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 JUNE 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 July 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 -
June 30, 1999 and December 31, 1998.................................3
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings -
Three Months and Six Months Ended June 30, 1999 and 1998............4
Consolidated Statements of Cash Flows -
Three Months and Six Months Ended June 30, 1999 and 1998............5
Notes to Consolidated Financial Statements........................6 - 7
Item 2. Management's Analysis of the
Results of Operations for the Six Months
Ended June 30, 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>
Item 1. Financial Statements
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(Dollars in thousands, except par value and June 30, December 31,
share information) 1999 1998
(Unaudited)
ASSETS
<S> <C> <C>
Consumer finance receivables, net $ 2,648,241 $ 2,493,903
Investment securities 140,538 150,820
Cash and cash equivalents 41,467 24,180
Property, equipment and leasehold improvements,
less accumulated depreciation and amortization:
1999, $24,969; 1998, $23,642 14,264 12,411
Goodwill, less accumulated amortization:
1999, $64,358; 1998, $62,453 46,569 48,166
Other assets 18,292 15,230
-------------- ---------------
TOTAL ASSETS $ 2,909,371 $ 2,744,710
============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 201,193 $ 560,823
Long-term debt 1,880,877 1,427,167
-------------- ---------------
Total debt 2,082,070 1,987,990
Customer deposits 205,221 187,518
Accounts payable and other liabilities 156,010 145,430
Federal and state income taxes 22,456 4,442
-------------- ---------------
Total liabilities 2,465,757 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 395,025 369,143
Accumulated other comprehensive income:
Net unrealized holding (loss) gain on investment
securities, net of tax (372) 1,226
-------------- ---------------
Total stockholder's equity 443,614 419,330
-------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 2,909,371 $ 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>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Loan interest and fee income $ 112,679 $ 97,683 $ 223,373 $ 194,895
Investment securities income 2,609 2,967 5,107 5,822
---------- ----------- ---------- ----------
Total interest income 115,288 100,650 228,480 200,717
Interest and debt expense 34,794 32,693 69,598 65,853
---------- ----------- ---------- ----------
Net interest income before
provision for credit losses 80,494 67,957 158,882 134,864
Provision for credit losses 26,040 18,300 51,640 36,300
---------- ----------- ---------- ----------
Net interest income after provision
for credit losses 54,454 49,657 107,242 98,564
---------- ----------- ---------- ----------
Other income 6,868 5,777 13,523 12,266
Other expenses
Personnel expense 18,962 18,985 38,118 38,044
Occupancy expense 2,726 2,569 5,390 5,122
Advertising expense 2,356 1,430 4,704 2,875
Goodwill amortization expense 971 866 1,906 1,885
Other operating expense 8,021 9,042 17,565 18,926
---------- ----------- ---------- ----------
Total other expenses 33,036 32,892 67,683 66,852
---------- ----------- ---------- ----------
Income before income taxes 28,286 22,542 53,082 43,978
Provision for federal and state income taxes 11,030 8,900 20,700 17,400
-------- --------- -------- --------
Net income 17,256 13,642 32,382 26,578
Net unrealized holding (losses) gains
on securities arising during period,
net of tax (724) 55 (1,598) 353
---------- ----------- ---------- ----------
Comprehensive income $ 16,532 $ 13,697 $ 30,784 $ 26,931
========== =========== ========== ==========
Retained earnings
Beginning of period $ 380,269 $ 361,192 $ 369,143 $ 352,756
Net income 17,256 13,642 32,382 26,578
Dividends (2,500) (6,500) (4,500)
---------- ----------- ---------- ----------
End of period $ 395,025 $ 374,834 $ 395,025 $ 374,834
========== =========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Dollars in thousands) 1999 1998 1999 1998
-------- --------- --------- ---------
Cash flows from operating activities
<S> <C> <C> <C> <C>
Net income $ 17,256 $ 13,642 $ 32,382 $ 26,578
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for credit losses 26,040 18,300 51,640 36,300
Depreciation and amortization 4,741 1,945 7,126 4,590
Increase in accounts payable and
other liabilities 9,074 2,852 10,580 3,949
Increase (decrease) in federal and state
income taxes payable 9,359 (22,348) 19,033 (9,900)
(Increase) decrease in other assets (666) 8,668 (3,062) 323
--------- --------- --------- -------
Net cash provided by operating activities 65,804 23,059 117,699 61,840
--------- --------- --------- ---------
Cash flows from investing activities
Investment securities purchased (4,138) (36,533) (13,625) (49,838)
Investment securities matured or sold 9,849 18,557 21,296 30,539
Consumer finance receivables originated
or purchased (399,828) (407,890) (801,310) (741,389)
Consumer finance receivables repaid 263,005 361,575 593,075 714,954
Net change in property, equipment and
leasehold improvements (3,488) (1,582) (4,789) (1,861)
-------- --------- --------- ---------
Net cash used in investing activities (134,600) (65,873) (205,353) (47,595)
-------- --------- --------- ---------
Cash flows from financing activities
Net change in customer deposits 7,200 7,369 17,703 9,881
Net change in short-term debt (227,359) 19,396 (359,630) (42,734)
Proceeds from issuance of long-term debt 408,668 668,368 10,000
Repayments of long-term debt (100,000) (6,000) (215,000) (6,000)
Dividends paid (2,500) (6,500) (4,500)
Proceeds from affiliate transfer 4,065 4,065
-------- --------- --------- ---------
Net cash provided by (used in) financing
activities 86,009 24,830 104,941 (29,288)
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 17,213 (17,984) 17,287 (15,043)
Cash and cash equivalents
Beginning of period 24,254 29,387 24,180 26,446
-------- --------- --------- ---------
End of period $ 41,467 $ 11,403 $ 41,467 $ 11,403
======== ========= ========= =========
Supplemental disclosures of cash flow information
Interest paid $ 36,320 $ 34,033 $ 66,205 $ 64,573
Federal and state income taxes paid $ 1,671 $ 27,197 $ 1,667 $ 27,300
</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
business segments, 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 Executive 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.
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 June 30,
Six Months Ended June 30,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
Consumer Consumer Consumer Consumer Consumer Consumer Consumer Consumer
Finance Banking Finance Banking Finance Banking Finance Banking
Condensed income statement:
Net interest income after
<S> <C> <C> <C> <C> <C> <C> <C> <C>
provision for credit losses $50,104 $ 4,350 $45,936 $ 3,721 $98,943 $ 8,299 $ 90,997 $ 7,567
Other operating income 6,728 140 5,560 217 13,242 281 11,857 409
Operating expenses 31,263 1,773 31,249 1,643 64,195 3,488 63,590 3,262
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes 25,569 2,717 20,247 2,295 47,990 5,092 39,264 4,714
Income taxes 9,993 1,037 8,022 878 18,752 1,948 15,597 1,803
------- ------- ------- ------- ------- ------- ------- -------
Net income $15,576 $ 1,680 $12,225 $ 1,417 $29,238 $ 3,144 $23,667 $ 2,911
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Other disclosures:
June 30, 1999 December 31, 1998
------------------------------ -----------------------------------
Consumer Consumer Consumer Consumer
Finance Banking Finance Banking
Total assets $2,542,887 $ 366,484 $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>
Item 2. MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Results of Operations
Net income for the six months ended June 30, 1999 of $32.4 million increased
21.8% from $26.6 million in the same period of 1998. This increase primarily
reflects additional net interest income resulting from a $510.2 million increase
in consumer finance receivables outstanding at June 30, 1999 as compared to June
30, 1998.
<TABLE>
Consumer finance receivables consisted of the following:
June 30, December 31, June 30,
(Dollars in thousands) 1999 1998 1998
------------ ----------- -------------
Consumer finance receivables:
<S> <C> <C> <C>
Real estate secured loans $ 1,448,991 $ 1,269,439 $ 1,163,924
Other installment loans 1,402,685 1,361,820 1,169,784
Retail installment contracts 301,836 328,254 309,645
------------- ------------ -------------
Gross consumer finance receivables 3,153,512 2,959,513 2,643,353
Less: Unearned finance charges and
deferred loan fees (411,529) (385,117) (324,326)
Allowance for credit losses (93,742) (80,493) (76,099)
------------- ------------ -------------
Consumer finance receivables, net $ 2,648,241 $ 2,493,903 $ 2,242,928
============= ============ =============
</TABLE>
The Company's net interest income before provision for credit losses increased
$24.0 million, or 17.8%, to $158.9 million for the six months ended June 30,
1999, compared to the same period of 1998. This increase reflects growth in
average net consumer finance receivables to $2.6 billion, which is $333.6
million, or 14.5%, greater than the average balance for the same six 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 six month period ended June 30, 1999 totaled $775.1 million,
which was an improvement of 4.5% compared to the same period in 1998.
The overall portfolio yield increased 3 basis points to 16.91% from 16.88% for
the six months ended June 30, 1999 as compared to the same 1998 period. As a
result, in conjunction with the growth in average receivables, loan interest and
fee income increased $28.5 million, or 14.6%, for the six months ended June 30,
1999, as compared to the six months ended June 30, 1998. Due to an $8.2 million
decrease in average investment securities, income from investment securities
decreased $715 thousand, or 12.3%, for the six months ended June 30, 1999, as
compared to the same 1998 period. As a result of the activity above, total
interest income increased $27.8 million, or 13.8%, for the six months ended June
30, 1999, as compared to the six months ended June 30, 1998.
<PAGE>
Management's Analysis of the Results of Operations
for the Six Months Ended June 30, 1999
(Continued)
In order to finance the growth in receivables, average debt outstanding
increased $261.8 million, or 13.4%, to $2.2 billion. As a result of this
increase, offset partially by a decrease of 46 basis points in the weighted
average interest rate paid on such debt, interest and debt expense increased
$3.7 million, or 5.7%, for the six months ended June 30, 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
six months ended June 30, 1999 has improved 46 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:
<TABLE>
Three Months Ended Six Months Ended
June 30, June 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 16.82% 16.99% 16.91% 16.88%
Interest and Debt Expense 5.19 5.69 5.27 5.70
--------- --------- --------- --------
Net Interest Spread 11.63% 11.30% 11.64% 11.18%
========== ========== ========= =========
</TABLE>
The provision for credit losses for the six months ended June 30, 1999 was 3.91%
as an annualized percentage of average net consumer finance receivables for that
period, as compared to 3.14% 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 38.2% for the six
months ended June 30, 1999 as compared to 44.2% 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>
Management's Analysis of the Results of Operations
for the Six Months Ended June 30, 1999
(Continued)
Credit Quality
Net credit charge-offs for the six months ended June 30, 1999 were $38.4
million, or 2.91% as an annualized percentage of average consumer finance
receivables (excluding unearned finance charges and deferred loan fees), as
compared to $35.1 million, or 3.04% for the same 1998 period. At June 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 June 30, 1998. This slight increase reflects
management's assessment of the expected losses inherent in the portfolio at June
30, 1999.
Activity in the Company's allowance for credit losses is as follows:
<TABLE>
June 30, December 31, June 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 51,640 79,760 36,300
Amounts charged-off:
Real estate secured loans (958) (2,125) (714)
Other installment loans (39,356) (73,210) (35,617)
Retail installment contracts (6,311) (14,417) (7,328)
--------- ------------- ---------
(46,625) (89,752) (43,659)
Recoveries:
Real estate secured loans 245 521 320
Other installment loans 6,400 12,593 6,691
Retail installment contracts 1,589 2,774 1,521
--------- ------------- ---------
8,234 15,888 8,532
--------- ------------- ---------
Net charge-offs (38,391) (73,864) (35,127)
Allowances on notes purchased and
other adjustments - 274 603
--------- ------------- ---------
Balance, end of period $ 93,742 $ 80,493 $ 76,099
========= ============= =========
</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>
June 30, December 31, June 30,
1999 1998 1998
------------- ------------ -------------
<S> <C> <C> <C>
Real estate secured loans 0.63% 0.64% 0.76%
Other installment loans 3.96 4.14 4.58
Retail installment contracts 2.94 3.10 3.34
------------- ------------ -------------
2.34% 2.53% 2.68%
============== ============= ==============
</TABLE>
<PAGE>
Management's Analysis of the Results of Operations
for the Six Months Ended June 30, 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 June 30, 1999, twelve different senior debt
issues totaling $1.8 billion were outstanding, with a weighted average cost of
6.59%. To meet the Company's short-term funding needs, daily trades of
commercial paper are executed. At June 30, 1999, twelve different commercial
paper borrowings totaling $201.2 million were outstanding, with a weighted
average cost of 5.16%. The Company's banking subsidiary raises funds through
both customer deposits and borrowings with the Federal Home Loan Bank. At June
30, 1999, the banking subsidiary's outstanding debt totaled $289.6 million, with
a weighted average cost of 5.30%. 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>
(Dollars in thousands) June 30, December 31, June 30,
1999 1998 1998
-------------- ------------ -------------
<S> <C> <C> <C>
Senior Notes and Debentures $ 1,696,477 $ 1,298,342 $ 1,248,430
Senior Subordinated Notes
and Debentures 100,000 99,925 199,852
Federal Home Loan Bank Notes 84,400 28,900 28,900
-------------- ------------ -------------
$ 1,880,877 $ 1,427,167 $ 1,477,182
============== ============ =============
</TABLE>
Customer deposits consisted of the following:
<TABLE>
(Dollars in thousands) June 30, December 31, June 30,
1999 1998 1998
-------------- ------------ -------------
<S> <C> <C> <C>
Money market accounts $ 15,065 $ 15,382 $ 14,651
Savings accounts 1,356 1,340 1,033
Certificates of deposit under $100,000 166,127 155,287 142,370
Certificates of deposit over $100,000 22,673 15,509 15,012
-------------- ------------ -------------
$ 205,221 $ 187,518 $ 173,066
============== ============ =============
</TABLE>
<PAGE>
Management's Analysis of the Results of Operations
for the Six Months Ended June 30, 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 June 30, 1999 of 5.76 to 1 has increased from
5.21 to 1 at June 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 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>
Management's Analysis of the Results of Operations
for the Six Months Ended June 30, 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>
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 Six Months
Ended June 30,
(Dollars in thousands) 1999 1998
-------------- ----------------
Income before income taxes $ 53,082 $ 43,978
-------------- ----------------
Fixed charges:
Interest and debt expense on
all indebtedness 69,598 65,853
Appropriate portion of
rentals (33%) 1,893 1,303
-------------- ----------------
Total fixed charges 71,491 67,156
-------------- ----------------
Earnings available for
fixed charges $ 124,573 $ 111,134
============== ================
Ratio of earnings
to fixed charges 1.74 1.65
============== ================
<PAGE>
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 July 1, 1992 between Aristar, Inc.
and the Chase Manhattan Bank, N.A., as trustee. (2)
(b) Indenture dated as of July 1, 1992 between Aristar, Inc.
and Citibank, N.A., as trustee. (2)
(c) Indenture dated as of July 1, 1995 between Aristar, Inc.
and the Bank of New York, as trustee. (3)
(d) Indenture dated as of October 1, 1997 between Aristar,
Inc. and First Union National Bank, as trustee. (4)
(e) Indenture dated as of June 23, 1999 between Aristar, Inc.
and Harris Trust and Savings Bank, as trustee. (5)
(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.
(27) Financial Data Schedule
<PAGE>
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 June 24, 1992, Commission file number 1-3521.
(3) Incorporated by reference to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, Commission file
number 1-3521.
(4) Incorporated by reference to Registrant's Current Report on Form
8-K dated October 6, 1997, Commission file number 1-3521.
(5) Incorporated by reference to the Registration Statement on Form
S-3, Registration number 333-80147.
(b) Reports on Form 8-K
On May 10, 1999, the company filed a Current Report on Form 8-K, dated
May 5, 1999, disclosing, under item (7) thereof, a presentation made by
management of the registrant at an investor conference on May 5, 1999,
of registrant's business strategy.
On May 18, 1999, the company filed a Current Report on Form 8-K, dated
May 17, 1999, disclosing, under item (7) thereof, the terms of the
issuance of $150,000,000 aggregate principal amount of its 6.0% Senior
notes maturing May 15, 2002.
On June 28, 1999, the company filed a Current Report on Form 8-K, dated
June 23, 1999, disclosing, under item (7) thereof, the terms of the
issuance of $250,000,000 aggregate principal amount of its 7.25% Senior
notes maturing June 15, 2006.
<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: August 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
six months ended June 30, 1999 and is qualified in it's entirety by refernece to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 41,467
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 140,538
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,741,982
<ALLOWANCE> (93,742)
<TOTAL-ASSETS> 2,909,371
<DEPOSITS> 205,221
<SHORT-TERM> 201,193
<LIABILITIES-OTHER> 178,466
<LONG-TERM> 1,880,877
0
0
<COMMON> 1
<OTHER-SE> 443,613
<TOTAL-LIABILITIES-AND-EQUITY> 2,909,371
<INTEREST-LOAN> 223,373
<INTEREST-INVEST> 5,107
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 228,480
<INTEREST-DEPOSIT> 5,406
<INTEREST-EXPENSE> 69,598
<INTEREST-INCOME-NET> 158,882
<LOAN-LOSSES> 51,640
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 67,683
<INCOME-PRETAX> 53,082
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,382
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.62
<LOANS-NON> 53,744
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 80,493
<CHARGE-OFFS> 46,625
<RECOVERIES> 8,234
<ALLOWANCE-CLOSE> 93,742
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 93,742
<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 six months ended June 30, 1999 using the Article
9 format.
</FN>
</TABLE>
