UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
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, 1997, 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
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1997, December 31, 1996 and
March 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations and Retained Earnings -
Three Months Ended March 31, 1997 and 1996. . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996. . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6 - 9
Item 2. Management's Analysis of the
Results of Operations for the Three Months
Ended March 31, 1997. . . . . . . . . . . . . . . . . . . . . .10
Part II. Other Information:
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 12 - 13
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
<PAGE> 3
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
March 31, December 31, March 31,
(Dollars in thousands) 1997 1996 1996
<S> <C> <C> <C>
ASSETS
Finance receivables, net $ 2,083,084 $ 2,115,858 $ 2,010,977
Investment securities 131,665 137,072 140,234
Cash and cash equivalents 33,875 22,660 14,777
Property and equipment, less
accumulated depreciation and
amortization: 1997, $21,892;
1996, $21,528 and $20,381 10,070 10,338 11,131
Deferred charges 11,760 11,956 10,606
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1997,
$54,404; 1996, $52,638 and $47,340 54,889 56,655 61,953
Other assets 30,592 37,319 13,528
TOTAL ASSETS $ 2,355,935 $ 2,391,858 $ 2,263,206
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 464,811 $ 398,006 $ 261,329
Long-term debt 1,254,702 1,352,770 1,003,906
Total debt 1,719,513 1,750,776 1,265,235
Customer deposits 144,548 146,138 160,303
Accounts payable and
other liabilities 39,808 46,366 50,888
Due to affiliate 228,842
Federal and state income taxes 15,137 13,836 12,255
Insurance claims and
benefits reserves 7,178 7,702 7,520
Unearned insurance premiums and
commissions 57,243 57,800 59,671
Total liabilities 1,983,427 2,022,618 1,784,714
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 327,894 323,969 433,455
Net unrealized holding gain (loss)
on investment securities (281) 376 142
Total stockholder's equity 372,508 369,240 478,492
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,355,935 $ 2,391,858 $ 2,263,206
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
<TABLE>
For the Three
Months Ended March 31,
(Dollars in thousands) 1997 1996
<S> <C> <C>
Loan interest and fee income $ 91,204 $ 93,888
Investment securities income 2,453 2,204
Total interest income 93,657 96,092
Interest and debt expense 31,829 28,919
Net interest income before
provision for credit losses 61,828 67,173
Provision for credit losses 15,400 14,500
Net interest income 46,428 52,673
Other operating income
Net insurance operations
and other income 6,066 6,596
Other expenses
Personnel costs 18,253 19,477
Occupancy expense 2,497 2,506
Advertising expense 1,052 1,185
Amortization of excess cost over
equity of companies acquired 1,766 1,766
Other operating expenses 10,901 10,903
34,469 35,837
Income before income taxes 18,025 23,432
Provision for federal and
state income taxes 7,100 9,200
Net income 10,925 14,232
Retained Earnings
Beginning of period 323,969 428,273
Dividends paid (7,000) (9,050)
End of period $ 327,894 $ 433,455
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Three
Months Ended March 31,
(Dollars in thousands) 1997 1996
<S> <C> <C>
Cash flows from operating activities
Net income $ 10,925 $ 14,232
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for credit losses 15,400 14,500
Depreciation and amortization 3,350 3,260
Deferred income taxes 519 212
Increase (decrease) in
Accounts payable and other liabilities (6,558) (16,791)
Unearned insurance premiums and commissions
and insurance claims and benefits reserves (1,081) 2,426
Currently payable income taxes 1,301 653
Decrease in other assets 6,727 218
Net cash provided by operating activities 30,583 18,710
Cash flows from investing activities
Investment securities purchased (12,220) (16,323)
Investment securities matured 16,427 15,767
Finance receivables originated or purchased (327,885) (295,687)
Finance receivables repaid or sold 344,619 347,874
Net change in property and equipment (162) (142)
Net cash provided by investing activities 20,779 51,489
Cash flows from financing activities
Net change in short-term debt 66,805 (51,547)
Proceeds from issuance of long-term debt 6,000
Repayments of long-term debt (104,200)
Net change in customer deposits (1,590) (469)
Net change in due to affiliate (8,755)
Dividends paid (7,000) (9,050)
Long-term debt issue costs (162)
Net cash used in financing activities (40,147) (69,821)
Net increase in cash and cash
equivalents 11,215 378
Cash and cash equivalents
Beginning of period 22,660 14,399
End of period $ 33,875 $ 14,777
Supplemental disclosures of cash flow information
Interest paid $ 34,949 $ 37,451
Net intercompany payments in lieu of federal
and state income taxes 5,801 8,550
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 6
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements of Aristar, Inc.
and subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. These statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 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"). On March 6, 1997, GWFC and Washington Mutual, Inc.
("Washington Mutual"), a financial services company, announced that they had
entered into an Agreement and Plan of Merger providing for the merger of GWFC
with and into a wholly-owned subsidiary of Washington Mutual (the "Merger").
Subject to the satisfaction or waiver of certain conditions, including the
receipt of necessary shareholder and regulatory approvals, it is anticipated
that the Merger will be consummated in the third quarter of 1997. Following
the Merger, the Company would be an indirect subsidiary of Washington Mutual.
The Merger was announced following the announcement by H.F. Ahmanson & Company
("Ahmanson") of an unsolicited proposal for the merger of GWFC and Ahmanson,
which proposal was subsequently revised and is outstanding.
<PAGE> 7
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 3 Transfers from Related Parties
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"). 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 cash
raised through the issuance of commercial paper. The Company accounted for
the approximate $10 million premium as a dividend to GWFC. Additionally, at
the purchase date, the Company recorded a transfer to GWB of approximately $15
million, representing the accumulated earnings of GWFS at that date.
On December 31, 1996, GWFC transferred to the Company a portion of its
consumer banking business, hereinafter referred to as Blazer Financial
Corporation ("BFC"). BFC was comprised primarily of approximately $229
million in net consumer finance receivables and $147 million in customer
deposits. The Company recorded, at the purchase date, a transfer to GWFC of
approximately $35 million, representing the accumulated earnings of BFC at
that time.
In accordance with Interpretation Number 39, "Transfers and Exchanges of
Companies under Common Control," to Accounting Principles Opinion Number 16,
"Business Combinations," both of the above-described acquisitions have 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 acquisitions. Eliminations have been made for material intercompany
transactions between the combined entities.
<PAGE> 8
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4 Finance Receivables
<TABLE>
Finance receivables consist of the following:
March 31, December 31, March 31,
(Dollars in thousands) 1997 1996 1996
<S> <C> <C> <C>
Consumer finance receivables
Real estate secured loans $ 1,020,606 $ 994,097 $ 900,313
Other instalment loans 1,071,001 1,109,143 1,099,476
Retail instalment contracts 375,537 400,530 383,297
Gross finance receivables 2,467,144 2,503,770 2,383,086
Less: Unearned finance charges and
deferred loan fees (313,714) (317,867) (315,494)
Allowance for credit losses (70,346) (70,045) (56,615)
Finance receivables, net $ 2,083,084 $ 2,115,858 $ 2,010,977
Activity in the Company's allowance for credit losses is as follows:
Three Months Ended March 31,
(Dollars in thousands) 1997 1996
Balance, beginning of period $ 70,045 $ 55,568
Provision for credit losses 15,400 14,500
Amounts charged off (19,239) (17,961)
Recoveries 3,834 4,146
Allowances on notes purchased 306 362
Balance, end of period $ 70,346 $ 56,615
</TABLE>
<PAGE> 9
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 5 Long-term Debt
Long-term debt at March 31, 1997 was comprised of:
(Dollars in thousands)
Senior Notes and Debentures $ 1,049,056
Senior Subordinated Notes
and Debentures 199,646
Federal Home Loan Bank Notes 6,000
$ 1,254,702
Note 6 Customer Deposits
Customer deposits at March 31, 1997 was comprised of:
(Dollars in thousands)
Certificates of deposit
$100,000 and over $ 10,795
Certificates of deposit
under $100,000 116,572
Savings accounts 1,642
Money market accounts 15,549
$ 144,548
<PAGE> 10
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1997
During the first quarter of 1997 as compared to the same period of 1996, the
Company's average net finance receivables grew $71.2 million, or 3.4%.
However, because real estate loans make up a greater portion of the loan
portfolio during the first quarter of 1997 as compared to the same 1996
period, and because of interest rate and competitive pressures, the overall
portfolio yield decreased 110 basis points to 16.8% from 17.9%. As a result,
loan interest and fee income decreased $2.7 million, or 2.9%, for the quarter
ended March 31, 1997, as compared to the quarter ended March 31, 1996.
Income from investment securities increased $249 thousand, or 11.3%, for the
quarter ended March 31, 1997, as compared to the quarter ended March 31,
1996. Therefore, total interest income decreased by $2.4 million, or 2.5%,
for the quarter ended March 31, 1997, as compared to the same 1996 period.
Average debt outstanding increased $438.6 million, or 34.0%, and the weighted
average interest rate on such debt decreased by 159 basis points, resulting
in an increase in interest and debt expense of $2.9 million, or 10.1%, for the
quarter ended March 31, 1997, as compared to the same 1996 period. The
proceeds from the increased debt were used to fund the transfers from related
parties discussed in Note 3 of the accompanying financial statements, to pay a
$75 million dividend in July 1996, and for normal business operations. These
factors resulted in a decrease in net interest income before provision for
credit losses of $5.3 million, or 8.0%.
The provision for credit losses for the quarter ended March 31, 1997 was 2.84%
as an annualized percentage of average net finance receivables for that
period, as compared to 2.76% for the first quarter of 1996. 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 $1.2 million, or 6.3%, lower in the period ended March
31, 1997, as compared to the same 1996 period, primarily due to lower
incentive compensation and a reduction in allocated pension cost.
Productivity, defined as the ratio of operating and administrative expenses
(before deferral of direct loan costs) to average outstanding finance
receivables, improved to 6.7% in the quarter ended March 31, 1997 as compared
to 7.0% in the first quarter of 1996.
<PAGE> 11
PART II. OTHER INFORMATION
Item 5. Other Information
<TABLE>
The calculation of the Company's ratio of earnings to fixed charges as of the
dates indicated is shown below:
Three Months Year Three Months
Ended Ended Ended
March 31, December 31, March 31,
1997 1996 1996
<S> <C> <C> <C>
Income before income taxes $ 18,025 $ 99,518 $ 23,432
Fixed charges:
Interest and debt expense on
all indebtedness 31,829 120,758 28,919
Appropriate portion of
rentals (33%) 881 3,292 842
Total fixed charges 32,710 124,050 29,761
Earnings available for
fixed charges $ 50,735 $ 223,568 $ 53,193
Ratio of earnings
to fixed charges 1.55 1.80 1.79
<PAGE> 12
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) Amendment to Exhibit (2) (a) dated August 31, 1996. (2)
(c) Agreement dated as of April 30, 1996, between Great
Western Bank and Blazer Financial Services, Inc.
(1)
(d) Amendment to Exhibit (2) (c) dated August 31, 1996. (2)
(e) Agreement dated as of April 30, 1996, between Great
Western Bank and Blazer Financial Services, Inc. of
Florida. (1)
(f) Amendment to Exhibit (2) (e) dated August 31, 1996. (2)
(g) Agreement dated December 31, 1996, between Great Western
Financial Corporation and Aristar, Inc. (3)
(4) (a) Indenture dated as of May 1, 1991 between Aristar,
Inc. and Security Pacific National Bank, as
trustee. (4)
(b) Indenture dated as of May 1, 1991 between Aristar,
Inc. and The First National Bank of Boston, as
trustee. (4)
(c) Indenture dated as of July 1, 1992 between Aristar,
Inc. and The Chase Manhattan Bank, N.A., as
trustee. (5)
(d) Indenture dated as of July 1, 1992 between Aristar,
Inc. and Citibank, N.A., as trustee. (5)
(e) Indenture dated as of July 1, 1995 between Aristar,
Inc. and The Bank of New York, as trustee. (6)
(f) 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) Income Tax Allocation Agreement dated as of December 15, 1995
between Aristar, Inc. and Great Western Financial
Corporation. (7)
(27) Financial Data Schedule.
<PAGE> 13
(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 September 30,
1996, Commission file number 1-3521.
(3) Incorporated by reference to Registrant's Current Report on
Form 8-K
dated December 31, 1996, Commission file number 1-3521.
(4) Incorporated by reference to Registrant's Current Report
on Form 8-K dated May 29, 1991, Commission file number
1-3521.
(5) Incorporated by reference to Registrant's Current Report
on Form 8-K dated June 24, 1992, Commission file number
1-3521.
(6) Incorporated by reference to Registrant's 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 January 13, 1997, the Company filed a Current Report on Form 8-K,
dated December 31, 1996, disclosing under items (2) and (7) thereof, the
acquisition of Blazer Financial Corporation.
On March 14, 1997, the Company filed a Current Report on Form 8-K/A,
dated December 31, 1996, disclosing under item (7) thereof, the December
31, 1996 audited financial statements of Blazer Financial Corporation.
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARISTAR, INC.
Date: May 13, 1997 By: /s/ James A. Bare
James A. Bare
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
</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-K for the
quarter ended March 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 33,875
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 131,665
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,153,430<F1>
<ALLOWANCE> (70,346)
<TOTAL-ASSETS> 2,355,935
<DEPOSITS> 144,548
<SHORT-TERM> 464,811
<LIABILITIES-OTHER> 39,808
<LONG-TERM> 1,254,702
0
0
<COMMON> 1
<OTHER-SE> 372,508
<TOTAL-LIABILITIES-AND-EQUITY> 2,335,935
<INTEREST-LOAN> 91,204
<INTEREST-INVEST> 2,453
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 93,657
<INTEREST-DEPOSIT> 2,131
<INTEREST-EXPENSE> 31,829
<INTEREST-INCOME-NET> 61,828
<LOAN-LOSSES> 15,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 34,469
<INCOME-PRETAX> 18,025
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,925
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.01
<LOANS-NON> 44,893
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 70,045
<CHARGE-OFFS> (19,239)
<RECOVERIES> 3,834
<ALLOWANCE-CLOSE> 70,346
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 70,346
<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, 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, 1997 using the
Article 9 format.
</FN>
</TABLE>
