designed to, foreseeable future, believe, believes and
scheduled and similar expressions. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of the date
the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company s shareholders approved a Plan of Liquidation and Dissolution
at a Special Meeting held on March 24, 1998. Accordingly, the Company 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.
The agreement with the purchaser of the Company s credit insurance business
provides that the proceeds from the sale of the customer accounts are to be
received on a quarterly basis until September 2002, based on the amount of
credit insurance premiums produced by those accounts. The Company may also
receive a payment from a contingency fund established by the company and the
purchaser based on the claims experience on the inforce credit insurance
business from October 1, 1997 to September 30, 2002. However, based on the
claims experience from October 1, 1997 through December 31, 1998, as provided
by the purchaser, the Company would not be entitled to any portion of the
contingency fund. Because of these future payments and potential future
payments, the distribution, if any, to the Company s common shareholders will
not be made until late in 2002, when all amounts due from the purchaser have
been received.
The Company s net assets in liquidation declined during the first half of
1999 from $383,000 to $56,000 due primarily to preferred shareholder dividends
totaling $205,000 and an excess of operating expenses over operating income of
$104,000. Expenses for the period included $75,000 in accounting and actuarial
fees incurred primarily in connection with the Company s year end 1998
financial reporting. Legal fees relating to both litigation and the denial of
certain insurance claims prior to the sale of the Company s credit insurance
business totaled $31,000 during the first six months of 1999. In addition, the
fees which the Company receives from the sale of its customer accounts were
lower than expected due to the purchaser s cancellation of certain
unprofitable accounts.
In the second quarter of 1999, net assets declined by $154,000 to $56,000,
also primarily because of preferred shareholder dividends and an excess of
operating expenses over operating income of $42,000.
In the first quarter of 1998, prior to the adoption of the liquidation
basis of accounting, the Company s net income was $24,000, which included
a $112,000 gain representing an adjustment, net of tax, to the $3,100,000 loss
reported in 1997 from the disposal of the Company s credit insurance business.
RESULTS OF OPERATIONS AND CHANGES IN NET ASSETS
As a result of the sale of its remaining insurance business and the adoption
of the Plan of Liquidation, the Company s income and expenses now consist
principally of (i) fee income from the sale of the Company s customer accounts,
(ii) investment income on existing assets and (iii) corporate expenses,
primarily salaries, professional fees and home office and related real estate
costs. A small, closed block of extended service contract business assumed from
another insurer continues to generate earned premiums and policyholder benefits
but has virtually no impact on the Company s changes in net assets. A discus-
sion of the material factors which affected the changes in the Company s net
assets in liquidation for the six and three month periods ended June 30, 1999
and for the comparable periods in 1998 is presented below.
For the first six months of 1999, the Company s operating expenses exceeded
its operating income by $104,000. For the same period in 1998, including the
period prior to the adoption of the liquidation basis of accounting, the
Company reported operating income in excess of operating expenses of $232,000.
The sharp decline between years is attributable to several factors. For the
six months ended June 30, 1998, the Company reflected a $237,000 gain from the
sale of its credit insurance business, which represented an adjustment to
certain estimates made in 1997 when the loss on the sale was initially
reported. In addition, as a result of excellent claims experience, the Company
reported unusually high profits in 1998 from a now terminated joint venture.
The 1998 joint venture profits totaled $178,000, while no profits were earned
in the first half of 1999. The Company s net fee income from the sale of
its customer accounts also declined from $255,000 in the first six months of
1998 to $199,000 in 1999.
The Company continues to incur costs for (i) professional fees, primarily
accounting and legal fees, (ii) employee expenses related to its three remain-
ing full-time employees and (iii) rent and other costs related to the
Company s home office building. With respect to the home office building, in
which it owns a one-half interest, the Company s lease on the half of the
building which it does not own will expire on July 31, 1999. In accordance
with the terms of the lease agreement, the Company pays all taxes, insurance,
utilities and repairs in addition to its base rent. In the future, and until the
building is sold, the Company will only be responsible for a minimal amount of
rent for the limited space it occupies and for one-half of the operating
costs. The Company and its co-owner are actively attempting to sell the
property.
The $154,000 decline in net assets which occurred in the second quarter of
1999 is primarily the result of the $103,000 quarterly dividend to preferred
shareholders and a $42,000 loss from the terminated joint venture referred to
earlier. Net fee income from the sale of the customer accounts increased
$43,000, as expected, over the first quarter of 1999 due to the generally
higher premium volumes in the second and third quarters of the year.
ESTIMATED NET EXPENSES DURING LIQUIDATION PERIOD
As indicated above, the liquidation of the Company is expected to continue
until late in 2002 when all fee payments and other potential distributions will
have been received from the purchaser of the credit insurance business. Until
that time, certain corporate expenses will continue to be incurred and
investment income will continue to be earned on existing invested assets. The
Board of Directors may determine during this period that the amount of funds
available for ultimate distribution to shareholders may 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 any
distributions to the preferred and common shareholders.
Based on management s estimates, which exclude the potential savings, if
any, from the use of a liquidating trust, the Company believes that its future
operating expenses and other costs, including preferred shareholder dividends,
will exceed fee income and other revenues during the remaining liquidation
period by approximately $150,000 to $250,000. Actual income and expenses could
vary significantly from the present estimates due to uncertainties as to when
certain assets will be liquidated, when the distribution to preferred
shareholders occurs, the level of actual expenses which will be incurred and
the ultimate resolution of various contingencies which exist and which may
arise in the future. Based on the above estimates and because of the
uncertainties described above, there is no assurance that the Company s common
shareholders will receive any distribution or that the distribution to
preferred shareholders will be equal to the full redemption value of those
shares.
FINANCIAL CONDITION
Capital Resources
Given its plans to liquidate and eventually dissolve, the Company has made
no commitments for capital expenditures and does not intend to make any such
commitments in the future.The Company s net assets in liquidation were $383,000
at the beginning of 1999 compared to $56,000 at June 30, 1999. Net assets
declined primarily as a result of the $104,000 excess of operating expenses
over operating income discussed above and $205,000 in quarterly dividend
payments to preferred shareholders. The Company s total invested assets (
consisting of bonds, mortgage loans and short-term investments) decreased from
$4,450,000 to $4,103,000 during the first six months of 1999. The reduction
is attributable to the excess of operating expenses over operating income and
the preferred dividends referred to above and to the payment of certain
liabilities.
LIQUIDITY
The Company s subsidiaries have historically met most of their cash
requirements from funds generated from operations, while the Company has
generally relied on its principal operating subsidiaries to provide it with
sufficient cash funds to maintain an adequate liquidity position. As a result
of the Company s decision to sell its remaining operations, liquidate all of
its net assets and distribute cash to its shareholders, the Company s principal
sources of cash funds are the fee income from LOTS, investment income on
existing assets and proceeds from the sale of non-liquid assets. These funds
must be used to settle all remaining liabilities as they become due, to pay
operating expenses until the Company is dissolved and to pay dividends to
preferred shareholders until the Company s preferred stock is redeemed. The
adequacy of the Company s liquidity position in the future will be principally
dependent on its ability to sell its real estate investments and other non-
liquid assets and the timing of such sales, as well as on the level of
operating expenses the Company must incur during the liquidation period
INFLATION
Because of the Company s current plans to liquidate its assets, pay all of
its liabilities, distribute any remaining cash to its shareholders and
ultimately dissolve within the next three and one-half years, the effects of
inflation on the Company are minimal.
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
maintain all of its financial and other records and to file all required
financial reports with state insurance departments and other regulators. In
fulfilling its continuing, although limited, responsibilities, the Company
directly utilizes only two computer systems, one for its general ledger
accounting and one for maintenance of its shareholder records (since the
Company continues to perform its own stock transfer agent functions). The
Company has received written assurances from both software vendors that their
respective systems have been tested and will operate problem free during and
after the year 2000. The Company also receives certain computer generated
information from the purchaser of its credit insurance business, and has
obtained a year 2000 certification from the purchaser stating that all of its
hardware and software systems have been tested and are year 2000 compliant.
Based on the above, management does not believe that its very limited
operations will be adversely impacted by year 2000 computer problems.
SINKING FUND FOR REDEEMABLE PREFERRED STOCK
The terms of the Company s 8.5% redeemable preferred stock require the
Company to make annual payments into a sinking fund. The first such payment was
due in July 1999 in the amount of $414,610. However, the Company was unable to
make this payment because of an insufficient level of liquid assets. As a
result of its inability to make the sinking fund payment, the Company may not
pay any dividends to common shareholders and may not purchase, redeem or
otherwise acquire any common shares.
PART II. 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 June 30, 1999.
ITEM 2. CHANGES IN SECURITIES
During the three months ended June 30, 1999, 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 June 30, 1999.
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 June 30, 1999.
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 13, 1999 By /S/
James C. Robertson, President
(Chief Executive Officer)
Date August 13, 1999 By /S/
R. Fredric Zullinger
Senior Vice President,
Chief Financial Officer
and Treasurer
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