<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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 July 31, 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.
<PAGE> 2
ARISTAR, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 1994, December 31, 1993, and
June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations and Retained Earnings -
Three Months and Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6 - 7
Item 2. Management's Analysis of the
Results of Operations for the Six Months
Ended June 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Part II. Other Information:
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . 10 - 11
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>
<PAGE> 3
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 1994 1993 1993
<S> <C> <C> <C>
ASSETS
Finance receivables, net $ 1,460,129 $ 1,453,138 $ 1,353,674
Investment securities 98,467 92,614 79,663
Cash and cash equivalents 7,983 14,224 16,895
Property and equipment, less accumulated
depreciation and amortization: 1994,
$20,642; 1993, $19,205 and $17,413 14,574 12,936 10,880
Deferred charges 11,504 14,135 15,680
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1994,
$34,517; 1993, $31,014 and $27,510 72,494 75,997 79,500
Other assets 11,081 8,327 11,488
TOTAL ASSETS $ 1,676,232 $ 1,671,371 $ 1,567,780
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 287,793 $ 279,607 $ 167,900
Long-term debt 892,799 892,683 907,807
Total debt 1,180,592 1,172,290 1,075,707
Accounts payable and other liabilities 57,695 72,241 64,330
Federal and state income taxes 2,120 5,901 25,720
Insurance claims and benefits reserves 7,467 7,877 7,663
Unearned insurance premiums and
commissions 51,977 50,653 48,738
Total liabilities 1,299,851 1,308,962 1,222,158
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 333,521 317,069 300,727
Net unrealized holding gain (loss) on investment
securities (2,035) 445
Total stockholder's equity 376,381 362,409 345,622
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 1,676,232 $ 1,671,371 $ 1,567,780
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended June 30, Months Ended June 30,
(Dollars in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Loan interest and fee income $ 73,928 $ 72,729 $ 149,132 $ 146,428
Investment securities income 1,405 1,560 2,611 3,445
Total interest income 75,333 74,289 151,743 149,873
Interest and debt expense 21,268 21,714 41,931 43,811
Net interest income before
provision for credit losses 54,065 52,575 109,812 106,062
Provision for credit losses 7,621 8,315 16,173 17,243
Net interest income 46,444 44,260 93,639 88,819
Other operating income
Net insurance operations
and other income 6,729 5,878 13,351 11,105
Other expenses
Personnel costs 15,399 15,395 31,726 31,273
Occupancy expense 2,028 2,159 4,183 4,333
Advertising expense 1,292 1,079 2,214 1,807
Amortization of excess cost over
equity of companies acquired 1,751 1,751 3,503 3,503
Other operating expenses 10,037 10,114 20,086 20,338
30,507 30,498 61,712 61,254
Income before income taxes 22,666 19,640 45,278 38,670
Provision for federal and state
income taxes 8,183 8,375 16,326 16,389
Net income 14,483 11,265 28,952 22,281
Retained Earnings
Beginning of period 325,288 293,462 317,069 286,446
Dividends paid (6,250) (4,000) (12,500) (8,000)
End of period $ 333,521 $ 300,727 $ 333,521 $ 300,727
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended June 30, Months Ended June 30,
(Dollars in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 14,483 $ 11,265 $ 28,952 $ 22,281
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 7,621 8,315 16,173 17,243
Depreciation and amortization 3,951 3,448 7,690 6,734
Decrease (increase) in other assets (4,841) 427 (2,754) 6,025
Increase (decrease) in
Accounts payable and other liabilities 12,995 11,694 (16,909) (7,560)
Unearned insurance premiums and commissions
and insurance claims and benefits reserves (1,131) (1,008) 914 883
Net cash provided by operating activities 33,078 34,141 34,066 45,606
Cash flows from investing activities
Investment securities purchased (17,610) (4,076) (25,380) (6,800)
Investment securities matured 4,855 11,550 15,529 18,380
Finance receivables originated or purchased (293,574) (264,153) (548,678) (460,085)
Finance receivables repaid or sold 264,049 235,449 525,972 464,987
Net change in property and equipment (880) (1,982) (3,376) (2,013)
Other, net (277)
Net cash provided by (used in) investing
activities (43,437) (23,212) (35,933) 14,469
Cash flows from financing activities
Net change in short-term debt 7,734 10,907 8,186 (35,192)
Repayments of long-term debt (10,000) (10,000)
Dividends paid (6,250) (4,000) (12,500) (8,000)
Other, net (60) (60)
Net cash provided by (used in) financing
activities 1,424 (3,093) (4,374) (53,192)
Net increase (decrease) in cash and cash
equivalents (8,935) 7,836 (6,241) 6,883
Cash and cash equivalents
Beginning of period 16,918 9,059 14,224 10,012
End of period $ 7,983 $ 16,895 $ 7,983 $ 16,895
Supplemental disclosures of cash flow information
Interest paid $ 10,266 $ 8,958 $ 42,059 $ 44,218
Intercompany payment in lieu of federal and state
income taxes 20,262 7,147 20,862 21,482
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 6
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 (loss)
of $445,000 and ($2,035,000) as a separate component of stockholder's equity,
and a deferred tax liability (asset) of $324,000 and ($1,095,000), as of
December 31, 1993 and June 30, 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.
<PAGE> 7
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4 Finance Receivables
Finance receivables consist of the following:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 1994 1993 1993
<S> <C> <C> <C>
Consumer finance receivables
Real estate secured loans $ 521,415 $ 510,229 $ 519,529
Other instalment loans 948,803 971,532 870,520
Retail instalment contracts 336,557 328,042 293,246
Gross finance receivables 1,806,775 1,809,803 1,683,295
Less: Unearned finance charges and
deferred loan fees (306,909) (317,571) (291,417)
Allowance for credit losses (39,737) (39,094) (38,204)
Finance receivables, net $ 1,460,129 $ 1,453,138 $ 1,353,674
</TABLE>
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Balance, beginning of period $ 39,573 $ 36,635 $ 39,094 $ 36,046
Provision for credit losses 7,621 8,315 16,173 17,243
Amounts charged off (11,570) (11,123) (23,799) (23,336)
Recoveries 3,907 3,818 7,811 7,512
Allowances on notes purchased 206 559 458 739
Balance, end of period $ 39,737 $ 38,204 $ 39,737 $ 38,204
</TABLE>
Note 5 Long-term Debt
Long-term debt at June 30, 1994 was comprised of:
(Dollars in thousands)
Senior Notes and Debentures $ 693,542
Senior Subordinated Notes
and Debentures 199,257
$ 892,799
<PAGE> 8
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1994
Loan interest and fee income increased $2.7 million, or 1.8%, in the six months
ended June 30, 1994, as compared to the six months ended June 30, 1993,
primarily as a result of an increase in average net finance receivables.
Income from investment securities decreased $834 thousand, due to reduced
interest rates. As a result, total interest income increased by $1.9 million.
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 $1.9 million, or 4.3%, for the six
months ended June 30, 1994, as compared to the same 1993 period. These changes
caused an increase in net interest income before provision for credit losses of
$3.8 million, or 3.5%.
On July 7, 1994, the Company issued $150 million of 7.75% senior notes maturing
in 2001. The proceeds were used primarily to reduce outstanding commercial
paper.
The provision for credit losses for the six months ended June 30, 1994 was 2.18%
as an annualized percentage of average net finance receivables for that period,
as compared to 2.49% 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 six months of 1994 increased $407 thousand, or
22.5% 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 six months of 1994 improved as compared to the first
six months of 1993, with operating and administrative expenses as a percent of
average outstanding finance receivables of 7.8% in 1994 and 8.3% in 1993.
The Company's effective tax rate was 36.1% for the six months ended June 30,
1994, as compared to 42.4% 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.
<PAGE> 9
PART II. OTHER INFORMATION
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>
Six Months Year Six Months
Ended Ended Ended
June 30, December 31, June 30,
1994 1993 1993
<S> <C> <C> <C>
Income before income taxes $ 45,278 $ 79,683 $ 38,670
Fixed charges:
Interest and debt expense on
all indebtedness 41,931 86,385 43,811
Appropriate portion of
rentals (33%) 1,304 2,825 1,358
Total fixed charges 43,235 89,210 45,169
Earnings available for
fixed charges $ 88,513 $ 168,893 $ 83,839
Ratio of earnings
to fixed charges 2.05 1.89 1.86
</TABLE>
<PAGE> 10
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 Tax
Allocation Policy. (5)
(b) Amendment Number 1 to Great Western Financial
Corporation Income Tax Allocation Policy.
(5)
(c) 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.
<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
On July 1, 1994, the Company filed a Current Report on Form 8-K, dated
June 29, 1994, disclosing that the Company has been named as a
defendant in several recently filed class action suits in Alabama in
which various industry-wide practices arising from routine business
activities are being challenged and various damages are being sought.
The Company believes that its practices are permissible under state and
federal laws and will defend these suits accordingly. At this time,
the Company is unable to determine whether any of the classes will be
certified, the possibility of any adverse outcome, or the effect, if
any, of such an outcome on the Company.
On July 7, 1994, the Company filed a Current Report on Form 8-K dated
June 29, 1994, disclosing the terms of the issuance of $150,000,000
7.75% senior notes maturing June 15, 2001.
<PAGE> 12
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: August 5, 1994 By: /s/ James A. Bare
James A. Bare
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
