UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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, 1998, 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, 1998, December 31, 1997 and
March 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations and Retained Earnings -
Three Months Ended March 31, 1998 and 1997. . . . . . . . . . 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997. . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 6 - 8
Item 2. Management's Analysis of the
Results of Operations for the Three Months
Ended March 31, 1998. . . . . . . . . . . . . . . . . . . . . . 9
Part II. Other Information:
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 11 - 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
<PAGE> 3
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<S> <C> <C> <C>
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
(Unaudited) (Unaudited)
ASSETS
Consumer finance receivables, net $ 2,197,197 $ 2,235,080 $ 2,083,084
Investment securities 156,270 154,475 131,665
Cash and cash equivalents 29,387 26,446 33,875
Property and equipment, less
accumulated depreciation and
amortization: 1998, $22,706;
1997, $22,310 and $21,892 9,533 9,687 10,070
Deferred charges 22,983 24,504 11,760
Excess of cost over equity of
companies acquired, less
accumulated amortization: 1998,
$61,468; 1997, $59,702 and $54,404 47,825 49,591 54,889
Other assets 38,848 34,245 30,592
TOTAL ASSETS $ 2,502,043 $ 2,534,028 $ 2,355,935
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 295,402 $ 357,532 $ 464,811
Long-term debt 1,483,023 1,472,872 1,254,702
Total debt 1,778,425 1,830,404 1,719,513
Customer deposits 165,697 163,185 144,548
Accounts payable and other liabilities 46,280 47,209 39,808
Federal and state income taxes 32,726 24,628 15,137
Insurance claims and benefits reserves 8,024 7,824 7,178
Unearned insurance premiums and
commissions 64,420 62,594 57,243
Total liabilities 2,095,572 2,135,844 1,983,427
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 360,745 352,756 327,894
Accumulated other comprehensive income:
Net unrealized holding gain (loss) on
investment securities 831 533 (281)
Total stockholder's equity 406,471 398,184 372,508
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,502,043 $ 2,534,028 $ 2,355,935
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Performance and Retained Earnings
(Unaudited)
<TABLE>
For the Three
Months Ended March 31,
<S> <C> <C>
(Dollars in thousands) 1998 1997
Loan interest and fee income $ 98,448 $ 91,204
Investment securities income 2,855 2,453
Total interest income 101,303 93,657
Interest and debt expense 33,160 31,829
Net interest income before
provision for credit losses 68,143 61,828
Provision for credit losses 18,000 15,400
Net interest income 50,143 46,428
Other operating income
Net insurance operations
and other income 6,489 6,066
Other expenses
Personnel expense 19,059 18,253
Occupancy expense 2,553 2,497
Advertising expense 1,445 1,052
Amortization of excess cost over
equity of companies acquired 1,766 1,766
Other operating expenses 11,120 10,901
35,943 34,469
Income before income taxes 20,689 18,025
Provision for federal and state income taxes 8,200 7,100
Net income 12,489 10,925
Other comprehensive income, before tax:
Net unrealized holding gains on securities
arising during period 445 (1,176)
Income tax expense related to items of other
comprehensive income 147 (519)
Other comprehensive income, net of tax 298 (657)
Comprehensive income $ 12,787 $ 10,268
Retained earnings
Beginning of period 352,756 323,969
Net Income 12,489 10,925
Dividends paid (4,500) (7,000)
End of period $ 360,745 $ 327,894
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 5
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C>
For the Three
Months Ended March 31,
(Dollars in thousands) 1998 1997
Cash flows from operating activities
Net income $ 12,489 $ 10,925
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 18,000 15,400
Depreciation and amortization 3,641 3,350
Deferred income taxes (146) 519
Increase (decrease) in
Accounts payable and other liabilities (929) (6,558)
Unearned insurance premiums and commissions
and insurance claims and benefits reserves 2,026 (1,081)
Currently payable income taxes 8,098 1,301
(Increase) Decrease in other assets (4,603) 6,727
Net cash provided by operating activities 38,576 30,583
Cash flows from investing activities
Investment securities purchased (13,305) (12,220)
Investment securities matured 11,982 16,427
Consumer finance receivables originated
or purchased (333,233) (327,885)
Consumer finance receivables repaid 353,379 344,619
Net change in property and equipment (279) (162)
Net cash provided by investing activities 18,544 20,779
Cash flows from financing activities
Net change in short-term debt (62,130) 66,805
Proceeds from issuance of long-term debt 10,000 6,000
Repayments of long-term debt (104,200)
Net change in customer deposits 2,512 (1,590)
Dividends paid (4,500) (7,000)
Long-term debt issue costs (61) (162)
Net cash used in financing activities (54,179) (40,147)
Net increase in cash and cash
equivalents 2,941 11,215
Cash and cash equivalents
Beginning of period 26,446 22,660
End of period $ 29,387 $ 33,875
Supplemental disclosures of cash flow information
Interest paid $ 30,540 $ 34,949
Net intercompany payments in lieu of federal
and state income taxes $ 103 $ 5,801
</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, 1997.
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 Washington Mutual, Inc.
<PAGE> 7
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 3 Consumer Finance Receivables
Consumer finance receivables consisted of the following:
<TABLE>
<S> <C> <C> <C>
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
Consumer finance receivables
Real estate secured loans $ 1,124,115 $ 1,094,061 $ 1,020,606
Other installment loans 1,163,040 1,197,788 1,071,001
Retail installment contracts 323,942 362,373 375,537
Gross consumer finance receivables 2,611,097 2,654,222 2,467,144
Less: Unearned finance charges and
deferred loan fees (339,409) (344,819) (313,714)
Consumer finance receivables net
of unearned finance charges and
deferred loan fees 2,271,688 2,309,403 2,153,430
Less: Allowance for credit losses (74,491) (74,323) (70,346)
Net consumer finance receivables $ 2,197,197 $ 2,235,080 $ 2,083,084
</TABLE>
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<S> <C> <C> <C>
Three Months Year Three Months
Ended Ended Ended
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
Balance, beginning of period $ 74,323 $ 70,045 $ 70,045
Provision for credit losses 18,000 66,600 15,400
Amounts charged-off
Real estate secured loans (450) (1,292) (236)
Other installment loans (17,943) (64,460) (15,839)
Retail installment contracts (3,678) (13,946) (3,164)
(22,071) (79,698) (19,239)
Recoveries
Real estate secured loans 177 556 95
Other installment loans 3,123 11,538 3,052
Retail installment contracts 742 2,553 687
4,042 14,647 3,834
Net charge-offs (18,029) (65,051) (15,405)
Allowances on notes purchased 197 2,729 306
Balance, end of period $ 74,491 $ 74,323 $ 70,346
Allowance as a percentage of consumer
finance receivables net of unearned
finance charges and deferred loan
fees at period end 3.3% 3.2% 3.3%
</TABLE>
<PAGE> 8
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Note 4 Long-term Debt
Long-term debt consisted of the following:
<TABLE>
<S> <C> <C> <C>
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
Senior Notes and Debentures $ 1,248,314 $ 1,248,205 $ 1,049,056
Senior Subordinated Notes
and Debentures 199,809 199,767 199,646
Federal Home Loan Bank Notes 34,900 24,900 6,000
$ 1,483,023 $ 1,472,872 $ 1,254,702
</TABLE>
Note 5 Customer Deposits
Customer deposits consisted of the following:
<TABLE>
<S> <C> <C> <C>
March 31, December 31, March 31,
(Dollars in thousands) 1998 1997 1997
Money market accounts $ 15,335 $ 15,883 $ 15,549
Savings accounts 1,133 1,493 1,642
Certificates of deposit
under $100,000 135,916 133,041 116,562
Certificates of deposit
$100,000 and over 13,313 12,768 10,795
$ 165,697 $ 163,185 $ 144,548
</TABLE>
<PAGE> 9
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1998
The Company's net interest income before provision for credit losses increased
$6.3 million, or 10.2% to $68.1 million for the quarter ended March 31, 1998,
compared to the first quarter of 1997. Average net consumer finance
receivables outstanding of $2.3 billion were $123.3 million, or 5.7%, greater
for the quarter ended March 31, 1998 as compared to the quarter ended March
31, 1997. The increase in receivables reflects originations, excluding
renewals, of $333.2 million which was up 1.6% compared to the same period
during 1997. The increased lending volume is primarily due to home equity
originations in the state of Texas as a result of a change in legislation that
expanded the availability of that product. The overall portfolio yield
increased 40 basis points to 17.2% from 16.8% for the quarter ended March 31,
1998 as compared to the same 1997 period. As a result, loan interest and fee
income increased $7.2 million, or 8.0%, for the quarter ended March 31, 1998,
as compared to the quarter ended March 31, 1997. Income from investment
securities increased $402 thousand, or 16.4%, for the quarter ended March 31,
1998, as compared to the same 1997 period. As a result, total interest income
increased by $7.6 million, or 8.2%, for the quarter ended March 31, 1998, as
compared to the quarter ended March 31, 1997. Average debt outstanding of $2.0
billion increased $88 thousand, or 4.7%, and the weighted average interest rate
on such debt decreased by 3 basis points, resulting in an increase in interest
and debt expense of $1.3 million, or 4.2%, for the quarter ended March 31,
1998, as compared to the same 1997 period.
The provision for credit losses for the quarter ended March 31, 1998 was 3.14%
as an annualized percentage of average net consumer finance receivables for
that period, as compared to 2.84% for the first quarter of 1997. Net credit
charge-offs for the quarter ended March 31, 1998 were 3.14% on an annualized
percentage of average net finance receivables, as compared to 2.84% for the
same quarter of 1997. The increase is due primarily to the national rise in
bankruptcies which has resulted in higher credit losses for the industry. At
March 31, 1998 the allowance for credit losses as a percentage of finance
receivables equated to 3.3% as compared to 3.2% at December 31, 1997 and 3.3%
at March 31, 1997. The increase in provision rate and allowance for credit
losses reflect management's assessment of the quality of the Company's
receivables portfolio at this time including the effect of current economic
trends, loan portfolio aging, historical loss experience and evaluation of
collateral.
Personnel expenses were $806 thousand, or 4.4%, higher in the period ended
March 31, 1998, as compared to the same 1997 period. This is primarily due to
normal compensation increases.
Productivity, defined as the ratio of operating and administrative expenses
(before deferral of direct loan costs) to average outstanding finance
receivables, improved to 6.6% in the quarter ended March 31, 1998 as compared
to 6.7% in the first quarter of 1997.
<PAGE> 10
PART II. OTHER INFORMATION
Item 5. Other Information
The calculation of the Company's ratio of earnings to fixed charges as of the
dates indicated is shown below:
<TABLE>
<S> <C> <C> <C>
Three Months Year Three Months
Ended Ended Ended
March 31, December 31, March 31,
1998 1997 1997
Income before income taxes $ 20,689 $ 76,031 $ 18,025
Fixed charges:
Interest and debt expense on
all indebtedness 33,160 128,887 31,829
Appropriate portion of
rentals (33%) 927 3,565 881
Total fixed charges 34,087 132,452 32,710
Earnings available for
fixed charges $ 54,776 $ 208,483 $ 50,735
Ratio of earnings
to fixed charges 1.61 1.57 1.55
</TABLE>
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) (a) Agreement dated as of April 30, 1996, between Great
Western Bank and First Community Financial
Services, Inc. (1)
(b) 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)
(3) (a) Certificate of Incorporation of Aristar, Inc. as presently
in effect. (4)
(b) By-Laws of Aristar, Inc. as presently in effect. (4)
(4) (a) Indenture dated as of May 1, 1991 between Aristar,
Inc. and Security Pacific National Bank, as
trustee. (5)
(b) Indenture dated as of May 1, 1991 between Aristar,
Inc. and The First National Bank of Boston, as
trustee. (5)
(c) Indenture dated as of July 1, 1992 between Aristar,
Inc. and The Chase Manhattan Bank, N.A., as
trustee. (6)
(d) Indenture dated as of July 1, 1992 between Aristar,
Inc. and Citibank, N.A., as trustee. (6)
(e) Indenture dated as of July 1, 1995 between Aristar,
Inc. and The Bank of New York, as trustee. (7)
(f) Indenture dated as of October 1, 1997 between
Aristar, Inc. and First Union National Bank, as
trustee. (8)
(g) Indenture dated as of November 15, 1997 between
Aristar, Inc. and First Union National Bank, as
trustee. (9)
(h) The registrant hereby agrees to furnish the
Securities and Exchange Commission upon request
with copies of all instruments defining rights of
holders of long-term debt of Aristar, Inc. and its
consolidated subsidiaries.
(10) Income Tax Allocation Agreement dated as of December 15, 1995
between Aristar, Inc. and Great Western Financial
Corporation. (10)
(27) Financial Data Schedule.
<PAGE> 12
(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 Annual Report
on Form 10-K for the year ended December 31, 1987,
Commission file number 1-3521.
(5) Incorporated by reference to Registrant's Current Report
on Form 8-K dated May 29, 1991, Commission file number
1-3521.
(6) Incorporated by reference to Registrant's Current Report
on Form 8-K dated June 24, 1992, Commission file number
1-3521.
(7) Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995,
Commission file number 1-3521.
(8) Incorporated by reference to Registrant's Current Report
on Form 8-K dated October 6, 1997, Commission file
number 1-3521.
(9) Incorporated by reference to Registrant's Report on Form
424B2 dated November 6, 1997, Commission file number 1-3521.
(10) 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
No reports on Form 8-K were filed during the period covered by this
Report.
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARISTAR, INC.
Date: May 5, 1998 By: /s/ James R. Hillsman
James R. Hillsman
Senior Vice President and
Deputy Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's financial statements filed as part of its Report on Form 10-Q for the
quarter ended March 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 29,387
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 156,270
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,271,688<F1>
<ALLOWANCE> (74,491)
<TOTAL-ASSETS> 2,502,043
<DEPOSITS> 165,697
<SHORT-TERM> 295,402
<LIABILITIES-OTHER> 46,280
<LONG-TERM> 1,483,023
0
0
<COMMON> 1
<OTHER-SE> 406,470
<TOTAL-LIABILITIES-AND-EQUITY> 2,502,043
<INTEREST-LOAN> 98,448
<INTEREST-INVEST> 2,855
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 101,303
<INTEREST-DEPOSIT> 2,393
<INTEREST-EXPENSE> 33,160
<INTEREST-INCOME-NET> 68,143
<LOAN-LOSSES> 18,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,943
<INCOME-PRETAX> 20,689
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,489
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.14
<LOANS-NON> 48,719
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 74,323
<CHARGE-OFFS> (22,071)
<RECOVERIES> 4,042
<ALLOWANCE-CLOSE> 74,491
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 74,491
<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, 1998 using
the Article 9 format.
</FN>
</TABLE>
