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, 1996
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 June 30, 1996, 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>
<CAPTION>
Part I. Financial Information:
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Condition -
June 30, 1996, December 31, 1995, and
June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations and Retained Earnings -
Three Months and Six Months Ended June 30, 1996 and 1995. . 4
Consolidated Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1996 and 1995. . 5
Notes to Consolidated Financial Statements. . . . . . . . 6 - 8
Item 2. Management's Analysis of the
Results of Operations for the Six Months
Ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . 9
Part II. Other Information:
Item 5. Other Information. . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 11 - 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . .13
</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) 1996 1995 1995
<S> <C> <C> <C>
ASSETS
Finance receivables, net $1,825,481 $ 1,888,788 $1,754,360
Investment securities 108,986 120,952 111,840
Cash and cash equivalents 14,323 7,208 11,131
Property and equipment, less accumulated
depreciation and amortization: 1996,
$20,050; 1995, $19,249 and $18,147 10,721 11,309 12,142
Deferred charges 10,615 11,570 12,933
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1996,
$48,531; 1995, $45,028 and $41,524 58,480 61,983 65,487
Other assets 21,627 11,951 10,809
TOTAL ASSETS $ 2,050,233 $2,113,761 $1,978,702
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 405,278 $ 312,876 $ 285,286
Long-term debt 1,098,846 1,003,809 937,717
Total debt 1,504,124 1,316,685 1,223,003
Accounts payable and other liabilities 40,886 42,315 52,114
Due to affiliate 237,576 221,003
Federal and state income taxes 8,751 8,883 1,494
Insurance claims and benefits reserves 7,787 7,900 7,741
Unearned insurance premiums and
commissions 58,186 56,604 54,208
Total liabilities 1,619,734 1,669,963 1,559,563
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 386,434 398,364 374,501
Net unrealized holding gain (loss)
on investment securities (830) 539 (257)
Total stockholder's equity 430,499 443,798 419,139
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,050,233 $2,113,761 $1,978,702
</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) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Loan interest and fee income $ 85,036 $ 83,630 $173,064 $166,689
Investment securities income 1,925 2,033 3,757 3,780
Total interest income 86,961 85,663 176,821 170,469
Interest and debt expense 25,590 25,855 51,722 52,503
Net interest income before
provision for credit losses 61,371 59,808 125,099 117,966
Provision for credit losses 13,497 9,133 27,989 19,718
Net interest income 47,874 50,675 97,110 98,248
Other operating income
Net insurance operations
and other income 6,364 6,957 12,931 14,041
Other expenses
Personnel costs 16,968 16,658 35,702 34,095
Occupancy expense 2,321 2,575 4,691 5,104
Advertising expense 878 1,370 1,975 2,342
Amortization of excess cost over
equity of companies acquired 1,751 1,751 3,503 3,503
Other operating expenses 2,248 10,071 12,760 19,799
24,166 32,425 58,631 64,843
Income before income taxes 30,072 25,207 51,410 47,446
Provision for federal and state
income taxes 11,953 10,061 20,348 18,827
Net income 18,119 15,146 31,062 28,619
Retained Earnings
Beginning of period 402,257 366,855 398,364 360,882
Dividends paid (18,750) (7,500) (27,800) (15,000)
Transfer to Great Western Bank,
A Federal Savings Bank (15,192) (15,192)
End of period $386,434 $374,501 $386,434 $374,501
</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) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $18,119 $15,146 $31,062 $28,619
Adjustments to reconcile net
income to net cash provided by
operating activities
Provision for credit losses 13,497 9,133 27,989 19,718
Depreciation and amortization 3,316 3,251 6,549 6,640
Deferred income taxes 826 (1,265) 1,014 (1,768)
Increase (decrease) in
Accounts payable and other
liabilities 12,839 15,711 (1,429) 6,366
Unearned insurance premiums
and commissions and insurance
claims and benefits reserves (990) (1,315) 1,469 267
Currently payable income taxes (1,810) (6,145) (132) 1,073
Decrease (increase) in other
assets (10,126) 394 (9,676) 10,174
Net cash provided by operating
activities 35,671 34,910 56,846 71,089
Cash flows from investing activities
Investment securities purchased (6,358) (8,913) (16,388) (15,603)
Investment securities matured 12,571 9,470 26,012 15,546
Finance receivables originated
or purchased (276,088) (284,444) (545,211) (554,955)
Finance receivables repaid or sold 261,062 241,678 580,107 531,924
Net change in property and
equipment (204) (63) (326) ( 241)
Net cash provided by (used in)
investing activities (9,017) (42,272) 44,194 (23,329)
Cash flows from financing activities
Net change in commercial paper 143,949 164,204 92,402 106,201
Proceeds from issuance of
long-term debt 99,841 99,841
Repayments of long-term debt (5,000) (155,000) (5,000) (155,000)
Net change in due to affiliate (228,821) 9,139 (237,576) 17,788
Dividends paid (18,750) (7,500) (27,800) (15,000)
Transfer to Great Western Bank,
A Federal Savings Bank (15,192) (15,192)
Other, net (600) (71) (600) (346)
Net cash provided by (used in)
financing activities (24,573) 10,772 (93,925) (46,357)
Net increase in cash and
cash equivalents 2,081 3,410 7,115 1,403
Cash and cash equivalents
Beginning of period 12,242 7,721 7,208 9,728
End of period $14,323 $11,131 $14,323 $11,131
Supplemental disclosures of
cash flow information
Interest paid $16,755 $23,271 $50,919 $53,944
Intercompany payment in
lieu of federal and state
income taxes 13,026 16,440 19,743 15,514
</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. On April 30, 1996, an
affiliate transferred certain balances to the Company (Note 3). This
transfer was accounted for in a manner similar to a pooling of interests and,
accordingly, the financial statements herein for periods prior to that date have
been restated. These statements should be read in conjunction with the 1995
consolidated financial statements and notes thereto included in the Company's
Quarterly Report on Form 10-Q/A as filed on June 11, 1996.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain amounts in prior periods have been reclassified to
conform to the current period's presentation.
Note 2 Ownership
The Company is an indirect, wholly-owned subsidiary of Great
Western Financial
Corporation ( GWFC ).
Note 3 Related Party Transaction
On April 30, 1996, Great Western Bank, a Federal Savings Bank (GWB ), also a
wholly owned subsidiary of GWFC, transferred to the Company a portion of its
consumer finance business, hereinafter referred to as Great Western Financial
Services ( GWFS ). In accordance with Interpretation Number 39, Transfers and
Exchanges of Companies under Common Control, to Accounting Principles Opinion
Number 16, Business Combinations, the acquisition has been accounted for in
a manner similar to a pooling of interests. Accordingly, the assets acquired
and liabilities assumed have been recorded at historical cost and prior period
financial statements of the Company have been restated for the acquisition.
Eliminations have been made for material intercompany transactions between the
combined entities.
GWFS was comprised primarily of approximately $242 million in net consumer
finance receivables. The Company paid fair value (as determined by
independent appraisal) of approximately $252 million in a combination of $250
million in cash, raised through the issuance of commercial paper, and the
assumption of the $2 million deferred tax liability related to the transfer.
The Company accounted for the approximate $10 million premium as a dividend to
GWFC. Additionally, at purchase date, the Company recorded a transfer to GWB
of approximately $15 million, representing the accumulated earnings of GWFS at
that date.
<PAGE> 7
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4 Insurance Recovery
In May 1996, the Company filed a fidelity bond claim in the amount of $7.4
million for the recovery of fraudulently over-billed marketing costs which had
occurred over a number of years. The insurer has acknowledged coverage of the
claim subject to its final verification of the loss. The Company is
continuing to investigate the matter and may file additional claims with the
insurer for amounts not reflected herein. The $7.4 million recovery has been
reflected as a reduction of other operating expenses in the accompanying
financial statements.
Note 5 Finance Receivables
<TABLE>
<CAPTION>
Finance receivables consist of the following:
June 30, December 31, June 30,
(Dollars in thousands) 1996 1995 1995
<S> <C> <C> <C>
Consumer finance receivables
Real estate secured loans $ 748,317 $ 714,173 $ 669,288
Other instalment loans 1,066,690 1,174,444 1,102,856
Retail instalment contracts 372,987 387,870 353,880
Gross finance receivables 2,187,994 2,276,487 2,126,024
Less:Unearned finance charges and
deferred loan fees (310,334) (337,560) (324,423)
Allowance for credit losses (52,179) (50,139) (47,241)
Finance receivables, net $ 1,825,481 $1,888,788 $ 1,754,360
</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) 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Balance, beginning of period $ 51,175 $ 47,683 $ 50,139 $ 47,835
Provision for credit losses 13,497 9,133 27,989 19,718
Amounts charged off (17,213) (14,076) (35,093) (28,841)
Recoveries 4,191 4,144 8,291 8,172
Allowances on notes purchased 529 357 853 357
Balance, end of period $ 52,179 $ 47,241 $ 52,179 $ 47,241
</TABLE>
<PAGE> 8
ARISTAR, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 6 Long-term Debt
Long-term debt at June 30, 1996 was comprised of:
(Dollars in thousands)
Senior Notes and Debentures $899,315
Senior Subordinated Notes
and Debentures 199,531
$1,098,846
Note 7 Subsequent Event
The Company paid a special dividend of $75,000,000 on July 29,
1996.
<PAGE> 9
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
The Company s average net finance receivables outstanding were
$106.7 million, or 5.97%, greater in the first half of 1996 as compared to the
same period of 1995, while, as a reflection of interest rate and competitive
pressures, the overall portfolio yield decreased 0.38%. As a result, loan
interest and fee income increased $6.4 million, or 3.8%, for the six months
ended June 30, 1996, over the six months ended June 30, 1995. Income from
investment securities decreased $23 thousand, or 0.6%, over the first half
of 1995. As a result, total interest income increased by $6.4 million, or 3.7%,
over the same period of 1995. Average debt outstanding increased $151.9
million, or 12.4%, and the weighted average interest rate on such debt
decreased by 105 basis points, resulting in a decrease in interest and debt
expense of $781 thousand, or 1.5%, for the six months ended June 30, 1996, as
compared to the same 1995 period. These factors resulted in an increase in net
interest income before provision for credit losses of $7.1 million, or
6.0%.
The provision for credit losses for the six months ended June 30, 1996 was
2.96% as an annualized percentage of average net finance receivables for that
period, as compared to 2.21% for the first half of 1995. The increase in
provision rate reflects management's assessment of the quality of the
Company's receivables portfolio at this time including current economic
trends, loan portfolio agings, historical loss experience and evaluation of
collateral.
Personnel expenses were $1.6 million, or 4.7%, higher in the period ended June
30, 1996, as compared to the same 1995 period. This is primarily due to
normal compensation increases. Other operating expenses were $7.0 million,
or 35.6%, lower in the six months ended June 30, 1996 as compared to the same
1995 period, primarily because of a $7.4 million insurance recovery resulting
from fraudulently over-billed marketing costs which had occurred over a number
of years. (See Note 4 to the accompanying financial statements.) Productivity,
defined as the ratio of operating and administrative expenses (before deferral
of direct loan costs and the above described insurance recovery) to average
outstanding finance receivables, improved to 7.3% in the six months ended
June 30, 1996 as compared to 7.7% in the first half of 1995.
<PAGE> 10
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,
1996 1995 1995
<S> <C> <C> <C>
Income before income taxes $ 51,410 $ 99,108 $ 47,446
Fixed charges:
Interest and debt expense on
all indebtedness 51,722 104,050 52,503
Appropriate portion of
rentals (33%) 1,583 3,238 1,560
Total fixed charges 53,305 107,288 54,063
Earnings available for
fixed charges $ 104,715 $ 206,396 $ 101,509
Ratio of earnings
to fixed charges 1.96 1.92 1.88
</TABLE>
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) (a) Agreement dated as of April 30, 1996,
between Great Western Bank and First
Community Financial Services, Inc. (1)
(b) Agreement dated as of April 30, 1996,
between Great Western Bank and Blazer
Financial Services, Inc. (1)
(c) Agreement dated as of April 30, 1996,
between Great Western Bank and Blazer
Financial Services, Inc. of Florida.
(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)
(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) Indenture dated as of July 1, 1995
between Aristar, Inc. and The Bank of
New York, as trustee. (6)
(i) 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) Income Tax Allocation Agreement dated as of
December 15, 1995 between Aristar, Inc. and
Great Western Financial Corporation. (7)
(27) Financial Data Schedule
(1) Incorporated by reference to Registrant's
Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996,
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.
<PAGE> 12
Item 6. Exhibits and Reports on From 8-K (Continued)
(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 Quarterly Report on Form
10-Q for the quarter ended June 30,
1995, Commission file number 1-3521.
(7) Incorporated by reference to
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995,
Commission file number 1-3521.
(b) Reports on Form 8-K
On June 14, 1996, the Company filed a Current Report on Form
8-K, dated June 12, 1996, disclosing, under item (7) thereof, the terms
of the issuance of $100,000,000 aggregate principal amount of its
7.25% senior notes maturing June 15, 2001.
<PAGE> 13
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: July 31, 1996 By: /s/ James A. Bare
James A. Bare
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's financial statements filed as part of its Report on Form 10-Q for the
six months ended June 30, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,323
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,986
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,877,660<F1>
<ALLOWANCE> (52,179)
<TOTAL-ASSETS> 2,050,233
<DEPOSITS> 0
<SHORT-TERM> 405,278
<LIABILITIES-OTHER> 40,886
<LONG-TERM> 1,098,846
0
0
<COMMON> 1
<OTHER-SE> 430,498
<TOTAL-LIABILITIES-AND-EQUITY> 2,050,233
<INTEREST-LOAN> 173,064
<INTEREST-INVEST> 3,757
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 176,821
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 51,722
<INTEREST-INCOME-NET> 125,099
<LOAN-LOSSES> 27,989
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 58,631
<INCOME-PRETAX> 51,410
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,062
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 9.64
<LOANS-NON> 26,794
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 50,139
<CHARGE-OFFS> (35,093)
<RECOVERIES> 8,291
<ALLOWANCE-CLOSE> 52,179
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 52,179
<FN>
<F1>Aristar, Inc. is technically a Commercial and Industrial Company subject to
Article 5 of Regulation S-X. However, as its primary business is consumer
finance, the Company, although not a bank holding company, is engaged in
similar lending activities. Therefore, in accordance with Staff Accounting
Bulletin Topic 11-K, "Application of Article 9 and Guide 3," the Company has
prepared its Financial Data Schedule for the six months ended June 30, 1996
using the Article 9 format.
</FN>
</TABLE>
