ITEM 1. BUSINESS
Wynn's International, Inc., through its subsidiaries, is engaged primarily in the automotive components business and the specialty chemicals business. The Company designs, produces and sells O-rings and other seals and molded elastomeric and thermoplastic polymer products and automotive air conditioning systems and components. The Company also formulates, produces and sells specialty chemical products and automotive service equipment and distributes, primarily in southern California, locks and hardware products manufactured by others.
O-rings and other molded polymer products are marketed under the trade name "Wynn's-Precision." Air conditioning systems for the automotive aftermarket are marketed by the Company under the trademark FROSTEMP-Registered Trademark- and installation centers are operated under the trademarks MAXAIR-Registered Trademark- and FROSTEMP-Registered Trademark-. Specialty chemical products and automotive service equipment are marketed under various trademarks, including WYNN'S-Registered Trademark-, FRICTION PROOFING-Registered Trademark-, X-TEND-Registered Trademark-, SPIT FIRE-Registered Trademark-, DU-ALL-Registered Trademark- and TRANSERVE-TM-.
The Company's executive offices are located at 500 North State College Boulevard, Suite 700, Orange, California 92668. Its telephone number is (714) 938-3700. The terms "Wynn's International, Inc.," "Wynn's," "Company" and "Registrant" herein refer to Wynn's International, Inc. and its subsidiaries unless the context indicates otherwise.
FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC DATA
The Company's operations are conducted in three industry segments: Automotive Components; Specialty Chemicals; and Builders Hardware. Financial information relating to the Company's business segments for the five years ended December 31, 1995 is incorporated by reference from Note 14 of "Notes to Consolidated Financial Statements" on pages 29 through 31 of the Company's Annual Report to Stockholders for the year ended December 31, 1995 (the "1995 Annual Report").
AUTOMOTIVE COMPONENTS
The Automotive Components Division consists of Wynn's-Precision, Inc. ("Precision") and Wynn's Climate Systems, Inc. ("Wynn's Climate Systems"). During 1995, sales of the Automotive Components Division were $166,012,000, or 55% of the Company's total net sales, as compared with $176,346,000 and 60% in 1994. The operating profit of the division in 1995 was $19,872,000, or 61% of the Company's total operating profit, as compared with $18,566,000 and 65% in 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business Segment and Geographical Information" on pages 16 through 19 and 29 through 31, respectively, of the 1995 Annual Report, which are hereby incorporated by reference. See also "Other Factors Affecting the Business."
WYNN'S-PRECISION, INC. (O-RINGS, SEALS AND OTHER MOLDED ELASTOMERIC AND THERMOPLASTIC POLYMER PRODUCTS)
PRODUCTS
Precision and its affiliated companies design, manufacture and market a variety of static and dynamic sealing products. The principal products of Precision are O-rings, composite gaskets, engineered seals and convoluted boots and seals that are reinforced with plastic, metal and fabric. These products are made from elastomeric and thermoplastic polymers. The products are used for a variety of sealing applications that include engines, transmissions, steering pumps and assemblies, fuel handling, suspension/brake systems, refrigeration and electronics. Precision's primary customers are manufacturers of automobiles, trucks, off-highway vehicles, fluid handling equipment, aircraft/aerospace components, and the military.
DISTRIBUTION
Precision sells its products primarily through a direct sales force to original equipment manufacturer ("OEM") customers. Precision also markets its products throughout the United States through independent distributors and through Company-operated regional service centers located in California, Illinois, Indiana, Kansas, Michigan, Minnesota, New York, North Carolina, Ohio, Pennsylvania and Texas. Precision's Canadian operation distributes products principally through a direct sales force to OEM customers, through independent distributors and through Precision-operated service centers in Canada and England.
PRODUCTION
Precision's manufacturing facilities are located in Arizona, Tennessee, Texas, Virginia and Ontario, Canada. Precision's administrative headquarters are located at the site of its main manufacturing facility in Lebanon, Tennessee. Also located in Lebanon, Tennessee are Precision's own tool production facility and a facility dedicated exclusively to injection molding. Over the past several years, Precision has made significant investments in modern computerized production equipment and facilities. In 1995, Precision continued to invest in new production equipment, which expanded production capacity primarily at Precision's Lebanon, Tennessee and Virginia facilities.
The principal raw materials used by Precision are elastomeric and thermoplastic polymers. These raw materials generally have been available from numerous sources in sufficient quantities to meet Precision's requirements. Adequate supplies of raw materials were available in 1995 and are expected to continue to be available in 1996.
WYNN'S CLIMATE SYSTEMS, INC. (AUTOMOTIVE AIR CONDITIONING SYSTEMS AND COMPONENTS)
PRODUCTS AND SERVICES
Wynn's Climate Systems designs, manufactures and markets automotive air conditioning systems and components for both automotive OEMs and the automotive aftermarket. The components include condensers, evaporator coils, injection-molded and vacuum-formed plastic parts, steel brackets, adapter kits and hose and tube assemblies. In 1994, Wynn's Climate Systems also manufactured and sold refrigerant recovery and recycling equipment ("A/C-R Equipment"). In January 1995, Wynn's Climate Systems sold substantially all of its inventory of A/C-R Equipment and discontinued the manufacture of such equipment in April 1995. Wynn's Climate Systems also operates ten installation centers in Arizona, California, Colorado and North Carolina that install air conditioners and accessories for automobile dealers and retail customers.
DISTRIBUTION
Wynn's Climate Systems sells its air conditioning components to OEM customers and distributors. It sells its air conditioning systems to OEM customers and their distributors and dealers, and to distributors in the automotive aftermarket. In addition, through its installation centers, Wynn's Climate Systems sells air conditioning systems and accessories to automobile dealers and retail customers.
PRODUCTION
Wynn's Climate Systems manufactures its products in its 185,000 square foot facility located in Fort Worth, Texas. Wynn's Climate Systems manufactures many of the components that it uses in the production of its air conditioning systems. Outside vendors supply certain finished components such as compressors, accumulators and receiver/dryers. Adequate supplies of raw materials and components provided by outside vendors are available at present and are expected to continue to be available for the foreseeable future.
SPECIALTY CHEMICALS
The Specialty Chemicals Division consists of Wynn Oil Company and its subsidiaries ("Wynn Oil"). During 1995, net sales at Wynn Oil were $132,173,000, or 43% of the Company's total net sales, as compared to $110,867,000 and 38% for 1994. The operating profit of the division during 1995 was $12,426,000, or 38% of the Company's total operating profit, compared with $9,564,000 and 34% for 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business Segment and Geographical Information" on pages 16 through 19 and 29 through 31, respectively, of the 1995 Annual Report, which are hereby incorporated by reference. See also "Other Factors Affecting the Business."
PRODUCTS
The principal business of Wynn Oil is the development, manufacture and marketing of a wide variety of specialty chemical car care products and related service programs under the WYNN'S-Registered Trademark- and X-TEND-Registered Trademark- trademarks. Wynn Oil's car care products are formulated to provide preventive or corrective maintenance for automotive engines, transmissions, steering systems, fuel delivery systems, differentials, engine cooling systems and other automotive mechanical parts. Wynn Oil also manufactures industrial specialty chemical products, including forging compounds, lubricants, cutting fluids and multipurpose coolants for precision metal forming and machining operations. Wynn Oil also manufactures the patented DU-ALL-Registered Trademark- antifreeze power drain and fill and recycling system, which is a portable machine used in conjunction with proprietary chemicals to service a vehicle's cooling system and recycle the used antifreeze. The DU-ALL-Registered Trademark- system has been approved by General Motors and Chrysler. In December 1995, Wynn Oil launched the sale of its TRANSERVE-TM- transmission flush and fill system, which is a portable machine used in conjunction with proprietary chemicals to flush and refill the transmission fluid in a vehicle. Wynn Oil also sells its WYNN'S EMISSION CONTROL-Registered Trademark- product, a patented organic fuel combustion catalyst for spark ignition and diesel engines which helps reduce exhaust emissions and improve fuel economy.
Wynn Oil also markets the WYNN'S PRODUCT WARRANTY-Registered Trademark- program, which, in general, consists of kits containing a specially formulated line of automotive additive products, accompanied by a special product warranty. The warranty kits are sold through distributors, sales representatives and automobile dealers primarily to purchasers of used automobiles. The Wynn's Product Warranty program provides reimbursement of the costs of certain parts and labor and, in some instances, the costs of towing and a rental car, incurred by vehicle owners who use the special products to treat their vehicles in accordance with the terms and conditions of the warranty and who experience certain types of damage which the special products are designed to help prevent. See "Other Factors Affecting the Business."
DISTRIBUTION
Wynn Oil's car care products are sold in the United States and in approximately 90 foreign countries. See "Foreign Operations."
Wynn Oil distributes its products through a wide range of distribution channels. Domestically, Wynn Oil distributes its products primarily through independent distributors, sales representatives and warehouse distributors, and also through mass merchandisers and chain stores. Wynn Oil also uses internal sales management in the sale and distribution of its products. Foreign sales are made principally through wholly-owned subsidiaries, which sell primarily through independent distributors or manufacturers' representative organizations, with a direct sales force in France. Wynn Oil also engages in direct export sales from the U.S. to independent distributors in Asia and Latin America, and from Belgium to independent distributors in Scandinavia, Europe, North Africa, the Middle East and former republics of the USSR. See "Other Factors Affecting the Business."
PRODUCTION
Wynn Oil has manufacturing facilities in California and Belgium. Other foreign subsidiaries either purchase products directly from the manufacturing facilities in the United States or Belgium or have the products manufactured locally by outside contract suppliers according to Wynn Oil's specifications and formulae. Wynn Oil periodically reviews its production and sourcing locations in light of fluctuating foreign currency rates.
Wynn Oil utilizes a large number of chemicals in the production of its various specialty chemical products. Primary raw materials necessary for the production of these products, as well as the finished products, generally have been available from several sources. An adequate supply of materials was available in 1995 and is expected to continue to be available for the foreseeable future.
BUILDERS HARDWARE
The Builders Hardware Division consists of Robert Skeels & Company ("Skeels"), a wholesale distributor of builders hardware products, including lock sets and locksmith supplies. During 1995, Skeels' net sales were $5,602,000, or 2% of the Company's total net sales, as compared with $5,438,000 and 2% for 1994. The operating profit of the division during 1995 was $297,000, or 1% of the Company's total operating profit, compared with $392,000 and 1% for 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business Segment and Geographical Information" on pages 16 through 19 and 29 through 31, respectively, of the 1995 Annual Report, which are hereby incorporated by reference.
Skeels' main facility is located in Compton, California. In addition, Skeels has a leased satellite sales facility located in Fullerton, California.
Skeels supplies approximately 35,000 items to retail hardware, locksmith and lumberyard outlets in southern California, Arizona, and Nevada. Skeels also sells directly to large institutional customers. Most of Skeels' sales are derived from replacement items used by industry, institutions and in-home remodeling and repair.
Skeels has been a distributor of Schlage lock products since 1931. Skeels also distributes other well-known brands such as Lawrence, Kwikset and Master. Skeels' distributorship arrangements generally are cancelable by the manufacturers without cause.
OTHER FACTORS AFFECTING THE BUSINESS
COMPETITION
All phases of the Company's business have been and remain highly competitive. The Company's products and services compete with those of numerous companies, some of which have financial
resources greater than those of the Company. Sales by the Automotive Components Division are in part related to the sales of vehicles by its OEM customers.
Precision has a large number of competitors in the market for static and dynamic sealing products, some of which competitors are substantially larger than Precision. The markets in which Precision competes are also sensitive to changes in price. Requests for price reductions are not uncommon. Precision attempts to work with its customers to identify ways to lower costs and prices. Precision focuses on high technology, high quality sealing devices and has made significant investments in advanced equipment and other means to raise productivity. In 1995, Precision invested approximately $5 million in new production equipment, which expanded its production capacity primarily at its Lebanon, Tennessee and Virginia facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Precision's major focus is to be the low cost producer of superior quality products within its industry. Precision believes it must expand into additional areas of sealing technology in order to continue to be an effective competitor.
Wynn's Climate Systems has a number of competitors that manufacture air conditioning systems and components, some of which competitors are substantially larger than Wynn's Climate Systems. Automotive air conditioning manufacturers compete in the areas of price, service, warranty and product performance. Wynn's Climate Systems' focus is to manufacture high quality products. Over time there has been a gradual increase in the number of air conditioning systems installed on the automotive factory line. The increase in the number of factory-installed systems has reduced the size of the market for aftermarket sales.
Competition with respect to Wynn Oil's specialty chemical products consists principally of other automotive aftermarket chemical and industrial fluid companies. Some major oil companies also market their own additive products through retail service stations, independent dealers and garages. Certain national retailers and car manufacturers market private label brands of specialty chemical products. Wynn Oil's DU-ALL-Registered Trademark- antifreeze recycling equipment and chemicals compete against other antifreeze recycling processes, some of which also have been approved by General Motors and Chrysler. Similarly, Wynn Oil's TRANSERVE-TM- transmission fluid flush and fill equipment and chemicals compete against other transmission flush equipment. The principal methods of competition vary by geographic locale and by the relative market share held by the Company compared to other competitors.
Skeels continues to face intense price competition from numerous cash-and-carry discount retailers. Skeels also has observed some manufacturers selling directly to retailers to increase volume.
KEY CUSTOMERS
Sales to General Motors constituted approximately 10.1% of the total net sales of the Company in 1995. No other customer represented more than 10% of total net sales of the Company in 1995.
GOVERNMENT REGULATIONS
The number of governmental rules and regulations affecting the Company's business and products continues to increase.
Wynn Oil markets the Wynn's Product Warranty program in approximately forty-four states in the U.S. and also in Canada. Questions have been raised by certain state insurance regulators as to whether the product warranty that accompanies the kit is in the nature of insurance. Wynn Oil attempts to resolve these questions to the satisfaction of each state insurance regulator. At times, it has elected to withdraw the Wynn's Product Warranty program from certain states. No assurance can be given that governmental regulations will not significantly affect the marketing of the Wynn's Product Warranty in the United States or other countries in the future. Over the past few years, sales of the Wynn's Product Warranty have become an increasingly important element of Wynn Oil's domestic business.
ENVIRONMENTAL MATTERS
The Company has used various substances in its past and present manufacturing operations which have been or may be deemed to be hazardous, and the extent of its potential liability, if any, under applicable environmental statutes, rules, regulations and case law is unclear. Under the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), a responsible party may be jointly liable for the entire cost of remediating contaminated property even if it contributed only a small portion of the total contamination. At December 31, 1995, the Company had consolidated accrued reserves of approximately $4.8 million relating to environmental matters. Although the effect of resolution of environmental matters on results of operations cannot be predicted, the Company believes, based on information presently known to the Company, that any liability that may result from environmental matters in excess of accrued reserves should not materially affect the Company's financial position or annual results of operations or cash flows. See Note 11 of "Notes to Consolidated Financial Statements" on page 28 of the 1995 Annual Report, which is hereby incorporated by reference.
All potentially significant environmental matters presently known to the Company are described below.
(a) In 1988, the Los Angeles County Department of Health Services (the "LADHS") directed Wynn Oil to conduct a site assessment of the Wynn Oil manufacturing facility in Azusa, California (the "Azusa Facility"). In April 1989, regulatory jurisdiction over this matter was transferred from the LADHS to the California Regional Water Quality Control Board- Los Angeles Region (the "RWQCB"). In July 1990, Wynn Oil received a general notice letter from the United States Environmental Protection Agency (the "EPA") stating that it may be a potentially responsible party ("PRP") with respect to the San Gabriel Valley, California Superfund Sites regional groundwater problem. The EPA letter included an information request pursuant to Section 104(e) of CERCLA to which Wynn Oil responded within the specified time period.
Since October 1989, Wynn Oil and its consultants have been working with representatives of the RWQCB to conduct a comprehensive site assessment of the Azusa Facility. In January 1992, at the request of the EPA and the RWQCB, Wynn Oil agreed to expand the scope of its investigation of the Azusa Facility to include three soil gas monitoring wells and one groundwater monitoring well. The monitoring wells were installed in 1992, and the results of ongoing sampling have been reported to the RWQCB. In the fall of 1993, the
RWQCB requested Wynn Oil to install a groundwater monitoring well located upgradient of the existing Azusa Facility well. Wynn Oil reached agreement with another PRP located on an approximately upgradient property. The agreement provided for this PRP to install the groundwater monitoring well on its property and for Wynn Oil to share the costs of installation. The well was installed, and the RWQCB has accepted this well as meeting its request for Wynn Oil to install a well upgradient of the Azusa Facility. Wynn Oil continues to monitor the well located at the Azusa Facility in accordance with RWQCB requirements. During 1995, the RWQCB sent letters to Wynn Oil and certain other facilities in the general area asking them to submit remedial action plans for vadose zone remediation at their respective facilities. In December 1995, Wynn Oil's consultants responded to the RWQCB stating that such remediation was neither warranted nor cost effective at the Azusa Facility. Wynn Oil may at some later date elect or be required to take specific remedial actions with respect to soils conditions at the Azusa Facility.
In March 1994, the EPA issued its Record of Decision ("ROD") with respect to the Baldwin Park Operable Unit ("BPOU") of the San Gabriel Valley Superfund Sites. The Azusa Facility is located within the BPOU. In the ROD, the EPA selected an interim groundwater remedial action (the "Interim Remedial Action") for the BPOU that is estimated to cost in the range of $100 to $120 million. Wynn Oil has joined with approximately ten other companies, each of which has been identified as a PRP in EPA General Notice letters, to form the BPOU Steering Committee ("Steering Committee"). The Steering Committee has been negotiating with several local, state and federal entities regarding implementation of the ROD with partial funding from the Metropolitan Water District Groundwater Recovery Program and funds from the federal Bureau of Reclamation available for conjunctive use projects in the San Gabriel Basin. This approach is generally known as the "Consensus Plan." If agreement is reached among these entities, the PRP costs of implementing the ROD reportedly could be reduced to approximately $35 million, excluding any of EPA's past costs. However, no assurance can be given that such agreements will be reached or the Consensus Plan will be implemented.
In January 1995, the EPA issued "pre-Special Notice" letters to sixteen companies, including Wynn Oil, requesting them to install up to ten regional monitoring wells and complete other pre-design work needed before the remedy can be implemented (the "Pre-Design Work"). The Steering Committee members have funded the costs of the Pre-Design Work on an interim basis subject to reallocation among all of the PRPs which ultimately share the costs of implementing the ROD. The cost of the Pre-Design Work paid by the Steering Committee members was approximately $2 million. In recognition of the Steering Committee's commitment to perform the Pre-Design Work, the EPA has deferred issuance of Special Notice letters for implementation of the ROD. The EPA has indicated that it considers Wynn Oil to be one of the four largest contributors to the regional groundwater problem in the BPOU. Wynn Oil disagrees with the views expressed by the EPA.
The Steering Committee has begun the process of allocating among its members the cost for implementing the ROD. There is no assurance that a negotiated allocation of responsibility will be reached. Wynn Oil's ultimate share of the total remedial costs cannot be estimated with certainty at this time. In establishing appropriate reserves for this matter, Registrant has assumed
that the total PRP costs of implementing the ROD plus the Steering Committee's share of EPA's past costs, if any, will be in the range of $30 to $40 million.
(b) In February 1992, an inactive subsidiary of the Company received a letter from the then lessee (the "Lessee") of a parcel of real property in Compton, California formerly leased by the subsidiary. The letter stated that the Lessee had discovered soil contamination at the site and asserted that the subsidiary may be liable for the cost of clean-up. The letter stated that the Lessee was investigating the nature and extent of the soil contamination. In July 1993, the Company received a letter from the owner of the real property (the "Property Owner") stating that the Property Owner had asserted a claim against the Lessee to pay the cost of remediation and that the Property Owner may assert a claim against the Company. In February 1995, the Property Owner filed a lawsuit in federal court against the Lessee and its principal, the inactive subsidiary, Wynn's International, Inc. and Wynn Oil. The complaint alleges that the defendants stored solid and hazardous wastes at the site and that the storage devices for the wastes leaked, causing contamination of the soils and groundwater. The complaint seeks relief under CERCLA, the Resource Conservation Recovery Act of 1976 and common law, including an unspecified amount of damages and an injunction to compel the defendants to clean up the property. After the Wynn's parties were served with the lawsuit in June 1995, the parties filed various cross claims and counter claims against each other. In September 1995, all parties met to review the possibility of an early settlement. As a result of this meeting, the Wynn's parties and the Property Owner agreed to fund equally a joint investigation of the site, with each party being responsible for half of the cost of the investigation. In exchange, the Property Owner stayed the litigation pending completion of the joint investigation. As of March 13, 1996, the Company had not received the results of the investigation. The Company does not know the extent of the contamination or the estimated cost of cleanup at this site.
(c) In January 1991, Wynn's Climate Systems received a letter from the Texas Natural Resources Conservation Commission (the "TNRCC") alleging that soil adjacent to one of its leased manufacturing facilities was contaminated with hazardous substances. The TNRCC directed Wynn's Climate Systems to determine the extent of such contamination and then take appropriate remedial measures. Wynn's Climate Systems retained environmental consultants to conduct soil sampling and otherwise comply with the directive of the TNRCC. Performance of this work was completed in late 1991. Wynn's Climate Systems submitted a copy of the report of its consultants to the TNRCC in February 1992. In 1994, Wynn's Climate Systems received a request from the TNRCC for additional information. Wynn's Climate Systems furnished the requested information to the TNRCC. Wynn's Climate Systems also voluntarily conducted additional investigation activities at this facility. Wynn's Climate Systems ceased leasing this facility at the end of 1994. Since the expiration of the lease, Wynn's Climate Systems has been attempting to obtain written consent from the property owner to gain access to the facility for purposes of continuing the additional investigation. As of March 13, 1996, Wynn's Climate Systems had not yet obtained such consent and had so informed the TNRCC.
(d) In May 1989, Wynn's Climate Systems received notice that it had been identified as a generator of hazardous waste that had been shipped to the Chemical Recycling, Inc. ("CRI") site in Wylie, Texas (the "CRI Site") for treatment. CRI was engaged in the business of
recycling and reclaiming spent solvents and other hazardous wastes at the CRI Site until it ceased operations in February 1989. Wynn's Climate Systems is one of approximately 100 hazardous waste generators that have been identified as potentially responsible parties for the CRI Site. A PRP Steering Committee (the "Committee") was formed to negotiate with the EPA on behalf of its members an agreement to take remedial measures voluntarily at the CRI Site. As of March 1996, approximately 85 PRPs, including Wynn's Climate Systems, had agreed to participate in the Committee for the CRI Site. PRPs that have agreed to participate in the Committee have signed Consent Agreements with the EPA with respect to the CRI Site. Remediation efforts have begun at the CRI Site under the guidance of the Committee. No significant developments occurred in 1995. As of March 1996, Wynn's Climate Systems' proportionate share of the total volume of waste contributed to the CRI Site by Committee members was approximately two-tenths of one percent (0.2%).
The foregoing "Environmental Matters" section and Note 11 of "Notes to Consolidated Financial Statements" on page 28 of the 1995 Annual Report (which is incorporated by reference herein) contain various "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events, including statements regarding estimates of the Company's liabilities associated with identified environmental matters and the likelihood that any liability in excess of reserves for such matters will not materially affect the Company's financial position or annual results of operations or cash flows. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the following: (i) the actual nature and extent of the contamination, (ii) the remedial action selected, (iii) the cleanup level required, (iv) changes in regulatory requirements, (v) with respect to the San Gabriel Valley Superfund Sites, the PRP costs of implementing the ROD and the amount of EPA past costs required to be paid by the PRPs, (vi) the ability of other responsible parties, if any, to pay their respective shares, and (vii) any insurance recoveries. Results actually achieved thus may differ materially from expected results included in these and any other forward looking statements contained herein.
FOREIGN CURRENCY FLUCTUATIONS
In 1995, the United States dollar generally decreased in value compared to 1994 in the currencies of most countries in which the Company does business. This decrease in the value of the U.S. dollar caused aggregate foreign sales and operating profit to be translated into higher dollar values than what would have been reported if exchange rates had remained the same as in 1994. In 1995, the Equity Adjustment from Foreign Currency Translation account on the Consolidated Balance Sheet increased by $1,068,000, which caused a corresponding increase in Total Stockholders' Equity. See "Foreign Operations."
PATENTS AND TRADEMARKS
The Company holds a number of patents and trademarks which are used in the operation of its businesses. There is no known challenge to the Company's rights under any material patents or material trademarks. In 1989, Wynn Oil filed a lawsuit in the federal district court in Detroit, Michigan against another company and its principal stockholder for infringement of Wynn Oil's X-TEND-Registered Trademark- trademark. In February 1994, the court awarded Wynn Oil $2.0 million in damages. Additionally, in May 1994, the court awarded Wynn Oil approximately $1.2 million in prejudgment interest and attorneys' fees. Defendants filed a timely appeal of the District Court ruling to the United States Court of Appeals for the Sixth Circuit, but did not file the required bond to stay execution of the judgment. Prior to Wynn Oil executing upon the defendants' assets, the defendants filed Chapter 11 bankruptcy proceedings in late 1994 in Florida. The bankruptcy filing resulted in an automatic stay of all pending collection efforts. In 1995, the Court of Appeals determined that the District Court had erred in part in determining the damage award and remanded the case to the District Court for a final determination of the damage award. The District Court subsequently awarded Wynn Oil damages and attorneys' fees of approximately $1.8 million. Wynn Oil and its counsel are working through the bankruptcy process to maximize Wynn Oil's ultimate recovery against the defendants. See "Legal Proceedings."
SEASONALITY OF THE BUSINESS
Although sales at the Company's divisions are somewhat seasonal, the consolidated results of operations generally do not reflect seasonality.
RESEARCH AND DEVELOPMENT
Precision maintains research and engineering facilities in Tennessee, Virginia and Canada. Research and development is an important aspect of Precision's business as Precision has developed and continues to develop numerous specialized compounds to meet the specific needs of its various customers. Precision also has technical centers in Tennessee, Virginia and Canada to design sealing solutions, construct prototype products and to perform comprehensive testing of materials and products. Precision maintains extensive research, development and engineering facilities to provide outstanding service to its customers.
Wynn Oil maintains research and product performance centers in California, Belgium, France and South Africa. The main activities of the research staff are the development of new specialty chemicals and other products, improvement of existing products, including finding new applications for their use, evaluation of competitive products and performance of quality control procedures.
FOREIGN OPERATIONS
The following table shows sales to foreign customers for the years 1995, 1994 and 1993:
Consolidated operating results are reported in United States dollars. Because the Company's foreign subsidiaries conduct operations in the currencies of the countries in which they are based, all financial statements of the foreign subsidiaries must be translated into United States dollars. As the value of the United States dollar increases or decreases relative to these foreign currencies, the United States dollar value of items on the financial statements of the foreign subsidiaries is reduced or increased, respectively. Consequently, changes in dollar sales of the foreign subsidiaries from year to year are not necessarily indicative of changes in actual sales recorded in local currency. See Note 3 and Note 14 of "Notes to Consolidated Financial Statements" on page 25 and 29 through 31, respectively, of the 1995 Annual Report, which are hereby incorporated by reference.
The value of any foreign currency relative to the United States dollar is affected by a variety of factors. It is exceedingly difficult to predict what such value may be at any time in the future. Consequently, the ability of the Company to control the impact of foreign currency fluctuations is limited.
A material portion of the Company's business is conducted outside the United States. Consequently, the Company's ability to continue such operations or maintain their profitability is to some extent subject to control and regulation by the United States government and foreign governments.
EMPLOYEES
At December 31, 1995, the Company had 2,023 employees.
A majority of the production and maintenance employees at the Lebanon, Tennessee plant of Precision are represented by a local lodge of the International Association of Machinists and Aerospace Workers. The collective bargaining agreement for this facility will expire in April 1998. The production and maintenance employees at the Orillia, Ontario, Canada plant of Precision are represented by a local unit of the United Rubber, Cork, Linoleum and Plastic Workers of America. The collective bargaining agreement for the unit will expire in February 1997.
A majority of the production and maintenance employees at the Lynchburg, Virginia plant of Dynamic Seals, Inc., an affiliate of Precision, are represented by a local of the International Chemical Workers Union. The collective bargaining agreement for this facility expires in February 1999.
The Company considers its relations with its employees to be good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, who are appointed annually, are as follows:
The principal occupations of Messrs. Carroll, Schlosser and Gibbons for the past five years have been their current respective positions with the Company. There is no arrangement or understanding between any executive officer and any other person pursuant to which he was selected as an officer. There is no family relationship between any executive officers of the Company.
ITEM 2.

ITEM 2. PROPERTIES
The following is a summary description of the Company's facilities, all of which the Company believes to be of adequate construction, as of March 13, 1996:
The Company believes that all of its operating properties are adequately maintained, fully utilized and suitable for the purposes for which they are used. With respect to those leases expiring in 1996 and 1997, the Company believes it will be able to renew such leases on acceptable terms or find suitable alternative facilities.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Various claims and actions, considered normal to Registrant's business, have been asserted and are pending against Registrant and its subsidiaries. Registrant believes that such claims and actions should not have any material adverse effect upon the results of operations or the financial position of Registrant based on information presently known to Registrant.
In February 1994, the United States District Court for the Eastern District of Michigan, Southern Division, in the case of WYNN OIL COMPANY V. AMERICAN WAY SERVICE CORPORATION AND THOMAS A. WARMUS, Case No. 89-CV-71777-DT, awarded Wynn Oil approximately $2.0 million in damages in an action brought by Wynn Oil in 1989 asserting trademark infringement by the defendants. In May 1994, the court awarded Wynn Oil approximately $1.2 million in prejudgment interest and attorneys' fees. Subsequently, the defendants filed a timely appeal to the United States Court of Appeals for the Sixth Circuit, but did not file a bond to stay execution of the judgment. Between May and December 1994, Wynn Oil sought out assets of the defendants to satisfy the judgment. Prior to Wynn Oil executing upon the defendants' assets, the defendants filed Chapter 11 bankruptcy proceedings in late 1994 in Florida. The bankruptcy filing resulted in an automatic stay of all pending collection efforts. In July 1995, the Court of Appeals upheld the District Court's award of damages and attorneys' fees, but held that the District Court erred when it awarded (i) both investment income and prejudgment interest and (ii) reasonable investment income instead of actual investment income. The Court of Appeals remanded the case to the District Court for a final determination of the damage award. In November 1995, the District Court awarded Wynn Oil damages and attorneys' fees of $1.8 million. The District Court also ordered the defendants to show the investment income earned by them during the period in question, which, if any, the court indicated it would award to Wynn Oil. The bankruptcy court has lifted the automatic stay for purposes of determining the applicable investment income and finalizing Wynn Oil's judgment. In 1995, the bankruptcy court appointed separate trustees to take control of the assets of both defendants. The bankruptcy court also affirmed that Wynn Oil had a liquidated claim in the amount of approximately $1.8 million. Wynn Oil and its counsel are continuing to work through the bankruptcy process to maximize Wynn Oil's ultimate recovery against the defendants. No portion of the judgment has been included in the results of operations of the Company and all of Registrant's costs relating to this case have been expensed as incurred.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information appearing under "Cash Dividends and Common Stock Price Per Share: 1994-1995" on page 32 of the 1995 Annual Report and "Number of Stockholders" and "Stock Exchange Listing" on page 33 of the 1995 Annual Report is hereby incorporated by reference.
On February 14, 1996, the Board of Directors of Registrant declared a cash dividend of $0.10 per share payable March 29, 1996 to stockholders of record on March 13, 1996.
Registrant currently expects that it will continue to pay dividends in the future, in amounts per share at least comparable to dividends paid during the past two years.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 15 of the 1995 Annual Report.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from the 1995 Annual Report, pages 16 through 19.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Registrant at December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 (including unaudited supplementary data) and the report of independent auditors thereon are incorporated by reference from the 1995 Annual Report, pages 20 through 32.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under "Election of Directors" on pages 4 and 5 of Registrant's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 8, 1996 ("Registrant's 1996 Proxy Statement") is hereby incorporated by reference. A list of executive officers of Registrant is provided in Item 1 of Part I of this report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information appearing under "Board of Directors and Committees of the Board--Compensation of Directors" and "--Compensation Committee Interlocks and Insider Participation," and "Executive Compensation" on pages 6 through 10 of Registrant's 1996 Proxy
Statement is hereby incorporated by reference. The Report of the Compensation Committee on pages 11 and 12 of Registrant's 1996 Proxy Statement shall not be deemed to be incorporated by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under "Security Ownership of Certain Beneficial Owners and Management" on pages 2 and 3 of Registrant's 1996 Proxy Statement is hereby incorporated by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under "Election of Directors--Certain Relationships and Related Transactions" on page 5 of Registrant's 1996 Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. See Index to Financial Statements and Financial Statement Schedules Covered By Report of Independent Auditors.
2. See Index to Financial Statements and Financial Statement Schedules Covered By Report of Independent Auditors.
3. See Index to Exhibits.
(b) No Reports on Form 8-K were filed by Registrant during the last quarter of 1995.
WYNN'S INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(a))
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements, including the notes thereto.
The consolidated financial statements listed in the above index, which are included in the 1995 Annual Report, are hereby incorporated by reference. With the exceptions of the pages listed in the above index and the items referred to in Items 1, 5, 6, 7 and 8, the 1995 Annual Report is not deemed to be filed as part of this report.
WYNN'S INTERNATIONAL, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1995
____________________
(1) Represents accounts written off against the reserve.
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes each of James Carroll, Seymour A. Schlosser and Gregg M. Gibbons as attorney-in-fact to sign on his behalf, individually and in each capacity stated below, and to file all amendments and/or supplements to this Annual Report on Form 10-K.
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, on March 25, 1996.
WYNN'S INTERNATIONAL, INC.
By /S/ JAMES CARROLL ------------------------------------------- James Carroll President Chief Executive Officer
Pursuant to the requirements of the Securities Exchange 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.
DATE
March 25, 1996 By /S/ WESLEY E. BELLWOOD ------------------------------------------- Wesley E. Bellwood Chairman of the Board
March 25, 1996 By /S/ JAMES CARROLL ------------------------------------------- James Carroll President Chief Executive Officer Director
DATE
March 25, 1996 By /S/ SEYMOUR A. SCHLOSSER ------------------------------------------- Seymour A. Schlosser Vice President-Finance (Principal Financial and Accounting Officer)
March 25, 1996 By /S/ BARTON BEEK ------------------------------------------- Barton Beek Director
March 25, 1996 By /S/ JOHN D. BORIE ------------------------------------------- John D. Borie Director
March 25, 1996 By /S/ BRYAN L. HERRMANN ------------------------------------------- Bryan L. Herrmann Director
March 25, 1996 By /S/ ROBERT H. HOOD, JR. ------------------------------------------- Robert H. Hood, Jr. Director
March 25, 1996 By /S/ RICHARD L. NELSON ------------------------------------------- Richard L. Nelson Director
March 25, 1996 By /S/ JAMES D. WOODS ------------------------------------------- James D. Woods Director
WYNN'S INTERNATIONAL, INC.
INDEX TO EXHIBITS (Item 14(a))
Exhibit Number Description - ------- -----------
3.1 Certificate of Incorporation, as amended, of Registrant (incorporated herein by reference to Exhibit 3.1 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987)
3.2 Certificate of Designations of Junior Participating Preferred Stock (incorporated herein by reference to Exhibit 4.2 to Registrant's Report on Form 8-K dated March 3, 1989)
3.3 By-Laws, as amended, of Registrant (incorporated herein by reference to Exhibit 3.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993)
4.1 Note Agreement, dated March 5, 1986, between Registrant and Metropolitan Life Insurance Company (incorporated herein by reference to Exhibit 4.1 to Registrant's Report on Form 8-K dated March 5, 1986)
4.2 Shareholder Rights Agreement, dated as of March 3, 1989, between Registrant and First Interstate Bank of California, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant's Report on Form 8-K dated March 3, 1989)
4.3 Amendment No. 1 to Shareholder Rights Agreement, dated June 11, 1990 (incorporated by reference to Exhibit 28.2 to Registrant's Report on Form 8-K dated June 11, 1990)
10.1 Employment Agreement, dated February 15, 1995, between Registrant and James Carroll (incorporated by reference to Exhibit 10.1 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994)
10.2 Employment Agreement, dated January 1, 1995, between Registrant and Gregg M. Gibbons (incorporated by reference to Exhibit 10.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994)
Exhibit Number Description - ------- -----------
10.3 Employment Agreement, dated January 1, 1995, between Registrant and Seymour A. Schlosser (incorporated by reference to Exhibit 10.3 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994)
10.4 Wynn's International, Inc. Amended and Restated 1980 Stock Option and Appreciation Rights Plan (incorporated herein by reference to Exhibit 4.1 to Registrant's Registration Statement on Form S-8, Registration No. 2-68157)
10.5 Wynn's International, Inc. Amended and Restated 1982 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 4.2 to Registrant's Registration Statement on Form S-8, Registration No. 2-68157)
10.6 Wynn's International, Inc. Stock-Based Incentive Award Plan (incorporated herein by reference to Exhibit 28.1 to Registrant's Registration Statement on Form S-8, Registration No. 33-30296 and Exhibit 28.2 to Registrant's Registration Statement on Form S-8, Registration No. 33-64090)
10.7 Wynn's International, Inc. 1996 Corporate Management Incentive Plan
10.8 Deferred Compensation Agreement, dated November 30, 1990, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.9 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990)
10.9 Deferred Compensation Agreement, dated February 15, 1993, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.11 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992)
10.10 Deferred Compensation Agreement, dated April 23, 1993, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.10 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993)
10.11 Deferred Compensation Agreement, dated August 5, 1994, between Registrant and James Carroll (incorporated herein by reference to Exhibit 10.11 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994)
Exhibit Number Description - ------- -----------
10.12 Deferred Compensation Agreement, dated November 21, 1995, between Registrant and James Carroll
10.13 Deferred Compensation Agreement, dated November 28, 1995, between Registrant and James Carroll
10.14 Form of Indemnification Agreement between Registrant and a director of Registrant (incorporated herein by reference to Exhibit 10.11 to Registrant's Report on Form 10-K for the fiscal year ended December 31, 1993)
10.15 Wynn's International, Inc. Non-Employee Directors' Stock Option Plan (incorporated herein by reference to Exhibit C of Registrant's Definitive Proxy Statement relating to its Annual Meeting of Stockholders held on May 11, 1994, filed with the Commission on March 25, 1994)
11 Computation of Net Income Per Common Share -- Primary and Assuming Full Dilution
13 Portions of Registrant's Annual Report to Stockholders for the fiscal year ended December 31, 1995 that have been expressly incorporated by reference as a part of this Annual Report on Form 10-K
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule


ITEM 1. BUSINESS
GENERAL
Consumers Financial Corporation (the "Company") is an insurance holding company which, through its subsidiaries, is a leading provider of credit life and credit disability insurance in the Middle Atlantic region of the United States. The Company also owns and administers a small block of universal life insurance business, but no longer markets those products. The insurance subsidiaries are licensed in 33 states and the District of Columbia and currently conduct the majority of their business in the states of Pennsylvania, Delaware, Maryland, Nebraska, Ohio and Virginia. Credit insurance, which accounted for $33.1 million, or 85%, of the Company's total premium revenues in 1995, is marketed primarily through approximately 900 automobile dealers. In connection with its credit insurance operations, the Company also markets, as an agent, an automobile extended service warranty contract and, to a lesser extent, reinsures certain underwriting risks on warranty business. Universal life insurance, which accounted for $5.1 million of premium and policy charge revenues, or 13% of the Company's total premiums and policy charges in 1995, was marketed, until 1992, through general agents, personal producing general agents and independent brokers. Additional information regarding the termination of marketing activities in the Individual Life Division and the sale of the majority of the Division s in-force business appears below under "Operations."
The Company, through its wholly-owned subsidiary, Interstate Auto Auction, Inc. ("Interstate"), conducts wholesale and retail automobile auctions of used vehicles for automobile dealers, banks and leasing companies.
The Company was formed in 1966 as 20th Century Corporation (a Pennsylvania business corporation) and adopted its present name on May 30, 1980. The Company operates through its wholly-owned subsidiaries, principally Consumers Life Insurance Company (a Delaware life insurance company), Consumers Car Care Corporation (a Pennsylvania business corporation) and Interstate Auto Auction, Inc. (a Pennsylvania business corporation). Consumers Life Insurance Company of North Carolina (a North Carolina life insurance company) and Investors Fidelity Life Assurance Corp. (an Ohio life insurance company) are subsidiaries of Consumers Life Insurance Company.
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 1200 Camp Hill By-Pass, Camp Hill, Pennsylvania 17011. Its telephone numbers are (717) 761-4230 and (800) 933- 3018.
The Company operates in three industry segments: the Automotive Resource Division, which markets credit insurance and other products and services to its automobile dealer customers, the Individual Life Insurance Division and the Auto Auction Division. These segments exclude the corporate activities of Consumers Financial Corporation which are insignificant in relation to the three segments. The Automotive Resource segment consists principally of credit life and credit disability insurance which is sold primarily through automobile dealers and, to a limited extent, through banks and other financial institutions. This segment also generates commission revenues on sales of automobile warranty contracts and revenues from other related products and services. The Individual Life segment emphasized the sale of universal life products which were introduced in 1985, and had previously marketed whole- life, term, endowment and annuity products. The Auto Auction segment operates an automobile auction of used vehicles for automobile dealers, banks and leasing companies.
In March of 1992, the Company announced its decision to terminate the operations of its Individual Life Insurance Division. The phase-out plan included discontinuing the sale of insurance policies and the sale of the Company s existing block of individual business. Effective October 1, 1992, the Company sold its block of whole life, term and annuity products to an unaffiliated insurer but continued to administer the block of universal life policies. As of December 31, 1994, the Company sold its in-force block of direct universal life insurance business to an unaffiliated insurer. As part of that transaction, the Company irrevocably assigned to the same insurer, all of its right, title and interest to a block of universal life business which had been assumed previously from another unaffiliated insurer. The Company will continue to administer these blocks of universal life business until May 1, 1995 unless the arrangement is terminated earlier by the reinsurer. The Company continues to own and administer an assumed block of universal life business issued by an unaffiliated insurer.
In March of 1996, the Company announced that it had retained a financial advisor to assist management in evaluating various alternatives to best serve the interests of its shareholders. The recent losses incurred in the Company's core credit insurance operation have lead to this action in order to preserve shareholder value. The various alternatives being considered include the sale of the insurance operations (either the existing business and the marketing organization or only the marketing organization), the sale of the auto auction business, the sale of the entire Company or a combination of the Company with another organization. Bids are currently being solicited for both the insurance operations and the auto auction business. There can be no assurance that any one of these alternatives can be completed in 1996; however, the Company believes that it is reasonably possible that one of the alternatives outlined above may be consummated in 1996.
The following table sets forth for the periods indicated the contribution to revenues, which are comprised of premiums written (before reinsurance ceded), policy charges, net investment income, realized investment gains and other revenues, of each of the product lines within the Company's three industry segments:
(1) Includes $3.2 million in policy charge revenues which relate to business which was 100% coinsured to another insurer as of December 31, 1994. The coinsurance arrangement will be replaced by an assumption and novation agreement following approval by the appropriate regulatory authorities.
The following table sets forth for the periods indicated the contribution to pre-tax income (loss) of each of the product lines within the Company's three industry segments:
The following table sets forth certain information pertaining to the Company's industry segments:
(1) See footnote on page 4 of this Form 10-K.
Additional segment information is contained in Note 18 of the Notes to Consolidated Financial Statements appearing elsewhere in this Form 10-K.
OPERATIONS
The Company's principal subsidiaries, which are engaged in the credit insurance and, until 1992, the individual life insurance business, are Consumers Life Insurance Company, Consumers Life Insurance Company of North Carolina and Investors Fidelity Life Assurance Corp. Together these companies are licensed in 33 states and the District of Columbia. As noted in Item I. - General, the Company disposed of a significant portion of its individual life business in October 1992 and December 1994. The following table sets forth the amounts of life insurance in force at the dates indicated:
For information concerning future policy benefits and unearned premiums, see Notes 1 and 9 of the Notes to Consolidated Financial Statements appearing elsewhere in this Form 10-K. Reserves for life insurance are developed using generally accepted actuarial principles which are widely recognized in the insurance industry. Methods of developing credit disability insurance claims reserves vary widely in the industry. The Company's methods of establishing credit disability claims reserves are based on its prior claims experience. During the last three years, the difference between actual claims on credit disability policies and amounts reserved has not been significant.
Automotive Resource Division
The Company sells credit insurance in connection with consumer credit transactions, substantially all of which are automobile purchases. Credit life insurance provides funds in the event of the insured's death for payment of a specified loan or loans owed by the insured. Similarly, credit disability insurance provides for the periodic paydown of such loans during the term of the insured's disability. In most cases, the entire premium is paid at the time the insurance is issued. Premiums collected are remitted to the Company net of commissions. Credit insurance generally is written on a decreasing term basis with the policy benefit initially being the full amount of the loan and thereafter decreasing in amounts corresponding to the repayment schedule. The primary beneficiary under credit insurance is the lender, with any proceeds in excess of the unpaid portion of the loan payable to a named second beneficiary or the insured's estate.
The Company underwrites all of its credit insurance certificates as to certain health matters including cancer, heart disease, AIDS and AIDS related complex (ARC). The Company also establishes maximum age limits beyond which individuals are not eligible for coverage. The Company believes that its comprehensive training programs increase the ability of its automobile dealer accounts to sell insurance to a significant percentage of automobile purchasers, which creates a larger and more diverse pool of insureds, thereby reducing its mortality and morbidity risk. The Company typically experiences a higher level of claims on disability policies during the first quarter of each year.
The Company has concentrated credit insurance sales efforts mainly in seven states, and was ranked for 1994 (the most recent year for which statistics are available) by A.M. Best Company according to the volume of direct written premiums as shown in the following table:
The Company's success in selling credit insurance is dependent upon establishing and maintaining favorable relationships with automobile dealers. To accomplish these goals, the Company provides finance and insurance training programs which assist dealers in arranging financing and increasing sales of credit insurance; it offers certain dealers the opportunity to participate in profits of the credit insurance business generated by them through reinsurance arrangements; and it provides administrative support and claims handling procedures to dealers. The Company also seeks the endorsement of local and state automobile dealer and other credit insurance producing member associations. To assist the Company in developing dealer relationships, the Company employs two home office sales managers, three finance and insurance training specialists and 17 salaried field representatives who solicit and service accounts. The Company's dealer relationships may be terminated by the Company or the dealers at any time without penalty. In addition to its direct sales efforts, the Company also purchases closed blocks of credit insurance from unaffiliated companies and administers the purchased business until all coverages expire.
The credit insurance business is the major source of the Company's revenues and, until 1991, provided the majority of its profits as well. As indicated above, approximately 85% of the Company's premium revenues during 1995 were derived from its credit insurance business. Automobile sales account for substantially all of the credit insurance sold by the Company, and have been and will continue to be affected, directly and indirectly, by automobile prices, interest rates, the availability of consumer credit and general economic conditions. The credit insurance industry and the Company s credit business have both been adversely affected in recent years by the increase in the number of automobiles which are leased instead of purchased. This is principally due to the lack of availability of approved credit insurance products applicable to leases and to a reluctance on the part of automobile dealers to emphasize the sale of credit insurance products on lease transactions. The Company has credit insurance products available for lease transactions in most of the states in which it actively markets.
The Company's ability to retain credit insurance premiums written is limited by applicable statutory surplus requirements. For this reason, the Company reinsures substantial percentages of its credit insurance premiums on a written basis under quota share agreements with unaffiliated insurance companies. These reinsurance agreements provide statutory surplus relief, thereby increasing the Company's capacity to write credit insurance. An effect of this reinsurance is, however, to reduce the profit that the Company might otherwise realize on its credit insurance business. The agreements contain an experience adjustment computation which results in the ultimate cost of this reinsurance being a stated percentage of the amount of statutory surplus provided. Security funds are maintained by the Company in amounts which are generally proportional to the ceded unearned premiums. This reinsurance does not discharge the Company's primary liability as the original insurer.
The Company also markets, in an agency capacity, extended service automobile warranty products through its wholly-owned subsidiary, Consumers Car Care Corporation. These products are underwritten by unaffiliated insurance companies, administered by unaffiliated third party administrators and sold primarily through automobile dealers, who also sell the Company's credit insurance. The Company, through another subsidiary, also assumes a portion of the risks on these extended service contracts pursuant to a reinsurance arrangement with one of the unaffiliated insurers who underwrite the business. Other related products and services are also offered to the Company's automobile dealer customers.
Individual Life Insurance Division
In March of 1992, the Company announced the termination of this Division's marketing activities and announced its intent to sell its existing blocks of whole-life, term, annuity and universal life business. Effective October 1, 1992, the traditional whole-life, term and annuity business was sold for $5.6 million to the Londen Insurance Group of Phoenix, Arizona. In early 1993, the Company rejected offers it received for the sale of its universal life business after determining that the offers were too low in relation to the projected future profits on that block of business.
Effective December 31, 1994, the Company sold its direct universal life business and irrevocably assigned all its right, title and interest in a block of assumed universal life business (coinsured from AMEX Life Assurance Company on a 90% quota share basis) to American Merchants Life Insurance Company, Jacksonville, Florida, for $5.5 million. The Company continued to provide all policyholder administrative functions for this business pursuant to a service agreement until May 1, 1995.
The Company had experienced continuing losses in its individual life operation due to insufficient premium levels to support the cost of operations. With the sale of the direct universal life business and the AMEX business to American Merchants and the termination of operations of CLMC Insurance Agency, Inc. (a general agency which marketed life insurance and annuity products through unaffiliated insurers), significant reductions have been made in various direct and indirect costs. Although the remaining block of assumed universal life business has generally been profitable, the Company is exploring opportunities to sell this business to the direct writer or another purchaser as part of its plan to sell its insurance operations.
The table below sets forth for the periods indicated the amount of policy charge revenues (for universal life products) and premiums written (for other individual life insurance products).
(1) See footnote on page 4 of this Form 10-K.
Auto Auction Division
The Company's wholly-owned subsidiary, Interstate Auto Auction, Inc., conducts wholesale automobile auctions of used vehicles at its facility in Mercer, Pennsylvania (about 50 miles north of Pittsburgh). The Youngstown Auto Auction business acquired in July of 1993 to expand the Company s auction operations, relocated to Lordstown, Ohio in 1994 in order to attract additional accounts and business to the auction. The Company subsequently ceased all operations at Lordstown effective December 31, 1994 and transferred a portion of its business operations to Interstate. In January 1995, Interstate began conducting the bi-weekly bank repossession auction previously held at Lordstown. This resulted in the termination, as of the end of 1994, of all of Lordstown's expenses while maintaining a portion of its revenue base at Interstate with virtually no incremental costs. Interstate s customers include automobile dealers and leasing companies. In connection with its weekly auctions, Interstate provides a body shop repair and conditioning service and an arbitration service through which disputes between buyers and sellers can be resolved.
In 1995, approximately 35,000 cars were registered for sale at Interstate through the regular weekly consignment auction, and approximately 56% of all vehicles registered were sold. In 1994, approximately 32,000 cars were registered and 59% of the cars registered were sold. Auction fees are generally paid by the seller for each vehicle sold and an additional fee is paid by the purchaser. The purchaser s fees vary according to the price paid for the automobile.
Between 1986 and 1992, significant revenues and profits were generated in connection with a contract with Ford Motor Company wherein Ford's executive and fleet lease vehicles were sold through special monthly auctions held by Interstate. The purchasers at these sales were limited to Ford's new car dealers. In November 1992, Ford terminated its contract with Interstate.
Interstate is a member of the National Automobile Auction Association. It is also bonded and maintains an Auction House License with the Pennsylvania Department of Motor Vehicles.
BEST'S RATINGS
In 1995, Consumers Life Insurance Company received a C rating (Marginal) from A.M. Best Company, principally because of its substantial amount of financial reinsurance and its relatively small capital base. In 1994 Consumers had a C- rating (Marginal). In 1992 and 1993, Consumers had an NA-9 rating (Not Rated at Company Request), which is assigned to any company which is otherwise eligible for a letter rating, but has requested that the rating not be published. The NA-9 designation was requested by Consumers while it completed the restructuring of its individual life insurance operations. In 1991, Consumers was rated "B" (Good). Consumers Life Insurance Company of North Carolina is currently rated "NA-3" (Insufficient Operating Experience), while Investors Fidelity Life Assurance Corp. is classified as "NA-9." Best's letter ratings range from A++ (Superior) to D (Below Minimum Standards), with letters E and F assigned to companies under state supervision or in liquidation. Best's ratings are based on a comparative analysis of the statutory financial condition and operating performance of the companies, rated as determined by their publicly available reports.
INVESTMENTS
The Company's general investment policy with respect to assets of its insurance subsidiaries has been to invest in both fixed maturity securities and mortgages with intermediate terms (generally not more than seven years). Investments in mortgages have allowed the Company to obtain higher yields while maintaining maturities in the five to seven year range. Prior to the sale of most of the Company s universal life business, the Company's investment policy also included investing in certain mortgage-backed securities which provided competitive yields on assets supporting these interest sensitive products.
The Company's mortgage loan portfolio, which relates primarily to commercial real estate, is concentrated in the central Pennsylvania area. Specifically, about 75% of the $7 million in mortgage loan balances at December 31, 1995 are secured by properties within a 60 mile radius of Harrisburg. The Company considers this strategy to be conservative because this region has historically not been particularly susceptible to wide economic swings in recessionary times, due to the diversity of industries throughout the area and the presence of government operations and military installations. See the Management's Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Form 10-K for further information concerning mortgage loans and investments.
Investments in government and corporate bonds are limited to those with a Moody s or Standard & Poors rating of A or better. The Company buys U.S. Treasury Notes for their yield and superior liquidity features. The Company also purchases U.S. Government agency bonds and corporate bonds provided such bonds are part of large liquid issues (over $100 million) and, in the case of corporate bonds, represent economic balance and diversification. The Company may also buy foreign bonds denominated in U.S. dollars (Yankee Bonds), thereby avoiding exposure to foreign currency risk. Short-term investments are maintained primarily to meet anticipated cash requirements arising from operations. As of December 31, 1995, the fixed maturities portfolio did not contain any non-investment grade securities. The Company defines a non- investment grade security as any security rated below Baa3 by Moody s Investors Service and below BBB by Standard and Poor s Rating Service. The assets of the Company's non-insurance subsidiaries generally have been invested in short-term instruments.
The following table sets forth the Company's investment results for the periods indicated:
(1) Includes $27,000 in interest which should have been included in 1994 income. If this income had been included in 1994, the yield in 1995 would have been 7.4% and the 1994 yield would have been 7.3%. (2) Includes $170,000 in rental income related to a property classified as non- investment real estate. Excluding this income, the real estate yield is 6.8%.
COMPETITION
The Company competes with numerous other credit insurance companies, many of which are larger than the Company and have greater financial and marketing resources. The principal competitive factors in the automobile credit insurance industry are commission levels, the quality of training for dealers, the variety of related products, the availability of dealer incentive programs and the level of administrative support and efficiency of claims handling procedures. The Company believes that it is able to compete successfully on the basis of these factors.
The Company pays relatively high commissions in order to remain competitive in states that do not mandate maximum commissions. In states which have established maximum commissions by regulation, there is generally no commission competition among companies. The elimination of the existing commission limits in Pennsylvania, Maryland and Nebraska, the only states where the Company has any significant amount of business which regulate commission levels, could have a detrimental effect on the Company's business because agents could negotiate for higher commissions on the sale of credit insurance without a corresponding increase in premiums. The Company is not aware that any of these states is considering elimination of maximum commission regulations.
Because the Company markets its extended service warranty products primarily in connection with its marketing of credit insurance to automobile dealers, its ability to sell this product is a function of its ability to compete in the credit insurance market. The availability of financially sound insurance underwriters and capable third party warranty administrators are additional factors which affect the Company's ability to market its extended service warranty products effectively.
The marketing areas for the auto auction include western Pennsylvania, western New York, eastern Ohio and the West Virginia panhandle. Interstate competes with five automobile auctions in its market areas. The principal competitive factors are the quality of management, the amount of auction fees charged, location in relation to major metropolitan markets, the quality of the physical plant and facilities and other services offered, such as title guarantees. The Company believes that it is able to compete effectively on the basis of these factors.
REGULATION
The Company's insurance operations are 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. The Company's insurance subsidiaries are subject to periodic examination by the insurance departments in the states of their formation and are also subject to joint regulatory agency examination and market conduct examinations in the other states in which they are authorized to do business.
Certain states in which the Company is licensed have regulations limiting the credit insurance premium rates or the commissions payable to agents or, in some cases, limiting both rates and commissions payable. In addition, some states have regulations that require credit insurance claims ratios to be a specified percentage of earned premiums. If an insurer's claims ratio is below the prescribed benchmark, it is required to reduce premium rates and, conversely, if the claims ratio is higher than the benchmark, the insurer may request an increase in premium rates.
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 2 and 16 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 various states in which it does business. These laws vary from state to state, but 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. The purchase of more than 10% of the outstanding shares of the Company's Common Stock by one or more affiliated parties would require the prior approval of certain state insurance departments which regulate the Company.
EMPLOYEES AND AGENTS
As of December 31, 1995, the Company had approximately 97 full-time employees, including its management and sales personnel. In addition, as of that date there were approximately 900 licensed agents selling credit insurance and vehicle extended service contracts, most of whom were full-time employees of automobile dealers, banks and other financial institutions.
The Company has adequate insurance coverage against employee dishonesty, theft, forgery and alteration of checks and similar items. The Company does not have similar coverage for its agents. 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.

ITEM 2. PROPERTIES
Since September 1989, the Company has maintained its executive and business offices in a leased building located at 1200 Camp Hill By-Pass, Camp Hill, Pennsylvania. The office building contains approximately 44,500 square feet of office space. Prior to 1993, the Company leased the entire facility at an annual rental of $421,000, plus insurance, taxes and utilities. As a result of the termination in 1992 of all new business functions in the Individual Life Insurance Division, the Company now occupies approximately 67% of the available office space. The Company has leased about 85% of the remaining space to third party tenants. Annual rental income to the Company under these sub-leases totals $105,000. In March of 1994, the Company exercised its option to acquire a 50% interest in its home office building, which reduced the Company s annual rent to $204,000. The option price was approximately $1.75 million. Except as otherwise noted, the business operations of the Company and all of the subsidiaries are conducted at the above address in Camp Hill, Pennsylvania.
In connection with its insurance operations, Consumers Life Insurance Company maintains a branch office in leased facilities in Philadelphia, Pennsylvania. The branch office primarily provides supervision, sales and service for credit insurance agents doing business in the eastern Pennsylvania, Delaware and New Jersey areas. Annual rental for this office is $27,000.
Investors Fidelity Life Assurance Corp. maintains an office in leased facilities in Columbus, Ohio. This office primarily provides sales support and supervision for credit insurance agents in the State of Ohio. Annual rental for this office is $12,000 plus insurance, taxes and utilities. Interstate's auction facilities are situated on approximately 50 acres of land owned by Interstate. The auction building contains approximately 44,500 square feet which includes seven auction lanes, a restaurant and various lounges and other amenities.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits which are ordinary and routine litigation incidental to its business. None of these lawsuits is expected to have a materially adverse effect on the Company's financial condition or operations. See Note 13 of the Notes to Consolidated Financial Statements appearing elsewhere in this Form 10-K for additional information concerning litigation matters.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the Fourth Quarter of 1995 to the shareholders of the Company for their consideration through the solicitation of proxies or otherwise.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Consumers Financial Corporation common stock and Convertible Preferred Stock, Series A, are traded on the NASDAQ, National Market System. Ticker symbols are CFIN and CFINP, respectively.
Directors, officers and employees of Consumers Financial Corporation have a sizeable ownership position in Consumers, which is derived from the Company s belief that this provides a strong incentive for all parties involved to enhance shareholder value. At December 31, 1995, the Company s Employee Stock Ownership Plan held 10.7% of the total common stock outstanding.
As of December 31, 1995, there were 7,054 shareholders of record who collectively held 2,621,090 common shares and 161 shareholders of the Convertible Preferred Stock, Series A, who held 481,461 shares. Seven institutions held approximately 138,700 shares of common stock at year end.
Dividends on both the Company s common stock and Convertible Preferred Stock, Series A, are declared by the Board of Directors. A common stock dividend was not declared in 1995; however, common stock dividends had been paid for 14 consecutive years through 1994. The 1994 common stock cash dividend was $.05 per share. The Convertible Preferred Stock, Series A, dividends are paid quarterly on the first day of January, April, July and October. The annual Convertible Preferred Stock, Series A, cash dividend is $.85 per share.
ITEM 6.