UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 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 April 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
Item 5 of Part II of the Registrant s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 (the Form 10-Q ) is hereby amended and restated
as follows:
Item 5.
(a) Acquisition or Disposition of Assets
Aristar, Inc. (the Company ) and Great Western Bank, a Federal Savings
Bank (the Bank ) are wholly-owned subsidiaries of Great Western
Financial Corporation ( GWFC ). In an intercompany transaction, on
April 30, 1996, the Bank transferred to the Company approximately $242
million in net consumer finance receivables from customers located in
California and Florida and $2 million in associated net liabilities,
previously held directly by the Bank. The Company paid fair market
value (as determined by independent appraisal) of approximately $250
million for the acquired receivables and net liabilities in a
combination of cash of $248 million and the assumption of approximately
$2 million in related deferred tax liabilities. The approximate $10
million premium paid pursuant to this intercompany transaction was
accounted for as a dividend to GWFC. The Company issued commercial
paper to fund the cash portion of the purchase price.
(i) Financial statements of business acquired.
Audited financial statements of Great Western Financial Services
(the carved-out portion of the consumer finance business of Great
Western Bank, a Federal Savings Bank), as follows:
* Report of Independent Certified
Public Accountants.
* Statement of Financial Condition at
December 31, 1995.
* Statement of Operations and
Accumulated Earnings for the year
ended December 31, 1995.
* Statement of Cash Flows for the year
ended December 31, 1995.
* Notes to Financial Statements.
(ii) Restated financial information.
Audited restated consolidated financial statements of Aristar,
Inc. and Subsidiaries as follows:
* Report of Independent Certified
Public Accountants.
* Consolidated Statements of Financial
Condition at December 31, 1995 and
1994.
* Consolidated Statements of
Operations and Retained Earnings for
the years ended December 31, 1995,
1994 and 1993.
* Consolidated Statements of Cash
Flows for the years ended December
31, 1995, 1994 and 1993.
* Notes to Consolidated Financial
Statements.
<PAGE> 3
Unaudited restated consolidated financial statements of Aristar,
Inc. and Subsidiaries as follows:
* Consolidated Statements of Financial
Condition at March 31, 1996,
December 31, 1995 and March 31,
1995.
* Consolidated Statements of
Operations and Retained Earnings for
the three months ended March 31,
1996 and 1995.
* Consolidated Statements of Cash
Flows for the three months ended
March 31, 1996 and 1995.
* Notes to Consolidated Financial
Statements.
(b) Other Information
The calculation of the Company's ratio of earnings to fixed
charges as of the dates indicated is shown below:
<TABLE>
<CAPTION>
Three Months Year Three Months
Ended Ended Ended
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
Income before income taxes $ 21,338 $ 99,108 $ 22,147
Fixed charges:
Interest and debt expense on
all indebtedness 26,132 104,050 26,648
Appropriate portion of
rentals (33%) 810 3,238 758
Total fixed charges 26,942 107,288 27,406
Earnings available for
fixed charges $ 48,280 $206,396 $ 49,553
Ratio of earnings
to fixed charges 1.79 1.92 1.81
</TABLE>
Item 6 of Part II of the Form 10-Q is hereby amended to include the following
additional exhibits attached hereto:
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(23) Consent of Price Waterhouse LLP to
incorporation by reference of their
reports dated May 24, 1996 and
January 15, 1996, except as to the
acquisition of GWFS, which is as of
April 30, 1996, relating to the
financial statements included in
Item 5 (a) (i) and (ii) above,
respectively.
(27) Financial Data Schedules (restated).
<PAGE> 4
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholder of
Aristar, Inc.
In our opinion, the accompanying statement of financial condition and the
related statement of operations and accumulated earnings and of cash flows
present fairly, in all material respects, the financial position of Great
Western Financial Services (a portion of the consumer finance business of
Great Western Bank, a Federal Savings Bank), at December 31, 1995, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Great Western Financial Services
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit 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 audit provides a reasonable basis
for the opinion expressed above.
Great Western Financial Services, as a portion of a member of a group of
affiliated companies, has extensive transactions and relationships with its
affiliates, as disclosed in Notes 4 through 9 to the financial statements.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from transactions
among wholly unrelated parties.
PRICE WATERHOUSE LLP
Tampa, Florida
May 24, 1996
<PAGE> 5
GREAT WESTERN FINANCIAL SERVICES
A Portion of the Consumer Finance Business
of Great Western Bank, a Federal Savings Bank
Statement of Financial Condition
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1995
<S> <C>
ASSETS
Finance receivables, net $ 251,055
Cash on hand 66
Property and equipment, net 117
Other assets 601
TOTAL ASSETS $ 251,839
LIABILITIES AND INTRACOMPANY BALANCES
Liabilities
Accounts payable and accrued expenses $ 998
Total liabilities 998
Commitments and contingencies (Note 8)
Intracompany balances
Interest-bearing intracompany funding 237,218
Accumulated earnings 13,623
Total intracompany balances 250,814
TOTAL LIABILITIES AND
INTRACOMPANY BALANCES $ 251,839
</TABLE>
See Notes to Financial Statements.
<PAGE> 6
GREAT WESTERN FINANCIAL SERVICES
A Portion of the Consumer Finance Business
of Great Western Bank, a Federal Savings Bank
Statement of Operations and Accumulated Earnings
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1995
<S> <C>
Loan interest and fee income $ 27,314
Interest expense 12,793
Net interest income before
provision for credit losses 14,521
Provision for credit losses 1,404
Net interest income 13,117
Other operating income 22
Other expenses
Personnel expenses 4,287
Occupancy expense 1,102
Advertising expense 155
Other operating expenses 2,493
8,037
Income before provision for intracompany charge
in lieu of federal and state income taxes 5,102
Provision for intracompany charge in lieu
of federal and state income taxes 2,095
Net Income 3,007
Accumulated earnings
Beginning of year 10,616
End of year $ 13,623
</TABLE>
See Notes to Financial Statements.
<PAGE> 7
GREAT WESTERN FINANCIAL SERVICES
A Portion of the Consumer Finance Business
of Great Western Bank, a Federal Savings Bank
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1995
<S> <C>
Cash flows from operating activities
Net income $ 3,007
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 1,404
Increase in accounts payable and accrued expenses 886
Decrease in other assets 412
Net cash provided by operating activities 5,709
Cash flows from investing activities
Loans originated or purchased (158,819)
Loans repaid 119,225
Capital expenditures (112)
Net cash used in investing activities (39,706)
Cash flows from financing activities
Proceeds from interest bearing intracompany funding,
net of repayments 34,003
Net cash provided by financing activities 34,003
Net increase in cash on hand 6
Cash on hand
Beginning of year 60
End of year $ 66
Supplemental disclosures of cash flow information
Interest paid $ 12,793
Intracompany payments in lieu of federal and state
income taxes $ 2,095
</TABLE>
See Notes to Financial Statements.
<PAGE> 8
GREAT WESTERN FINANCIAL SERVICES
A Portion of the Consumer Finance Business
of Great Western Bank, a Federal Savings Bank
Notes to Financial Statements
Note 1 Ownership and Operations
The carved-out balances presented herein represent that portion of the
consumer finance business of Great Western Bank, a Federal Savings Bank
( GWB ) which has been referred to internally as Great Western Financial
Services ( GWFS ). GWB is a wholly-owned subsidiary of Great Western
Financial Corporation ( GWFC ). The balances carved-out consist primarily of
consumer finance receivables, the related intracompany balances, and other
minor assets and liabilities incidental to the consumer finance business. The
operations of GWFS are referred to hereinafter as the Operation. These
financial statements include the statement of financial condition, results of
operations, and cash flows of the Operation previously included in the 1995
GWB consolidated financial statements. The Operation is engaged in the
consumer finance business through a network of consumer finance offices,
primarily located within GWB facilities, in California and Florida. The
Operation 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.
On April 30, 1996, GWB transferred to Aristar, Inc. ( Aristar ), also a wholly
owned subsidiary of GWFC, approximately $242 million in net consumer finance
receivables and $2 million in associated net liabilities, previously held
directly by and accounted for in the operations of GWB. Aristar paid fair
market value (as determined by independent appraisal) of approximately $250
million for the transferred receivables and net liabilities in a combination
of cash of $248 million and the assumption of the related $2 million deferred
tax liability.
Note 2 Summary of Significant Accounting Policies
Estimates. 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.
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 Operation 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. Recoveries on previously written-off loans are credited to the
allowance.
<PAGE> 9
Allocable Costs. The Securities and Exchange Commission, in Staff Accounting
Bulletin No. 55, requires that historical financial statements of a
subsidiary, division, or lesser business component of another entity include
certain expenses incurred by the parent on its behalf. These expenses
generally include, but are not limited to, accounting, legal, insurance,
executive, officer and employee salaries, rent, depreciation, other selling,
general and administrative expenses, and other such expenses incurred in the
ordinary course of business. These financial statements include the estimated
costs of such expenses and services when determinable on a basis management
considers reasonable. Management does not believe the Operation s operating
results would be materially different if operated on a stand alone basis.
Property, Equipment and Leasehold Improvements. Property, equipment and
leasehold improvements (primarily related to furniture and fixtures at the
branches) are stated 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.
Income Taxes. As part of GWB, the Operation is included in the consolidated
Federal income tax return filed by GWFC. Federal and state income taxes are
allocated between GWB and the Operation and recorded in the intracompany
balance in proportion to the respective contribution to consolidated income or
loss; such allocation approximates the amount the Operation would have paid on
a separate entity basis.
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 either the Operation's financial statements or in its
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.
Fair Value Disclosures. No quoted market prices exist for the Operation's
financial instruments, which are comprised of finance receivables. The fair
value of the finance receivables at December 31, 1995 was determined by
independent appraisal.
<PAGE> 10
Note 3 Finance Receivables
Finance receivables at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
<S> <C>
Consumer finance receivables
Real estate secured loans $ 146,796
Other consumer finance instalment loans 77,110
Retail instalment contracts 43,968
Gross consumer finance receivables 267,874
Less: Unearned finance charges and
deferred loan fees (10,802)
Allowance for credit losses (6,017)
Net consumer finance receivables $ 251,055
</TABLE>
The gross amount of nonaccruing receivables included above was approximately
$3.5 million at December 31, 1995.
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 1995 was 56 months. Experience
has shown that a substantial portion of the receivables will be renewed or
repaid prior to contractual maturity. The majority of loans provide for a
fixed rate of interest over the contractual life of the loan.
The approximate fair value of the Operation's finance receivables (net of
unearned finance charges and deferred loan fees) as of December 31, 1995
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995
Approximate
Net Book Fair
Value Value
<S> <C> <C>
Real estate secured loans $ 143,604 $ 147,536
Other consumer finance
instalment loans 75,726 76,807
Retail instalment contracts 37,742 37,742
$ 257,072 $ 262,085
</TABLE>
The approximate fair value of finance receivables was determined by
independent appraisal.
<PAGE> 11
Because the Operation 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, 1995.
Activity in the Operation's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1995
<S> <C> <C> <C>
Balance, January 1 $ 6,524
Provision for credit losses 1,404
Amounts charged off (2,665)
Recoveries 344
Allowances on notes purchased 410
Balance, December 31 $ 6,017
</TABLE>
Note 4 Interest-bearing Intracompany Funding
Interest-bearing intracompany funding, the balance of which was $237.2 million
at December 31, 1995, represents the cumulative net funding (primarily the
disbursement of customer loan proceeds and the collection of loan payments,
settled on a daily basis) provided to the Operation from the general funds of
GWB. Interest is allocated, based on the funding account balance at each
month end, at a rate equal to the GWB 30 day commercial paper discount rate
(5.80% at December 31, 1995).
Note 5 Accumulated Earnings
Because the Operation is not a separate and distinct legal entity, there are
no customary shareholder s equity accounts and related retained earnings
displayed in the Statement of Financial Condition. Instead, the accumulated
earnings account represents the accumulated historical net income of the
Operation since its designation by GWB as a specifically identifiable
operation.
<PAGE> 12
Note 6 Intracompany Charge in Lieu of Income Taxes
The components of the intracompany charge in lieu of income taxes are as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1995
<S> <C>
Currently payable
Federal $ 1,620
State 475
Deferred 0
$ 2,095
</TABLE>
Deferred taxes result from temporary differences in the recognition of certain
items for tax and financial reporting purposes. The Operation did not have
any significant temporary differences as of December 31, 1995.
The provision for intracompany charges in lieu of income taxes differs from
the amounts determined by multiplying pretax income by the statutory Federal
income tax rate of 35% for 1995. A reconciliation between these amounts is as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
(Dollars in thousands) 1995
<S> <C>
Income taxes at statutory rates $ 1,786
State income taxes, net of Federal benefit 309
Intracompany charge in lieu of income taxes $ 2,095
</TABLE>
Note 7 Retirement and Savings Plans
GWFC's non-contributory defined benefit pension plan covers substantially all
of the Operation's employees. Due to the Operation's participation in a
multi-employer defined benefit plan, information as to separate Operation
participant assets and vested benefits is not presented.
The Operation'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.
During 1995, costs (based on the ratio of the Operations headcount to GWFC
total headcount) related to pension expense and other post employment benefits
expense of approximately $70,000 and $25,000, respectively, have been incurred
by Aristar at no cost to the Operation.
The Operation's employees also participate in GWFC's employee savings plan,
which allows employees to defer part of their pretax compensation until
retirement. Operation contributions equal 50% of the contributions made by
employees up to 6% plus annual discretionary amounts, if any, as determined by
management. The Operation's cost, approximately $49,000 in 1995, is based on
the actual contribution related to its participating employees.
<PAGE> 13
Note 8 Leases
At December 31, 1995, the Operation was lessee of six stand-alone loan
offices, outside the facilities of GWB. Such leases were operating leases,
generally for terms of five or fewer years. For such leases having initial or
remaining noncancelable lease terms in excess of one year, approximate
aggregate annual minimum rentals are $112,000 in 1996; $114,000 in 1997;
$96,000 in 1998; and $5,000 in 1999. In addition, occupancy costs were
allocated by GWB to the Operation for thirty loan offices which were
maintained within facilities shared with GWB. Total rent expense and
allocated occupancy expense was $193,000 and $882,000, respectively, for the
year ended December 31, 1995.
Note 9 Other Transactions with Related Parties
Significant transactions with GWFC, GWB or Aristar in 1995 are identified as
follows:
* Aristar provided approximately $872,000 in certain supervisory and
administrative services and approximately $257,000 in data processing
services to the Operation. These amounts are recorded in other
operating expenses; such charges are eliminated when the Operation
is consolidated with GWFC.
* GWB provides the Operation with certain administrative services,
including human resources and cash management, for which costs of
$148,000 were allocated to the Operation in 1995. These fees are
recorded in other operating expenses; such charges are eliminated
when the Operation is consolidated with GWFC.
<PAGE> 14
Report of Independent Certified Public 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, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, 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 described in Note 3, on April 30, 1996, the Company acquired Great Western
Financial Services ( GWFS ), representing a portion of the consumer finance
business of an affiliate, in a transaction accounted for in a manner similar
to a pooling of interests. The accompanying consolidated financial statements
give retroactive effect to the transfer of GWFS to the Company.
PRICE WATERHOUSE LLP
Tampa, Florida
January 15, 1996, except as to
the transfer of GWFS, which
is as of April 30, 1996.
<PAGE> 15
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1995 December 31, 1994
<S> <C> <C>
ASSETS
Finance receivables, net $1,888,788 $1,752,779
Investment securities 120,952 106,600
Cash and cash equivalents 7,208 9,728
Property and equipment, less accumulated
depreciation and amortization: 1995,
$19,249; 1994, $21,684 11,309 13,332
Deferred charges 11,570 12,605
Excess of cost over equity of
companies acquired, less accumulated
amortization: 1995, $45,028; 1994, $38,021 61,983 68,990
Other assets 11,951 20,845
TOTAL ASSETS $2,113,761 $1,984,879
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 312,876 $ 179,085
Long-term debt 1,003,809 1,092,545
Total debt 1,316,685 1,271,630
Accounts payable and other liabilities 42,315 45,748
Due to affiliate 237,576 203,215
Federal and state income taxes 8,883 421
Insurance claims and benefits reserves 7,900 7,792
Unearned insurance premiums and
commissions 56,604 53,890
Total liabilities 1,669,963 1,582,696
Commitments and contingencies
(Notes 12 and 13)
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 398,364 360,882
Net unrealized holding gain (loss) on
investment securities 539 (3,594)
Total stockholder's equity 443,798 402,183
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,113,761 $1,984,879
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 16
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Loan interest and fee income $ 339,380 $ 321,748 $ 313,245
Investment securities income 7,744 6,018 5,854
Total interest income 347,124 327,766 319,099
Interest and debt expense 104,050 93,831 90,352
Net interest income before
provision for credit losses 243,074 233,935 228,747
Provision for credit losses 48,306 41,532 37,408
Net interest income 194,768 192,403 191,339
Other operating income
Net insurance operations
and other income 29,234 28,684 25,823
Other expenses
Personnel expenses 65,217 66,199 67,992
Occupancy expense 10,115 9,633 10,122
Advertising expense 5,363 5,397 5,128
Amortization of excess cost over
equity of companies acquired 7,007 7,007 7,007
Other operating expenses 37,192 39,045 42,048
124,894 127,281 132,297
Income before income taxes 99,108 93,806 84,865
Provision for federal and state
income taxes 39,126 34,304 30,705
Net Income 59,982 59,502 54,160
Retained earnings
Beginning of year 360,882 326,380 292,720
Dividends (22,500) (25,000) (20,500)
End of year $ 398,364 $ 360,882 $ 326,380
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 17
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 59,982 $ 59,502 $ 54,160
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 48,306 41,532 37,408
Depreciation and amortization 13,012 15,350 15,012
Deferred income taxes (53) 600 (14,900)
Increase (decrease) in
Accounts payable and other liabilities (3,433) (26,564) 8,999
Unearned insurance premiums and
commissions and insurance claims
and benefits reserves 2,822 3,152 3,012
Currently payable income taxes 6,228 (6,744) (7,212)
(Increase) decrease in other assets 8,894 (9,101) 2,312
Net cash provided by operating activities 135,758 77,727 98,791
Cash flows from investing activities
Securities purchased (43,989) (43,252) (51,257)
Securities matured 36,134 23,278 51,153
Loans originated or purchased (1,349,697) (1,280,635) (1,133,105)
Loans repaid or sold 1,164,381 1,088,476 999,697
Capital expenditures, net (506) (4,041) (5,968)
Net cash used in investing activities (193,677) (216,174) (139,480)
Cash flows from financing activities
Net change in commercial paper and other
short-term borrowings 133,791 (100,522) 76,515
Proceeds from issuance of long-term debt 99,909 249,625 149,769
Long-term debt issue costs (1,162) (1,657) (1,095)
Repayments of long-term debt (189,000) (50,000) (175,000)
Net change in due to affiliate 34,361 61,963 16,221
Dividends paid (22,500) (25,000) (20,500)
Net cash provided by financing
activities 55,399 134,409 45,910
Net increase (decrease) in cash
and cash equivalents (2,520) (4,038) 5,221
Cash and cash equivalents
Beginning of year 9,728 13,766 8,545
End of year $ 7,208 $ 9,728 $ 13,766
Supplemental disclosures of cash flow information
Interest paid $ 103,180 $ 92,579 $ 92,218
Intercompany payments in lieu of federal and state
income taxes 30,382 41,643 55,618
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 18
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Ownership and Operations
Aristar, Inc. is an indirect, wholly-owned subsidiary of Great Western
Financial Corporation ( GWFC ). Aristar, Inc. and its subsidiaries, all of
which are wholly-owned, are referred to hereinafter as the Company.
The Company is engaged primarily in the consumer finance business and its
operations consist principally of a network of 513 consumer finance offices
located in 23 states, primarily in the Southeastern and Southwestern United
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.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include
the accounts of Aristar, Inc. and its subsidiaries, all of which are wholly-
owned, 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.
Estimates. 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.
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 4). Recoveries on previously written-off loans are
credited to the allowance.
Investment Securities. Debt and equity securities are classified as
available for sale and are 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. Gains and losses on investment securities
are recorded when realized on a specific identity basis. Investment security
transactions are recorded using trade date accounting.
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.
<PAGE> 19
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 and state 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. Allocations for state income taxes approximate the amount the
Company would have paid on a separate entity basis.
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 method requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized either 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.
Fair Value Disclosures. Quoted market prices are used, where available, to
estimate the fair value of the Company s financial instruments. Because no
quoted market prices exist for a significant portion of the Company's
financial instruments, fair 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 fair value estimates are not necessarily indicative
of the value which would be realized upon disposition of the financial
instruments.
Note 3 - Related Party Transfer
On April 30, 1996, Great Western Bank ( GWB ), a wholly owned subsidiary of
GWFC and an affiliate of the Company, transferred to the Company approximately
$242 million in net consumer finance receivables and $2 million in associated
net liabilities previously held directly by GWB and carved out for sale to the
Company. The Company paid fair market value (as determined by independent
appraisal) of approximately $250 million for the transferred receivables and
net liabilities in a combination of cash of $248 million and the assumption of
the related $2 million deferred tax liability. The approximate $10 million
premium paid was accounted for by the Company as a dividend to GWFC. The
Company issued commercial paper to fund the cash portion of the purchase
price. The transferred operations represent a portion of the consumer finance
business of GWB and hereinafter are referred to as Great Western Financial
Services ( GWFS ).
<PAGE> 20
The acquisition of GWFS has been accounted for in a manner similar to a
pooling of interests in accordance with Interpretation Number 39, Transfers
and Exchanges of Companies under Common Control to Accounting Principles
Board Opinion Number 16, Business Combinations. 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
transfer. Eliminations have been made for material intercompany transactions
between the combined entities.
The following table summarizes the impact of the GWFS transaction on the
Company s previously reported net interest income, income before income taxes
and net income.
<TABLE>
<CAPTION>
Net Interest Income Before Net
Income Income Taxes Income
<S> <C> <C> <C>
1995
Aristar, as previously reported $ 181,651 $ 93,134 $ 56,461
GWFS, net of eliminations 13,117 5,974 3,521
Aristar, as restated $ 194,768 $ 99,108 $ 59,982
1994
Aristar, as previously reported $ 181,579 $ 91,592 $ 58,197
GWFS, net of eliminations 10,824 2,214 1,305
Aristar, as restated $ 192,403 $ 93,806 $ 59,502
1993
Aristar, as previously reported $ 178,812 $ 79,683 $ 51,123
GWFS, net of eliminations 12,527 5,182 3,037
Aristar, as restated $ 191,339 $ 84,865 $ 54,160
</TABLE>
<PAGE> 21
The impact of the GWFS transaction on the Company s previously reported
retained earnings at January 1 is as follows:
Retained Earnings, beginning of period
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Aristar, as previously reported $350,266 $317,069 $286,446
GWFS, net of eliminations 10,616 9,311 6,274
Aristar, as restated $360,882 $326,380 $292,720
</TABLE>
Note 4 Finance Receivables
Finance receivables at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Consumer finance receivables
Real estate secured loans $ 714,173 $ 645,119
Other consumer finance instalment loans 1,174,444 1,114,685
Retail instalment contracts 387,870 382,598
Gross consumer finance receivables 2,276,487 2,142,402
Less: Unearned finance charges and
deferred loan fees (337,560) (341,788)
Allowance for credit losses (50,139) (47,835)
Net consumer finance receivables $1,888,788 $1,752,779
</TABLE>
The gross amount of nonaccruing receivables included above was approximately
$25.4 million and $21.0 million at December 31, 1995 and 1994, respectively.
Contractual maturities, net of unearned finance charges and deferred loan
fees, at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Over 1
But
Within Within Over
1 year 5 years 5 years Total
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate secured loans $ 71,841 $ 230,43 $310,828 $ 613,102
Other consumer finance
instalment loans 381,957 593,777 301 976,035
Retail instalment contracts 135,848 213,489 453 349,790
$589,646 $1,037,699 $311,582 $1,938,927
</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 the years ended December 31,
1995 and 1994 was 45 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, 1995 and 1994, the ratio of principal cash
collections to average net consumer finance receivables outstanding was 66%.
The majority of loans provide for a fixed rate of interest over the
contractual life of the loan.
<PAGE> 22
The approximate fair value of the Company's finance receivables (net of
unearned finance charges and deferred loan fees) as of December 31, 1995 and
1994 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
Approximate Approximate
Net Book Fair Net Book Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Real estate secured loans $ 613,102 $ 617,421 $ 548,518 $ 543,091
Other consumer finance
instalment loans 976,035 971,988 916,297 913,454
Retail instalment contracts 349,790 349,790 335,799 335,799
$1,938,927 $1,939,199 $1,800,614 $1,792,344
</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
receivables transferred to the Company from GWFS, however, were subject to
independent appraisal. The current rates for finance receivables approximate
the weighted average rates of the portfolio at December 31, 1995 and 1994;
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, 1995.
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Balance, January 1 $ 47,835 $44,728 $41,705
Provision for credit losses 48,306 41,532 37,408
Amounts charged off (63,487) (54,915) (51,226)
Recoveries 15,765 15,375 15,354
Allowances on notes purchased 1,720 1,115 1,487
Balance, December 31 $ 50,139 $47,835 $44,728
</TABLE>
<PAGE> 23
Note 5 Investment Securities
Investment securities as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1995
Approximate
Original Amortized Gross Unrealized Fair
Cost Cost Gains Losses Value
<S> <C> <C> <C> <C> <C>
Government obligations $ 14,481 $ 14,484 $ 33 $ 146 $ 14,371
Corporate obligations 93,742 93,353 984 24 94,313
Certificates of deposit
and other 12,462 12,223 163 118 12,268
$120,685 $120,060 $1,180 $ 288 $120,952
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1994
Approximate
Original Amortized Gross Unrealized Fair
Cost Cost Gains Losses Value
<S> <C> <C> <C> <C> <C>
Government obligations $ 18,357 $ 18,352 $ 2 $1,487 $ 16,867
Corporate obligations 89,763 89,237 107 4,023 85,321
Certificates of deposit
and other 4,525 4,540 37 165 4,412
$112,645 $112,129 $ 146 $5,675 $106,600
</TABLE>
There were no significant realized gains or losses during 1995 or 1994.
The following table presents the maturity of the investment securities at
December 31, 1995:
<TABLE>
<CAPTION>
(Dollars in thousands)
Approximate
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 24,289 $ 24,275
Due after one year through five years 66,631 66,934
Due after five years through ten years 24,313 24,929
Due after ten years 4,827 4,814
$120,060 $120,952
</TABLE>
<PAGE> 24
Note 6 Deferred Charges
Deferred charges, net of amortization, as of December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Long-term debt issuance costs $ 3,712 $ 3,838
Premiums on purchased accounts 7,858 8,767
$11,570 $12,605
</TABLE>
Amortization of deferred charges for each of the last three years is as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Long-term debt issuance costs $1,287 $1,268 $1,581
Premiums on purchased accounts 3,198 3,444 3,749
System development costs 1,378 2,052
</TABLE>
Note 7 Short-term Debt
Short-term debt at December 31, 1995 and 1994 consisted of commercial paper
notes. Such debt outstanding at December 31, 1995 had been issued in the
minimum amount of $405,000 and with a maximum original term of 90 days.
The book value of short-term debt at December 31, 1995 approximates its
estimated fair value.
Additional information concerning total short-term borrowings is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Outstanding during the year
Maximum amount at any month end $312,876 $287,793 $279,607
Average amount 210,684 235,682 170,852
Weighted average interest rate 6.0% 4.2% 3.6%
Balance at end of year
Amount $312,876 $179,085 $279,607
Weighted average interest rate 5.9% 6.0% 3.8%
</TABLE>
Weighted average interest rates include the effect of commitment fees.
<PAGE> 25
Short-term notes totaling $75 million and $74 million were issued in December,
1995 and 1994, respectively. The proceeds of these notes were used to
purchase investment securities and were repaid through liquidation of these
securities in the month following issuance. This short-term debt has been
reflected net of the securities balances in the accompanying Consolidated
Statements of Financial Condition.
In 1994, the Company entered into a $450 million revolving credit agreement
with several domestic and foreign banks. The agreement, which replaced
previous revolving credit agreements of $120 million and $200 million, has a
four-year term with repayment in full of any balance outstanding in October,
1998. This revolving credit agreement has restrictive covenants as described
further in Note 8.
There were no borrowings under any revolving credit agreements in 1995 or
1994.
<PAGE> 26
Note 8 Long-term Debt
Long-term debt at December 31, 1995 and 1994 was comprised of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1995 1994
<S> <C> <C>
Senior Debentures and Notes
9.47%, due April 6, 1995 $ 50,000
8.55%, due June 1, 1995 100,000
9.5%, due July 30, 1995 21,000
6.25%, due July 15, 1996 $ 99,995 99,986
7.375%, due February 15, 1997 99,974 99,953
8.125%, due December 1, 1997 99,812 99,722
5.75%, due July 15, 1998 149,875 149,830
7.875%, due February 15, 1999 99,864 99,827
6.3%, due July 15, 2000 99,913
7.75%, due June 15, 2001 149,917 149,905
Medium Term Notes, Series C, due through
1996, at interest rates of 8.75% to 8.90% 5,000 10,000
Medium Term Notes, Series D, due through
1995, at interest rate of 9.72% 13,000
Total Senior Debt 804,350 893,223
Senior Subordinated Notes and Debentures
8.875%, due August 15, 1998 99,920 99,894
7.5%, due July 1, 1999 99,539 99,428
Total Senior Subordinated Debt 199,459 199,322
Total Long-term Debt $1,003,809 $1,092,545
</TABLE>
<PAGE> 27
Aggregate maturities at December 31, 1995 are as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
Senior
Senior Subordinated
Debt Notes Total
<C> <C> <C> <C>
1996 $ 104,995 $ 104,995
1997 199,786 199,786
1998 149,875 $ 99,920 249,795
1999 99,864 99,539 199,403
2000 99,913 99,913
Thereafter 149,917 149,917
$ 804,350 $199,459 $1,003,809
</TABLE>
The approximate fair value of the Company's long-term debt as of December 31,
1995 and 1994 is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994
Book Approximate Book Approximate
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Senior debt $ 804,350 $ 834,130 $ 893,223 $ 869,781
Senior subordinated
notes 199,459 213,600 199,322 196,035
$1,003,809 $1,047,730 $1,092,545 $1,065,816
</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.
The Company issued in July, 1994, $150 million of 7.75% senior notes maturing
June 15, 2001; and in December, 1994, $100 million of 8.125% senior notes
maturing December 1, 1997. In March, 1995, the Company filed a $600 million
shelf registration statement. Under this registration statement, the Company
issued in July, 1995, $100 million of 6.3% senior notes maturing July 15,
2000. The proceeds of each of these issues were used principally to reduce
outstanding commercial paper.
Provisions of certain of the Company's long and short-term 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, 1995,
approximately $101 million was available under the debt agreement restriction
for future dividends.
<PAGE> 28
Note 9 Due to Affiliate
Borrowings from GWB, all of which were related to the GWFS finance
receivables, in the years ended December 31, 1995, 1994 and 1993 averaged
$222,355,000, $160,753,000 and $129,545,000, respectively. Amounts
outstanding at December 31, 1995 and 1994 were $237,576,000 and $203,215,000,
respectively, and were allocated interest under a variable rate (5.80% and
6.03%, respectively) arrangement with GWB. Balances outstanding were repaid
on April 30, 1996 in conjunction with the transfer of GWFS to the Company.
Note 10 Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Currently payable
Federal $ 32,892 $ 28,268 $ 38,868
State 6,287 5,436 6,737
Deferred (53) 600 (14,900)
$ 39,126 $ 34,304 $ 30,705
</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) 1995 1994
<S> <C> <C>
Amortization of intangibles $ 17,837 $ 19,649
Employee benefits accruals 1,599 1,613
Depreciation 678 1,175
Loan interest and fee income 3,087 272
Other deferred income items 399 91
Total deferred tax liabilities 23,600 22,800
Credit loss reserves (14,080) (12,852)
Unearned insurance commissions (2,980) (2,833)
Other miscellaneous accruals (2,415) (2,392)
State taxes (3,162) (4,898)
Other deferred deduction items (2,863) (3,960)
Total deferred tax assets (25,500) (26,935)
Net deferred tax asset $ (1,900) $ (4,135)
</TABLE>
<PAGE> 29
The provision for income taxes differs from the amounts determined by
multiplying pretax income by the statutory Federal income tax rate of 35% for
1995, 1994 and 1993. A reconciliation between these amounts is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Income taxes at statutory rates $ 34,688 $32,832 $29,703
Increase (reduction) in taxes
resulting from:
State income taxes, net of
Federal benefit 4,087 3,601 3,355
Other 351 (2,129) (2,353)
$ 39,126 $34,304 $30,705
</TABLE>
Note 11 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 cost
are derived from an allocation formula based on the Company's total
participants and the Plan's total participants.
Pension cost for the Company's participants for the years ended December 31,
1995, 1994, and 1993 was $1,455,000, $1,717,000 and $1,492,000, respectively.
Due to the Company's participation in a multi-employer 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 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, 1995, 1994 and 1993 were $495,000,
$737,000 and $1,300,000, respectively.
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 $1,161,000, $1,325,000 and
$1,384,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE> 30
Note 12 Leases
At December 31, 1995, 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 was terminated in the first quarter of 1994 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 $6,700,000 in 1996;
$5,300,000 in 1997; $2,700,000 in 1998; $1,400,000 in 1999; and $600,000 in
2000. Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$8,906,000, $7,884,000, and $8,743,000, respectively.
Note 13 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 14 Transactions with Related Parties
Significant transactions with GWFC or its subsidiaries are identified as
follows:
* The Company provides supervisory and administrative services to
affiliates engaged in industrial banking at no cost to such
affiliates. The Company also provides data processing services to
such affiliates, and revenue from these services totaled
approximately $315,000 in 1995, $171,000 in 1994, and $216,000 in
1993. From time to time, the Company advances funds to these
operations. At December 31, 1995 and 1994, there were outstanding
advances of $1,426,000 and $7,981,000, respectively.
* GWB provides the Company with certain administrative services,
including human resources and cash management. The Company paid this
affiliate management fees of $1,506,000 in 1995, $1,533,000 in 1994,
and $1,344,000 in 1993. GWB also charged occupancy expense to
Aristar for those GWFS branches that share facilities with GWB. Such
intercompany occupancy expense approximated $882,000 in 1995,
$898,000 in 1994 and $837,000 in 1993.
* The Company makes payments to GWFC in accordance with GWFC's tax
allocation policy and in connection with the retirement and savings
plans.
<PAGE> 31
Note 15 Approximate Fair Values of Financial Instruments
A summary of the approximate fair values of the Company's financial
instruments, as compared to their carrying values, is set forth in the
following table:
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Approximate Carrying Approximate
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C> <C>
Finance receivables Note 4 $1,938,927 $1,939,199 $1,800,614 $1,792,344
Investment securities Note 5 120,952 120,952 106,600 106,600
Short-term debt Note 7 312,876 312,876 179,085 179,085
Long-term debt Note 8 1,003,809 1,047,730 1,092,545 1,065,816
</TABLE>
See the referenced Notes for additional information.
Note 16 Selected Quarterly Financial Data (Unaudited)
A summary of the quarterly results of operations for the years ended December
31, 1995 and 1994 is set forth below:
<TABLE>
<CAPTION>
Quarter Ended
March 31, June 30, September 30, December 31,
(Dollars in thousands) 1995 1994 1995 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $91,890 $87,785 $92,620 $87,097 $93,762 $88,616 $98,086 $92,952
Interest and other
expenses 59,067 55,218 58,279 55,418 56,253 55,828 55,345 54,648
Provision for credit
losses 10,585 9,290 9,133 8,270 11,519 10,351 17,069 13,621
Total expenses 69,652 64,508 67,412 63,688 67,772 66,179 72,414 68,269
Income before
taxes 22,238 23,277 25,208 23,409 25,990 22,437 25,672 24,683
Income tax
provision 8,765 8,382 10,062 8,452 10,283 7,840 10,016 9,630
Net income $13,473 $14,895 $15,146 $14,957 $15,707 $14,597 $15,656 $15,053
</TABLE>
<PAGE> 32
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1996 1995 1995
ASSETS
<S> <C> <C> <C>
Finance receivables, net $1,824,541 $1,888,788 $1,722,535
Investment securities 117,050 120,952 109,050
Cash and cash equivalents 12,242 7,208 7,721
Property and equipment, less accumulated
depreciation and amortization: 1996,
$19,649; 1995, $19,249 and $20,919 10,946 11,309 12,759
Deferred charges 10,606 11,570 12,035
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1996,
$46,780; 1995, $45,028 and $39,7 60,232 61,983 67,238
Other assets 11,392 11,951 11,065
TOTAL ASSETS $2,047,009 $2,113,761 $1,942,403
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 261,329 $ 312,876 $ 121,082
Long-term debt 1,003,906 1,003,809 1,092,630
Total debt 1,265,235 1,316,685 1,213,712
Accounts payable and other liabilities 28,047 42,315 36,417
Due to affiliate 228,842 237,576 211,864
Federal and state income taxes 10,561 8,883 7,639
Insurance claims and benefits reserves 7,520 7,900 7,814
Unearned insurance premiums and
commissions 59,443 56,604 55,450
Total liabilities 1,599,648 1,669,963 1,532,896
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 402,257 398,364 366,801
Net unrealized holding gain (loss) on
investment securities 209 539 (2,189)
Total stockholder's equity 447,361 443,798 409,507
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,047,009 $2,113,761 $1,942,403
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 33
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended March 31,
(Dollars in thousands) 1996 1995
<S> <C> <C>
Loan interest and fee income $ 88,028 $ 83,238
Investment securities income 1,832 1,747
Total interest income 89,860 84,985
Interest and debt expense 26,132 26,648
Net interest income before
provision for credit losses 63,728 58,337
Provision for credit losses 14,492 10,585
Net interest income 49,236 47,752
Other operating income
Net insurance operations
and other income 6,567 7,084
Other expenses
Personnel costs 18,734 17,616
Occupancy expense 2,370 2,529
Advertising expense 1,097 972
Amortization of excess cost over
equity of companies acquired 1,752 1,752
Other operating expenses 10,512 9,820
34,465 32,689
Income before income taxes 21,338 22,147
Provision for federal and state income taxes 8,395 8,728
Net income 12,943 13,419
Retained Earnings
Beginning of period 398,364 360,882
Dividends paid (9,050) (7,500)
End of period $402,257 $366,801
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 34
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three
Months Ended March 31,
(Dollars in thousands) 1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,943 $ 13,419
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 14,492 10,585
Depreciation and amortization 3,233 3,389
Deferred income taxes 188 (503)
Increase (decrease) in
Accounts payable and other liabilities (14,268) (9,345)
Unearned insurance premiums and commissions
and insurance claims and benefits reserve 2,459 1,582
Currently payable income taxes 1,678 7,218
Decrease in other assets 450 9,780
Net cash provided by operating activities 21,175 36,125
Cash flows from investing activities
Investment securities purchased (10,030) (6,690)
Investment securities matured 13,441 6,076
Finance receivables originated or purchased (269,123) (270,511)
Finance receivables repaid or sold 319,045 290,246
Net change in property and equipment (122) (178)
Net cash provided by investing activities 53,211 18,943
Cash flows from financing activities
Net change in short-term debt (51,547) (58,003)
Net change in due to affiliate (8,755) 8,649
Other, net (221)
Dividends paid (9,050) (7,500)
Net cash used in financing activities (69,352) (57,075)
Net increase (decrease) in cash and cash
equivalents 5,034 (2,007)
Cash and cash equivalents
Beginning of period 7,208 9,728
End of period $ 12,242 $ 7,721
Supplemental disclosures of cash flow information
Interest paid $ 34,614 $ 30,673
Net intercompany payments (refunds) in lieu of federal
and state income taxes 6,717 (926)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 35
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. The 1995 and first quarter 1996 financial
statements have been restated for a second quarter 1996 transfer to the
Company of certain carved-out balances of an affiliate, which was accounted
for in a manner similar to a pooling of interests (Note 3). 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).
<PAGE> 36
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 3 Related Party Transfer
On April 30, 1996, Great Western Bank ( GWB ), a wholly owned subsidiary of
GWFC and an affiliate of the Company, transferred to the Company approximately
$242 million in net consumer finance receivables and $2 million in associated
net liabilities previously held directly by GWB and carved out for sale to the
Company. The Company paid fair market value (as determined by independent
appraisal) of approximately $250 million for the transferred receivables and
net liabilities of GWFS in a combination of cash of $248 million and the
assumption of the related $2 million deferred tax liability. The approximate
$10 million premium paid was accounted for by the Company as a dividend to
GWFC. The Company issued commercial paper to fund the cash portion of the
purchase price. The transferred operations represent a portion of the
consumer finance business of GWB and hereinafter are referred to as Great
Western Financial Services ( GWFS ).
The acquisition of GWFS has been accounted for in a manner similar to a
pooling of interests and in accordance with Interpretation Number 39,
Transfers and Exchanges of Companies under Common Control to Accounting
Principles Board Opinion Number 16, Business Combinations. 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.
The following table summarizes the impact of the GWFS transaction on the
Company s previously reported net interest income, income before income taxes
and net income.
<TABLE>
<CAPTION>
Net Interest Income Before Net
Income Income Taxes Income
<S> <C> <C> <C>
Three Months Ended
March 31, 1996
Aristar, as previously reported $ 45,802 $ 19,946 $ 12,124
GWFS, net of eliminations 3,434 1,392 819
Aristar, as restated $ 49,236 $ 21,338 $ 12,943
Three Months Ended
March 31, 1995
Aristar, as previously reported $ 45,081 $ 21,696 $ 13,154
GWFS, net of eliminations 2,671 451 265
Aristar, as restated $ 47,752 $ 22,147 $ 13,419
</TABLE>
<PAGE> 37
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4 Finance Receivables
Finance receivables consist of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1996 1995 1995
<S> <C> <C> <C>
Consumer finance receivables
Real estate secured loans $ 726,188 $ 714,173 $ 656,725
Other instalment loans 1,091,259 1,174,444 1,081,484
Retail instalment contracts 372,560 387,870 359,125
Gross finance receivables 2,190,007 2,276,487 2,097,334
Less: Unearned finance charges and
deferred loan fees (314,291) (337,560) (327,116)
Allowance for credit losses (51,175) (50,139) (47,683)
Finance receivables, net $1,824,541 $1,888,788 $1,722,535
</TABLE>
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Dollars in thousands) 1996 1995
<S> <C> <C>
Balance, beginning of period $50,139 $47,835
Provision for credit losses 14,492 10,585
Amounts charged off (17,880) (14,765)
Recoveries 4,100 4,028
Allowances on notes purchased 324
Balance, end of period $51,175 $47,683
</TABLE>
<PAGE> 38
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 5 Long-term Debt
Long-term debt at March 31, 1996 was comprised of:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Senior Notes and Debentures $ 804,411
Senior Subordinated Notes
and Debentures 199,495
$1,003,906
</TABLE>
Note 6 Due to affiliate
Affiliate borrowings, all of which related to the transferred finance
receivables (see Note 1), amounted to $228,842,000 at March 31, 1996 and were
allocated interest under a variable rate arrangement (5.49% at that date).
Balances outstanding were repaid on April 30, 1996 in conjunction with the
transfer.
<PAGE> 39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to its report on Form 10-Q to be
signed on its behalf by the undersigned thereunto duly authorized.
ARISTAR, INC.
Date: June 11, 1996 By: /s/ James A. Bare
James A. Bare
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the previously filed
Registration Statement on Form S-3 (Nos. 33-58361) of Aristar, Inc. of our
report dated January 15, 1996, except as to the transfer of Great Western
Financial Services as described in Note 3, which is as of April 30, 1996,
which appears in this Quarterly Report on Form 10-Q/A dated June 11, 1996 of
Aristar, Inc. We also consent to the incorporation by reference of our report
relating to the financial statements of Great Western Financial Services dated
May 24, 1996, which also appears in this Quarterly Report on Form 10-Q/A dated
June 11, 1996 of Aristar, Inc.
PRICE WATERHOUSE LLP
Tampa, Florida
June 11, 1996
<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-K for the
year ended December 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,208
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 120,952
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,938,927<F1>
<ALLOWANCE> (50,139)
<TOTAL-ASSETS> 2,113,761
<DEPOSITS> 0
<SHORT-TERM> 312,876
<LIABILITIES-OTHER> 42,315
<LONG-TERM> 1,003,809
0
0
<COMMON> 1
<OTHER-SE> 443,797
<TOTAL-LIABILITIES-AND-EQUITY> 2,113,761
<INTEREST-LOAN> 339,380
<INTEREST-INVEST> 7,744
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 347,124
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 104,050
<INTEREST-INCOME-NET> 243,074
<LOAN-LOSSES> 48,306
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 124,894
<INCOME-PRETAX> 99,108
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,982
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 10.07
<LOANS-NON> 25,364
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 47,835
<CHARGE-OFFS> (63,487)
<RECOVERIES> 15,765
<ALLOWANCE-CLOSE> 50,139
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50,139
<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 year ended December 31, 1995 using
the Article 9 format.
</FN>
</TABLE>
<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/A for
the quarter ended March 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,242
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117,050
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,875,716<F1>
<ALLOWANCE> (51,175)
<TOTAL-ASSETS> 2,047,009
<DEPOSITS> 0
<SHORT-TERM> 261,329
<LIABILITIES-OTHER> 28,047
<LONG-TERM> 1,003,906
0
0
<COMMON> 1
<OTHER-SE> 447,360
<TOTAL-LIABILITIES-AND-EQUITY> 2,047,009
<INTEREST-LOAN> 88,028
<INTEREST-INVEST> 1,832
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 89,860
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 26,132
<INTEREST-INCOME-NET> 63,728
<LOAN-LOSSES> 14,492
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 34,465
<INCOME-PRETAX> 21,338
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,943
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 9.71
<LOANS-NON> 24,664
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 50,139
<CHARGE-OFFS> (17,880)
<RECOVERIES> 4,100
<ALLOWANCE-CLOSE> 51,175
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 51,175
<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 quarter ended March 31, 1996 using
the Article 9 format.
</FN>
</TABLE>
