<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
----------------
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December
31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the transition period from . . . . . . . . . to . . . . . . . . .
COMMISSION FILE NUMBER 1-3521
ARISTAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
(813) 632-4500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- -------------------
<S> <C>
14 1/4 % Senior Debentures due September 1, 1994 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12 (g) of the Act: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K:
NOT APPLICABLE
The aggregate market value of Common Stock held by non-affiliates: None
As of February 28, 1994, there were 1,000 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Registrant meets the conditions set forth in General Instruction (J)(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
<PAGE> 2
ARISTAR, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . 8
Item 7. Management's Analysis of the Results of Operations
for the Year Ended December 31, 1993 . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 30
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . 30
</TABLE>
Note: Items 4, 6, 10, 11, 12 and 13 are not included as per conditions met by
Registrant set forth in General Instruction J(1)(a) and (b) of Form
10-K.
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
Aristar, Inc. (the "Company"), incorporated in Delaware in 1986 as a
successor to a company incorporated in 1927, is a holding company
headquartered in Tampa, Florida whose subsidiaries are engaged in the
consumer finance business. All of the Company's equity securities are owned
indirectly by Great Western Financial Corporation ("GWFC"). 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"). This realignment was consummated as a dividend from
GWB to GWFC of the stock of an intermediate holding company, which holds all
of the stock of the Company.
The operations of the Company consist principally of a network of 476 consumer
finance offices located in 22 states, which generally operate under the names
Blazer Financial Services and City Finance Company.
The Company makes direct consumer instalment loans and purchases retail
instalment contracts from local retail establishments. These consumer
credit transactions are primarily for personal, family or household purposes.
Instalment loans written in 1993 had original terms ranging from 12 to 180
months and averaged 49 months. For the year ended December 31, 1993, 84% of
the volume of all instalment loans was either unsecured or secured by
guarantor, luxury consumer goods, automobiles or other personal property,
with the remaining 16% being secured by real estate. While the interest
yield on real estate loans is generally lower than for other direct loans,
such loans are typically larger and the ratio of cost to amounts loaned is
lower. Additionally, credit loss experience on real estate loans has been
significantly lower than on other loan types.
Retail instalment sales contracts are generally acquired without recourse to
the originating merchant and provide a vehicle for developing future loan
business. Where these contracts result from the sale of consumer goods,
payment is generally secured by such goods, and, in some cases, a portion of
the purchase price is withheld from the merchant pending satisfactory payment
of the obligation. Contracts are typically written with original terms from
3 to 60 months and for 1993 had an average original term of 23 months.
At December 31, 1993, the average portfolio yield by loan type was as follows:
<TABLE>
<CAPTION>
AVERAGE YIELD
-------------
<S> <C>
Real Estate Secured Loans 14.8%
Other Direct Loans 25.9%
Retail Instalment Sales Contracts 18.7%
</TABLE>
3
<PAGE> 4
PORTFOLIO COMPOSITION
The following table provides an analysis by type of the Company's notes
and contracts receivable (net of unearned finance charges and deferred loan
fees) at the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
(Dollars in thousands) 1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Notes and Contracts Receivable $1,492,232 $1,410,350 $1,416,385
Type as a percent of
Total Receivables
Real Estate Secured Loans 27.3% 30.1% 32.6%
Other Direct Loans 53.4 52.2 51.9
Retail Instalment Sales Contracts 19.3 17.7 15.5
---------- ---------- ----------
100.0% 100.0% 100.0%
========== ========== ==========
</TABLE>
Notes and contracts written including balances renewed but, excluding bulk
purchases, for the years ended December 31, 1993, 1992 and 1991 totaled $1.60
billion, $1.42 billion and $1.19 billion, respectively.
CREDIT LOSS EXPERIENCE
The Company closely monitors portfolio delinquency in measuring the quality
of the portfolio and the potential for ultimate credit losses. The Company
changed its charge-off policy effective June 30, 1991. Under the new
policy, non-real estate secured delinquent accounts are charged off based on
the number of days contractually delinquent (120 days for closed-end loans and
180 days for open-end loans). At June 30, 1991, approximately $28 million of
loans, which had been fully reserved in 1990, were charged off under the new
policy. The adoption of this policy did not have a material impact on 1991
net income. Prior to June 30, 1991, accounts were charged off at the end
of each month if at least one-half of one contractual instalment had not been
received in the aggregate during the previous six months (recency-of-payment
method).
Collection efforts continue after an account has been charged off until
the customer obligation is satisfied or until it is determined that the
obligation is not collectible or that the cost of continuing collection
efforts will not be offset by the potential recovery.
4
<PAGE> 5
The following table sets forth the credit loss experience for the past three
years and the allowance for doubtful accounts at the end of each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
(Dollars in thousands) 1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Allowance for Doubtful Accounts
at End of Year $ 39,094 $ 36,046 $ 35,114
Percent of Year-End Net Receivables 2.6% 2.6% 2.5%
Provision for Credit Losses 35,131 38,601 30,091
Amounts Charged-Off Net of Recoveries:
Amount 33,570 38,219 57,334
Percent of Average Net Receivables(1) 2.4% 2.8% 5.0%
</TABLE>
(1) Average of notes and contracts receivable (net of unearned finance charges)
at each month end during the period.
Accounts past due 60 days and over, based on contract payments were as follows,
as of the end of each of the past three years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
(Dollars in thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Amount $31,883 $33,214 $39,528
Percent of Year-End Gross Receivables 1.8% 1.9% 2.3%
</TABLE>
INTEREST RATE SPREADS AND COST OF BORROWED FUNDS
A relatively high ratio of borrowings to invested capital is customary in
consumer finance activities due to the liquidity of the assets employed by
the business. The spread between the revenues received from loans and
interest expense is a significant factor in determining the net income of the
Company.
5
<PAGE> 6
The table below sets forth certain percentages relative to the spread
between interest the Company received on the loan portfolio and interest
expense for each of the last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Ratio to Average Net Receivables:
Interest and Fee Income 21.0% 21.4% 21.7%
Interest and Debt Expense 6.2 6.4 7.0
--------- --------- --------
Gross Spread 14.8% 15.0% 14.7%
========= ========= ========
</TABLE>
CREDIT INSURANCE OPERATIONS
The Company makes available, at the option of its customers, credit life,
credit accident and health, and credit casualty insurance products. Credit
life insurance provides that the customer's credit obligation, to the
extent of the policy limits, is paid in the event of death. Credit accident
and health insurance provides for the payment of instalments due on the
customer's credit obligation in the event of disability resulting from illness
or injury. Credit casualty insurance insures payment, to the extent of the
policy limits, of the credit obligation or cost to repair certain property
used as collateral for such obligation in the event such property is destroyed
or damaged.
Purchase of such insurance is not a condition to obtaining a loan, although
the Company may require casualty insurance covering collateral to be obtained
from unaffiliated sources by the customer. The Company does not sell insurance
to non-customers. Credit insurance sold by the Company is written by
unaffiliated insurance companies and is substantially all reinsured by the
Company, which earns reinsurance premiums thereon.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges, which represents the number
of times fixed charges were covered by earnings, was 1.89 in 1993, 1.83 in
1992, 1.77 in 1991, 1.40 in 1990 and 1.58 in 1989. For purposes of
computing this ratio, earnings consist of income from operations before
income taxes and, in 1992, before the cumulative effect of a change in
accounting method, plus fixed charges. Fixed charges consist of interest and
debt expense and an appropriate portion of rentals.
The combination of increased pretax income and lower interest expense in 1993,
1992 and 1991 resulted in the improved ratios for those years, reflected
above. The substantial decrease in the fixed charge ratio in 1990 was due
primarily to the decrease of $15.8 million in 1990 pretax income as compared
to 1989.
6
<PAGE> 7
GOVERNMENTAL REGULATION
The Company's operations are, for the most part, regulated by federal and
state consumer finance laws or similar legislation. All of the states in
which finance subsidiaries of the Company are licensed to do business have
laws, which vary from state to state, regulating the consumer finance
business. These laws, among other things, typically limit the size of loans,
set maximum interest rates and maximum maturities and regulate certain lending
and collection activities. Although consumer finance laws have been in effect
for many years, amending and new legislation is frequently proposed. The
Company is unable to predict whether or when any such proposals might
ultimately be enacted into law or to assess the impact any such enactment might
have on the Company.
COMPETITION
The consumer finance business is highly competitive. The Company's principal
competitors are other local, regional and national finance companies,
banks, credit unions, savings associations, and other similar financial
institutions. Based upon information published in the American Banker in
December 1993, the Company was ranked as the 25th largest among all finance
companies in the United States, as measured by size of capital funds
(consisting of stockholder's equity and subordinated debt).
EMPLOYEES
The Company employs approximately 2,300 full-time employees. None of these
employees are represented by a union. Management considers relations with its
employees to be satisfactory.
ITEM 2. PROPERTIES
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. In Memphis, Tennessee, the Company
had leased approximately 62,000 square feet of office space as its
headquarters; this lease, which would have expired on October 31, 1994, was
terminated in the first quarter of 1994.
The Company's consumer finance offices, located in 22 states, are leased
typically for terms of three to five years with options to renew. Typical
locations include shopping centers, office buildings and storefronts, generally
of relatively small size sufficient to accommodate a staff of four to eight
employees.
See Note 11 to the Consolidated Financial Statements for additional
information on rental expense and lease commitments.
7
<PAGE> 8
ITEM 3. 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company is an indirect wholly-owned subsidiary of GWFC and the Company's
common stock is not traded on any national exchange or in any other established
market.
Payment of dividends is within the discretion of the Company's Board of
Directors, and it is expected that dividends will be paid quarterly in 1994,
totaling $25 million. Provisions of certain of the Company's debt
agreements restrict the payment of dividends to a maximum prescribed
proportion of cumulative earnings and contributed capital and otherwise provide
for the maintenance of minimum levels of equity and maximum leverage ratios.
The Company declared and paid dividends of $12 million each in December 1992,
December 1991 and January 1991. In 1993, the Company declared and paid
dividends on a quarterly basis, totalling $20.5 million during the year.
ITEM 7. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1993
During the first nine months of 1993, average finance receivables outstanding
were lower than in the comparable 1992 period; however, this trend reversed in
the fourth quarter 1993, during which period finance receivables increased
approximately $91 million. However, in response to general money market
trends, the Company's gross yield on average net receivables decreased to 14.8%
in 1993 from 15.0% in 1992. During the same period, the Company reduced
its average outstanding debt and paid off maturing long-term debt by
issuing commercial paper at substantially lower interest rates. The
resulting decrease in interest expense offset the decrease in interest
income, so that 1993's net interest income, before provision for credit
losses, is comparable to that of 1992.
During the fourth quarter of 1991, the Company purchased approximately $132
million in net finance receivables as a liquidating portfolio. The balance of
these receivables at December 31, 1993 and December 31, 1992 was
approximately $63 million and $84 million, respectively. These receivables
generated loan interest and fee income of $11.7 million in the year ended
December 31, 1993 as compared to $17.2 million during the same period in 1992.
On July 15, 1993, the Company issued $150 million of 5.75% senior notes
maturing in 1998. The proceeds were used primarily to reduce short-term debt.
The provision for credit losses for the year ended December 31, 1993 was 2.50%
as a percentage of average net finance receivables for that period, as
compared to 2.79% for the comparable 1992 period. The decrease in provision
rate reflects management's assessment of the quality of the Company's
receivable portfolio at this time.
8
<PAGE> 9
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. Personnel costs for the year ended
December 31, 1993 increased $1.5 million, or 2.5% over the comparable
1992 period primarily as a result of relocation costs incurred due to this
move.
Occupancy, advertising and other operating expenses decreased $900,000, or
1.7% for the year ended December 31, 1993, primarily because the comparable
1992 period includes various one-time costs to convert forty-four branches
acquired on December 31, 1991 to the Company's systems.
Productivity in 1993 improved as compared to 1992, with operating and
administrative expenses as a percent of average outstanding finance receivables
of 8.3% in 1993 and 8.4% in 1992.
The Company's effective tax rate was 35.8% for the year ended December 31,
1993, as compared to 44.8% for the same 1992 period. The decrease is primarily
attributable to the effect of an amendment in the fourth quarter of 1993,
retroactive to the beginning of that year, to GWFC'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.
Additionally, 1993's Federal income tax provision decreased due to the
expected increased deductibility of current and prior year's amortization of
intangible assets resulting from the Omnibus Budget Reconciliation Act of
1993.
As of January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions", ("FAS 106"), which requires that the expected
cost of such postretirement benefits be charged to expense during the period
over which eligible employees render active service. See Note 10 to the
accompanying Consolidated Financial Statements for additional information.
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. The net effect of this change
increased equity by $445,000. See Note 4 to the accompanying Consolidated
Financial Statements for additional information.
9
<PAGE> 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Aristar, Inc.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations and retained
earnings and of cash flows present fairly, in all material respects, the
financial position of Aristar, Inc. and its subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, in 1992 the
Company changed its method of accounting for postretirement benefits other than
pensions.
PRICE WATERHOUSE
Memphis, Tennessee
January 18, 1994
10
<PAGE> 11
ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, 1993 DECEMBER 31, 1992
----------------- -----------------
<S> <C> <C>
ASSETS
Finance receivables, net $1,453,138 $1,374,304
Investment securities 98,362 99,544
Cash 8,476 1,711
Property and equipment, less accumulated
depreciation and amortization: 1993,
$19,205; 1992, $15,769 12,936 10,909
Deferred charges 14,135 18,294
Excess of cost over equity of
companies acquired, less accumulated
amortization: 1993, $31,014; 1992, $24,007 75,997 83,003
Other assets 8,327 13,987
---------- ----------
TOTAL ASSETS $1,671,371 $1,601,752
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Short-term debt $ 279,607 $ 203,092
Long-term debt 892,683 917,717
---------- ----------
Total debt 1,172,290 1,120,809
Accounts payable and other liabilities 72,241 63,271
Federal and state income taxes 5,901 30,813
Insurance claims and benefits reserves 7,877 7,534
Unearned insurance premiums and
commissions 50,653 47,984
---------- ----------
TOTAL LIABILITIES 1,308,962 1,270,411
---------- ----------
Commitments and contingencies
(Notes 11 and 12)
STOCKHOLDER'S EQUITY
Common stock: $1.00 par value;
10,000 shares authorized: 1,000
shares issued and outstanding 1 1
Paid-in capital 44,894 44,894
Retained earnings 317,069 286,446
Net unrealized holding gain on investment
securities 445
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 362,409 331,341
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $1,671,371 $1,601,752
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
11
<PAGE> 12
ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
(Dollars in thousands) 1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
Loan interest and fee income $294,474 $296,342 $248,989
Investment securities income 5,854 6,390 5,788
--------- -------- --------
300,328 302,732 254,777
Interest and debt expense 86,385 89,005 80,261
-------- -------- --------
Net interest income before
provision for credit losses 213,943 213,727 174,516
Provision for credit losses 35,131 38,601 30,091
-------- -------- --------
NET INTEREST INCOME 178,812 175,126 144,425
-------- -------- --------
Other operating income
Net insurance operations
and other income 25,816 24,925 26,377
-------- -------- --------
Other expenses
Personnel costs 63,882 62,341 53,768
Occupancy expense 9,075 8,739 7,911
Advertising expense 5,027 5,072 4,896
Amortization of excess cost over
equity of companies acquired 7,007 7,007 3,407
Other operating expenses 39,954 41,164 37,390
-------- -------- --------
124,945 124,323 107,372
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING METHOD 79,683 75,728 63,430
Provision for federal and state
income taxes 28,560 33,909 26,250
-------- -------- --------
Income before cumulative effect
of a change in accounting method 51,123 41,819 37,180
Cumulative effect on prior years
(to December 31, 1991) of a change
in the method of recognizing post-
retirement benefits other than pensions,
net of income taxes of $5,660 (8,036)
-------- ------- --------
NET INCOME 51,123 33,783 37,180
RETAINED EARNINGS
Beginning of year 286,446 264,663 251,483
Dividends (20,500) (12,000) (24,000)
-------- -------- --------
End of year $317,069 $286,446 $264,663
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE> 13
ARISTAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
(Dollars in thousands) 1993 1992 1991
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 51,123 $ 33,783 $ 37,180
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 35,131 38,601 30,091
Depreciation and amortization 14,536 12,961 12,319
Deferred income taxes (14,900) (9,180) 10,680
Increase (decrease) in
Accounts payable and other liabilities 8,970 22,210 6,969
Unearned insurance premiums and commissions
and insurance claims and benefits reserves 3,012 1,457 1,040
Currently payable income taxes (10,012) 9,626 (9,165)
Decrease in other assets 5,660 6,837 231
--------- --------- ---------
Net cash provided by operating activities 93,520 116,295 89,345
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in investment securities 1,627 (12,666) 44,163
Loans originated or purchased (1,039,439) (914,768) (880,421)
Loans repaid or sold 927,335 885,742 695,669
Capital expenditures (6,510) (1,584) (1,600)
Proceeds from sale of property and equipment 543 603 300
Purchase of assets of Capitol Finance Group, Inc.
net of liabilities assumed and cash acquired (164,324)
--------- --------- ---------
Net cash used in investing activities (116,444) (42,673) (306,213)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in commercial paper and other
short-term borrowings 76,515 (375,698) 358,522
Proceeds from issuance of long-term debt 148,674 395,445 198,517
Repayments of long-term debt (175,000) (83,405) (323,297)
Dividends paid (20,500) (12,000) (24,000)
--------- --------- ---------
Net cash provided by (used in) financing
activities 29,689 (75,658) 209,742
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,765 (2,036) (7,126)
CASH AND CASH EQUIVALENTS
Beginning of year 1,711 3,747 10,873
--------- --------- ---------
End of year $ 8,476 $ 1,711 $ 3,747
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 88,251 $ 80,010 $ 77,196
Intercompany payments in lieu of federal and state
income taxes 53,473 28,099 24,451
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE> 14
ARISTAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Principles of Consolidation. The consolidated financial statements include the
accounts of Aristar, Inc. and its wholly-owned subsidiaries (the "Company")
after elimination of all material intercompany balances and transactions.
Certain amounts in prior years have been reclassified to conform to the current
year's presentation.
Income Recognition from Finance Operations. Unearned finance charges on all
types of consumer notes and contracts receivable are recognized on an accrual
basis, using the interest method. Accrual generally is suspended when payments
are more than three months contractually overdue. Loan fees and directly
related lending costs are deferred and amortized using the interest method over
the contractual life of the related loans.
Provision and Allowance for Credit Losses. The Company provides, through
charges to income, an allowance for losses which, based upon management's
evaluation of numerous factors, including current economic trends, loan
portfolio agings, historical loss experience and evaluation of collateral, is
deemed adequate to cover reasonably expected losses on outstanding loans.
Losses on loans are charged to the allowance for credit losses based
upon the number of days delinquent or when collectibility becomes questionable
and the underlying collateral, if any, is considered insufficient to liquidate
the loan balance (see Note 2). Recoveries on previously written-off loans are
credited to the allowance.
Investment Securities. 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 adoption of FAS 115
resulted in the Company recording a net unrealized holding gain of $445,000 as
a separate component of stockholder's equity and a deferred tax liability of
$324,000.
Beginning December 31, 1992 until the adoption of FAS 115, investment
securities that may be 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.
14
<PAGE> 15
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.
Property, Equipment and Leasehold Improvements. Property, equipment and
leasehold improvements are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are provided principally on the
straight-line method over the estimated useful life or, if less, the term of
the lease.
Deferred Charges. Expenditures that are deferred are amortized over the period
benefited. Amortization is computed principally using the straight-line method.
Excess of Cost Over Equity of Companies Acquired. The excess of cost over the
fair value of net assets of companies acquired is amortized on a straight-line
basis, generally over periods of up to 25 years.
Insurance Premiums and Acquisition Costs. Insurance premiums are deferred and
subsequently amortized into revenue over the terms of the related insurance
contracts. The methods of amortization used are pro rata, sum-of-the-digits and
a combination thereof. Policy acquisition costs (principally ceding commissions
and premium taxes) are deferred and charged to expense over the terms of the
related policies in proportion to premium recognition.
Insurance Claims and Benefits Reserves. Reserves for reported claims on credit
life and health insurance are established based upon standard actuarial
assumptions used in the insurance business for such purposes. Claims reserves
for reported property and casualty insurance claims are based upon estimates of
costs and expenses to settle each claim. Additional amounts of reserves, based
upon prior experience and insurance in force, are provided for each class of
insurance for claims which have been incurred but not reported as of the
balance sheet date.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by GWFC. Currently payable Federal income taxes will be paid to
GWFC. Federal income taxes are allocated between GWFC and its subsidiaries in
proportion to the respective contribution to consolidated income or loss.
Beginning in 1993, allocations for state income taxes approximate the amount
the Company would have paid on a separate entity basis. Prior to 1993, state
income taxes were allocated using a combined GWFC effective tax rate. Deferred
income taxes are provided on elements of income or expense that are recognized
in different periods for financial and tax reporting purposes.
Taxes on income are determined by using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("FAS 109"). This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes
in the tax law or rates.
Statement of Cash Flows. For purposes of reporting cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
15
<PAGE> 16
Accounting Changes. The Company adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("FAS 106") as of January 1, 1992. FAS 106 requires that the
expected cost of postretirement benefits other than pensions be charged to
expense during the period over which eligible employees render active service.
The unfunded benefit obligation as of January 1, 1992 reflected in liabilities
on the Consolidated Statements of Financial Condition and shown as an
accounting change on the Consolidated Statements of Operations follows:
<TABLE>
<CAPTION>
(Dollars in thousands) JANUARY 1, 1992
---------------
<S> <C>
Accumulated postretirement benefits obligation
Retirees $ 6,971
Active plan participants 6,725
-------
13,696
Income tax benefit 5,660
-------
$ 8,036
=======
</TABLE>
In 1992, the Company also adopted FAS 109, which supersedes Statement No. 96
"Accounting for Income Taxes", which was adopted by the Company in 1987. The
adoption of FAS 109 did not have a significant impact on the financial
statements for 1992.
Market Value Disclosures. The Company adopted Statement of Financial
Accounting Standards No. 107 "Disclosures about Fair Value of Financial
Instruments" ("FAS 107") in December 1992. FAS 107 requires disclosures about
fair value for all financial instruments, whether recognized or not in the body
of the financial statements or in the accompanying notes, and the methods and
significant assumptions used to estimate their fair value.
Quoted market prices are used, where available, to estimate the market value of
financial instruments. Because no quoted market prices exist for a significant
portion of the Company's financial instruments, market value is estimated using
comparable market prices for similar instruments or using management's
estimates of appropriate discount rates and cash flows for the underlying
asset or liability. A change in management's assumptions could significantly
affect these estimates; accordingly, the Company's market value estimates are
not necessarily indicative of the value which would be realized upon
disposition of the financial instruments.
16
<PAGE> 17
NOTE 2 FINANCE RECEIVABLES
Finance receivables at December 31, 1993 and 1992 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
------------ ------------
<S> <C> <C>
Consumer finance receivables
Real estate secured loans $ 510,229 $ 534,171
Other consumer finance instalment loans 971,532 892,454
Retail instalment contracts 328,042 288,764
------------ ------------
Gross consumer finance receivables 1,809,803 1,715,389
Less: Unearned finance charges and
deferred loan fees (317,571) (305,039)
Allowance for credit losses (39,094) (36,046)
------------ ------------
Net consumer finance receivables $ 1,453,138 $ 1,374,304
============ ============
</TABLE>
The amount of gross nonaccruing receivables included above was
approximately $19 million and $20 million at December 31, 1993 and 1992,
respectively.
Contractual maturities, net of unearned finance charges and deferred
loan fees, at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
OVER 1
BUT
WITHIN WITHIN OVER
1 YEAR 5 YEARS 5 YEARS TOTAL
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Real estate secured loans $ 43,300 $ 156,192 $ 207,924 $ 407,416
Other consumer finance
instalment loans 339,143 456,344 870 796,357
Retail instalment contracts 144,346 142,797 1,316 288,459
-------- --------- --------- ----------
$526,789 $ 755,333 $ 210,110 $1,492,232
======== ========= ========= ==========
</TABLE>
Consumer finance receivables have maximum terms of 180 months, while
retail contracts have maximum terms of 60 months. The weighted average
contractual term of all loans and contracts written during each of the
years ended December 31, 1993 and 1992 was 41 months and 42 months,
respectively. Experience has shown that a substantial portion of the
receivables will be renewed or repaid prior to contractual maturity.
Therefore, the tabulation of contractual payments should not be regarded as
a forecast of future cash collections. During the years ended December 31,
1993 and 1992, the ratio of principal cash collections to average net
consumer finance receivables outstanding was 66% and 64%, respectively.
Additionally, substantially all loans provide for a fixed rate of interest
over the contractual life of the loan.
17
<PAGE> 18
The approximate fair value of the Company's net finance receivables
as of December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
-------------------------- ------------------------
APPROXIMATE APPROXIMATE
NET BOOK FAIR NET BOOK FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate secured loans $ 407,416 $ 418,641 $ 424,647 $ 423,792
Other consumer finance
instalment loans 796,357 794,704 736,074 731,179
Retail instalment contracts 288,459 288,459 249,629 249,629
----------- ----------- ----------- ----------
$ 1,492,232 $ 1,501,804 $ 1,410,350 $1,404,600
=========== =========== =========== ==========
</TABLE>
The approximate fair value of finance receivables is estimated by
discounting the future cash flows using current rates at which similar loans
would be made with similar maturities to borrowers with similar credit ratings.
The current rates for finance receivables approximate the weighted average
rates of the portfolio at December 31, 1993 and 1992; therefore, there is no
significant difference between the estimated fair value of the loan portfolio
and its net book value. The fair value is not adjusted for the value of
potential loan renewals from existing borrowers.
Because the Company primarily lends to consumers, it did not have
receivables from any industry group that comprised 10 percent or more of
total consumer finance receivables at December 31, 1993.
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(Dollars in thousands) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Balance, January 1 $ 36,046 $ 35,114 $ 52,187
Provision for credit losses 35,131 38,601 30,091
Amounts charged off (48,635) (52,200) (66,008)
Recoveries 15,065 13,981 8,674
Allowances on notes purchased 1,487 550 10,170
--------- --------- ---------
Balance, December 31 $ 39,094 $ 36,046 $ 35,114
========= ========= =========
</TABLE>
The Company changed its charge-off policy effective June 30, 1991.
Under the new policy, non-real estate secured delinquent accounts are charged
off based on the number of days contractually delinquent (120 days for
closed-end loans and 180 days for open-end loans), as opposed to the previous
recency-based method. At June 30, 1991, approximately $28 million of loans,
which had been fully reserved in 1990, were charged off under the new policy.
The adoption of the policy did not have a material impact on 1991 net income.
18
<PAGE> 19
NOTE 3 ACQUISITIONS
Effective October 11, 1991, the Company acquired, as a liquidating
portfolio, approximately $132 million of finance receivables from GWB. GWB had
acquired the receivables along with certain deposit accounts from the
Resolution Trust Corporation, as a receiver of The First, F.A. of Florida, on
the same date and in turn sold the finance receivables to the Company at
a discount of approximately $17 million. This discount is being accreted
into income over the contractual lives of the loans acquired.
On December 31, 1991, the Company purchased substantially all the
assets and assumed certain liabilities of Capitol Finance Group, Inc.
("Capitol") and its subsidiaries. Capitol was owned by an unrelated
financial institution and operated 54 consumer finance branches in 5 states.
The Company retained 44 of the branches. The total assets acquired of
approximately $149 million were primarily finance receivables. Liabilities
assumed were approximately $4 million, and the total purchase price of
approximately $164 million (net of cash acquired) resulted in an excess of
cost over equity in net assets acquired of approximately $21 million. The
excess is being amortized on a straight-line basis over 6 years, the estimated
life of the intangible assets acquired.
The following unaudited pro forma results have been prepared based on
the fair values of the assets acquired and the liabilities assumed of Capitol
and are not necessarily representative of the actual results that would have
occurred or may occur in the future if the transaction had been in effect on
January 1, 1991.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA RESULTS
YEAR ENDED DECEMBER 31, 1991
----------------------------
(Dollars in thousands)
<S> <C>
Net interest income $161,173
Net insurance operations and
other income 28,791
Net income 40,278
</TABLE>
19
<PAGE> 20
NOTE 4 INVESTMENT SECURITIES
Investment securities as of December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, 1993
---------------------------------------------------------
GROSS UNREALIZED APPROXIMATE
ORIGINAL AMORTIZED ------------------- FAIR
COST COST GAINS LOSSES VALUE
--------- --------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Government obligations $ 18,261 $ 18,179 $ 89 $ 49 $ 18,219
Corporate obligations 72,316 71,946 1,389 415 72,920
Certificates of deposit
and other 6,393 7,468 1 246 7,223
-------- -------- ------- ------ --------
$ 96,970 $ 97,593 $ 1,479 $ 710 $ 98,362
======== ======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31, 1992
----------------------------------------------------------
GROSS UNREALIZED APPROXIMATE
ORIGINAL AMORTIZED -------------------- FAIR
COST COST GAINS LOSSES VALUE
-------- --------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Government obligations $ 29,275 $ 29,244 $ 279 $ 284 $ 29,239
Corporate obligations 59,945 59,739 1,343 152 60,930
Certificates of deposit
and other 10,467 10,561 6 110 10,457
-------- ------- ------ ------ --------
$ 99,687 $ 99,544 $1,628 $ 546 $100,626
======== ======== ====== ====== ========
</TABLE>
There were no significant realized gains or losses during 1993 or 1992.
The following table presents the maturity of the investment securities at
December 31, 1993:
<TABLE>
<CAPTION>
(Dollars in thousands)
APPROXIMATE
AMORTIZED FAIR
COST VALUE
--------- -----------
<S> <C> <C>
Due in one year or less $ 19,490 $ 19,387
Due after one year through five years 46,400 47,410
Due after five years through ten years 24,830 24,716
Due after ten years 6,873 6,849
-------- ---------
$ 97,593 $ 98,362
======== =========
</TABLE>
20
<PAGE> 21
NOTE 5 DEFERRED CHARGES
Deferred charges, net of amortization, as of December 31, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
-------- ---------
<S> <C> <C>
System development costs $ 1,378 $ 3,430
Long-term debt issuance costs 3,449 3,935
Premiums on purchased accounts 9,308 10,929
-------- ---------
$ 14,135 $ 18,294
======== =========
</TABLE>
Amortization of these deferred charges for each of the last three years is as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
System development costs $ 2,052 $ 2,052 $ 2,052
Long-term debt issuance costs 1,581 1,499 978
Premiums on purchased accounts 3,667 3,805 3,246
</TABLE>
NOTE 6 SHORT-TERM DEBT
Short-term debt at December 31, 1993 and 1992 consisted of commercial paper
notes issued in the minimum amount of $500,000 with original terms to 92 days.
The book value of short-term debt at December 31, 1993 approximates its
estimated fair value.
Additional information concerning total short-term borrowings is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
(Dollars in thousands) 1993 1992 1991
------- -------- --------
<S> <C> <C> <C>
Outstanding during the year
Maximum amount at any month end $279,607 $581,556 $578,790
Average amount 170,852 298,531 266,670
Weighted average interest rate 3.6% 4.3% 6.0%
Balance at end of year
Amount $279,607 $203,092 $578,790
Weighted average interest rate 3.8% 4.1% 5.1%
</TABLE>
Weighted average interest rates include the effect of commitment fees.
21
<PAGE> 22
Short-term notes totalling $65 million and $69 million were issued in
December, 1993 and 1992, respectively. The proceeds of these notes were used to
purchase investment securities and were repaid through liquidation of these
securities in the January following issuance. This short-term debt has been
reflected net of the securities balances in the accompanying Consolidated
Statements of Financial Condition.
In 1991, the Company entered into a $100 million international revolving
credit agreement with several foreign banks, which was increased to $120
million in 1993. The agreement originally had a three-year term with repayment
in full of any balance outstanding in December, 1994. In 1993, $110 million of
this credit was extended to December, 1996.
In 1992, the Company entered into a $200 million domestic revolving
credit agreement with various banks. The agreement has a three-year term with
repayment in full of any balance outstanding in January, 1995.
In 1992, the Company entered into an arrangement with GWB for a $100
million revolving credit line originally set to expire in January, 1995. This
arrangement was cancelled during 1993 as a result of the corporate realignment
consummated on June 30, 1993.
There were no borrowings under the above revolving credit agreements in 1993
or 1992.
22
<PAGE> 23
NOTE 7 LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 was comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
------- ------
<S> <C> <C>
Senior Debentures and Notes
9.25%, due July 30, 1993 $ $ 35,000
9.875%, due September 22, 1993 99,994
14.25%, due September 1, 1994 50,000 50,000
9.47%, due April 6, 1995 50,000 50,000
8.55%, due June 1, 1995 100,000 100,000
9.5%, due July 30, 1995 21,000 21,000
7.375%, due February 15, 1997 99,932 99,915
7.875%, due February 15, 1999 99,792 99,761
6.25%, due July 15, 1996 99,977 99,969
5.75%, due July 15, 1998 149,787
Medium Term Notes, Series C, due
1992-1996, at interest rates of 8.41% to 8.90% 10,000 20,000
Medium Term Notes, Series D, due
1992-1995, at interest rates of 9.05% to 9.72% 13,000 43,000
--------- ----------
Total Senior Debt 693,488 718,639
--------- ----------
Senior Subordinated Notes and Debentures
8.875%, due August 15, 1998 99,869 99,848
7.5%, due July 1, 1999 99,326 99,230
--------- ----------
Total Senior Subordinated Debt 199,195 199,078
--------- ----------
Total Long-term Debt $ 892,683 $ 917,717
========= ==========
</TABLE>
23
<PAGE> 24
Aggregate maturities and sinking fund requirements at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
SENIOR
SENIOR SUBORDINATED
DEBT NOTES TOTAL
--------- --------- ---------
<S> <C> <C> <C>
1994 $ 50,000 $ 50,000
1995 189,000 189,000
1996 104,976 104,976
1997 99,933 99,933
1998 149,787 $ 99,869 249,656
Thereafter 99,792 99,326 199,118
--------- --------- ---------
$ 693,488 $ 199,195 $ 892,683
========= ========= =========
</TABLE>
The approximate fair value of the Company's long-term debt as of December 31,
1993 and 1992 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1993 1992
--------------------------- ----------------------
BOOK APPROXIMATE BOOK APPROXIMATE
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Senior debt $ 693,488 $ 724,100 $ 718,639 $ 747,500
Senior subordinated
notes 199,195 217,700 199,078 202,300
----------- --------- ---------- ---------
$ 892,683 $ 941,800 $ 917,717 $ 949,800
=========== ========= ========== =========
</TABLE>
Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate the approximate fair
value of existing debt.
In September, 1990, the Company filed a $400 million shelf registration
statement. In May, 1991, under this registration statement, the Company
issued, through a public offering, $100 million of 8.55% senior notes
maturing June 1, 1995. In August, 1991, also under this registration
statement, the Company issued $100 million of 8.875% senior subordinated
notes maturing August 15, 1998. In February, 1992, under this registration
statement, the Company issued $100 million of 7.375% senior notes maturing
February 15, 1997 and $100 million of 7.875% senior notes maturing February
15, 1999. The proceeds of the offerings in 1991 were principally used to
reduce other long-term debt obligations and, in 1992, were used principally to
reduce short-term debt.
In March, 1992, the Company filed a $600 million shelf registration
statement. In July, 1992, under this registration statement, the Company
issued $100 million of 6.25% senior notes maturing July 15, 1996 and $100
million of 7.5% senior subordinated notes maturing July 1, 1999. In July,
1993, also under this registration statement, the Company issued $150 million
of 5.75% senior notes maturing July 15, 1998. The proceeds of each of these
issues were used principally to reduce short-term debt.
24
<PAGE> 25
NOTE 8 INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
(Dollars in thousands) 1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Currently payable
Federal $ 37,270 $26,284 $ 12,100
State 6,190 11,145 3,470
Deferred (14,900) (3,520) 10,680
------- ------ --------
28,560 33,909 26,250
Adjustment to deferred tax for
cumulative effect of change in
accounting method (5,660)
-------- ------- --------
$ 28,560 $28,249 $ 26,250
======== ======= ========
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain items for tax and financial reporting purposes. Deferred tax
liabilities (assets) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(Dollars in thousands) 1993 1992
------ ------
<S> <C> <C>
Amortization of intangibles $ 21,991 $ 31,606
Employee benefits accruals 2,389
Depreciation 1,197 2,230
Other deferred income items 223 669
-------- ---------
Total deferred tax liabilities 25,800 34,505
-------- ---------
Credit loss reserves (14,826) (9,914)
Employee benefits accruals (6,099)
Unearned insurance commissions (4,909) (4,150)
Loan interest and fee income (382) (1,053)
Other miscellaneous accruals (2,619) (695)
State taxes (4,166)
Other deferred deduction items (1,698) (494)
-------- ---------
Total deferred tax assets (28,600) (22,405)
-------- ---------
Net deferred tax (asset) liability $ (2,800) $ 12,100
======== =========
</TABLE>
25
<PAGE> 26
The provisions for income taxes differ from the amounts determined by
multiplying pretax income by the statutory Federal income tax rate of 35% for
1993 and 34% for 1992 and 1991. A reconciliation between these amounts is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(Dollars in thousands) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at statutory rates $ 27,889 $ 25,748 $ 21,566
Increase (reduction) in taxes
resulting from:
State income taxes, net of
Federal benefit 3,024 6,253 4,079
Amortization of the excess
of purchase price over fair
value of assets acquired 301 1,237 581
Tax legislation changes regarding intangibles (2,511)
Other (143) 671 24
--------- --------- ----------
$ 28,560 $ 33,909 $ 26,250
========= ========= ==========
</TABLE>
NOTE 9 STOCKHOLDER'S EQUITY
Provisions of certain of the Company's debt agreements restrict the payment of
dividends to a maximum prescribed proportion of cumulative earnings and
contributed capital and provide for the maintenance of minimum levels of
equity and maximum leverage ratios. At December 31, 1993, approximately $94
million was available under the debt agreement restriction for future dividends.
NOTE 10 RETIREMENT AND SAVINGS PLANS
GWFC's non-contributory defined benefit pension plan covers substantially all
of the Company's employees. Accumulated plan benefits and annual pension
expense are derived from an allocation formula based on the Company's total
participants and the Plan's total participants.
Pension expense for the Company's participants for the years ended December 31,
1993, 1992 and 1991 was $1,515,000, $1,200,000 and $1,140,000, respectively.
Due to the Company's participation in a multiemployer defined benefit plan,
information as to separate Company participant assets and vested benefits is
not presented.
The Company's employees also participate in GWFC's employee savings plan,
which allows employees to defer part of their pretax compensation until
retirement. Company contributions equal 50% of the contributions made by
employees up to 6% plus annual discretionary amounts, if any, as determined by
management. The Company's cost is based on the actual contribution related to
its participating employees. Total expense was $1,342,000, $1,388,000 and
$1,125,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
26
<PAGE> 27
The Company's employees also participate in GWFC's defined benefit
postretirement plans which provide medical and life insurance coverage to
eligible employees and dependents based on age and length of service. Medical
coverage options are the same as available to active employees. The
accumulated postretirement benefit obligation and related expense are derived
from an allocation formula based on the Company's total participants and the
Plan's total participants.
The net postretirement medical and life insurance expense allocated to the
Company for the years ended December 31, 1993 and 1992 were $1,300,000 and
$1,216,000, respectively. In 1991, the cost of these benefits, funded
currently, was not significant to the Company.
NOTE 11 LEASES
At December 31, 1993, the Company was lessee of office space, principally for
loan offices, computer and other office equipment and automobiles, generally
for terms of five or fewer years. The lease for the Company's former
headquarters expires in 1994 and will not be renewed due to the purchase of
its new headquarters in Tampa, Florida.
The Company has no material capital leases. Under operating leases that have
initial or remaining noncancelable lease terms in excess of one year,
approximate aggregate annual minimum rentals are $5,400,000 in 1994;
$3,500,000 in 1995; $2,400,000 in 1996; $1,500,000 in 1997; and $800,000 in
1998. Rent expense for the years ended December 31, 1993, 1992 and 1991 was
$8,560,000, $8,007,000 and $7,028,000, respectively.
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company is routinely involved in litigation incidental to its 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.
NOTE 13 TRANSACTIONS WITH RELATED PARTIES
The Company had long-term debt outstanding with GWB of $244,500,000 at
December 31, 1990, which was repaid in 1991. During 1991, the Company
borrowed $264,130,000 from GWB under a short-term master note, which was
repaid in July, 1992.
Interest expense related to the above short-term and long-term debt was $2.5
million in 1992 and $12.9 million in 1991. The debt was issued primarily to
reduce commercial paper and other nonaffiliated debt.
27
<PAGE> 28
Other transactions with GWFC or its subsidiaries are identified as follows:
- - The Company provides supervisory and administrative
services to affiliates engaged in industrial banking and
other consumer finance activities at no cost to such
affiliates. The Company also provides data processing
services to such affiliates, and revenue from these services
totalled approximately $768,000 in 1993, $699,000 in 1992
and $640,000 in 1991. From time to time, the Company
advances funds to these operations. At December 31, 1993
and 1992, there were outstanding advances of $855,000 and
$2,548,000, respectively.
- - GWB provides the Company with certain administrative
services, including human resources and cash management. The
Company paid GWB management fees of $1,239,000 in 1993,
$1,163,000 in 1992 and $1,071,000 in 1991.
- - The Company makes payments to GWFC in accordance with
GWFC's tax allocation policy and in connection with the
retirement and savings plans.
NOTE 14 BUSINESS SEGMENTS
The Company is engaged primarily in the consumer finance business.
28
<PAGE> 29
NOTE 15 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the quarterly results of operations for the years ended December
31, 1993 and 1992 is set forth below:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------- --------------- ---------------- -----------------
1993 1992 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 80,811 $ 84,642 $ 80,167 $ 80,404 $ 81,966 $ 80,631 $ 83,200 $ 81,980
-------- -------- -------- -------- -------- -------- -------- --------
Interest and other expenses 52,853 53,965 52,212 52,434 54,062(1) 53,771 52,203 53,158
Provision for credit losses 8,928 9,667 8,315 9,707 8,335 9,283 9,553 9,944
--------- -------- -------- -------- -------- -------- -------- --------
Total expenses 61,781 63,632 60,527 62,141 62,397 63,054 61,756 63,102
-------- -------- -------- -------- -------- -------- -------- --------
Income before taxes
and cumulative effect
of a change in accounting
method 19,030 21,010 19,640 18,263 19,569 17,577 21,444 18,878
Income tax provision 8,014 8,680 8,375 7,560 5,311(2) 7,260 6,860(3) 10,409
-------- -------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of a change in
accounting method 11,016 12,330 11,265 10,703 14,258 10,317 14,584 8,469
Cumulative effect on
prior years (to
December 31, 1991)
of a change in the
method of recognizing
postretirement benefits
other than pensions,
net of income taxes of
$5,660 (8,036)
-------- -------- -------- -------- -------- -------- -------- --------
Net income $ 11,016 $ 4,294 $ 11,265 $ 10,703 $ 14,258 $ 10,317 $ 14,584 $ 8,469
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Includes approximately $1.2 million associated with the relocation
of the Company's headquarters from Memphis, Tennessee to Tampa, Florida.
(2) Reflects a decrease in the Company's effective tax rate
primarily attributable to the expected increased deductibility of current
and prior year's amortization of intangible assets resulting from the
recently enacted Omnibus Budget Reconciliation Act of 1993.
(3) Reflects a change in GWFC's income tax allocation policy, which
provides that the Company's state income taxes will be charged or credited
in amounts approximating such taxes as computed on a separate entity basis.
29
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Index of Documents filed as a part of this Report:
1. FINANCIAL STATEMENTS
Included in Part II of this Report:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . 10
Aristar, Inc. and Subsidiaries:
Consolidated Statements of Financial Condition
at December 31, 1993 and 1992 . . . . . . . . . . . . . . 11
Consolidated Statements of Operations and Retained Earnings
for the Years Ended December 31, 1993, 1992 and 1991 . . 12
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1993, 1992 and 1991 . . 13
Notes to Consolidated Financial Statements. . . . . . . . . 14
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because of the absence of the
conditions under which they are required or because the
required information is set forth in the financial
statements or related notes.
3. EXHIBITS
Included in Part IV of this Report:
EXHIBIT
NUMBER
(3) (a) Certificate of Incorporation of Aristar, Inc. as
presently in effect. (1)
(b) By-Laws of Aristar, Inc. as presently in effect. (1)
(4) (a) Indenture dated as of July 15, 1984, between
Aristar, Inc. and Bank of Montreal Trust Company, as
trustee. (2)
(b) First supplemental indenture to Exhibit (4)(a) dated
as of June 1, 1987. (2)
30
<PAGE> 31
(c) Indenture dated as of August 15, 1988, between Aristar,
Inc. and Bank of Montreal Trust Company, as trustee. (3)
(d) Indenture dated as of May 1, 1991 between Aristar, Inc.
and Security Pacific National Bank, as trustee. (4)
(e) Indenture dated as of May 1, 1991 between Aristar, Inc.
and The First National Bank of Boston, as trustee. (4)
(f) Indenture dated as of July 1, 1992 between Aristar, Inc.
and The Chase Manhattan Bank, N.A., as trustee. (5)
(g) Indenture dated as of July 1, 1992 between Aristar, Inc.
and Citibank, N.A., as trustee. (5)
(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 and its consolidated subsidiaries.
(10) (a) Great Western Financial Corporation Income Tax Allocation
Policy. (6)
(b) Amendment Number 2 to Great Western Financial Corporation
Income Tax Allocation Policy.
(c) Purchase Agreement dated as of November 5, 1991 between
Great Western Bank and Blazer Financial Services, Inc. of
Florida d/b/a Great Western Financial Services, Inc. of
Florida. (7)
(d) Amended and Restated Acquisition Agreement made as of
December 2, 1991 by and between Aristar, Inc. and Capitol
Finance Group, Inc., Capitol Credit Plan of North
Carolina, Inc., Capitol Credit Plan of South Carolina,
Inc., Capitol Credit Plan of Georgia, Inc., Capitol
Credit Plan of Tennessee, Inc., Capitol Credit Plan of
Virginia, Inc., Capitol Mortgage Plan Corporation,
Capitol Mortgage Plan of Virginia, Inc., Capitol Premium
Plan, Inc., Advance Insurance Agency, Inc., Capitol
Financial Services, Inc., Capitol Lease Plan Corporation
and Amity Life Insurance Company, and the exhibits
thereto. (8)
(12) Statement Re: Computation of Ratios.
(23) Consent of Independent Accountants.
(24) Power of Attorney included on Page 33 of the Form 10-K.
31
<PAGE> 32
(1) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1987,
Commission File number 1-3521.
(2) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993,
Commission file number 1-3521.
(3) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1988, Commission file number 1-3521.
(4) Incorporated by reference to Registrant's Current Report
on Form 8-K dated May 29, 1991, Commission file number 1-3521.
(5) Incorporated by reference to Registrant's Current Report
on Form 8-K dated June 24, 1992, Commission file number 1-3521.
(6) Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992,
Commission file number 1-3521.
(7) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1991, Commission file number 1-3521.
(8) Incorporated by reference to Registrant's Current Report
on Form 8-K dated December 31, 1991, Commission file
number 1-3521.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
32
<PAGE> 33
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.
ARISTAR, INC.
By /s/ James A. Bare March 23, 1994
--------------------------------- --------------
James A. Bare, Senior Vice President Date
and Chief Financial Officer (and Principal
Accounting Officer)
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes James
A. Bare as attorney-in-fact to sign on his behalf as an individual
and in every capacity stated below, and to file all amendments to
the registrant's Form 10-K, and the registrant hereby confers like
authority to sign and file in its behalf.
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
indicated on March 23, 1994.
/s/ Michael M. Pappas
------------------------
Michael M. Pappas, President and Director
(Principal Executive Officer)
/s/ James A. Bare
------------------------
James A. Bare, Director
/s/ Carl F. Geuther
------------------------
Carl F. Geuther, Director
/s/ J. Lance Erikson
------------------------
J. Lance Erikson, Director
33
<PAGE> 1
Exhibit 10 (b)
AMENDMENT NUMBER 2 TO
GREAT WESTERN FINANCIAL CORPORATION
INCOME TAX ALLOCATION POLICY
The following paragraph should be added to Paragraph 2 of Part II, titled
"State Income Taxes":
(c) For the Consumer Finance Group ("CFG"), it is intended that the
amount of state income tax or tax benefit charged or credited to CFG
by GWFC will approximate the amount that would have been payable or
recoverable by CFG if it's members had filed their state income tax
returns on a separate entity basis (or separate subgroup basis for
combined state returns). Any deficit or benefit arising therefrom
will be allocated to GWFC.
The Great Western Corporate Tax Department will utilize a reasonable
method to estimate the amount that would have been payable or
recoverable by CFG on a separate entity basis (or separate subgroup
basis for combined state returns).
The Tax Department will review, on an annual basis, the state income
taxes allocated to CFG under the above amendment to ascertain that the
methodology used by the Tax Department is consistent with the intent
of this subparagraph and is reasonable in relationship to the taxes
paid or owed by CFG to taxing authorities.
<PAGE> 1
Exhibit 12
ARISTAR, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1992 1991 1990 1989
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from operations before
income taxes and cumulative
effect of a change in
accounting method $ 79,683 $ 75,728 $ 63,430 $ 37,480 $ 53,296
-------- -------- -------- -------- --------
Fixed charges:
Interest and debt
expense on all
indebtedness 86,385 89,005 80,261 92,154 89,651
Appropriate portion
of rentals (33%) 2,825 2,642 2,319 2,062 1,874
-------- -------- -------- -------- --------
Total fixed charges 89,210 91,647 82,580 94,216 91,525
-------- -------- -------- -------- --------
Earnings available for
fixed charges $168,893 $167,375 $146,010 $131,696 $144,821
======== ======== ======== ======== ========
Ratio of earnings to
fixed charges 1.89 1.83 1.77 1.40 1.58
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 33-23185 and
33-46439) of Aristar, Inc. and subsidiaries of our report dated January 18,
1994 appearing on page 10 of this Form 10-K.
PRICE WATERHOUSE
Memphis, Tennessee
March 23, 1994
