<PAGE>
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 SEPTEMBER 30, 1999
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 October 31, 1999,
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>
ARISTAR, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1999 and December 31, 1998..............................3
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings -
Three Months and Nine Months Ended September 30, 1999 and 1998........4
Consolidated Statements of Cash Flows -
Three Months and Nine Months Ended September 30, 1999 and 1998........5
Notes to Consolidated Financial Statements..........................6 - 7
Item 2. Management's Discussion and Analysis of the Results
of Operations and Financial Condition for the Nine Months
Ended September 30, 1999.......................................... 8 - 14
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K................................15
SIGNATURE ...............................................................16
<PAGE>
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
September 30, December 31,
1999 1998
------------------ ------------------
(Dollars in thousands)
ASSETS
<S> <C> <C>
Consumer finance receivables, net $ 2,792,908 $ 2,493,903
Investment securities 147,107 150,820
Cash and cash equivalents 36,533 24,180
Property, equipment and leasehold improvements, less accumulated depreciation
and amortization:
1999, $25,497; 1998, $23,642 16,719 12,411
Goodwill, less accumulated amortization:
1999, $65,328; 1998, $62,453 45,599 48,166
Other assets 22,859 15,230
------------------ ------------------
TOTAL ASSETS $ 3,061,725 $ 2,744,710
================== ==================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 146,447 $ 560,823
Long-term debt 2,069,497 1,427,167
------------------ ------------------
Total debt 2,215,944 1,987,990
Customer deposits 197,940 187,518
Accounts payable and other liabilities 156,098 145,430
Federal and state income taxes payable 33,136 4,442
------------------ ------------------
Total liabilities 2,603,118 2,325,380
------------------ ------------------
Stockholder's equity
Common stock: $1.00 par value;
10,000 shares authorized; 1,000
shares issued and outstanding 1 1
Paid-in capital 48,960 48,960
Retained earnings 410,921 369,143
Accumulated other comprehensive income:
Net unrealized holding (loss) gain on investment
securities, net of tax (1,275) 1,226
------------------ ------------------
Total stockholder's equity 458,607 419,330
------------------ ------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 3,061,725 $ 2,744,710
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings
(Unaudited)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands)
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Loan interest and fee income $ 117,068 $ 102,320 $ 340,441 $ 297,215
Investment securities income 2,614 3,059 7,721 8,881
------------- ------------- ------------- -------------
Total interest income 119,682 105,379 348,162 306,096
Interest and debt expense 38,253 33,588 107,851 99,441
------------- ------------- ------------- -------------
Net interest income before
provision for credit losses 81,429 71,791 240,311 206,655
Provision for credit losses 25,100 21,800 76,740 58,100
------------- ------------- ------------- -------------
Net interest income after provision
for credit losses 56,329 49,991 163,571 148,555
------------- ------------- ------------- -------------
Other income 7,415 7,844 20,938 20,110
Other expenses
Personnel expense 18,987 18,750 57,105 56,794
Occupancy expense 2,839 2,684 8,229 7,806
Advertising expense 2,350 1,707 7,054 4,582
Goodwill amortization expense 970 866 2,876 2,751
Other operating expense 8,442 9,315 26,007 28,241
------------- ------------- ------------- -------------
Total other expenses 33,588 33,322 101,271 100,174
------------- ------------- ------------- -------------
Income before income taxes 30,156 24,513 83,238 68,491
Provision for federal and state income taxes 11,760 9,700 32,460 27,100
------------- ------------- ------------- -------------
Net income 18,396 14,813 50,778 41,391
Net unrealized holding (losses) gains
on securities arising during period,
net of tax (903) 255 (2,501) 608
------------- ------------- ------------- -------------
Comprehensive income $ 17,493 $ 15,068 $ 48,277 $ 41,999
============= ============= ============= =============
Retained earnings
Beginning of period $ 395,025 $ 374,834 $ 369,143 $ 352,756
Net income 18,396 14,813 50,778 41,391
Dividends (2,500) (7,000) (9,000) (11,500)
------------- ------------- ------------- -------------
End of period $ 410,921 $ 382,647 $ 410,921 $ 382,647
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
(Dollars in thousands)
1999 1998 1999 1998
---------- ----------- ----------- -----------
Cash flows from operating activities
<S> <C> <C> <C> <C>
Net income $ 18,396 $ 14,813 $ 50,778 $ 41,391
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 25,100 21,800 76,740 58,100
Depreciation and amortization 3,278 2,319 8,547 6,909
Increase in accounts payable and other liabilities 88 12,652 10,668 16,601
Increase (decrease) in federal and state
income taxes payable 11,105 7,683 30,138 (2,217)
Increase in other assets (4,567) (1,159) (7,629) (836)
----------- ------------- -------- ---------
Net cash provided by operating activities 53,400 58,108 169,242 119,948
----------- ----------- ----------- -----------
Cash flows from investing activities
Net change in investment securities (7,916) 31,450 (245) 12,151
Net change in consumer finance receivables (171,146) (133,120) (379,381) (159,555)
Net change in property, equipment and
leasehold improvements (3,109) (1,153) (6,041) (3,014)
----------- ----------- ------------ -----------
Net cash used in investing activities (182,171) (102,823) (385,667) (150,148)
----------- ----------- ------------ -----------
Cash flows from financing activities
Net change in customer deposits (7,281) 3,449 10,422 13,330
Net change in short-term debt (54,746) 100,136 (414,376) 57,402
Net change in long-term debt 188,364 (50,343) 641,732 (46,343)
Dividends paid (2,500) (7,000) (9,000) (11,500)
Proceeds from affiliate transfer 4,065
----------- ----------- ------------ -----------
Net cash provided by financing activities 123,837 46,242 228,778 16,954
----------- ----------- ------------ -----------
Net (decrease) increase in cash and
cash equivalents (4,934) 1,527 12,353 (13,516)
Cash and cash equivalents
Beginning of period 41,467 11,403 24,180 26,446
----------- ----------- ------------ -----------
End of period $ 36,533 $ 12,930 $ 36,533 $ 12,930
=========== =========== ============ ===========
Supplemental disclosures of cash flow information
Interest paid $ 30,053 $ 31,998 $ 96,258 $ 96,571
Federal and state income taxes paid,
net of refunds $ (6) $ 2,017 $ 1,661 $ 29,317
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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, 1998.
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.
("Washington Mutual").
Note 3 Lines of Business
The Company is managed along two major lines of business: consumer finance and
consumer banking. The financial performance of these business lines is measured
by the Company's profitability reporting processes, which utilize various
management accounting techniques to ensure that each business line's financial
results reflect the underlying performance of that business.
In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information," ("SFAS No. 131") was
issued effective for fiscal years ending after December 15, 1998. This standard
requires the Company to provide information on the performance of its reportable
lines of business, noted above, which are strategic lines of business managed by
the Executive Committee under the direction of the Chief Executive Officer.
<PAGE>
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The Company's lines of business are managed through its Executive Committee,
which is the senior decision making group of the Company. The Executive
Committee is comprised of eleven members including the President and Chief
Executive Officer and Senior Vice Presidents who manage key business and
operational areas within the Company.
Both lines of business are managed by an executive team that is responsible for
sales, marketing, sales support, operations and certain administrative
functions. Back office support is provided to each line of business through
executives responsible for lending administration, information systems, finance,
legal and administration.
Financial highlights by line of business were as follows:
<TABLE>
(Dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
Consumer ConsumerConsumerConsumerConsumer ConsumerConsumerConsumer
Finance Banking Finance Banking Finance Banking Finance Banking
Condensed income statement:
Net interest income after
<S> <C> <C> <C> <C> <C> <C>
provision for credit losses$ 51,932 $ 4,397 $ 46,291 $ 3,700 $ 150,875 $ 12,696 $137,288 $ 11,267
Other income 7,316 99 7,667 177 20,558 380 19,524 586
Other expenses 31,616 1,972 31,617 1,705 95,811 5,460 95,207 4,967
--------- --------- --------- --------- --------- --------- -------- ----------
Income before income
taxes 27,632 2,524 22,341 2,172 75,622 7,616 61,605 6,886
Income taxes 10,795 965 8,869 831 29,547 2,913 24,466 2,634
--------- --------- --------- --------- --------- --------- -------- ----------
Net income $ 16,837 $ 1,559 $ 13,472 $ 1,341 $ 46,075 $ 4,703 $ 37,139 $ 4,252
========= ========= ========= ========= ========= ========= ======== ==========
</TABLE>
Other disclosures:
<TABLE>
September 30, 1999 December 31, 1998
------------------------------------------- -------------------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Finance Banking
<S> <C> <C> <C> <C>
Total assets $ 2,672,867 $ 388,858 $ 2,415,476 $ 329,234
</TABLE>
The financial results of each segment are derived from the Company's general
ledger system. Certain adjustments have been made to recorded general ledger
accounts to appropriately reflect results of operations and financial position
transfers among segments.
Note 4 Subsequent Event
On October 29, 1999, the Company acquired substantially all of the assets of
Peoples Security Finance Company, Inc., a subsidiary of CNB Bancshares, Inc.,
for a purchase price of approximately $57 million. As a result, the Company
added twenty-one new branches in Kentucky and Tennessee with net consumer
finance receivables of approximately $45 million. The addition of these branches
represents an opportunity to gain market share in geographical areas in which
the Company had little presence, as well as strengthen its share of other
markets.
<PAGE>
Item 2. Management's Discussion and Analysis of the Results of Operations
and Financial Condition for the Nine Months Ended September 30, 1999
Results of Operations
Net income for the nine months ended September 30, 1999 of $50.8 million
increased 22.7% from $41.4 million in the same period of 1998. This increase
primarily reflects additional net interest income resulting from a $458.8
million increase in consumer finance receivables (excluding unearned finance
charges and deferred loan fees) outstanding at September 30, 1999 as compared to
September 30, 1998.
Consumer finance receivables consisted of the following:
<TABLE>
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
---------------- -------------- -----------------
Consumer finance receivables:
<S> <C> <C> <C>
Real estate secured loans $ 1,555,000 $ 1,269,439 $ 1,232,564
Other installment loans 1,453,714 1,361,820 1,244,810
Retail installment contracts 317,973 328,254 311,491
----------------- ---------------- -----------------
Gross consumer finance receivables 3,326,687 2,959,513 2,788,865
Less: Unearned finance charges and
deferred loan fees (434,737) (385,117) (355,682)
Allowance for credit losses (99,042) (80,493) (79,742)
----------------- ---------------- -----------------
Consumer finance receivables, net $ 2,792,908 $ 2,493,903 $ 2,353,441
================= ================ =================
</TABLE>
The Company's net interest income before provision for credit losses increased
$33.7 million, or 16.3%, to $240.3 million for the nine months ended September
30, 1999, compared to the same period of 1998. This increase mainly reflects
growth in average net consumer finance receivables to $2.7 billion, which is
$365.3 million, or 15.6%, greater than the average balance for the same
nine-month period in 1998. Management believes that the primary cause of this
growth is management's continued emphasis on an internal growth initiative
throughout the branch network, which consists of both taking advantage of
opportunities to increase lending to the existing customer base and attracting
new customers through more focused direct mail marketing. As a result of these
factors, total originations for the nine-month period ended September 30, 1999,
was $1.7 billion, which is an improvement of 17.3% compared to the same period
in 1998.
The overall portfolio yield decreased 16 basis points to 16.80% from 16.96% for
the nine months ended September 30, 1999 compared to the same 1998 period,
primarily due to a continued shift in mix towards lower-yielding real estate
secured loans while maintaining a fairly constant rate structure amongst the
various products offered. As a result of the aforementioned growth in average
receivables, offset partly by the compression in yield discussed above, loan
interest and fee income increased $43.2 million, or 14.5%, to $340.4 million for
the nine months ended September 30, 1999, as compared to the nine months ended
September 30, 1998.
As compared to the same period in the prior year, the yield on investment
securities decreased 100 basis points for the nine months ended September 30,
1999 due to a higher proportion of
<PAGE>
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for the Nine Months Ended September 30, 1999 (Continued)
investments in liquid assets during the first six months of 1999. This decrease
in yield, offset partly by a $3.5 million increase in average investment
securities, resulted in a decrease in income from investment securities of $1.2
million, or 13.1%, to $7.7 million for the nine months ended September 30, 1999,
as compared to the same 1998 period.
As a result of the activity described above, total interest income increased
$42.1 million, or 13.7%, to $348.2 million for the nine months ended September
30, 1999, as compared to the nine months ended September 30, 1998.
In order to finance the growth in receivables, average debt outstanding
increased $279.9 million, or 14.1%, to $2.3 billion. As a result of this
increase, offset partially by a decrease of 33 basis points in the weighted
average interest rate paid on such debt, interest and debt expense increased
$8.4 million, or 8.5%, to $107.8 million for the nine months ended September 30,
1999 as compared to the same 1998 period. The reduction of 33 basis points is
due to the issuance of long-term senior notes at more favorable rates than those
paid on notes that matured during the year.
The net interest spread for the nine months ended September 30, 1999 has
improved 20 basis points as compared to the same period in the prior year as the
Company's cost of debt decreased more than the reduction in yield earned on
receivables. The table below sets forth certain percentages relative to the
spread between interest income received on the loan portfolio and interest
expense:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- ----------
Ratio to Average Consumer Finance
Receivables (excluding unearned finance
charges and deferred loan fees):
<S> <C> <C> <C> <C>
Interest and Fee Income 16.64% 17.20% 16.80% 16.96%
Interest and Debt Expense 5.44 5.65 5.32 5.68
----------- ----------- ---------- ----------
Net Interest Spread 11.20% 11.55% 11.48% 11.28%
=========== =========== ========== ===========
</TABLE>
The provision for credit losses for the nine months ended September 30, 1999 was
3.79% as an annualized percentage of average net consumer finance receivables
for that period, as compared to 3.32% for the same 1998 period. See "Credit
Quality".
Efficiency, defined as the ratio of non-interest operating expenses, excluding
the amortization of goodwill, to total revenue (net interest income before
provision for credit losses plus other income), improved to 37.7% for the nine
months ended September 30, 1999 as compared to 43.0% for the same period of
1998. The improvement is primarily the result of increased revenues from
consumer finance receivable growth, a heightened focus on productivity and a
change in product mix toward loans which require lower servicing costs in
proportion to their related interest income.
<PAGE>
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for the Nine Months Ended September 30, 1999 (Continued)
Credit Quality
The Company analyzes several important elements in determining the level of the
provision for credit losses in any given period, such as current and anticipated
economic conditions, nonperforming asset trends, historical credit loss
experience, and plans for problem loan administration and resolution. These
elements are also captured in a migration analysis performed on the loan
portfolio on a quarterly basis and used in determining the provision for credit
losses.
The following table sets forth the ratio of receivables delinquent for 60 days
or more, on a contractual basis, to gross consumer finance receivables
outstanding:
<TABLE>
September 30, December 31, September 30,
1999 1998 1998
---------------- --------------- -----------------
<S> <C> <C> <C>
Real estate secured loans 0.58% 0.64% 0.70%
Other installment loans 4.14 4.14 4.50
Retail installment contracts 2.75 3.10 3.55
---------------- --------------- -----------------
2.35% 2.53% 2.72%
================ =============== =================
</TABLE>
During the nine months ended September 30, 1999, net chargeoffs were $58.2
million, or 2.87% as an annualized percentage of average consumer finance
receivables (excluding unearned finance charges and deferred loan fees) as
compared to $53.0 million, or 3.02% for the same period in 1998. The Company's
analysis of historical trends, growth in the loan portfolio and other factors
considered in the quarterly determinations of the adequacy of the allowance for
credit losses, resulted in a higher provision for credit losses than the same
period in the prior year. The provision for credit losses increased to $76.7
million for the nine months ended September 30, 1999, from $58.1 million for the
same period a year ago.
At September 30, 1999, the allowance for credit losses as a percentage of
consumer finance receivables (excluding unearned finance charges and deferred
loan fees) at period end equaled 3.4% as compared to 3.3% at September 30, 1998.
This slight increase reflects management's assessment of the expected losses
inherent in the portfolio at September 30, 1999. However, no assurance can be
given that the Company will not, in any particular period, sustain credit losses
that are sizable in relation to the amount reserved, or that subsequent
evaluation of the loan portfolio, in light of the factors then prevailing,
including economic conditions and the Company's ongoing examination process,
will not require significant adjustments in the allowance for credit losses.
<PAGE>
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for the Nine Months Ended September 30, 1999 (Continued)
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
---------------- --------------- -----------------
<S> <C> <C> <C>
Balance, beginning of period $ 80,493 $ 74,323 $ 74,323
Provision for credit losses 76,740 79,760 58,100
Amounts charged-off:
Real estate secured loans (1,331) (2,125) (1,028)
Other installment loans (59,532) (73,210) (53,657)
Retail installment contracts (9,389) (14,417) (10,554)
---------------- --------------- -----------------
(70,252) (89,752) (65,239)
Recoveries:
Real estate secured loans 307 521 450
Other installment loans 9,440 12,593 9,656
Retail installment contracts 2,314 2,774 2,178
---------------- --------------- -----------------
12,061 15,888 12,284
---------------- --------------- -----------------
Net charge-offs (58,191) (73,864) (52,955)
Allowances on notes purchased and
other adjustments - 274 274
---------------- --------------- -----------------
Balance, end of period $ 99,042 $ 80,493 $ 79,742
================ =============== =================
</TABLE>
Asset / Liability Management
The Company's philosophy is to maintain an approximate match of the interest
rate sensitivity between its interest-bearing assets and liabilities. The
Company's consumer finance receivables are primarily fixed rate and have initial
terms between 3 months and 30 years. However, loans are generally paid off or
refinanced prior to their stated maturity. Therefore, the Company's
asset/liability management requires a degree of analysis and estimation. The
Company funds its interest-bearing assets through both internally generated
equity and external debt financing. Corporate debt is balanced between
short-term and long-term borrowings, which allows the Company to meet its
objective of properly managing the interest rate risk inherent in the balance
sheet.
Liquidity / Capital Management
The Company funds its operations through a variety of corporate borrowings which
provide the flexibility needed to properly manage the liquidity risk inherent in
consumer lending. The primary source of these borrowings is corporate debt
securities issued by the Company. At September 30, 1999, twelve different senior
debt issues totaling $2 billion were outstanding, with a weighted average coupon
of 6.66%. To meet the Company's short-term funding needs, daily trades of
commercial paper are executed. At September 30, 1999, eleven different
commercial paper borrowings totaling $104.5 million were outstanding, with a
weighted average cost of 6.23%. The Company's banking subsidiary raises funds
through both customer deposits and borrowings with the Federal Home Loan Bank.
At September 30, 1999, the banking subsidiary's
<PAGE>
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for the Nine Months Ended September 30, 1999 (Continued)
outstanding debt and customer deposits totaled $313.8 million, with a weighted
average cost of 5.49%. The Company also maintains a revolving credit agreement
with twenty-one syndicate lenders which provides a credit line of up to $1.2
billion primarily to support the commercial paper borrowings.
Long-term debt consisted of the following:
<TABLE>
(Dollars in thousands) September 30, December 31, September 30,
1999 1998 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Senior Notes and Debentures $ 1,995,597 $ 1,298,342 $ 1,298,207
Senior Subordinated Notes
and Debentures - 99,925 99,891
Federal Home Loan Bank Notes 73,900 28,900 28,900
----------------- --------------- ----------------
$ 2,069,497 $ 1,427,167 $ 1,426,998
================= =============== ================
</TABLE>
Customer deposits consisted of the following:
<TABLE>
(Dollars in thousands) September 30, December 31, September 30,
1999 1998 1998
----------------- --------------- ----------------
<S> <C> <C> <C>
Money market accounts $ 14,278 $ 15,382 $ 15,084
Savings accounts 1,348 1,340 1,488
Certificates of deposit under $100,000 159,738 155,287 144,363
Certificates of deposit over $100,000 22,576 15,509 15,580
----------------- --------------- ----------------
$ 197,940 $ 187,518 $ 176,515
================= =============== ================
</TABLE>
The Company manages its capital by establishing equity leverage targets based
upon the ratio of debt (including customer deposits) to tangible equity. The
debt to tangible equity ratio at September 30, 1999 of 5.84 to 1 has increased
from 5.23 to 1 at September 30, 1998. The determination of the Company's
dividend payments and resulting capital leverage will be managed in a manner
consistent with the Company's desire to maintain strong and improving credit
ratings.
Year 2000
This section contains forward-looking statements that have been prepared on the
basis of management's best judgments and currently available information and
constitutes a Year 2000 Readiness Disclosure within the meaning of the Year 2000
Readiness Disclosure Act of 1998. These forward-looking statements are
inherently subject to significant business, third-party and regulatory
uncertainties and contingencies, many of which are beyond the Company's control.
In addition, these forward-looking statements are based on current assessments
and remediation plans, which are based on certain representations of third party
service providers and are subject to change. Accordingly, there can be no
assurance that the Company's results of operations will not be adversely
affected by difficulties or delays in the Company's or third parties' Year 2000
readiness efforts. See Risks below for a discussion of factors that may cause
such forward-looking statements to differ from actual results.
<PAGE>
Management's Discussion and Analysis of the Results of Operations and Financial
Condition for the Nine Months Ended September 30, 1999 (Continued)
The Company has implemented a company-wide program to renovate, test and
document the readiness ("Year 2000 readiness") of its electronic systems,
programs and processes ("Computer Systems"), and facilities to properly
recognize dates to and through the year 2000 (the "Year 2000 Project"). While
the Company is in various stages of modification and testing of individual Year
2000 Project components, the Year 2000 Project is proceeding generally on
schedule.
The Company has assigned its Senior Vice President of Information Systems to
oversee the Year 2000 Project, has set up a Year 2000 Project Office, and has
charged a senior management team representing all significant operational areas
of the Company to act as a Steering Committee. The Company has dedicated a
substantial amount of management and staff time to the Year 2000 Project. The
Company has, in conjunction with Washington Mutual, engaged IBM Global Services
to provide technical and management resources where necessary and has engaged
Deloitte Consulting Group LLC to assist in documenting certain aspects of the
Year 2000 Project. Monthly progress reports are made to the Company's Board of
Directors, and Washington Mutual's Board of Directors' Audit Committee reviews
Year 2000 Project progress on a quarterly basis.
(a) Project. The Company has divided its Year 2000 Project into the following
general phases, consistent with guidance issued by the Federal Financial
Institutions Examinations Council (the "FFIEC"): (i) inventory and assessment;
(ii) renovation, which includes repair or replacement; (iii) validation, which
includes testing of Computer Systems and the Company's connections with other
computer systems; (iv) due diligence on third party service providers; and (v)
development of contingency plans. The Year 2000 Project is divided into four
categories: mainframe systems, non-mainframe systems, third-party service
providers, and facilities.
The inventory and assessment phase is complete, and each component that has been
identified has been assigned a priority rating corresponding to its
significance. The rating has allowed the Company to direct its attention to
those Computer Systems, third party service providers and facilities that it
deems more critical to its ongoing business and the maintenance of good customer
relationships.
The Company has substantially completed the process of repairing or replacing
and testing the most significant components of its Computer Systems and
facilities. The Company has also adopted business contingency plans for the
Computer Systems and facilities that it has determined to be most critical.
These plans conform to recently issued guidance from the FFIEC on business
contingency planning for Year 2000 readiness. Contingency plans include, among
other actions, manual workarounds and extra staffing.
The Company has completed testing the connections between its Computer Systems
and third-party computer systems that is deems most critical. Additional testing
of these Computer Systems and third-party computer systems will continue through
1999.
<PAGE>
Management's Discussion and Analysis of the Results of Operations and
Financial Condition for the Nine Months Ended September 30, 1999 (Continued)
The Company continues to assess its risk from other environmental factors over
which it has little control, such as electrical power supply, and voice and data
transmission. Because of the nature of the factors, however, the Company is not
actively engaged in any repair, replacement or testing efforts for these
services.
(b) Costs. The process of making the Company's Computer Systems Year 2000 ready
has not resulted in material cost, however, a substantial amount of management
and staff time has been incurred on the Year 2000 Project.
(c) Risks. Based on its current assessments and its remediation plans, which are
based in part on certain representations of third party service providers, the
Company does not expect that it will experience a significant disruption of its
operations as a result of the change to the new millennium. Although the Company
has no reason to conclude that a failure will occur, the most reasonably likely
worst-case Year 2000 scenario would entail a disruption or failure of the
Company's power supply or voice and data transmission suppliers, a Computer
System, a third-party servicer, or a facility. If such a failure were to occur,
the Company would implement its contingency plan. While it is impossible to
quantify the impact of such a scenario, the most reasonably likely worst-case
scenario would entail a diminishment of service levels, some customer
inconvenience and additional costs from the contingency plan implementation,
which are not currently estimable. While the Company has contingency plans to
address a temporary disruption in these services, there can be no assurance that
any disruption or failure will be only temporary, that the Company's contingency
plans will function as anticipated, or that the results of operations of the
Company will not be adversely affected in the event of a prolonged disruption or
failure.
There can be no assurance that the FFIEC or other federal regulators will not
issue new regulatory requirements that require additional work by the Company
and, if issued, that new regulatory requirements will not increase the cost or
delay the completion of the Company's Year 2000 Project.
d) Liquidity Plan. The Company has developed and implemented a Liquidity Plan
to identify, monitor, and resolve potential funding impacts related to
Year 2000. The plan includes early warning of funding trends and
alternative sources of funds in the event of a disruption.
The Company has also developed and implemented a Cash Contingency Plan to
identify, monitor, and resolve potential impact to cash sources and distribution
systems related to Year 2000. The plan includes early warning of cash trends and
alternative sources of cash in the event of a disruption.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (a) Certificate of Incorporation of Aristar, Inc. as
presently in effect. (i)
(b) By Laws of Aristar, Inc. as presently in effect. (i)
(4) (a) Indenture dated as of July 1, 1992 between Aristar,
Inc. and the Chase
Manhattan Bank, N.A., as trustee. (ii)
(b) Indenture dated as of July 1, 1992 between Aristar,
Inc. and Citibank,
N.A., as trustee. (ii)
(c) Indenture dated as of July 1, 1995 between Aristar,
Inc. and the Bank of New York, as trustee. (iii)
(d) Indenture dated as of October 1, 1997 between
Aristar, Inc. and First Union National Bank, as
trustee. (iv)
(e) Indenture dated as of June 23, 1999 between Aristar,
Inc.and Harris Trust and Savings Bank, as trustee.(v)
(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) (a) 364-Day Credit Agreement by and among the Registrant
and Aristar, Inc. and The Chase Manhattan Bank, as
Administrative Agent, (Incorporated by reference to
Washington Mutual Inc.'s Form 10-Q for the quarter
ended September 30, 1999. File No. 1-14667.)
(b) Four-Year Credit Agreement by and among the Registrant and Aristar,
Inc. and The Chase Manhattan Bank, as Administrative Agent,
(Incorporated by reference to Washington Mutual Inc.'s Form 10-Q for
the quarter ended September 30, 1999. File No. 1-14667.)
(27) Financial Data Schedule.
(b) Reports on Form 8-K
On September 7, 1999, the company filed a Current Report on Form 8-K,
dated August 31, 1999, disclosing, under item (7) thereof, the terms of
the issuance of $300,000,000 aggregate principal amount of its 7.375%
Senior notes maturing September 1, 2004.
(i) Incorporated by reference to Registrant's Quarterly Report on
Form 10-K for the year ended December 31, 1987, Commission
file number 1-3521.
(ii) Incorporated by reference to Registrant's Current Report on
Form 8-K dated June 24, 1992, Commission file number 1-3521.
(iii) Incorporated by reference to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995, Commission
file number 1-3521.
(iv) Incorporated by reference to Registrant's Current Report on
Form 8-K dated October 6, 1997, Commission file number 1-3521.
(v) Incorporated by reference to the Registration Statement on
Form S-3, Registration number 333-80147.
<PAGE>
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: November 15, 1999 By: /s/ H. Philip Goodeve
----------------------------- ------------------------------------
H. Philip Goodeve
Senior Vice President and
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
nine months ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 35,533
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 147,107
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,891,950
<ALLOWANCE> (99,042)
<TOTAL-ASSETS> 3,061,725
<DEPOSITS> 197,940
<SHORT-TERM> 146,447
<LIABILITIES-OTHER> 189,235
<LONG-TERM> 2,069,497
0
0
<COMMON> 1
<OTHER-SE> 458,605
<TOTAL-LIABILITIES-AND-EQUITY> 3,061,725
<INTEREST-LOAN> 340,441
<INTEREST-INVEST> 7,721
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 348,162
<INTEREST-DEPOSIT> 8,159
<INTEREST-EXPENSE> 107,851
<INTEREST-INCOME-NET> 240,311
<LOAN-LOSSES> 76,740
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 101,271
<INCOME-PRETAX> 83,238
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,778
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.57
<LOANS-NON> 57,075
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 80,493
<CHARGE-OFFS> 70,252
<RECOVERIES> 12,061
<ALLOWANCE-CLOSE> 99,042
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 99,042
<FN>
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 nine months ended September 30, 1999 using the
Article 9 format. </FN>
</TABLE>
