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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . . to . . . . . . . . . . .
COMMISSION FILE NUMBER 1-3521
ARISTAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4128205
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
8900 GRAND OAK CIRCLE, TAMPA, FL 33637-1050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(813) 632-4500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of April 30, 1994, there were 1,000 shares of Common Stock
outstanding.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
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ARISTAR, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1994, December 31, 1993 and
March 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations and Retained Earnings -
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 6 - 7
Item 2. Management's Analysis of the
Results of Operations for the Three Months
Ended March 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Part II. Other Information:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 10 - 11
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 1994 1993 1993
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Finance receivables, net $ 1,437,837 $ 1,453,138 $ 1,332,771
Investment securities 89,227 92,614 87,137
Cash and cash equivalents 16,918 14,224 9,059
Property and equipment, less accumulated
depreciation and amortization: 1994,
$19,939; 1993, $19,205 and $16,612 14,527 12,936 9,892
Deferred charges 12,891 14,135 16,850
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1994,
$32,766; 1993, $31,014 and $25,759 74,245 75,997 81,252
Other assets 6,240 8,327 11,915
------------ ------------ -----------
TOTAL ASSETS $ 1,651,885 $ 1,671,371 $ 1,548,876
============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Short-term debt $ 280,059 $ 279,607 $ 156,993
Long-term debt 892,742 892,683 917,761
------------ ------------ -----------
Total debt 1,172,801 1,172,290 1,074,754
Accounts payable and other liabilities 35,070 72,241 53,864
Federal and state income taxes 13,168 5,901 24,492
Insurance claims and benefits reserves 7,573 7,877 7,704
Unearned insurance premiums and
commissions 53,002 50,653 49,705
------------ ------------ -----------
TOTAL LIABILITIES 1,281,614 1,308,962 1,210,519
------------ ------------ -----------
STOCKHOLDER'S EQUITY
Common stock: $1.00 par value;
10,000 shares authorized; 1,000
shares issued and outstanding 1 1 1
Paid-in capital 44,894 44,894 44,894
Retained earnings 325,288 317,069 293,462
Net unrealized holding gain on investment
securities 88 445
------------ ------------ -----------
TOTAL STOCKHOLDER'S EQUITY 370,271 362,409 338,357
------------ ------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 1,651,885 $ 1,671,371 $ 1,548,876
============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31,
--------------------------------------
(Dollars in thousands) 1994 1993
----------- ----------
<S> <C> <C>
Loan interest and fee income $ 75,204 $ 73,699
Investment securities income 1,206 1,885
----------- ----------
Total interest income 76,410 75,584
Interest and debt expense 20,663 22,097
----------- ----------
Net interest income before
provision for credit losses 55,747 53,487
Provision for credit losses 8,552 8,928
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NET INTEREST INCOME 47,195 44,559
Other operating income
Net insurance operations
and other income 6,622 5,227
Other expenses
Personnel costs 16,327 15,878
Occupancy expense 2,155 2,174
Advertising expense 922 728
Amortization of excess cost over
equity of companies acquired 1,752 1,752
Other operating expenses 10,049 10,224
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31,205 30,756
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INCOME BEFORE INCOME TAXES 22,612 19,030
Provision for federal and state income taxes 8,143 8,014
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NET INCOME 14,469 11,016
RETAINED EARNINGS
Beginning of period 317,069 286,446
Dividends paid (6,250) (4,000)
----------- ----------
End of period $ 325,288 $ 293,462
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED MARCH 31,
-------------------------------------
(Dollars in thousands) 1994 1993
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,469 $ 11,016
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 8,552 8,928
Depreciation and amortization 3,739 3,286
Decrease in other assets 2,087 5,598
Increase (decrease) in
Accounts payable and other liabilities (29,904) (19,254)
Unearned insurance premiums and commissions
and insurance claims and benefits reserves 2,045 1,891
---------- ----------
Net cash provided by operating activities 988 11,465
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CASH FLOWS FROM INVESTING ACTIVITIES
Investment securities purchased (7,770) (2,724)
Investment securities matured 10,674 6,830
Finance receivables originated or purchased (255,104) (195,932)
Finance receivables repaid or sold 261,923 229,538
Capital expenditures (2,516) (220)
Proceeds from sale of property and equipment 20 189
Other 277
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Net cash provided by investing activities 7,504 37,681
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CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt 452 (46,099)
Dividends paid (6,250) (4,000)
---------- ----------
Net cash used in financing activities (5,798) (50,099)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 2,694 (953)
CASH AND CASH EQUIVALENTS
Beginning of period 14,224 10,012
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End of period $ 16,918 $ 9,059
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 31,793 $ 35,260
Intercompany payments in lieu of federal and state income
taxes 600 14,335
</TABLE>
See Notes to Consolidated Financial Statements.
5
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ARISTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Aristar, Inc.
and subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
Certain amounts in prior periods have been reclassified to conform to the
current period's presentation.
NOTE 2 OWNERSHIP
As a result of a corporate realignment consummated on June 30, 1993, the
Company is no longer a subsidiary, directly or indirectly, of Great Western
Bank, a Federal Savings Bank ("GWB"). After giving effect to the realignment
which was consummated as a dividend from GWB to Great Western Financial
Corporation ("GWFC") of the stock of an intermediate holding company (which
holds all of the stock of the Company), the Company continues to be a wholly
owned indirect subsidiary of GWFC. The realignment is not expected to have a
significant effect on the operations of the Company.
NOTE 3 ACCOUNTING CHANGE
As of December 31, 1993, investments classified as available for sale are
accounted for according to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115").
This statement requires that debt and equity securities classified as available
for sale be reported at fair value, with unrealized gains and losses excluded
from earnings and reported, net of taxes, as a separate component of
stockholder's equity. The Company recorded a net unrealized holding gain of
$445,000 and $88,000, as a separate component of stockholder's equity, and a
deferred tax liability of $324,000 and $47,000, as of December 31, 1993 and
March 31, 1994, respectively.
Beginning December 31, 1992, until the adoption of FAS 115, investment
securities that may have been sold in response to or in anticipation of changes
in interest rates and prepayment risk, liquidity considerations, and other
factors were carried at the lower of aggregate amortized cost or market value.
As of December 31, 1992, all investment securities were deemed to be available
for sale. Prior to December 31, 1992, generally all securities were recorded
at cost and adjusted for amortization of premium and accretion of discount.
Gains and losses on investment securities were recorded when realized on a
specific identity basis.
6
<PAGE> 7
ARISTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 FINANCE RECEIVABLES
Finance receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
(Dollars in thousands) 1994 1993 1993
------------ -------------- ------------
<S> <C> <C> <C>
Consumer finance receivables
Real estate secured loans $ 513,115 $ 510,229 $ 524,602
Other instalment loans 939,696 971,532 850,040
Retail instalment contracts 328,778 328,042 282,666
------------- ------------ ------------
Gross finance receivables 1,781,589 1,809,803 1,657,308
Less: Unearned finance charges and
deferred loan fees (304,179) (317,571) (287,902)
Allowance for credit losses (39,573) (39,094) (36,635)
------------- ------------ ------------
Finance receivables, net $ 1,437,837 $ 1,453,138 $ 1,332,771
============= ============ ============
</TABLE>
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(Dollars in thousands) 1994 1993
------------- ------------
<S> <C> <C>
Balance, beginning of period $ 39,094 $ 36,046
Provision for credit losses 8,552 8,928
Amounts charged off (12,229) (12,213)
Recoveries 3,904 3,694
Allowances on notes purchased 252 180
------------- ------------
Balance, end of period $ 39,573 $ 36,635
============= ============
</TABLE>
NOTE 5 LONG-TERM DEBT
Long-term debt at March 31, 1994 was comprised of:
(Dollars in thousands)
Senior Notes and Debentures $ 693,516
Senior Subordinated Notes
and Debentures 199,226
----------
$ 892,742
==========
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ITEM 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1994
Loan interest and fee income increased $1.5 million, or 2.0%, in the quarter
ended March 31, 1994, as compared to the quarter ended March 31, 1993,
primarily as a result of an increase in average net finance receivables.
Income from investment securities decreased $679 thousand, due to reduced
interest rates. As a result, total interest income increased by $826 thousand.
During 1993, the Company reduced its long-term debt outstanding by issuing
commercial paper at substantially lower interest rates, resulting in a decrease
in interest and debt expense of $1.4 million, or 6.5%, for the quarter ended
March 31, 1994, as compared to the same 1993 period. These changes caused an
increase in net interest income before provision for credit losses of $2.3
million, or 4.2%.
The provision for credit losses for the three months ended March 31, 1994 was
2.31% as an annualized percentage of average net finance receivables for that
period, as compared to 2.57% for the comparable 1993 period. The decrease in
provision rate reflects management's assessment of the quality of the Company's
receivables portfolio at this time.
The Company began relocating its headquarters from Memphis, Tennessee to Tampa,
Florida in the third quarter of 1993 and completed this move in the first
quarter of 1994. In connection with this relocation, the Company has
constructed a 71,000 square foot headquarters building on 6 acres of land at a
total cost of approximately $7 million.
Advertising expense for the first quarter of 1994 increased $194 thousand, or
26.7%, over the comparable 1993 period primarily due to various promotions
aimed at maintaining the balance of outstanding finance receivables at the
previous year end level.
Productivity in the first quarter of 1994 improved as compared to the first
quarter of 1993, with operating and administrative expenses as a percent of
average outstanding finance receivables of 7.9% in 1994 and 8.3% in 1993.
The Company's effective tax rate was 36.0% for the quarter ended March 31,
1994, as compared to 42.1% for the same 1993 period. The decrease is primarily
attributable to the effect of an amendment in the fourth quarter of 1993 to
Great Western Financial Corporation's income tax allocation policy, which
provides that the Company's state income taxes will be determined as if the
Company had filed such returns on a separate entity basis.
As of December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), which requires that debt and equity securities
classified as available for sale be reported at fair value, with unrealized
gains and losses excluded from earnings and reported, net of taxes, as a
separate component of stockholder's equity. See Note 3 to the accompanying
Consolidated Financial Statements for additional information.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are routinely involved in litigation
incidental to their businesses. It is management's opinion that the
aggregate liability arising from the disposition of all such pending
litigation will not have a material adverse effect on the Company.
ITEM 5. OTHER INFORMATION
The calculation of the Company's ratio of earnings to fixed charges as of the
dates indicated is shown below:
<TABLE>
<CAPTION>
THREE MONTHS YEAR THREE MONTHS
ENDED ENDED ENDED
MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income before income taxes $ 22,612 $ 79,683 $ 19,030
---------- ---------- ----------
Fixed charges:
Interest and debt expense on
all indebtedness 20,663 86,385 22,097
Appropriate portion of
rentals (33%) 662 2,825 688
---------- ---------- ----------
Total fixed charges 21,325 89,210 22,785
---------- ---------- ----------
Earnings available for
fixed charges $ 43,937 $ 168,893 $ 41,815
========== ========== ==========
Ratio of earnings
to fixed charges 2.06 1.89 1.84
========== ========== ==========
</TABLE>
9
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) (a) Indenture dated as of July 15, 1984, between Aristar, Inc.
and Bank of Montreal Trust Company, as trustee. (1)
(b) First supplemental indenture to Exhibit (4) (a) dated as of
June 1, 1987. (1)
(c) Indenture dated as of August 15, 1988, between Aristar, Inc.
and Bank of Montreal Trust Company, as trustee. (2)
(d) Indenture dated as of May 1, 1991 between Aristar, Inc. and
Security Pacific National Bank, as trustee. (3)
(e) Indenture dated as of May 1, 1991 between Aristar, Inc. and
The First National Bank of Boston, as trustee. (3)
(f) Indenture dated as of July 1, 1992 between Aristar, Inc. and
The Chase Manhattan Bank, N.A., as trustee. (4)
(g) Indenture dated as of July 1, 1992 between Aristar, Inc. and
Citibank, N.A., as trustee. (4)
(h) The registrant hereby agrees to furnish the Securities and
Exchange Commission upon request with copies of all
instruments defining rights of holders of long-term debt of
Aristar, Inc. and its consolidated subsidiaries.
(10) (a) Great Western Financial Corporation Income Tax Allocation
Policy. (5)
(b) Amendment Number 2 to Great Western Financial Corporation
Income Tax Allocation Policy. (6)
(1) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1993, Commission file number 1-3521.
(2) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1988, Commission file number 1-3521.
(3) Incorporated by reference to Registrant's Current
Report on Form 8-K dated May 29, 1991, Commission file
number 1-3521.
(4) Incorporated by reference to Registrant's Current
Report on Form 8-K dated June 24, 1992, Commission file
number 1-3521.
(5) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992,
Commission file number 1-3521.
10
<PAGE> 11
(6) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993,
Commission file number 1-3521.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this
Report.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARISTAR, INC.
Date: May 9, 1994 By: /s/ James A. Bare
------------------------------- --------------------------------
James A. Bare
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
12
