UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
< X >Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission File Number: 0-2616
CONSUMERS FINANCIAL CORPORATION
1513 CEDAR CLIFF DRIVE
CAMP HILL, PA 17011
PENNSYLVANIA 23-1666392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None Not listed
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
Common stock (no par) (voting) Not listed
8 1/2% Preferred Stock Series A Not listed
(Par Value $1.00 per share) (non-voting)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. XX
Based on the closing price on March 1, 2001, the aggregate market value of
common stock held by non-affiliates of the registrant was $33,518.
The number of outstanding common shares of the registrant as of March 1, 2001
was 2,578,295.
PART I
ITEM 1. BUSINESS
GENERAL
Consumers Financial Corporation (the "Company") was formed in 1966 as 20th
Century Corporation (a Pennsylvania corporation) and adopted its present name
in 1980. The Company is an insurance holding company which, until late 1997,
was a leading provider, through its subsidiaries, of credit life and credit
disability insurance in the states of Pennsylvania, Delaware, Maryland,
Nebraska, Ohio and Virginia. In connection with its credit insurance
operations, the Company also marketed, as an agent, an automobile extended
service warranty product. The Company operated through various wholly-owned
subsidiaries since it was formed; however, all of these subsidiaries have
either been sold or liquidated and dissolved except for Consumers Life
Insurance Company, a Delaware life insurance company ( Consumers Life ).
On March 24, 1998, the Company s shareholders approved the sale of the
Company s credit insurance and related products business, which was the
Company s only remaining business operation following the previous sales, as
discussed below, of its individual life insurance and its auto auction
businesses. The credit insurance business was sold to Life of the South
Corporation, a Georgia-based financial services holding company ( LOTS ).
Pursuant to the terms of the agreements the Company entered into with LOTS and
American Republic Insurance Company ( American Republic ), LOTS financial
partner in the transaction, the Company sold (i) its credit insurance and fee
income accounts to LOTS, (ii) its September 30, 1997 inforce block of credit
insurance business to American Republic and (iii) one of its wholly-owned
subsidiaries to LOTS.
In addition to approving the sale of the inforce credit insurance business, at
the Special Meeting on March 24, 1998, the Company s shareholders also
approved a Plan of Liquidation and Dissolution (the Plan of Liquidation ),
pursuant to which the Company is now liquidating its remaining assets and
settling or providing for its liabilities. The Company eventually intends to
distribute its remaining cash to its preferred shareholders. The Company does
not expect to be able to make any distribution to its common shareholders. The
Company s remaining assets and liabilities may at some point be transferred to
a liquidating trust if the Board of Directors determines that the use of such
a trust provides a better alternative for completing the liquidation process.
If the assets and liabilities are transferred to a liquidating trust, all
shareholder distributions would be made directly from the trust after the
satisfaction of all liabilities. The Plan of Liquidation permits the Board of
Directors to also consider other alternatives to liquidating the Company if
such alternatives are deemed by the Board to be in the best interests of the
Company and its shareholders.
In 1992, the Company sold all of its traditional whole-life, term and annuity
business. In 1994, the Company reinsured substantially all of its universal
life insurance business to a third party insurer and, effective January 1,
1997, it sold its remaining block of assumed universal life business back to
the direct writer of the business. The Company, through a wholly-owned
subsidiary, also conducted wholesale and retail automobile auctions of used
vehicles for automobile dealers, banks and leasing companies. The Company sold
the business and the related operating assets of the subsidiary in November
1996.
The term "Company", when used herein, refers to Consumers Financial
Corporation and its subsidiaries unless the context requires otherwise. The
Company's executive offices are located at 1513 Cedar Cliff Drive, Camp Hill,
Pennsylvania 17011. Its telephone number is (717) 761-4230.
OPERATIONS
Prior to the discontinuation of its business operations, as discussed above,
the Company operated in three industry segments: the Automotive Resource
Division, which marketed credit insurance and other products and services to
its automobile dealer customers, the Individual Life Insurance Division and
the Auto Auction Division. These segments did not include the corporate
activities of Consumers Financial Corporation which previously were
insignificant in relation to the three segments.
INVESTMENTS
The Company's insurance subsidiaries historically invested primarily in fixed
maturity securities (bonds) and, to a lesser extent, in mortgages with terms
which were generally seven years or less. Investments in mortgages allowed the
Company to obtain higher yields while maintaining maturities in the five to
seven year range. The Company s only remaining fixed maturity securities are
bonds and a certificate of deposit which Consumers Life is required to
maintain on deposit with various state insurance departments. The Company s
mortgage loan portfolio has declined significantly during the past six years,
from $9.9 million at the end of 1994 to $50,000 at December 31, 2000. The
remaining loan in the portfolio is scheduled to be paid in full by June 2002.
Since the approval of the Plan of Liquidation, the Company has maintained all
of its remaining investable funds in short-term securities in order to provide
the liquidity necessary to pay current expenses and dividends to preferred
shareholders and to eliminate the market risk associated with bond
investments. The Company also intends to invest the funds which arise from the
eventual liquidation of its investment in Consumers Life in short-term
securities. See Note 5 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K for information concerning investment
results for the years ended December 31, 2000, 1999 and 1998.
COMPETITION
Inasmuch as the Company no longer conducts any insurance or other operations,
it no longer competes with other organizations.
REGULATION
Consumers Life is subject to regulation and supervision in the states in which
it is licensed. The extent of such regulation varies from state to state, but,
in general, each state has statutory restrictions and a supervisory agency
which has broad discretionary administrative powers. Such regulation is
designed primarily to protect policyholders and relates to the licensing of
insurers and their agents, the approval of policy forms, the methods of
computing financial statement reserves, the form and content of financial
reports and the type and concentration of permitted investments. Consumers
Life is also subject to periodic examination by the Delaware Department of
Insurance. Although this subsidiary now has only a few direct policyholders,
the Delaware Department continues to monitor the company s statutory capital
and surplus and other aspects of its financial compliance with state insurance
laws and regulations.
The dividends which a life insurance company may distribute are subject to
regulatory requirements based upon minimum statutory capital and surplus
and/or statutory earnings. In addition to regulatory considerations, the
overall financial strength of each operating entity is considered before
dividends are paid. Additionally, the amount of dividends a life insurance
company can pay is subject to certain tax considerations. See Notes 3 and 15
of the Notes to Consolidated Financial Statements appearing elsewhere in this
Form 10-K.
The Company is also subject to regulation under the insurance holding company
laws of the state of Delaware. These laws generally require insurance holding
companies and insurers that are subsidiaries of holding companies to register
and file certain reports, including information concerning their capital
structures, ownership, financial condition and general business operations,
and require prior regulatory agency approval of changes in control of an
insurer, most dividends and intercorporate transfers of assets within the
holding company structure.
EMPLOYEES AND AGENTS
As of March 1, 2001, the Company had only 2 full-time employees. On
January 1, 1998, all of the Company s sales personnel resigned and became
employees of LOTS in connection with the transactions discussed earlier in
this Item 1, and certain other administrative employees were also terminated.
Consumers Life no longer has any licensed agents.
The Company maintains insurance coverage against employee dishonesty, theft,
forgery and alteration of checks and similar items. There can be no assurance
that the Company will be able to continue to obtain such coverage in the
future or that it will not experience uninsured losses.
ITEM 2. PROPERTIES
From September 1989 to July 2000, the Company maintained its executive and
business offices in a building located at 1200 Camp Hill By-Pass, Camp Hill,
Pennsylvania. The office building contained approximately 44,000 square feet
of office space (approximately 39,000 square feet of leasable space). Prior to
1994, the Company leased the entire facility at an annual rental of $421,000,
plus insurance, taxes and utilities. In March of 1994, the Company exercised
its option to acquire a 50% interest in its home office building for $1.75
million, which reduced the Company s annual rent on the portion of the
building it did not own to $204,000. The Company s lease terminated in July
1999.
As a result of the sale of all of its insurance operations and the adoption of
the Plan of Liquidation, the Company occupied only a small portion of the
leasable space in the office building. From 1998 to 2000, the Company
subleased portions of the building to third party tenants pursuant to various
short-term leases and received $14,000, $175,000 and $87,000 in 2000, 1999 and
1998, respectively, from these subleases. In August 2000, the Company and its
co-owner sold the office building. The Company reported a gain of
approximately $9,000 on the sale transaction and also collected approximately
$56,000 in penalties from the buyer as a result of the buyer s delays in
closing on the transaction.
The Company now leases approximately 1,200 square feet of office space on a
month-to-month basis at 1513 Cedar Cliff Drive, Camp Hill, Pennsylvania. The
monthly rent for this facility is $1,300.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits which are ordinary and routine
litigation incidental to the business operations it previously conducted. None
of these lawsuits is expected to have a materially adverse effect on the
Company's net assets in liquidation or changes in its net assets in
liquidation. See Note 12 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K for additional information concerning
litigation matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2000 to the
shareholders of the Company for their consideration through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Consumers Financial Corporation common stock was traded on the NASDAQ National
Market System with a ticker symbol of CFIN until June 1, 1998 when it was
delisted by NASDAQ for non-compliance with NASDAQ s market value of public
float requirements. The Company s Convertible Preferred Stock, Series A, was
also traded on the NASDAQ National Market System until March 16, 1998, when it
was also delisted by NASDAQ for non-compliance with the public float
requirement of a minimum of 750,000 shares. Since the shareholders of the
Company approved the Plan of Liquidation and Dissolution on March 24, 1998,
the Company did not appeal the delisting decision for either the common or
preferred stock, nor did it take any steps to come into compliance with the
new rules or attempt to seek inclusion on the NASDAQ Small Cap Market.
Quarterly high and low bid prices for the Company s common and preferred
stock, based on information provided by The National Association of
Securities Dealers through the NASD OTC Bulletin Board, are presented below.
Such prices do not reflect prices in actual transactions and exclude retail
mark-ups and mark-downs and broker commissions.
2000 QUARTERLY BID PRICES
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Common Stock
High 0.10 0.15 0.14 0.08
Low 0.07 0.05 0.08 0.02
Convertible Preferred Stock
Series A
High 2.75 4.00 4.00 3.88
Low 2.00 2.50 2.50 3.00
As of December 31, 2000, there were 6,724 shareholders of record who
collectively held 2,578,295 common shares and 107 shareholders of record of
the Convertible Preferred Stock, Series A, who held 456,061 shares. The number
of recordholders presented above excludes individual participants in
securities positions listings.
Dividends on both the Company s common stock and Convertible Preferred Stock,
Series A, are declared by the Board of Directors. No common stock dividends
have been paid since 1994. See Note 13 of the Notes to Consolidated Financial
Statements appearing elsewhere in this Form 10-K for a description of the
restrictions on the Company's ability to pay dividends to common shareholders.
The Convertible Preferred Stock, Series A dividends are paid quarterly and
generally on the first day of January, April, July and October at an annual
rate of $.85 per share. Since the Company does not have sufficient liquid
funds to pay the preferred dividends, it must rely on Consumers Life to
provide it with the required funds. In that regard, all distributions to the
Company from Consumers Life are subject to approval by the Delaware Insurance
Department. See Note 3 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain information contained in or derived
from the Consolidated Financial Statements and the Notes thereto.
(Not covered by Independent Auditor s Report)
For the For the
period from period from
Years ended March 25, 1998 January 1, 1998 Years ended
(dollar amounts in thousands, December 31, to to December 31,
except per share) 2000 1999 December 31,1998 March 24, 1998 1997 1996
Total revenues (excluding change
in unearned premiums) $261 $40 $378
Premiums written (4) (37) 353
Net investment income 60 63 59
Net return on average investments 4.8% 4.9% 5.4%
Loss from continuing operations (88) (1,441) (1,737)
Discontinued operations 112 (4,919) 503
Net income (loss) 24 (6,360) (1,234)
Basic and diluted income (loss) per
common share:
Loss from continuing operations (0.08) (0.73) (0.83)
Discontinued operations 0.04 (1.89) 0.19
Net loss (0.04) (2.62) (0.64)
Increase (decrease) in net assets
in liquidation:
Net loss $(1,823) ($252) ($132)
Decrease (increase) in
liability for under funded
pension plan 1,122 (388) (734)
Adjustment of liabilities to
estimated settlement amounts 62 210
Preferred stock dividends (391) (406) (307)
Adjustment of preferred stock
to estimated liquidation value 938 303 (175)
Other 92 150 16
Net decrease $0 $(383) $(1,332)
December 31,
2000 1999 1998 1997 1996
Total assets $25,305 $44,748 $62,688 $85,035 $114,619
Net assets in liquidation 0 0 383
Total debt 0 0 0 0 0
Shareholders equity 1,806 8,650
Shareholders equity per common share 0.78 3.31
Cash dividends declared per common share NONE NONE NONE NONE NONE
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A review of the significant factors which affected the Company's net assets in
liquidation at December 31, 2000 and the changes in its net assets in
liquidation for the year then ended is presented below. Information relating
to 1999 and 1998 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-K.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This Form 10-K 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
At the Special Meeting of Shareholders held on March 24, 1998, the Company's
preferred and common shareholders approved the sale of the Company's credit
insurance and related products business, which was the Company's only
remaining business operation. In connection with the sale of its in force
credit insurance business, the Company also sold its credit insurance customer
accounts and one of its life insurance subsidiaries. At the Special Meeting,
the shareholders also approved a Plan of Liquidation and Dissolution (the Plan
of Liquidation), pursuant to which the Company is now liquidating its
remaining assets so that it can pay or provide for all of its liabilities and
distribute its remaining cash to its preferred shareholders. It is unlikely
that any cash will be available for distribution to the common shareholders.
As a result of the approval of the Plan of Liquidation, 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.
As discussed below, during 1999, the Company s net assets in liquidation,
which represent the amount available for distribution to common shareholders,
were reduced to zero, and the estimated liquidation value of the Company s
preferred stock was reduced by $303,000 from its full redemption price. For
the year ended December 31, 2000, the estimated liquidation value of the
preferred stock decreased by an additional $938,000, primarily as a result of
(i) a $432,000 increase in the amount necessary to fully fund the Company s
pension plan so the plan could be terminated and (ii) $391,000 in preferred
dividends. An excess of benefits and expenses (excluding pension expense) over
revenues of $269,000 also contributed to the decline in the liquidation value
of the preferred stock, but this reduction was partially offset by
miscellaneous increases in net assets during the year. All subsequent
decreases in the Company s net assets during the remainder of the liquidation
period will continue to reduce the estimated liquidation value of the
preferred stock.
During 1999, the Company s net assets in liquidation decreased from $383,000
to zero and, as stated above, the estimated liquidation value of the preferred
stock also declined by $303,000. These reductions were principally due to a
$252,000 excess of benefits and expenses over revenues for the year, a
$388,000 increase in the liability for the Company's under funded pension plan
and $406,000 in preferred dividends. These reductions were partially offset by
a $210,000 adjustment of certain liabilities to their estimated settlement
amounts and other miscellaneous increases in net assets.
In 1998, for the period following the adoption of the liquidation basis of
accounting, the Company's net assets in liquidation declined by $1.3 million,
from $1.7 million to $383,000. As was the case in 1999, this decrease was also
largely due to an excess of benefits and expenses over revenues for the period
of $132,000, an increase in the pension plan liability of $374,000 and
preferred shareholder dividends totaling $307,000. For the period from January
1, 1998 to March 24, 1998, the Company reported net income of $24,000 (a loss
of $.04 per share after giving consideration to preferred dividends), which
included a $112,000 gain related to the 1997 disposal of the discontinued
credit insurance business.
RESULTS OF OPERATIONS AND CHANGES IN NET ASSETS IN LIQUIDATION
Since the sale of the credit insurance business and the adoption of the Plan
of Liquidation, the Company's revenues, benefits and expenses have consisted
principally of (i) fee revenues from the sale of the Company's customer
accounts, (ii) investment income on the remaining invested assets and (iii)
corporate expenses, primarily salaries, professional fees and, pension expense
and home office rent and related costs. A discussion of the material factors
which affected the Company's changes in net assets in liquidation (for the
years ended December 31, 2000 and 1999 and for the period from March 25, 1998
to December 31, 1998) and its results of operations (for the period from
January 1, 1998 to March 24, 1998) is presented below.
Year Ended December 31, 2000
As indicated above, since the Company has no net assets available for common
shareholders, all decreases in net assets must be deducted from the estimated
liquidation value of the Company s preferred stock. During 2000, the estimated
liquidation value of the preferred stock decreased by $938,000. As a result,
at December 31, 2000, the 456,061 shares of preferred stock outstanding have
an estimated liquidation value of $3,320,000, or $7.28 per share.
The decrease in the liquidation value of the preferred stock in 2000 was
primarily the result of a $432,000 increase in the Company s liability for its
under funded pension plan and $391,000 in dividends to the preferred
shareholders. An excess of expenses over revenues (excluding pension expense)
also contributed to the decline in the liquidation value. Effective in March
2000, the Company terminated the pension plan as part of the Plan of
Liquidation. Following the receipt of all regulatory approvals and each
participant s election as to his or her form of benefit payment (lump sum or
annuity), the plan s final liability was determined using a government-
mandated interest rate to compute the lump sum benefits. Because the
prescribed interest rate had declined from the rate used by the Company to
estimate its December 31, 1999 liability to the plan, the total liability to
participants, and the Company s corresponding liability to the plan, increased
compared to the estimate at the end of 1999. Consequently, the Company had to
contribute $966,000 to the plan, or $432,000 more than the $534,000 which had
been established at December 31, 1999 as the unfunded liability.
The liquidation value of the preferred stock also declined as a result of the
$391,000 in dividends paid to the preferred shareholders in 2000. Since the
Company is in liquidation and cannot generate future value from its business
operations, each dividend payment to the preferred shareholders reduces the
amount ultimately distributable to those shareholders as a liquidation
payment. The Company is currently unable to make any liquidating distributions
to these shareholders because virtually all of the Company s liquid funds are
held by the Company s insurance subsidiary and cannot be utilized until that
subsidiary is sold.
For the year ended December 31, 2000, the Company reported an excess of
benefits and expenses over revenues of $1,823,000, which includes pension
expense of $1,554,000 (an offsetting increase in net assets of $1,122,000 is
stated separately on the Statements of Changes in Net Assets in Liquidation,
resulting in the net reduction of $432,000). Excluding pension expense, the
excess expenses in 2000 totaled $269,000. These excess expenses are largely
attributable to a decrease in fee revenues received from the sale of the
credit insurance accounts and to increased legal fees, as discussed more fully
below.
The agreement with the purchaser of the Company s credit insurance operations
provided that the proceeds from the sale of the customer accounts were to be
received as fee revenues until September 2002, based on the amount of credit
insurance premiums produced by those accounts. However, as discussed in Note
12 of the Notes to Consolidated Financial Statements appearing elsewhere in
this Form 10-K, a dispute arose during 1999 between the Company and the
purchaser regarding the payment of investment income on the assets which were
transferred to the purchaser in connection with the sale of the in force
credit insurance business. Because of the dispute, the purchaser began
withholding the fee revenues from the Company to offset the investment income
it believed it was due. At September 30, 2000, net fee revenues of $421,000
had been withheld by the purchaser. In October 2000, the parties settled this
dispute. Pursuant to the terms of the settlement agreement, the purchaser paid
the Company $250,000 in settlement of all prior amounts withheld and in lieu
of any future fee revenue payments.
The Company incurred approximately $169,000 in legal fees during 2000,
principally in connection with the above-referenced dispute and other
litigation matters. Although the settlement of the fee revenue dispute has
eliminated future legal costs related to that issue, the Company will continue
to incur legal expenses related to several other lawsuits in which it is a
defendant and in connection with the completion of the Plan of Liquidation.
Year Ended December 31, 1999
The Company s net assets in liquidation at December 31, 1999 were zero. The
$383,000 decline in net assets during 1999 was the result of an excess of
benefits and expenses over revenues of $252,000, a $388,000 increase in the
liability for the Company s under funded pension plan and $406,000 in
preferred stock dividends. These reductions were partially offset by a
$210,000 adjustment of certain liabilities to their estimated settlement
amounts. The 1999 excess of expenses over revenues is principally due to (i)
higher than expected audit, actuarial and legal fees and salary expenses (in
part due to the Company s inability to sell its life insurance subsidiary),
(ii) delays in selling the Company s home office building, which resulted in
higher than anticipated rent and maintenance costs for the year and (iii) a
loss from a terminated joint venture which was expected to generate income.
The Company's unfunded pension liability increased by $388,000 in 1999
principally because of the Company's decision in early 2000 to terminate the
plan. This decision resulted in the use of an interest rate in computing the
December 31, 1999 plan liabilities which was intended to approximate the rate
which would be in effect when the plan actually terminated. For continuing
plans, different assumptions regarding interest rates are generally utilized.
At December 31, 1999, the plan's estimated unfunded liability was $534,000.
Due to these reductions in net assets, the Company reduced the December 31,
1999 liquidation value of its preferred stock by $303,000, from $4,635,000
($10 per share - the redemption price) to $4,332,000 ($9.35 per share).
Year Ended December 31, 1998
For the period from March 25, 1998 to December 31, 1998, net assets in
liquidation decreased by $1.3 million. The reduction was primarily due to (i)
a $132,000 net loss, (ii) a $734,000 increase in the liability for the under
funded pension plan and (iii) preferred shareholder dividends of $307,000. The
net loss for the period was attributable to the write-off of $472,000 of
deferred tax assets. Excluding the tax write-off, revenues for the period
exceeded expenses by $395,000 due to significant income from a now terminated
joint venture and because of $160,000 in realized investment gains. Profits
from the joint venture totaled $243,000 from March 25, 1998 to the end of the
year. The unfunded liability in the Company's pension plan increased
significantly because of a drop in long-term interest rates in 1998.
From January 1, 1998 to March 24, 1998, the period prior to the adoption of
the liquidation basis of accounting, the Company reported net income of
$24,000 (a loss of $.04 per share) as a result of a $112,000 gain from the
1997 disposal of the discontinued credit insurance business. The gain
represented an adjustment to certain estimates made in 1997 when a loss on the
disposal was initially reported.
Estimated Net Expenses and Other Changes in Net Assets
During Liquidation Period
The time frame for completing the liquidation of the Company is dependent upon
a number of factors, the most significant of which is the sale of the life
insurance subsidiary, not only because most of the assets which will be
available for distribution to the preferred shareholders are held by the
subsidiary and are restricted as to their use by state insurance regulations,
but also because of the additional shareholder value which is expected to be
generated from the sale of the subsidiary s 25 state insurance licenses. In
addition, the Company is a defendant in several lawsuits which must be settled
or resolved in court. While management believes the plaintiffs claims are
without merit, the ultimate outcome of these matters cannot be determined at
this time. Furthermore, the Company may be entitled to all or a portion of the
assets in a contingency fund established by the Company and the purchaser of
its credit insurance business based on the claims experience of the in force
credit insurance business from October 1, 1997 to September 30, 2002. However,
based on the claims experience to date, as provided by the purchaser, it does
not appear likely that the Company will receive any portion of the contingency
fund.
As a result of the foregoing, a final distribution cannot be made to the
preferred shareholders until (i) the life subsidiary is sold and the time
period of any required indemnifications given to the purchaser has expired,
(ii) the Company has resolved all remaining litigation matters and (iii) a
determination is made regarding the amount of any contingency fund
distribution which might be payable to the Company.
The Board of Directors may determine during this period of time that the
amount of funds available for ultimate distribution to the preferred
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 any
remaining liabilities and making distributions to the preferred shareholders.
Based on current estimates, management believes that the Company s future
expenses and other changes in net assets, including preferred stock dividends,
will exceed its revenues during the remainder of the liquidation period by
approximately $1,000,000 to $1,200,000. Actual revenues and expenses and other
net asset changes could vary significantly from the present estimates due to
the uncertainties regarding (i) when the remaining non liquid assets,
particularly the stock of the life insurance subsidiary, will be liquidated,
(ii) when the distribution to the preferred shareholders occurs, (iii) the
level of actual expenses which will be incurred and (iv) the ultimate
resolution of all current contingencies and any contingencies which may arise
in the future.
FINANCIAL CONDITION
A discussion of the important elements affecting the Company's net assets in
liquidation and its total invested assets at December 31, 2000 and 1999 is
presented below.
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. For the year ended December 31, 2000, the Company's
cash and invested assets declined by $389,000 to $3,479,000 at the end of the
year. The reduction is primarily attributable to the $966,000 payment to the
Company s pension plan, in order to fully fund the plan, the payment of
$391,000 in preferred stock dividends and an excess of expenses paid over
revenues collected. These decreases were partially offset by a $1,150,000
increase in invested assets resulting from the sale of the Company s 50%
interest in its home office building. The sale of the home office building
also resulted in the payoff of a $1,176,000 mortgage granted to the co-owner
of the building. The mortgage proceeds along with the proceeds from the
building sale were invested in short-term securities.
For the year ended December 31, 1999, the Company's cash and invested assets
decreased by approximately $754,000, from $4,622,000 at the beginning of the
year to $3,868,000 at December 31, 1999. The decline is primarily attributable
to the payment of $625,000 to the Company's pension plan, the payment of
$406,000 in preferred dividends and an excess of expenses over revenues for
the year. These decreases in invested assets were offset in part by a $520,000
income tax refund and the proceeds from the sale of non-investment real
estate.
Invested assets at December 31, 2000 consisted of (i) U.S. Treasury Notes,
owned by the Company's insurance subsidiary, which are on deposit with
numerous state insurance departments in connection with licensing
requirements, (ii) one mortgage loan secured by commercial real estate, which
is scheduled to be paid in full by June 2002 and (iii) short-term investments,
principally money market funds and certificates of deposit. As stated above,
during 2000, the mortgage loan on the former home office building was paid in
full when the office building was sold. A second loan, whose mortgagor had
been in bankruptcy since 1997, was also fully repaid during 2000 as a result
of a sale of the property by the bankruptcy trustee. At December 31, 1999, the
Company s investments consisted of (i) U.S. Treasury Notes, (ii) three
mortgage loans, including the loan granted to the co-owner of the Company's
former home office building and (iii) short-term investments, principally
money market funds.
Liquidity
Historically, the Company's subsidiaries met most of their cash requirements
from funds generated from operations, while the Company generally relied on
those 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 investment
income and proceeds from the sales of non liquid assets. These funds must be
used to settle all remaining liabilities as they become due, to pay expenses
until the Company is dissolved and to pay dividends on the preferred stock
until a final distribution is made to the preferred shareholders. The adequacy
of the Company's liquidity position during the remainder of the liquidation
period will be principally dependent on its ability to sell its remaining non
liquid assets and the timing of such sales, as well as on the level of
expenses the Company must incur during the liquidation period. The Company s
liquidity is particularly dependent on its ability to sell its life insurance
subsidiary, since all dividends and other distributions to the Company from
that subsidiary must be approved by the Delaware Insurance Department.
Sinking Fund for Redeemable Preferred Stock
The terms of the Company's 8.5% redeemable preferred stock require the Company
to make annual payments to a sinking fund. The first such payment was due in
July 1998. The preferred stock terms also provide that any purchase of
preferred shares by the Company will reduce the sinking fund requirements by
the redemption value of the shares acquired. As a result of the Company's
purchases of preferred stock prior to 1998, no sinking fund payment was due in
1998, and the required payment due for 1999 was reduced from $550,000 to
$414,610. The purchase of 18,000 preferred shares in 1999 and 7,400 shares in
2000 further reduced the 1999 sinking fund deficiency to $160,610. On July 1,
2000, an additional $550,000 sinking fund payment became due but was not paid.
Consequently, at December 31, 2000, the total sinking fund deficiency was
$710,610.
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 several years, the effects of inflation on the
Company are not material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The requirements for certain market risk disclosures are not applicable to the
Company because, at December 31, 2000, the Company qualifies as a small
business issuer under Regulation S-B of the Federal Securities Laws. A small
business issuer is defined as any United States or Canadian issuer with
revenues or public float of less than $25 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of the Company is responsible for the preparation, integrity
and objectivity of the financial information contained in this Form 10-K. The
accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. Such statements
include informed estimates and judgments of management for those transactions
that are not yet complete or for which the ultimate effects cannot be
precisely determined. Financial information presented in this annual report is
consistent with that in the financial statements.
Accounting procedures and related systems of internal control have been
established to provide reasonable assurance that the books and records reflect
the transactions of the Company and that established policies and procedures
are properly implemented by qualified personnel. Such systems are evaluated
regularly to determine their effectiveness.
The consolidated financial statements for the years ended December 31, 2000
and 1999 have been audited by Stambaugh-Ness, P.C., independent auditors. The
consolidated financial statements for the year ended December 31, 1998 have
been audited by Arthur Andersen LLP, independent auditors. Such audits were
conducted in accordance with generally accepted auditing standards, and
included a review and evaluation of our internal accounting control structure,
tests of the accounting records and other auditing procedures which the
auditors considered necessary to express their informed professional opinions
on the consolidated financial statements.
The Board of Directors monitors the financial and accounting operations of the
Company. The Board meets periodically with representatives of its independent
auditing firm to discuss the scope of the audit and related reports. The
Company s independent auditors have at all times full and free access to the
Board of Directors, without management present, to discuss any matter that
they believe should be brought to the attention of the Board.
James C. Robertson R. Fredric Zullinger
Chairman, Chief Executive Officer Senior Vice President
and President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Consumers Financial Corporation
We have audited the accompanying consolidated statements of net assets in
liquidation of Consumers Financial Corporation and subsidiaries as of December
31, 2000 and 1999 and the related consolidated statements of changes in net
assets in liquidation for the years then ended. These financial statements and
the schedules referred to below are the responsibility of the Company s
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 4 to the financial statements, the shareholders of
Consumers Financial Corporation approved a plan of liquidation on March 24,
1998, and the Company commenced liquidation shortly thereafter. As a result,
the Company changed its basis of accounting for periods subsequent to March
24, 1998 from the going-concern basis to the liquidation basis. Accordingly,
the carrying values of the remaining assets as of December 31, 2000 and 1999
are presented at estimated realizable values and all liabilities are presented
at estimated settlement amounts.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated net assets in liquidation of Consumers
Financial Corporation and subsidiaries as of December 31, 2000 and 1999 and
the consolidated changes in their net assets in liquidation for the years then
ended, in conformity with accounting principles generally accepted in the
United States of America applied on the basis described in the preceding
paragraph.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index of financial statement schedules at Item 14(a) are presented for
purposes of complying with the Securities and Exchange Commission s rules and
are not part of the basic financial statements. The 2000 and 1999 amounts
included in these schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in
our opinion, fairly state in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken as
a whole.
STAMBAUGH NESS, PC
York, Pennsylvania
March 19, 2001
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Consumers Financial Corporation
We have audited the accompanying statements of operations, shareholders'
equity and cash flows of Consumers Financial Corporation (a Pennsylvania
corporation) and subsidiaries for the period from January 1, 1998 to March 24,
1998. In addition, we have audited the statement of changes in net assets in
iquidation for the period from March 25, 1998 to December 31, 1998. These
financial statements and the schedules referred to below are the
responsibility of the Company s management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and the significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 4 to the financial statements, the shareholders of
Consumers Financial Corporation approved a plan of liquidation on March 24,
1998, and the Company commenced liquidation shortly thereafter. As a result,
the Company changed its basis of accounting for periods subsequent to
March 24, 1998 from the going-concern basis to the liquidation basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Consumers
Financial Corporation and subsidiaries for the period from January 1, 1998 to
March 24, 1998 and the changes in their net assets in liquidation for the
period from March 25, 1998 to December 31, 1998, in conformity with accounting
principles generally accepted in the United States applied on the bases
described in the preceding paragraph.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index of financial statement schedules at Item 14(a) are presented for
purposes of complying with the Securities and Exchange Commission s rules and
are not part of the basic financial statements. The 1998 amounts included in
these schedules have been subjected to the auditing procedures applied in the
audit of the basic consolidated financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
March 16, 1999
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
December 31, 2000 and 1999
(dollar amounts in thousands) 2000 1999
Assets
Investments:
Fixed maturities $951 $896
Mortgage loans on real estate 50 1,552
Short-term investments 2,471 1,397
Total investments 3,472 3,845
Cash 7 23
Accrued investment income 27 19
Reinsurance recoverable 7,866 11,404
Other receivables 307 484
Prepaid reinsurance premiums 13,466 27,644
Deferred policy acquisition costs 40
Property and equipment 1,179
Other assets 120 150
Total assets 25,305 44,748
Liabilities
Future policy benefits 6,536 9,078
Unearned premiums 13,466 27,644
Other policy claims and benefits payable 1,369 2,365
Pension plan liability 534
Other liabilities 614 795
21,985 40,416
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, authorized 632,500 shares;
issued and outstanding 2000, 456,061 shares; 1999, 463,461 shares;
net of $1,241 reduction in 2000 and $303 in 1999 to reflect estimated
liquidation value 3,320 4,332
Total liabilities and redeemable preferred stock 25,305 44,748
Net assets in liquidation $0 $0
See notes to consolidated financial statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
For the period
Year ended Year ended from March 25,
December 31, December 31, 1998 to December
(in thousands) 2000 1999 31, 1998
Revenues:
Earned premiums $319 $521
Net investment income $301 210 487
Net realized investment gains (losses) (5) 160
Net fees from sale of customer accounts 200 373 305
Joint venture income (loss) 35 (20) 243
Gain on disposal of discontinued business 84
Gain on recapture of assumed business by direct
writer 65
Miscellaneous 142 131 270
678 1,073 2,070
Benefits and expenses:
Policyholder benefits 396 177
Rent and related costs 46 121 243
Salaries and employee benefits 214 285 221
Pension expense 1,554 82 75
Write-down of fee income receivable 116
Professional fees 254 197 355
Taxes, licenses and fees 61 30 142
Loss on sale of other assets 286
Income taxes 527
Miscellaneous 256 214 176
2,501 1,325 2,202
Excess of benefits and expenses over revenues (1,823) (252) (132)
Decrease (increase) in liability for under funded 1,122 (388) (734)
pension plan
Adjustment of assets to estimated realizable value 88
Adjustment of liabilities to estimated settlement 62 210
amounts
Increase (decrease) in unrealized appreciation of 44 (43) (32)
debt securities
Preferred stock dividends (391) (406) (307)
Adjustment of preferred stock to estimated 938 303 (175)
liquidation value
Retirement of treasury shares-preferred 48 105 57
Purchase of treasury shares-common (9)
Decrease in net assets for the period 0 (383) (1,332)
Net assets at beginning of period 0 383 1,715
Net assets at end of period $0 $0 $383
See notes to consolidated financial statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in process of liquidation)
CONSOLIDATED BALANCE SHEET
March 24, 1998
(unaudited)
(dollar amounts in thousands)
Assets
Investments:
Fixed maturities $4,076
Mortgage loans on real estate 1,887
Other invested assets 261
Short-term investments 31,964
Total investments 38,188
Cash 289
Accrued investment income 188
Receivables 23,880
Prepaid reinsurance premiums 37,981
Deferred policy acquisition costs 25
Property and equipment 1,320
Other real estate 780
Other assets 731
$103,382
Liabilities, Redeemable Preferred Stock and Shareholders Equity
Liabilities:
Future policy benefits $17,649
Unearned premiums 38,918
Other policy claims and benefits payable 4,047
Due to reinsurer on sale of credit insurance business 34,719
Other liabilities 1,664
Income taxes:
Current 415
Deferred (442)
Total liabilities 96,970
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, authorized 632,500 shares;
issued 514,261 shares; outstanding 481,461 sharesl; redemption
amount $4,815; net of treasure stock of $271 4,697
Shareholders equity:
Common stock, $.01 stated value authorized 10,00,000 shares;
issued 3,019,110 shares; outstanding 2,595,617 shares 30
Capital in excess of stated value 7,989
Net unrealized appreciation of debt securities, net of income taxes 58
Deficit (4,891)
Treasury stock (1,471)
Total shareholders equity 1,715
$103,382
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
(in thousands, except per share amounts) March 24, 1998
Revenues:
Premiums written ($4)
Decrease in unearned premiums 87
Premium income 83
Net investment income 60
Realized investment gains 24
Fees and other income 181
Total revenues 348
Benefits and expenses:
Death and other benefits 83
Operating expenses 368
Total benefits and expenses 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
businesses (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
See notes to consolidated financial statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in process of liquidation)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY `
Capital in Accumulated other
excess of comprehensive income
Common stock stated Fixed Equity
(in thousands) Shares Amount value maturities securities
Balance, January 1, 1998 3,019 $30 $7,989 $54 $0
Net income for the period
Change in net unrealized appreciation
for the period 4
Total comprehensive income
Preferred stock dividends
Accretion of difference between fair
value and mandatory redemption value
of preferred stock
Balance, March 24, 1998 3,019 $30 $7,989 $58 $0
See notes to consolidated financial statements.
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in process of liquidation)
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
Retained
earnings Treasury stock Total
(in thousands) (deficit Shares Amount amount
Balance, January 1, 1998 $(4,796) (423) $1,471 $1,806
Net income for the period 24 24
Change in net unrealized appreciation for the period 4
Total comprehensive income 28
Preferred stock dividends (109) (109)
Accretion of difference between fair value and (10)
mandatory redemption value of preferred stock (10)
BALANCE, MARCH 24, 1998 ($4,891) (423) $1,471 $1,715
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in process of liquidation)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from
January 1, 1998 to
(in thousands) March 24, 1998
Cash flows from operating activities:
Net income $24
Adjustments to reconcile net income to cash
provided by operating activities:
Amortization and depreciation 24
Change in amounts due reinsurers (142)
Income taxes (15)
Change in 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 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 year 641
Cash at end of period $289
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $0
Income taxes $111
See notes to consolidated financial statements
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. Company Overview
The operating losses incurred by the Company from 1993 to 1997 significantly
reduced its net worth and its liquidity position. As a result, in 1998, the
Company sold 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. Since the sale of its credit insurance business,
the Company s revenues, benefits and expenses have consisted principally of
(i) fee revenues received from Life of the South Corporation, the Georgia-
based company which acquired the Company s credit insurance business and its
credit insurance accounts (LOTS), (ii) investment income on remaining assets
and (iii) corporate expenses. However, see Note 12 for information concerning
the discontinuation of the fee revenues.
On March 24, 1998, the Company s shareholders approved a Plan of
Liquidation and Dissolution (the Plan of Liquidation) pursuant to which the
Company is liquidating its remaining assets and paying or providing for all of
its liabilities. The Company intends to eventually distribute all of its
remaining cash to its preferred shareholders (see Note 4).
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Consumers
Financial Corporation (the Company) and its wholly-owned subsidiaries, the
most significant of which is Consumers Life Insurance Company (Consumers
Life). At December 31, 2000, Consumers Life is the Company s only remaining
subsidiary. All material intercompany accounts and transactions have been
eliminated.
Liquidation basis of accounting
The financial statements have been prepared on the basis of generally accepted
accounting principles (GAAP) which, as to Consumers Life, vary from reporting
practices prescribed or permitted by regulatory authorities. As a result of
the approval of the Plan of Liquidation and Dissolution referred to above and
discussed in Note 4, the Company adopted a liquidation basis of accounting for
the 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. Amounts
determined in accordance with the liquidation basis of accounting do not
differ significantly from the accounting policies discussed below.
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, as discussed below. Certain prior year amounts have
been reclassified to conform with classifications used for 2000.
Investments
Fixed maturities includes bonds, notes and certificates of deposit maturing
after one year. Management determines the appropriate classification of bonds
and notes at the time of purchase and reevaluates such designation as of each
financial statement date. All bonds and notes are classified as available-for-
sale. Available-for-sale securities are carried at fair value, with the
unrealized appreciation and depreciation, net of income taxes, reported as a
separate component of the changes in net assets in liquidation. All
certificates of deposits maturing after one year are deemed to be held to
maturity. Mortgage loans on real estate are carried at the unpaid principal
balance. Short-term investments are carried at cost.
Interest on fixed maturities and short-term investments is credited to income
as it accrues on the principal amounts outstanding, adjusted for amortization
of premiums and discounts computed by the interest method. The accrual of
interest on mortgage loans is generally discontinued when the full collection
of principal is in doubt, or when the payment of principal or interest has
become contractually 90 days past due.
Realized gains and losses and provisions for permanent losses on investments
are included in the determination of the excess of benefits and expenses over
revenues. The "specific identification" method is used in determining the cost
of investments sold.
Fair values of financial instruments
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments:
Cash and short-term investments: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities are based on
quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market
rate applicable to the yield, credit quality and maturity of the investments.
Mortgage loans: The fair values for mortgage loans are estimated using
discounted cash flow analyses, using interest rates which would currently be
offered for similar loans to borrowers with similar credit ratings.
Deferred policy acquisition costs
Prior to the discontinuation of its insurance operations, the Company deferred
the costs of acquiring new insurance business. The costs deferred consisted
principally of commissions, certain sales salaries and other expenses that
varied with and were primarily related to the production of new business.
Acquisition costs relating to single premium credit insurance were amortized
so as to charge each year's operations in direct proportion to premiums
earned. Deferred policy acquisition costs were expensed when such costs were
deemed not to be recoverable from future earned premiums and investment income
or, when applicable, from the estimated proceeds to be received from the sale
of the related insurance business. At December 31, 2000, the Company s only
unamortized policy acquisition costs relate to commissions paid in connection
with certain annuity business assumed during 2000 (see Note 10).
Property and equipment and depreciation
Property and equipment are stated at estimated net realizable value.
Depreciation has been provided on the straight-line method over the estimated
useful lives of the assets.
Future policy benefits
The liability for future policy benefits for individual life insurance has
been provided on a net level premium method based on estimated investment
yields, withdrawals, mortality and other assumptions which were appropriate at
the time the policies were issued. Such estimates were based upon industry
data and past experience, as adjusted to provide for possible adverse
deviation from the estimates. Benefit reserves for universal life products
represent policy account balances before applicable surrender charges plus
certain deferred policy initiation fees that are recognized in income over the
term of the policies. Except for the liability for three retained policies and
the liability for certain annuity policies assumed from another insurer, the
Company s liability for future policy benefits has been permanently reinsured
to other insurance companies.
Unearned premiums
Unearned premiums for credit life and disability insurance contracts have been
computed based upon the original and remaining term of the related policies as
follows: decreasing term credit life on the Rule of 78's method, level term
credit life using the Pro Rata method and credit disability using a 65% - 35%
weighted average of the Rule of 78's and Pro Rata methods. The Company s
unearned premium liability has been permanently reinsured to other insurance
companies.
Income taxes
The Company and its subsidiary provide income taxes, for financial reporting
purposes, on the basis of the liability method as required by Statement of
Financial Accounting Standards No. 109.
Earnings per share
For periods prior to the adoption of the liquidation basis of accounting,
basic and diluted earnings per share were calculated in accordance with
Statement of Financial Accounting Standards No. 128.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
3. Basis of Financial Statements
The more significant accounting principles applied in the preparation of the
financial statements that differ from life insurance statutory accounting
practices prescribed or permitted by regulatory authorities (which are
primarily designed to demonstrate solvency) are as follows:
(a) In accordance with requirements of the National Association of Insurance
Commissioners (NAIC), all bonds eligible for amortization are reported
at amortized value, whereas in the accompanying financial statements,
only bonds which are classified as held-to-maturity securities are
stated at amortized cost, and available-for-sale securities are carried
at fair value. Other securities are carried at values prescribed by or
deemed acceptable to the NAIC for statutory accounting purposes.
(b) Deferred income taxes, if applicable, are provided as described in Note
15.
(c) The statutory liabilities for the interest maintenance reserve and asset
valuation reserve, designed to lessen the impact on surplus of market
fluctuations of securities and mortgage loans, have not been provided in
the financial statements.
(d) Certain assets are reported as assets in the statements of net assets in
liquidation rather than being charged directly to surplus and excluded
from the statutory balance sheets.
(e) Commission allowances pertaining to financing-type reinsurance
agreements are not included in results of operations or changes in net
assets in liquidation
Dividends and other distributions to the Company from Consumers Life are
limited in that Consumers Life is required to maintain minimum capital and
surplus in each of the states in which it is licensed, determined in
accordance with regulatory accounting practices. The amount of minimum capital
and surplus required is $8.6 million. At December 31, 2000, Consumers Life
does not meet the minimum capital and surplus requirements in eleven of the
states in which it is licensed, and it has agreed to a temporary suspension of
its insurance license in one of those states. No actions have been taken with
respect to this matter by the insurance departments of the other states. Since
the Company does not intend to write any new insurance business through
Consumers Life and is currently attempting to sell the subsidiary, a temporary
suspension of any of its licenses will have no material effect on the Company.
However, if any of the licenses are revoked rather than suspended, the total
consideration the Company would receive when Consumers Life is sold will be
reduced.
Under Delaware insurance laws, distributions are subject to further
restrictions relating to capital and surplus and operating earnings.
Accordingly, under normal circumstances, at December 31, 2000, approximately
$3.2 million of Consumers Life's net assets cannot be transferred to the
parent company and $303,000 is available for transfer during 2001. However,
because of its prior operating losses and its current capital and surplus
position, the Company is not permitted to pay any dividends without prior
approval from the Delaware Insurance Department. Also, any loans or advances
to the Company must be reported to and approved by the Delaware Department.
The Company may have limited cash funds available to pay dividends in excess
of amounts transferred from Consumers Life.
The reported statutory capital and surplus of Consumers Life was $3.0 million
at December 31, 2000 and $4.3 million at December 31, 1999. Consumers Life
reported statutory net losses of $316,000 in 2000 and $1.5 million in 1999.
Insurance laws require Consumers Life to deposit certain amounts with various
state insurance departments in order to maintain its licenses. The approximate
carrying amounts of such deposits at December 31, 2000 and 1999 were $1.4
million and $1.0 million, respectively.
4. Discontinued Operations and Plan of Liquidation
On December 30, 1997, the Company entered into agreements with LOTS and
American Republic Insurance Company (American Republic), 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 in force block of
credit insurance business to 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 new credit insurance business produced by
Consumers Life s former customer accounts, which were transferred to LOTS,
such business would continue to be written on the policy or certificate forms
of Consumers Life until September 30, 1999. The parties subsequently modified
their agreement to extend the September 30 date to November 15, 1999 with
respect to Pennsylvania premiums only. This premium and the related insurance
risk were also reinsured 100% to American Republic.
The sale of the in force block of business referred to in (ii) above was
completed in May 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 in September 1998.
In addition to approving the sale of the in force credit insurance business,
at the Special Meeting of Shareholders held on March 24, 1998, the Company s
shareholders also approved the Plan of Liquidation referred to in Note 1,
pursuant to which the Company is now liquidating its remaining assets and
paying or providing for all of its liabilities. The Company eventually intends
to distribute its remaining cash to its preferred shareholders. The Company
does not expect to be able to make any payment to its common shareholders.
As a result of the sale of the Company s credit insurance and related
operations to LOTS, in the accompanying financial statements, the operating
results of the credit insurance and related fee income business were reported
as discontinued operations for the period from January 1, 1998 to March 24,
1998.
A summary of the results of operations of the discontinued segments for the
period prior to adoption of the liquidation basis of accounting is presented
below:
For the period from January 1, 1998 to March 24, 1998
Individual
Credit Life Auto
(in thousands) Insurance Insurance Auction Total
Revenues (before reinsurance ceded) $4,127 $158 (a) $4,285
Gain from operations before income taxes
Income taxes
Gain from operations
Gain on disposal before income taxes $112 $112
Income taxes
Gain on disposal 112 112
Gain from discontinued operations $112 $112
(a) Includes renewal premiums which are 100% ceded under an indemnity
reinsurance agreement with a third party reinsurer.
5. Investments and Investment Income
Investments, which are valued for financial statement purposes as described in
Note 1, consist of the following at December 31, 2000:
Quoted or Balance
Amortized estimated sheet
(in thousands) cost fair value amount
Fixed maturities:
Bonds-United States government and
government agencies and authorities $873 $901 $901
Certificates of deposit 50 50 50
Total fixed maturities 923 951 951
Mortgage loans on real estate 50 50 50
Short-term investments 2,471 2,471 2,471
Total investments $3,444 $3,472 $3,472
A portion of the Company's invested assets is restricted as to use in that
deposits are required with various state insurance departments in order to
maintain licenses in those states (see Note 3).
At December 31, 2000, the Company held only one mortgage loan, a first
mortgage lien secured by income-producing real estate located in central
Pennsylvania. This loan, which had a principal balance at the end of 2000 of
$50,212, exceeded 10% of the Company s net assets in liquidation at December
31, 2000.
At December 31, 1999, the Company held three mortgage loans, all of which
exceeded 10% of its net assets in liquidation. The largest loan had a balance
of $1,175,760 and was granted to the co-owner of the Company s former home
office building. This loan, which was secured by the co-owner s one-half
interest in the building, was paid in full in August 2000 when the office
building was sold. At December 31, 1999, another mortgage with a balance of
$295,360 was non-performing, in part, because the mortgagor filed a voluntary
petition under Chapter 11 of the Bankruptcy Code in late 1997. Interest
totaling $39,965 and $13,383 was excluded from investment income in 1999 and
1998, respectively, due to the non-performing status of this loan. As a result
of an agreement reached with the bankruptcy trustee, from November 1999 to May
2000, the Company received approximately $32,000 in lease payments from a
tenant at the mortgaged property. Such payments were applied first to legal
costs incurred by the Company and then to accrued late fees and unpaid
interest. The trustee sold this property in June 2000, at which time the
principal balance on this loan was paid in full along with $47,000 in unpaid
interest.
Net investment income is applicable to the following investments:
Years ended December 31,
(in thousands) 2000 1999 1998
Interest:
Fixed maturities $55 $60 $175
Mortgage loans 119 109 139
Short-term investments 127 80 733
301 249 1,047
Investment expenses (39) (85)
Total net investment income 301 210 962
Less investment income for periods subsequent
to adoption of liquidation basis of accounting 301 210 487
Net investment income for period prior to adoption
of liquidation basis of accounting 0 0 475
Less net investment income attributable to
discontinued operations 0 0 415
Net investment income attributable to
continuing operations $0 $0 $60
The amortized cost and estimated fair values of investments in debt securities
at December 31, 2000 and 1999 are as follows:
2000
Available for sale Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) cost gains losses value
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $873 $28 $0 $901
Totals $873 $28 $0 $901
1999
Available for sale Gross Gross Estimated
Amortized unrealized unrealized fair
(in thousands) cost gains losses value
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $863 $3 $20 $846
Totals $863 $3 $20 $846
All debt securities held by the Company at December 31, 2000 have contractual
maturities between 2003 and 2005. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
The Company did not sell any investments in debt securities during 2000.
Proceeds from the sales of investments in debt securities during 1999 were
$850,000. There were no gains or losses on those sales. Proceeds from such
sales in 1998 were $3.7 million. Gross gains of $58,000 and gross losses of
$6,000 were realized on those sales.
Realized investment gains (losses) are applicable to the following
investments:
Years ended December 31,
(in thousands) 2000 1999 1998
Fixed maturities $52
Mortgage loans on real estate 50
Other invested assets ($5) 82
Total $0 (5) 184
Less realized investment gains (losses) for periods
subsequent to adoption of liquidation basis of
accounting (5) 160
Realized investment gains (losses) for period prior
to adoption of liquidation basis of accounting $0 $0 $24
6. Other Receivables
December 31,
(in thousands) 2000 1999
Joint venture experience refund $287 $251
Fees due from purchaser of customer accounts 204
Other 126 135
413 590
Less allowance for uncollectible accounts (106) (106)
Balance $307 $484
7. Deferred Policy Acquisition Costs
Individual
(in thousands) Credit Life Total
Balance, January 1, 1998 $13,570 $0 $13,570
Costs deferred 133 133
Amortization (25) (83) (108)
Write-off attributable to sale of in force
credit insurance business (13,545) (13,545)
Balance, December 31, 1998 0 50 50
Amortization (50) (50)
Balance, December 31, 1999 0 0 0
Costs deferred 50 50
Amortization (10) (10)
Balance, December 31, 2000 $0 $40 $40
8. Property and Equipment
December 31,
(in thousands) 2000 1999
Property and equipment:
Data processing equipment and software $26 $73
Furniture and equipment 31 151
Home office building, including improvements 1,746
57 1,970
Less accumulated depreciation (57) (791)
Balance $0 $1,179
In August 2000, the Company sold its home office building at a price which
exceeded the carrying value of the property by approximately $9,000.
9. Policy Liabilities
The composition of future policy benefits and unearned premiums at December 31,
2000 and the assumptions pertinent thereto are as follows:
Life Future Interest
insurance policy Unearned rates: years
(in thousands) in force benefits premiums of issue
Individual life $16,677 $1,062 4 1/2% - 11 1/2%
1961 - 1992
Credit life 389,137 $5,161 (a)
1990 - 1999
Credit disability 5,474 8,305 (a)
1990 - 1999
Balance $405,814 $6,536 $13,466
(a) There are no interest rate assumptions in the credit reserve factors.
Mortality and withdrawal assumptions generally are based on industry data. The
mortality tables predominantly used in calculating benefit reserves are the 1955
- 1960 Basic Select and Ultimate for males (special graduation) and the 1965 -
1970 Basic Select and Ultimate for males (special graduation).
The withdrawal assumptions for individual life insurance are predominantly
Linton B and Linton C.
Future policy benefits reported to regulatory authorities were less than the
above total by approximately $63,000 at December 31, 2000
Future policy benefits and unearned premiums do not include any deduction for
reinsurance ceded to other companies. At December 31, 2000 and 1999, all but
$39,000 of the Company s future policy benefits liability was reinsured to other
insurers in connection with the discontinuation of the Company s insurance
operations. Similarly, all of the Company s unearned premiums liability at
December 31, 2000 and 1999 was reinsured to other insurers.
Future policy benefits and unearned premiums related to reinsurance ceded are
classified as Reinsurance Recoverable and Prepaid Reinsurance Premiums,
respectively, as shown in the following table.
December 31,
(in thousands) 2000 1999
Future Policy Benefits and Other Policy Claims and
Benefits Payable 7,905 $ 11,443
Reinsurance Recoverable 7,866 11,404
Net liability $ 39 $ 39
Unearned Premiums $ 13,466 $ 27,644
Prepaid Reinsurance Premiums 13,466 27,644
Net liability $ 0 $ 0
Life insurance in force net of reinsurance ceded was $58,000 at December 31,
2000 and 1999.
10. Reinsurance
Prior to the 1998 sale of its credit insurance business, as discussed in Note
4, and the sales of its individual life insurance business in 1992 through 1997,
the Company routinely ceded and, in some instances, assumed reinsurance. The
sale of the credit insurance business of Consumers Life was completed pursuant
to an indemnity reinsurance agreement with American Republic. The reinsurance
transactions through which the Company sold its individual life insurance
business included the use of both indemnity and assumption agreements. The
insurance companies remain contingently liable for insurance risks ceded under
indemnity agreements, while such risks are legally transferred to the reinsurer
when assumption agreements are utilized.
Historically, the insurance companies also entered into various financing-type
reinsurance agreements with unaffiliated reinsurers. Such agreements, which
primarily involved credit insurance, were designed to minimize the reduction of
statutory capital and surplus arising at the time premiums were written. These
financing-type agreements were terminated as of January 1, 1998 when the
American Republic agreements became effective. During 1998, Consumers Life
entered into another financing-type reinsurance agreement in which it
assumed approximately $2 million in individual life insurance premiums and an
equal amount of policy liabilities. This agreement terminated in January 2000.
During 2000, the Company entered into a similar agreement with another insurer
in which it assumed approximately $2.5 million of annuity premiums and policy
liabilities. The effects of all financing-type agreements have been removed
from the financial statements except for the cost of the financing, which
amounted to $10,000 in 2000 and $25,000 in both 1999 and 1998.
These costs are presented with Miscellaneous Expenses on the Consolidated
Statements of Changes in Net Assets in Liquidation for the years ended December
31, 2000 and 1999 and for the period from March 25, 1998 to December 31, 1998
and are included with Operating Expenses on the Consolidated Statement of
Operations for the period from January 1, 1998 to March 24, 1998.
In 2000, refunds (negative premiums) ceded to other companies totaled
approximately $1.8 million. Premiums ceded in 1999 were approximately $11.9
million, while premiums ceded in 1998 were approximately $17.7 million. The
negative premiums in 2000 are the result of the termination in late 1999 of
the fronting arrangement whereby, following the sale of the credit insurance
operations to LOTS in early 1998, credit insurance business continued to be
written on Consumers Life s certificate forms in 1998 and most of 1999 and
ceded 100% to American Republic. Once all new business ceased, the refund of
unearned premiums was the only premium activity which remained.
Incurred benefits and losses reinsured in 2000 were $9.0 million compared to
$12.6 million in 1999 and $16.4 million in 1998. These amounts have been
deducted in arriving at Policyholder Benefits in the Consolidated Statements of
Changes in Net Assets in Liquidation and in computing Death and Other
Benefits in the Consolidated Statement of Operations. However, Future Policy
Benefits and Unearned Premiums at December 31, 2000 and 1999 do not include any
deduction for reinsurance ceded. Instead, the amounts related to such
reinsurance are classified as Reinsurance Recoverable and Prepaid Reinsurance
Premiums (see Note 9).
11. Pension and Other Retirement Plans
At December 31, 1999, the Company had a defined benefit pension plan and two
defined contribution plans in effect. As of March 22, 2000, the pension plan was
terminated, and, following approval from the Pension Benefit Guaranty
Corporation and receipt of a favorable determination letter from the Internal
Revenue Service, all benefits due under the plan were distributed to the plan
participants in November and December 2000. Benefits under this plan had been
frozen as of July 31, 1996. The Company contributed approximately
$966,000 to the plan during 2000 so that the plan could pay the required
benefits to the participants.
Effective October 1, 1999, the Company also terminated its employee stock owner
ship plan. In October 2000, after receiving a favorable determination letter
from the Internal Revenue Service, the plan assets, consisting principally of
common stock of the Company, were distributed to the participants.
The Company s remaining defined contribution plan covers all current employees
and provides for annual contributions in amounts determined by the Board of
Directors. Such contributions are based upon the annual compensation of each
employee. Company contributions were $10,500 in 2000 and $11,100 in 1999. No
contributions were made in 1998.
The funded status of the defined benefit pension plan is as follows:
December 31,
(in thousands) 2000 1999
Actuarial present value of:
Vested benefit obligation $0 $3,499
Accumulated benefit obligation $0 $3,499
Actuarial present value of projected
benefit obligation $0 $3,499
Plan assets at fair value 0 2,965
Projected benefit obligation in excess of plan assets 0 534
Unrecognized net loss arising from difference between
actual experience and assumed experience 1,192
Unrecognized net liability at transition 37
Unrecognized prior service cost (107)
Unamortized prior year loss (1,122)
Unfunded projected benefit obligation $0 $534
A reconciliation of beginning and ending balances of the pension plan's
projected benefit obligation is presented below.
December 31,
(in thousands) 2000 1999
Projected benefit obligation, beginning of year $3,499 $3,121
Increase due to changes in assumptions 247 414
Benefits to participants (3,965) (252)
Interest cost 219 216
Projected benefit obligation, end of year $0 $3,499
A reconciliation of beginning and ending balances of the pension plan's assets
is as follows.
December 31,
(in thousands) 2000 1999
Fair value of plan assets, beginning of year $2,965 $2,457
Employer contributions 966 600
Investment income 176 170
Benefits to participants (3,965) (252)
Market value adjustment related to liquidation of plan assets (131)
Administrative expenses (11) (10)
Fair value of plan assets, end of year $0 $2,965
Net periodic pension cost is computed below:
(in thousands) 2000 1999 1998
Net periodic pension cost consists of the
following components:
Interest cost on projected benefit
obligation $219 $216 $203
Expected return on plan assets (189) (150) (161)
Amortization of prior year losses 1,594 38 165
Other amortization and deferral (70) 3 6
Net periodic pension cost $1,554 $107 $213
Rates used in determining pension expense for the years ended December 31,
2000, 1999 and 1998 and the related pension obligations at December 31, 1999 and
1998 were as follows:
2000 1999 1998
Discount rate (pre-retirement period) 6.35% 6.35% 6.50%
Discount rate (post-retirement period) 6.35% 6.35% 6.00%
Annual rate of return on plan assets 6.35% 6.35% 6.50%
Annual rate of increase in compensation N/A N/A N/A
12. Commitments and Contingencies
Rental expense in 2000, 1999 and 1998 was approximately $57,000, $138,000 and
$245,000, respectively.
From March 1994 until August 2000, the Company owned a 50% interest in its home
office building, which it sold in August 2000. The Company leased the portion
of the building it did not own at a rate of $17,000 per month until July 1999
when its lease expired. The building lease was classified as an operating lease.
The Company also subleased a portion of the unused space in the building to
third party tenants until April 2000. Income from these subleases totaled
$14,000 in 2000, $175,000 in 1999 and $87,000 in 1998. The Company has no
other significant leases.
Reinsurance risks would give rise to liability to the insurance companies only
in the event that the reinsuring company might be 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 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.
Following the trial in December 2000 for the Company s claim for recovery of the
unpaid loan, in January 2001, the court awarded a $90,000 judgment in favor of
the Company.
During 1999, a dispute arose between the Company and the purchaser of its
credit insurance business relating to the payment of investment income on the
assets which were transferred to the purchaser. Subsequent to the closing of
the transaction, the purchaser claimed that the Company owed it approximately
$1,400,000 for investment earnings on the amount transferred for the period
from October 1, 1997, the effective date of the agreement, to May 13, 1998, the
date of settlement on the sale transaction. In October 1999, the purchaser
informed the Company that it would begin withholding from the Company the fee
revenue payments which were contractually due to the Company from the sale of
the credit insurance accounts. At December 31, 1999, fee revenues totaling
$176,000 had been withheld by the purchaser. The amount withheld through
September 30, 2000 had increased to $421,000. In October 2000, the parties
settled this dispute. Pursuant to the terms of the settlement agreement, the
purchaser paid the Company $250,000 in settlement of all prior amounts withheld
and in lieu of any future fee revenue payments. In addition, the Company agreed
to permit the purchaser to withdraw $500,000 from a contingency fund established
by the parties at the time of the sale. The total balance in the fund at the
time of withdrawal was approximately $1,500,000. Although the Company may be
entitled to receive all or a portion of the contingency fund in late 2002
(based on the claims experience of the in force block of business sold to the
purchaser), the Company agreed to the partial withdrawal following
its review of the claims experience to date, which showed that it is unlikely
the Company will ultimately receive any portion of the fund.
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 have a significant effect on the Company s net assets in liquidation
or its changes in net assets in liquidation. 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.
13. Redeemable Preferred Stock
The Redeemable Convertible Preferred Stock (the Preferred Stock ) has a
liquidation preference of $10.00 per share and is convertible at any time,
unless previously redeemed, into shares of common stock at the rate of
1.482 shares of common stock for each share of Preferred Stock
(equivalent to a conversion price of $6.75 per share). The Preferred Stock is
redeemable at the option of the Company at a redemption price of $10.00 per
share.
Annual dividends at the rate of $.85 per share are cumulative from the date
of original issue and are payable quarterly on the first day of January, April,
July and October. At December 31, 2000, the Company was not in arrears with
respect to payment of dividends on the Preferred Stock. Except in certain
limited instances, the holders of the Preferred Stock have no voting rights.
The terms of the Preferred Stock require the Company to make annual payments to
a sinking fund. The first such payment was due in July 1998. The Preferred Stock
terms also provide that any purchase of preferred shares by the Company will
reduce the sinking fund requirements by the redemption value of the shares
purchased. As a result of the Company s purchases of Preferred Stock prior to
1998, no sinking fund payment was due in 1998, and the required payment for
1999 was reduced from $550,000 to $414,610. The purchase of 18,000 preferred
shares in 1999 and 7,400 shares in 2000 has further reduced the 1999 sinking
fund deficiency to $160,610. On July 1, 2000, an additional $550,000 sinking
fund payment became due but was not paid.
Consequently, at December 31, 2000, the total sinking fund deficiency was
$710,610.
When the Company is in arrears as to preferred dividends or sinking fund
appropriations for the Preferred Stock, dividends to holders of the Company's
common stock as well as purchases, redemptions or acquisitions by the Company of
shares of the Company's common stock are restricted. If the Company is in
default in an aggregate amount equal to four quarterly preferred dividends, the
holders of the Preferred Stock shall be entitled, only while such arrearage
exists, to elect two additional members to the then existing Board of Directors.
Prior to March 25, 1998, the difference between the fair value of the Preferred
Stock at the date of issue and the mandatory redemption value was recorded
through periodic accretions, using the interest method, resulting in a charge to
retained earnings ($9,000 in 1998). Upon the adoption of the liquidation basis
of accounting in March 1998, the remaining difference of $175,000 was recorded
as a reduction in the Company s net assets. At December 31, 2000 and 1999, the
redemption value of the Preferred Stock exceeded the net assets available to
redeem these shares by $1,241,000 and $303,000, respectively. Accordingly, the
carrying amount for the Preferred Stock has been reduced to reflect the net
assets available.
At December 31, 2000 and 1999, 675,646 and 686,608 shares of common stock,
respectively, were reserved for the conversion of the Preferred Stock.
14. Stock Options
At December 31, 1998, the Company had 132,000 outstanding stock options which
were exercisable at $2.25 per share. During 1999, all of these options expired.
No options were exercised during the three year period ended December 31, 2000.
15. Income Taxes
Under tax laws in effect prior to 1984, a portion of the gain from operations
of Consumers Life was not taxed when incurred but was accumulated in a
memorandum "Policyholders' Surplus Account." As a result of the Tax Reform Act
of 1984, the balance in the Policyholders' Surplus Account of Consumers Life was
frozen as of December 31, 1983 and additional amounts are no longer accumulated
in this account. However, distributions from the account continue to be taxed,
as under previous laws, if any of the following conditions occur:
(a) The Policyholders' Surplus Account exceeds a prescribed maximum, or
(b) Distributions, other than stock dividends, are made by Consumers
Life to the Company in excess of Shareholders' Surplus, as defined
by prior law, or
(c) Consumers Life ceases to qualify for taxation as a life insurance
company.
At December 31, 2000 and 1999, the Policyholders' Surplus Account for
Consumers Life was approximately $439,000. Based on its current plans, the
Company does not believe it is probable that Consumers Life will incur any
additional taxes with regard to its Policyholders Surplus Account.
There are currently no significant amounts of retained earnings in excess of
statutory surplus upon which neither current nor deferred income taxes have been
provided.
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 as of December 31, 2000
and 1999 are as follows:
(in thousands) 2000 1999
Deferred tax liabilities:
Fixed maturities
Deferred policy acquisition costs
Other
$0 $0
Deferred tax assets:
Future policy benefits 60
Net operating loss carry forwards 1,869 2,300
Other 303
1,869 2,663
Valuation allowance for deferred tax assets (1,869) (2,663)
0 0
Net deferred tax asset $0 $0
Significant components of income tax expense (benefit) are as follows:
(in thousands) 2000 1999 1998
Current:
Federal ($18)
State 2
Total current (16)
Deferred 1
Income tax benefit related to
continuing operations (15)
Income tax benefit included with
discontinued operations:
Current
Deferred
Income tax benefit for period prior to
adoption of liquidation basis of accounting (15)
Income tax expense for periods subsequent
to adoption of liquidation basis of
accounting:
Current 55
Deferred 472
527
Total income tax expense $0 $0 $512
The provision for federal income taxes is not proportional to pre-tax financial
statement income or loss due to the exclusions and special deductions afforded
life insurance companies under the Internal Revenue Code, as amended, and the
exclusion of non-taxable and non-deductible items. A reconciliation between
actual income tax benefits and the expected Federal income tax benefits at the
applicable statutory rates for the period prior to the adoption of the
liquidation basis of accounting is as follows:
For the period
from January 1,
1998 to March 24,
1998
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
Other, net 22
Actual income tax benefit relating to continuing operations ($15)
The Company files a consolidated Federal income tax return. At December 31,
2000, Consumers Life has available approximately $5.5 million of Federal net
operating losses. These losses will be carried forward to future years, and may
only be used to offset the taxable income of the life insurance company
sub-group. The net operating losses will expire at various times from 2009
to 2015.
16. Per Share Information
Basic loss per common share data for the period prior to the adoption of the
liquidation basis of accounting was computed based upon the weighted average
number of common shares outstanding. Diluted per share information is equivalent
to basic per share information because the Company had no potential common
shares which were dilutive.
The following table sets forth the computation of basic and diluted per share
data for continuing operations for the period prior to the adoption of the
liquidation basis of accounting.
For the period from
January 1, 1998 to
(in thousands, except per share amounts) March 24, 1998
Loss from continuing operations ($88)
Preferred stock dividends (109)
Accretion of carrying value of preferred stock (10)
Numerator for basic loss of per share-loss attributable
to common shareholders (207)
Effect of dilutive securities 0
Numerator for diluted loss per share ($207)
Demonimator 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)
None of the common shares contingently issuable upon the conversion of the
Preferred Stock were included in the above computation of diluted per share
information because the effect would have been antidilutive.
17. Segment Information
As a result of the disposal of its auto auction business in 1996, the disposal
of its remaining block of individual life insurance business in early 1997 and
the disposal of its credit insurance business in 1998, the Company has no
remaining business segments.
As discussed in Note 4, following the sale of its credit insurance business,
the Company began liquidating its remaining assets and paying or providing for
its liabilities. The Company intends to eventually distribute all of its
remaining cash to its preferred shareholders pursuant to the Plan of Liquida-
tion. The Company s revenues, benefits and expenses now consist principally of
investment income on remaining assets and corporate expenses.
18. Regulatory Matters
In August 2000, Consumers Life signed a Consent Order issued by the Delaware
Insurance Department in which the Department claimed that Consumers Life had
violated certain provisions of the Delaware Holding Company statutes in that it
had not obtained prior approval from the Department for certain intercompany
transactions. The Department did not impose any fines or other sanctions but did
require that Consumers Life obtain prior approval from the Department for all
transactions with the Company and for any disbursements in excess of $10,000.
In August 2000, Consumers Life surrendered its certificate of authority to
write insurance business in the state of Idaho because it did not meet that
state s statutory deposit requirements. Since Consumers Life is no longer
writing any insurance business, the surrender of the Idaho license will have no
material adverse effect. However, the loss of this license may reduce the
consideration the Company will receive when Consumers Life is sold.
In July 1999, Investors Fidelity Life Assurance Corp. (IFLAC), a subsidiary of
Consumers Life, filed an application with the Ohio Department of Insurance to
formally discontinue its business as a life insurance company. In September
1999, the Ohio Department issued an order accepting the surrender of IFLAC s
certificate of authority.
The NAIC has established certain minimum capitalization requirements based
on risk-based capital (RBC) formulas. The formulas are designed to identify
companies which are undercapitalized and require specific regulatory action
based on requirements relating to insurance, business, asset and interest rate
risks. At December 31, 2000, Consumers Life has more than sufficient capital
to meet the NAIC's RBC requirements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The firm of Stambaugh Ness, PC serves as the Company s independent auditors
and has served in that capacity since November 29, 1999. No information
relating to this Item is required to be included in the Company s Form 10-K
for the year ended December 31, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Historically, the Board of Directors of the Company was divided into three
(3) groups, with the directors in each group serving terms of three (3) years.
However, due to the Directors efforts over the past five years to merge, sell
or otherwise dispose of the Company or its assets, and the eventual approval
by the shareholders of the Plan of Liquidation in 1998, there has been no
election of Directors since 1995.
Following the approval of the Plan of Liquidation, three of the Company s
Directors, Leon A. Guida, Dr. Robert G. Little, Jr. and Rev. Sterling P. Martz,
resigned. On November 17, 1999, Edward J. Kremer also resigned. The two
remaining Directors are expected to continue to serve as Directors for a
limited period of time in order to oversee the liquidation of the Company in
accordance with the Plan of Liquidation.
The table below sets forth the period for which the current Directors have
served as Directors of the Company, their principal occupation or employment
for the last five(5) years, and their other major affiliations and age as of
March 1, 2001.
Name Principle Occupation for the Past Five Years, Office (if Director
(Age) any) Held in the Company and Other Information Since
James C. Robertson Chairman of the Board, President and Chief 1967
(69) Executive Officer of the Company
John E. Groninger President, John E. Groninger, Inc., Juniata Concrete, 1968
(74) Inc., Republic Development Corp., and Juniata Lumber &
Supply Co., Mexico, PA
The following information is provided as of March 1, 2001 for each executive
officer of the Company. Both ofthe executive officers listed also serve as
executive officers of Consumers Life. The executive officers are appointed
annually by the Board of Directors and serve at the discretion of the Board.
NAME AGE OFFICE
James C. Robertson 69 President and Chief ExecutiveOfficer
R. Fredric Zullinger 52 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Mr. Robertson joined the Company in 1967 as General Counsel and was elected a
director and President of the Company in 1968. Mr. Robertson currently serves
as Chairman of the Board, President and Chief Executive Officer of the Company.
Mr. Zullinger joined the Company in 1977 as Vice President-Accounting of the
Company's life insurance subsidiaries. He was appointed Treasurer of the Company
in 1979, and Vice President and Chief Financial Officer in 1985. Mr. Zullinger
currently serves as Senior Vice President, Chief Financial Officer, Treasurer
and Secretary of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information regarding the annual compensation
for services in all capacities to the Company for the fiscal years ended
December 31, 2000, 1999 and 1998 of the Chief Executive Officer and
any executive officers whose annual compensation exceeded $100,000
(hereinafter referred to as "named executive officers").
SUMMARY COMPENSATION TABLE
Annual
Compensation
Other All
Annual Other
Name and Principal Position Year Salary Bonus Compensation Compensation
James C. Robertson, 2000 - 0 - (1) - 0 - $3,300 (2) - 0 -
Chairman, President and 1999 - 0 - (1) - 0 - $2,100 (2) - 0 -
Chief Executive Officer 1998 - 0 - (1) - 0 - $3,975 (2) - 0 -
(1) Mr. Robertson s status as a salaried employee of the Company terminated
effective July 19, 1996. Mr. Robertson was not compensated for any
services performed in his capacity as President and CEO of the
Company in either 2000, 1999 or 1998.
(2) Represents Retainer and Board Fees earned by Mr. Robertson as Chairman
of the Board of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
No stock options or stock appreciation rights were granted by the Company to
the named executive officers in 2000.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR TABLE
At December 31, 2000, the Company had no stock options or stock appreciation
rights outstanding. Furthermore, as a result of the adoption of the Plan of
Liquidation in 1998, the Company does not intend to grant any options or stock
appreciation rights.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Personnel Committee of the Board of Directors (the "Committee") has
historically administered and approved all forms of compensation for the Chief
Executive Officer ("CEO"), the executive officers and other officers of the
Company. The members of the Committee were independent, non-employee directors
who annually reviewed with the Board all aspects of compensation, management
succession and the implementation and administration of the Company's various
incentive plans.
Compensation Philosophy
Historically, the compensation policy of the Company was based upon the
philosophy that an important portion of the annual compensation of each officer
should relate to and be contingent upon the performance of the Company, as well
as the individual contribution of each officer. In the past, the Company relied
to a large degree on the annual and longer term incentive compensation plans to
attract and retain corporate officers of outstanding abilities and to motivate
them to perform to the full extent of their abilities. However, with
the adoption of the Plan of Liquidation, the Committee implemented a
compensation policy to allow an orderly and timely reduction of the officers
and employees of the Company. As a result, the Company s Chief Financial
Officer, R. Fredric Zullinger, is currently the only executive officer employed
by the Company. Mr. Zullinger is expected to serve in that capacity until the
sale of Consumers Life is completed. Thereafter, he is expected to provide
consulting services as needed during the remainder of the liquidation period.
Mr. Zullinger is entitled to a severance payment equal to approximately fifteen
months of salary when his full-time employment with the Company terminates.
CEO Compensation
Mr. Robertson continues to serve as Chairman of the Board, President and CEO
of the Company. However, his status as a salaried employee of the Company was
terminated effective July 19, 1996. From that time and until December 31, 1996,
Mr. Robertson was compensated at the rate of $150 per day for any work performed
for the Company in his capacity as a non-salaried employee while serving as
President and CEO. Beginning in 1997 and continuing through 2000, Mr. Robertson
did not receive any compensation in his capacity as a non-salaried
employee while serving as President and CEO, although he continued to receive
the standard retainer and board meeting fees in his role as Chairman of the
Board.
This report is submitted by the Personnel Committee of the Company's Board of
Directors.
John A. Groninger, Chairman
STOCK PRICE PERFORMANCE COMPARISON
CUMULATIVE TOTAL RETURN **
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
Consumers Financial Corp. (CFIN) 100.00 100.82 26.64 3.28 2.57 0.55
Peer Group (1) 100.00 100.00 131.82 104.55 36.36 10.91
NASDAQ Stock Market (U.S.) 100.00 123.04 150.69 212.51 394.92 237.62
** Assumes $100 invested on December 31, 1995 in the Company s common stock, the
Peer Group s common stock and the NASDAQ Stock Index. Total shareholder
returns assume reinvestment of dividends.
(1) The peer group companies are primarily in the same segment of the
insurance industry as the Company when it conducted its insurance
operations. While none of the companies offer all of the products
and services that the Company offered, each was considered a
competitor of the Company. The members of the peer group are as
follows: ACCEL International Corporation, CNL Financial Corporation,
American Bankers Insurance Group and US Life Corporation.
PENSION PLAN BENEFITS
At December 31, 1999, the Company had a defined benefit pension plan, the
Consumers Financial Corporation and Subsidiaries Employees Retirement Plan.
Effective March 22, 2000, the pension plan was terminated, and, following
approval from the Pension Benefit Guaranty Corporation and receipt of a
favorable determination letter from the Internal Revenue Service, all benefits
due under the plan were distributed to the plan participants in November and
December 2000. Participants, including retirees already receiving benefits,
could elect to receive their termination benefits either in a lump sum payment
or in the form of an annuity purchased from a third party insurer. Benefits
under this plan had been frozen as of July 31, 1996. The Company contributed
approximately $966,000 to the plan during 2000 so that the plan could pay the
required benefits to the participants.
In connection with the termination of the pension plan, Mr. Robertson and
Mr. Zullinger both elected a lump sum payment and received distributions of
approximately $427,000 and $114,000, respectively, from the plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 2001, the number of shares of
voting stock owned by any person who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock,
the only class of voting securities outstanding.
Amount and
Nature of Percent
Beneficial of
Title of Class Name and Address of Beneficial Owner Ownership (1) Class
Common Peter H. Kamin 205,100 7.95%
One Financial Center, Suite 1600, Boston, MA 02111
(1) Mr. Kamin exercises sole voting and investment power
Until October 31, 2000, the Company s Employee Stock Ownership Plan
(the ESOP ) owned approximately 9% of the Company s common stock. On that date,
all of the shares in the ESOP were distributed to the plan s participants in
connection with the termination of the plan. These shares are now owned
individually by the former plan participants.
The following table sets forth as of March 1, 2001, the number of shares of the
Company's Common and Preferred Stock beneficially owned by (a) each director;
(b) each executive officer who is not a director; and (c) all directors and
executive officers as a group.
Amount and
Nature of Percent
TITLE OF Name of Beneficial of
CLASS Beneficial Owner Ownership (1) Class
(a)
Common Groninger, John E. 57,521 (2) 2.23%
Preferred 22,410 (3) 4.91%
Common Robertson, James C. 99,775 3.87%
Preferred 5,235 (4) 1.15%
(b)
Common Zullinger, R. Fredric 29,522 1.15%
(c)
Common Directors and 186,818 7.25%
Preferred Executive Officers as 27,645 6.06%
a Group (3 individuals)
(1) Except where otherwise indicated, the beneficial owner of the shares
exercises sole voting and investment power.
(2) Includes 42,542 shares owned by Mr. Groninger's wife.
(3) Includes 1,000 shares owned by Mr. Groninger's wife.
(4) Includes 700 shares of 8 1/2% Preferred Stock owned by Mr. Robertson's
wife.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2000, the Company did not enter into any
transactions in which the amount involved exceeded $60,000, with any of its
directors, executive officers, security holders known to the Company to own
more than 5% of the Company s common stock or any member of the immediate
family of any of the foregoing persons.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
a) Listing of Documents filed:
1. Financial Statements (included in Part II of this report):
Reports of Independent Public Accountants
Consolidated Statements of Net Assets in Liquidation - December 31, 2000
and 1999
Consolidated Statements of Changes in Net Assets in Liquidation - For
the years ended December 31, 2000 and 1999 and for the period from
March 25, 1998 to December 31, 1998
Consolidated Balance Sheet-March 24, 1998 (unaudited)
Consolidated Statement of Operations - For the period from January 1,
1998 to March 24, 1998
Consolidated Statement of Shareholders' Equity - For the period from
January 1, 1998 to March 24, 1998
Consolidated Statement of Cash Flows - For the period from January 1,
1998 to March 24, 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules (included in Part IV of this report):
(II) Condensed Financial Information of Registrant
(III) Supplementary Insurance Information
(IV) Reinsurance
(V) Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted because they
are not required, not applicable or the required information is set
forth in the financial statements or notes thereto.
3. Exhibits:
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession (i)
(3) Articles of incorporation and by-laws (i)
(4) Instruments defining the rights of security holders, including
indentures (i)
(9) Voting trust agreement (ii)
(10) Material contracts (ii)
(11) Statement re computation of per share earnings (iii)
(12) Statement re computation of ratios (ii)
(13) Annual report to security holders (ii)
(16) Letter re change in certifying accountant (ii)
(18) Letter re change in accounting principles (ii)
(21) Subsidiaries of the registrant (iv)
(22) Published report regarding matters submitted to a vote of
security holders (ii)
(23) Consents of experts and counsel (ii)
(24) Power of attorney (ii)
(99) Additional exhibits (ii)
(i) Information or document provided in previous filing with the
Commission
(ii) Information or document not applicable to registrant
(iii) See Note 16 of the Notes to Consolidated Financial Statements
appearing elsewhere in this Form 10-K.
(iv) Information or document included as exhibit to this Form 10-K
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
STATEMENTS OF NET ASSETS IN LIQUIDATION
December 31, 2000 and 1999
(dollar amounts in thousands) 2000 1999
Assets
Short-term investments $98 $251
Cash 2 22
Investment in affiliate 3,630 5,540
Receivables 265 301
Other assets 11 10
Total assets 4,006 6,124
Liabilities
Indebtedness to affiliates 395 590
Dividend payable 97 99
Pension plan liability 922
Other liabilities 194 181
686 1,792
Redeemable preferred stock:
Series A, 8 1/2% cumulative convertible, authorized 632,500 shares;
issued and outstanding 2000, 456,061 shares; 1999, 463,461 shares;
net of $1,241 reduction in 2000 and $303 in 1999 to reflect
estimated liquidation value 3.320 4,332
Total liabilities and redeemable preferred stock 4,006 6,124
Net assets in liquidation $0 $0
See notes to condensed financial statements
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
For the period
Year ended Year ended from March 25, 1998
December 31, December 31, to December 31,
(in thousands) 2000 1999 1998
Revenues:
Net investment income $5 $3 $7
Fees from sale of customer accounts 51 156 98
Joint venture income 11 30 47
Net realized investment gains 8
Miscellaneous 10 122 110
77 311 270
Expenses:
Salaries and employee benefits 9 26 14
Taxes, licenses and fees 5 (9) 26
Income tax benefit (493)
Miscellaneous 30 21 72
44 38 (381)
Excess of revenues over expenses 33 273 651
Equity in decrease in net assets of unconsolidated
subsidiaries (1,794) (227) (783)
Decrease (increase) in liability for under funded
pension plan 1,122 (388) (734)
Increase (decrease) in unrealized appreciation of
debt securities 44 (43) (32)
Preferred stock dividends (391) (406) (307)
Adjustment of preferred stock to estimated
liquidation value 938 303 (175)
Retirement of treasury shares - preferred 48 105 57
Purchase of treasury shares - common (9)
Decrease in net assets for the period 0 (383) (1,332)
Net assets at beginning of period 0 383 1,715
Net assets at end of period $0 $0 $383
See notes to condensed financial statements
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
(in process of liquidation)
BALANCE SHEET
March 24, 1998
(unaudited)
(in thousands)
Liabilities, Redeemable PreferreStock
Assets and Shareholders Equity
Investments, other than investments in $68 Liabilities:
affiliates
Indebtedness to affiliates $251
Cash 227 Dividend payable 109
Accrued severance pay 341
Investments in affiliates 2,138 Miscellaneous 70
Income taxes 308
Indebtedness of affiliates 4,850 Total liabilities 1,079
Property and equipment Redeemable preferred stock:
net of accumulated depreciation 7 Series A, 8 1/2% cumulative
convertible 4,697
Other assets 201 Shareholders equity:
$7,491 Common stock 30
Capital in excess of stated value 7,989
Equity in net unrealized
appreciation of debt securities
of subsidiaries 58
Deficit (4,891)
Treasury stock (1,471)
Total shareholders equity 1,715
$7,491
See notes to condensed financial statements
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
(in process of liquidation)
STATEMENT OF OPERATIONS
For the period
from January 1,
1998 to
(in thousands) March 24, 1998
Revenues:
Net investment income $9
Other income 48
Total revenues 57
Expenses:
General expenses 98
Taxes, licenses and fees 7
Total expenses 105
Loss before income taxes (48)
Income taxes 3
Loss before equity in income (loss) of
unconsolidated subsidiaries (51)
Equity in income (loss) of unconsolidated
subsidiaries:
Continuing operations (37)
Discontinued operations 112
75
Net income $24
See notes to condensed financial statements
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
(in process of liquidation)
STATEMENT OF CASH FLOWS
For the period
from January 1, 1998
(in thousands) to March 24, 1998
Cash flows from operating activities:
Net income $24
Adjustments to reconcile net income to net
cash used in operating activities:
Income taxes 12
Change in other liabilities (11)
Equity in income of unconsolidated subsidiaries (793)
Amortization of intangibles 781
Other (107)
Total adjustments (118)
Net cash used in operating activities (94)
Cash flows from investing activities:
Purchase of investments (1)
Investments in and indebtedness to affiliates (1)
Net cash used in investing activities (2)
Cash flows from financing activities:
Purchase of treasury stock (1)
Cash dividends to preferred shareholders (109)
Net cash used in financing activities (110)
Net decrease in cash (206)
Cash at beginning of year 433
Cash at end of period $227
See notes to condensed financial statements
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSUMERS FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
1. The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Consumers
Financial Corporation and subsidiaries.
2. In 2000, the Company received dividends in the amount of $160,000 from its
subsidiary, Consumers Life Insurance Company. The Company received no cash
dividends from its subsidiaries in 1999. In 1998, the Company received
dividends of $10,000. During 1999, the Company received $1.3 million from an
affiliate as a partial repayment of a $4.7 intercompany note. This payment
represented substantially all of the affiliate s remaining assets.
Accordingly, the note was canceled and this affiliate was then dissolved. In
addition, during 1999, the Company repaid $1.3 million on a $1.58 million
note payable to Consumers Life. This note was also canceled, since the
Company did not have sufficient funds to repay the remaining $268,000.
In 1998, the Company received certain assets and assumed certain liabilities
from several of its subsidiaries in connection with the liquidation of
those companies. The book value of the net assets received was $679,000.
3. The Company files a consolidated Federal income tax return with Consumers
Life. Tax expense and tax benefits are allocated proportionately between
the two companies.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands) Other
Deferred policy
policy Future claims and
acquisition policy Unearned benefits
Segment costs benefits premiums payable
Year ended December 31, 2000:
Automotive Resource Division:
Credit insurance and fee income business $5,474 $13,466 $1,369
Assumed warranty business
Individual Life Insurance Division $40 1,062
Other
Total $40 $6,536 $13,466 $1,369
Year ended December 31, 1999:
Automotive Resource Division:
Credit insurance and fee income business $7,629 $27,644 $2,359
Assumed warranty business
Individual Life Insurance Division 1,449 6
Other
Total $0 $9,078 $27,644 $2,365
Year ended December 31, 1998:
Automotive Resource Division:
Credit insurance and fee income business $8,291 $34,840 $2,837
Assumed warranty business 323
Individual Life Insurance Division $50 9,354 45
Other
Total $50 $17,645 $35,163 $2,882
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION (continued)
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands) Premium Amortization
income, Death of deferred
fees and Net and policy
other investment other acquisition Operating
Segment income income benefits costs expenses
(a) (b)
Year ended December 31, 2000:
Automotive Resource Division:
Credit insurance and fee income business
Assumed warranty business
Individual Life Insurance Division
Other $377 $301 $10 $2,491
Total $377 $301 $10 $2,491
Year ended December 31, 1999:
Automotive Resource Division:
Credit insurance and fee income business
Assumed warranty business $384 $11 $394
Individual Life Insurance Division
Other 484 199 2 $929
Total $868 $210 $396 $929
Year ended December 31, 1998:
Amounts attributable to period prior
to adoption of liquidation basis of accounting:
Automotive Resource Division:
Credit insurance and fee income business
Assumed warranty business $83 $83
Individual Life Insurance Division
Other 181 $60 $368
Total 264 60 83 368
Amounts attributable to period
subsequent to adoption of
liquidation basis of accounting:
Automotive Resource Division:
Credit insurance and fee income business
Assumed warranty business 504 46 177 104
Individual Life Insurance Divison
Other 919 441 1,108
Total 1,423 487 177 1,212
Grand total $1,687 $547 $260 $1,580
(a) Excludes realized investment gains and losses.
(b) Includes pension expense of $1,554 in 2000 due to termination of
plan in December 2000.
SCHEDULE IV
REINSURANCE
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Assumed Percentage
Ceded to from of amount
Gross other other Net assumed
Segment amount companies companies amount to net
Year ended December 31, 2000:
Life insurance in force $58 $58
Premium income $0 $0
Year ended December 31, 1999:
Life insurance in-force $58 $58
Premium income:
Assumed warranty $319 $319 100.0%
$319 $319 100.0%
Year ended December 31, 1998:
Life insurance in-force $58 $58
Premium income:
Assumed warranty $604 $604 100.0%
$604 $604 100.0%
NOTE:
This schedule excludes premiums ceded for discontinued lines of business.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
CONSUMERS FINANCIAL CORPORATION AND SUBSIDIARIES
Additions
(in thousands) Charged to
Balance at Charged to other Balance at
beginning costs and accounts, Deduction end of
Description of period expenses describe describe period
Year ended December 31, 2000
Provision for permanent decrease in market
value of property and equipment $753 $753 (a)
Provision for uncollectible receivables 106 $106
$859 $753 $106
Year ended December 31, 1999
Provision for permanent decrease in market
value of:
Property and equipment $962 $209 (b) $753
Other real estate 92 92 (a)
Other invested assets 55 55 (a)
Provision for uncollectible receivables 106 106
$1,215 $356 $859
Year ended December 31, 1998
Provision for permanent decrease in
market value of:
Mortgage loans $50 $50 (b)
Property and equipment 713 $249 $962
Other real estate 357 265 (a) 92
Other invested assets 163 108 (a) 55
Provision for uncollectible receivables 542 436 (c) 106
$1,825 $249 $859 $1,215
(a) Write-off of valuation allowance for assets sold.
(b) Reduction in valuation allowance related to adjustment to net
realizable value.
(c) Write-off of asset against valuation allowance.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /S/
James C. Robertson
Chairman of the Board and President
Date: March 19, 2001
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
Signature Title Date
/S/ Director, President and March 6, 2001
James C. Robertson Chairman of the Board
(Chief Executive Officer)
/S/ Senior Vice President March 6, 2001
R. Fredric Zullinger and Treasurer
(Chief Financial Officer)
/S/ Director March 6, 2001
John E. Groninger
EXHIBIT 21
SUBSIDIARIES OF CONSUMERS FINANCIAL CORPORATION
At December 31, 2000, Consumers Financial Corporation (EIN #23-1666392) owns
100% of the outstanding common stock of Consumers Life Insurance Company
(EIN #21-0706531).