1
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, 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 April 30, 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> 2
ARISTAR, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
March 31, 1999 and December 31, 1998............................3
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings -
Three Months Ended March 31, 1999 and 1998......................4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998......................5
Notes to Consolidated Financial Statements.......................6
Item 2. Management's Analysis of the
Results of Operations for the Three Months
Ended March 31, 1999....................................... 8 - 13
Part II. Other Information:
Item 5. Other Information.......................................14
Item 6. Exhibits and Reports on Form 8-K....................15 - 16
SIGNATURE.........................................................17
<PAGE> 3
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(Dollars in thousands, except par value March 31, December 31,
and share information) 1999 1998
(Unaudited)
ASSETS
<S> <C> <C>
Consumer finance receivables, net $ 2,539,015 $ 2,493,903
Investment securities 147,325 150,820
Cash and cash equivalents 24,254 24,180
Property, equipment and leasehold
improvements, less accumulated depreciation
and amortization: 1999, $24,580;
1998, $23,642 12,797 12,411
Goodwill, less accumulated amortization:
1999, $63,388; 1998, $62,453 47,539 48,166
Other assets 17,626 15,230
------------ ------------
TOTAL ASSETS $ 2,788,556 $ 2,744,710
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 428,552 $ 560,823
Long-term debt 1,572,024 1,427,167
------------ ------------
Total debt 2,000,576 1,987,990
Customer deposits 198,021 187,518
Accounts payable and other liabilities 146,935 145,430
Federal and state income taxes 13,442 4,442
------------ ------------
Total liabilities 2,358,974 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 380,269 369,143
Accumulated other comprehensive income:
Net unrealized holding gains on investment
securities, net of tax 352 1,226
------------ ------------
Total stockholder's equity 429,582 419,330
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,788,556 $ 2,744,710
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 4
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations, Comprehensive Income and
Retained Earnings
(Unaudited)
For the Three Months
Ended March 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
---------- ----------
<S> <C> <C>
Loan interest and fee income $ 110,694 $ 97,212
Investment securities income 2,498 2,855
---------- ----------
Total interest income 113,192 100,067
Interest and debt expense 34,804 33,160
---------- ----------
Net interest income before
provision for credit losses 78,388 66,907
Provision for credit losses 25,600 18,000
---------- ----------
Net interest income 52,788 48,907
---------- ----------
Other income 6,655 6,489
Other expenses
Personnel expense 19,156 19,059
Occupancy expense 2,664 2,553
Advertising expense 2,348 1,445
Goodwill amortization expense 935 1,019
Other operating expense 9,544 9,884
---------- ----------
Total other expense 34,647 33,960
---------- ----------
Income before income taxes 24,796 21,436
Provision for federal and
state income taxes 9,670 8,500
---------- ----------
Net income 15,126 12,936
Net unrealized holding gains
(losses) on securities arising during
period, net of tax (874) 298
---------- ----------
Comprehensive income $ 14,252 $ 13,234
========== ==========
Retained Earnings
Beginning of period $ 369,143 $ 352,756
Net Income 15,126 12,936
Dividends (4,000) (4,500)
---------- ----------
End of Period $ 380,269 $ 361,192
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
(Dollars in thousands) 1999 1998
---------- ----------
Cash flows from operating activities
<S> <C> <C>
Net income $ 15,126 $ 12,936
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 25,600 18,000
Depreciation and amortization 2,385 2,645
Increase in accounts payable and
other liabilities 1,506 1,097
Increase in federal and state income
taxes payable 9,674 12,448
(Increase) in other assets (2,396) (8,345)
---------- ----------
Net cash provided by operating activities 51,895 38,781
---------- ----------
Cash flows from investing activities
Investment securities purchased (9,487) (13,305)
Investment securities matured or sold 11,447 11,982
Consumer finance receivables originated
or purchased (401,482) (333,499)
Consumer finance receivables repaid 330,070 353,379
Net change in property, equipment and
leasehold improvements (1,301) (279)
---------- ----------
Net cash (used in) provided by investing
activities (70,753) 18,278
---------- ---------
Cash flows from financing activities
Net change in customer deposits 10,503 2,512
Net change in short-term debt (132,271) (62,130)
Proceeds from issuance of long-term debt 259,700 10,000
Repayments of long-term debt (115,000)
Dividends paid (4,000) (4,500)
Net cash provided by (used in)
financing activities 18,932 (54,118)
----------- ---------
Net increase in cash and
cash equivalents 74 2,941
Cash and cash equivalents
Beginning of period 24,180 26,446
---------- ----------
End of period $ 24,254 $ 29,387
========== ==========
Supplemental disclosures of cash flow information
Interest paid $ 29,885 $ 30,540
Intercompany payments in lieu of federal and
state income taxes 4 103
See Notes to Consolidated Financial Statements.
</TABLE>
<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, 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. In addition, goodwill amortization expense for
the three months ended March 31, 1998 has been decreased by $747 thousand from
amounts previously reported in the Company's Quarterly Report on Form 10-Q for
the three months ended March 31,1998 as the result of a reversal of excess
amortization. This adjustment reflects the results of operations for this three
month period in a manner which is consistent with the amounts reported in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
after-tax impact of this adjustment on net income is an increase of $447
thousand.
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
business segments, noted above, which are strategic lines of business managed by
the Executive Committee under the direction of the Chief Executive Officer.
<PAGE> 7
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
The Company's business segments 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 Executive Vice Presidents who manage key business and
operational areas within the Company.
Both segments 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 segment through executives responsible for
lending administration, information systems, finance, legal and administration.
Since SFAS No. 131 requires no segmentation or methodology standardization, the
organizational structure of the institution and the allocation methodologies it
employs result in business line financial results that are not necessarily
comparable across companies. As such, the Company's business line performance
may not be directly comparable with similar information from other consumer
finance companies.
Financial highlights by line of business were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Three Months Ended March 31,
1999 1998
------------------------ ---------------------
Consumer Consumer Consumer Consumer
Finance Banking Finance Banking
Condensed income statement:
<S> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 48,839 $ 3,949 $ 45,061 $ 3,846
Other operating income 6,514 141 6,297 192
Operating expenses 32,932 1,715 32,341 1,619
--------- --------- --------- ---------
Income before income
taxes 22,421 2,375 19,017 2,419
Income taxes 8,759 911 7,575 925
--------- --------- --------- ---------
Net income $ 13,662 $ 1,464 $ 11,442 $ 1,494
========= ========= ========= =========
</TABLE>
Other disclosures:
March 31, December 31,
1999 1998
---------------------- ----------------------
Consumer Consumer Consumer Consumer
Finance Banking Finance Banking
Total assets $2,447,181 $ 341,375 $2,415,476 $ 329,234
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.
<PAGE> 8
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999
Results of Operations
Net income for the three months ended March 31, 1999 of $15.1 million increased
16.9% from $12.9 million in the same quarter of 1998. This increase primarily
reflects additional net interest income resulting from a $411.1 million increase
in consumer finance receivables outstanding at March 31, 1999 as compared to
March 31, 1998.
Consumer finance receivables consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1999 1998 1998
----------- ---------- ------------
Consumer finance receivables
<S> <C> <C> <C>
Real estate secured loans $ 1,347,612 $ 1,269,439 $ 1,124,115
Other installment loans 1,368,567 1,361,820 1,163,040
Retail installment contracts 306,007 328,254 323,942
------------ ----------- ------------
Gross consumer finance receivables 3,022,186 2,959,513 2,611,097
Less: Unearned finance charges and
deferred loan fees (396,776) (385,117) (321,167)
Allowance for credit losses (86,395) (80,493) (74,491)
----------- ---------- -----------
Consumer finance receivables, net $ 2,539,015 $ 2,493,903 $ 2,215,439
============ =========== ============
</TABLE>
The Company's net interest income before provision for credit losses increased
$11.5 million, or 17.2%, to $78.4 million for the three months ended March 31,
1999, compared to the same period of 1998. This increase reflects growth in
average net consumer finance receivables to $2.6 billion, which is $275.2
million, or 11.9%, greater than the average balance for the same three month
period in 1998. The primary cause of this growth is management's continued
emphasis on an internal growth initiative throughout the branch network, which
consists of both capitalizing on 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, excluding
renewals, for the three month period ended March 31, 1999 totaled $375.3
million, which was an improvement of 12.6% compared to the same period in 1998.
The overall portfolio yield increased 29 basis points to 17.10% from 16.81% for
the three months ended March 31, 1999 as compared to the same 1998 period. As a
result, loan interest and fee income increased $13.5 million, or 13.9%, for the
three months ended March 31, 1999, as compared to the three months ended March
31, 1998. Due to a $9.5 million decrease in average investment securities,
income from investment securities decreased $357 thousand, or 12.5%, for the
three months ended March 31, 1999, as compared to the same 1998 period. As a
result of the activity above, total interest income increased $13.1 million, or
13.1%, for the three months ended March 31, 1999, as compared to the three
months ended March 31, 1998.
<PAGE> 9
Management's Analysis of the Results of Operations for the Three Months
Ended March 31, 1999 (Continued)
In order to finance the growth in receivables, average debt outstanding
increased $226.0 million, or 11.5%, to $2.2 billion. As a result of this
increase, offset partially by a decrease of 40 basis points in the weighted
average interest rate paid on such debt, interest and debt expense increased
$1.6 million, or 5.0%, for the three months ended March 31, 1999 as compared to
the same 1998 period.
As a result of the Company's ability to increase yields on its receivables,
while reducing the rate paid on its borrowings, the net interest spread for the
three months ended March 31, 1999 has improved 64 basis points as compared to
the same period in the prior year. The table below sets forth certain
percentages relative to the spread between interest income received on the loan
portfolio and interest expense:
Three Months Ended
March 31,
1999 1998
-------- -------
Ratio to Average Consumer Finance
Receivables (excluding unearned finance
charges and deferred loan fees):
Interest and Fee Income 17.10% 16.81%
Interest and Debt Expense 5.38 5.73
------- -------
Net Interest Spread 11.72% 11.08%
======== ========
The provision for credit losses for the three months ended March 31, 1999 was
3.96% as an annualized percentage of average net consumer finance receivables
for that period, as compared to 3.11% 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, improved to 39.6% for the three
months ended March 31, 1999 as compared to 44.9% 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 to increase emphasis on higher margin products.
<PAGE> 10
Management's Analysis of the Results of Operations for the Three Months
Ended March 31, 1999 (Continued)
Credit Quality
Net credit charge-offs for the three months ended March 31, 1999 were $19.7
million, or 3.04% as an annualized percentage of average consumer finance
receivables (excluding unearned finance charges and deferred loan fees), as
compared to $18.0 million, or 3.11% for the same 1998 period. At March 31, 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 3.29% as compared to 3.25% at March 31, 1998. This slight increase
reflects management's assessment of the expected losses inherent in the
portfolio at March 31, 1999.
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 1999 1998 1998
-------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of period $ 80,493 $ 74,323 $ 74,323
Provision for credit losses 25,600 79,760 18,000
Amounts charged-off
Real estate secured loans (380) (2,125) (450)
Other installment loans (20,099) (73,210) (17,943)
Retail installment contracts (3,322) (14,417) (3,678)
-------- --------- -------
(23,801) (89,752) (22,071)
Recoveries
Real estate secured loans 146 521 177
Other installment loans 3,149 12,593 3,123
Retail installment contracts 808 2,774 742
-------- --------- -------
4,103 15,888 4,042
-------- --------- -------
Net charge-offs (19,698) (73,864) (18,029)
Allowances on notes purchased and
other adjustments - 274 197
-------- --------- -------
Balance, end of period $ 86,395 $ 80,493 $ 74,491
======== ========= =======
Allowance as a percentage of:
Consumer finance receivables
(excluding unearned finance
charges and deferred loan
fees) at period end 3.29% 3.13% 3.25%
Current period annualized net
charge-offs 109.6% 109.0% 103.3%
</TABLE>
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>
March 31, December 31, March 31,
1999 1998 1998
----------- ---------- ------------
<S> <C> <C> <C>
Real estate secured loans 0.61% 0.64% 0.66%
Other installment loans 3.95 4.14 4.31
Retail installment contracts 2.94 3.10 3.24
------------ ----------- ------------
2.36% 2.53% 2.62%
============ =========== ============
</TABLE>
<PAGE> 11
Management's Analysis of the Results of Operations for the Three Months
Ended March 31, 1999 (Continued)
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 high 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 March 31, 1999, eleven different senior
debt issues totaling $1.5 billion were outstanding, with a weighted average cost
of 6.55%. To meet the Company's short-term funding needs, daily trades of
commercial paper are executed. At March 31, 1999, seventeen different commercial
paper borrowings totaling $428.6 million were outstanding, with a weighted
average cost of 5.03%. The Company's banking subsidiary raises funds through
both customer deposits and borrowings with the Federal Home Loan Bank. At March
31, 1999, the banking subsidiary's outstanding debt totaled $271.9 million, with
a weighted average cost of 5.38%. The Company also maintains a revolving credit
agreement with twenty-four syndicate lenders which provides a credit line of up
to $550 million primarily to support the commercial paper borrowings.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, December 31, March 31,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Senior Notes and Debentures $ 1,398,161 $ 1,298,342 $ 1,248,314
Senior Subordinated Notes
and Debentures 99,963 99,925 199,809
Federal Home Loan Bank Notes 73,900 28,900 34,900
----------- ----------- -----------
$ 1,572,024 $ 1,427,167 $ 1,483,023
=========== =========== ===========
</TABLE>
Customer deposits consisted of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, December 31, March 31,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Money market accounts $ 15,938 $ 15,382 $ 15,335
Savings accounts 1,418 1,340 1,133
Certificates of deposit under $100,000 159,813 155,287 135,916
Certificates of deposit over $100,000 20,852 15,509 13,313
---------- ----------- -----------
$ 198,021 $ 187,518 $ 165,697
</TABLE>
========== =========== ===========
<PAGE> 12
Management's Analysis of the Results of Operations for the Three Months
Ended March 31, 1999 (Continued)
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 March 31, 1999 of 5.75 to 1 has increased from
5.42 to 1 at March 31, 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 the Company'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 control of the
Company. In addition, these forward-looking statements are based on the
Company's 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.
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 on 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.
<PAGE> 13
Management's Analysis of the Results of Operations for the Three Months
Ended March 31, 1999 (Continued)
The inventory and assessment phase is substantially 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 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. While the Company does not believe that the process of making its
Computer Systems Year 2000 ready will result in material cost, it is expected
that a substantial amount of management and staff time will be required 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 millenium. 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.
<PAGE> 14
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:
For the Three Months
Ended March 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
------------ --------------
<S> <C> <C>
Income before income taxes $ 24,796 $ 21,436
------------ --------------
Fixed charges:
Interest and debt expense on
all indebtedness 34,804 33,160
Appropriate portion of
rentals (33%) 934 927
------------ --------------
Total fixed charges 35,738 34,087
------------ --------------
Earnings available for
fixed charges $ 60,534 $ 55,523
============ ==============
Ratio of earnings
to fixed charges 1.69 1.63
============ ==============
</TABLE>
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (a) Certificate of Incorporation of Aristar, Inc. as presently in
effect. (1)
(b) By Laws of Aristar, Inc. as presently in effect. (1)
(4) (a) Indenture dated as of May 1, 1991 between Aristar, Inc. and
Security Pacific National Bank, as trustee. (2)
(b) Indenture dated as of May 1, 1991 between Aristar, Inc. and
The First National Bank of Boston, as trustee. (2)
(c) Indenture dated as of July 1, 1992 between Aristar, Inc. and
the Chase Manhattan Bank, N.A., as trustee. (3)
(d) Indenture dated as of July 1, 1992 between Aristar, Inc. and
Citibank, N.A., as trustee. (3)
(e) Indenture dated as of July 1, 1995 between Aristar, Inc. and
the Bank of New York, as trustee. (4)
(f) Indenture dated as of October 1, 1997 between Aristar, Inc.
and First Union National Bank, as trustee. (5)
(g) 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.
(27) Financial Data Schedule
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
Cont.
(1) Incorporated by reference to Registrant's Quarterly Report on Form
10-K for the year ended December 31, 1987, Commission file number
1-3521.
(2) Incorporated by reference to Registrant's Current Report on Form 8-K
dated May 29, 1991, Commission file number 1-3521.
(3) Incorporated by reference to Registrant's Current Report on Form 8-K
dated June 24, 1992, Commission file number 1-3521.
(4) Incorporated by reference to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, Commission file number
1-3521.
(5) Incorporated by reference to Registrant's Current Report on Form 8-K
dated October 6, 1997, 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> 17
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 12, 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
threee months ended March 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-END> MAR-31-1999
<FISCAL-YEAR-END> DEC-31-1999
<CASH> 24,254
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 147,325
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,625,410
<ALLOWANCE> (86,395)
<TOTAL-ASSETS> 2,788,556
<DEPOSITS> 198,021
<SHORT-TERM> 428,552
<LIABILITIES-OTHER> 160,377
<LONG-TERM> 1,572,024
0
0
<COMMON> 1
<OTHER-SE> 429,582
<TOTAL-LIABILITIES-AND-EQUITY> 2,788,556
<INTEREST-LOAN> 110,694
<INTEREST-INVEST> 2,498
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 113,192
<INTEREST-DEPOSIT> 2,671
<INTEREST-EXPENSE> 34,804
<INTEREST-INCOME-NET> 78,388
<LOAN-LOSSES> 25,600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 34,647
<INCOME-PRETAX> 24,796
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,126
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.38
<LOANS-NON> 52,659
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 80,493
<CHARGE-OFFS> 23,798
<RECOVERIES> 4,103
<ALLOWANCE-CLOSE> 86,395
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 86,395
<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 three months ended March 31, 1999 using the
Article 9 format.
</FN>
</TABLE>
