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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the
fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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)
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
7 3/4% Senior Notes due June 15, 2001 New York Stock Exchange
7 1/2% Senior Subordinated Notes due July 1, 1999 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K:
Not applicable
The aggregate market value of Common Stock held by non-affiliates: None
As of February 29, 1996, there were 1,000 shares of Common Stock outstanding.
Documents incorporated by reference: None
Registrant meets the conditions set forth in General Instruction (J)(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
2
ARISTAR, INC.
ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . 8
Item 7. Management's Analysis of the Results of Operations
for the Year Ended December 31, 1995. . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . .10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . .28
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . .28
Note: Items 4, 6, 10, 11, 12 and 13 are not included as per
conditions met by Registrant set forth in General Instruction
J(1)(a) and (b) of Form 10-K.
3
PART I
Item 1. Business
Aristar, Inc. (the "Company"), incorporated in Delaware in 1986 as a successor
to a company incorporated in 1927, is a holding company headquartered in
Tampa, Florida whose subsidiaries are engaged in the consumer finance
business. All of the Company's equity securities are owned indirectly by
Great Western Financial Corporation ("GWFC").
The operations of the Company consist principally of a network of 476 consumer
finance offices located in 22 states, which generally operate under the names
Blazer Financial Services and City Finance Company.
The Company makes direct consumer instalment loans and purchases retail
instalment contracts from local retail establishments. These consumer credit
transactions are primarily for personal, family or household purposes.
Instalment loans written in 1995 had original terms ranging from 12 to 180
months and averaged 50 months. For the year ended December 31, 1995, 84% of
the volume of all instalment loans was either unsecured or secured by
guarantors, luxury consumer goods, automobiles or other personal property,
with the remaining 16% being secured by real estate. While the interest yield
on real estate loans is generally lower than for other direct loans, such
loans are typically larger and the ratio of cost to amounts loaned is lower.
Additionally, credit loss experience on real estate loans has been
significantly lower than on other loan types.
Retail instalment sales contracts are generally acquired without recourse to
the originating merchant and provide a vehicle for developing future loan
business. Where these contracts result from the sale of consumer goods,
payment is generally secured by such goods, and, in some cases, a portion of
the purchase price is withheld from the merchant pending satisfactory payment
of the obligation. Contracts are typically written with original terms from 3
to 60 months and for 1995 had an average original term of 25 months.
At December 31, 1995, the average portfolio yield written by loan type was as
follows:
Average Yield
Real Estate Secured Loans 14.0%
Other Direct Loans 25.4%
Retail Instalment Sales Contracts 18.8%
4
Portfolio Composition
The following table provides an analysis by type of the Company's notes and
contracts receivable (net of unearned finance charges and deferred loan fees)
at the dates shown:
December 31,
(Dollars in thousands) 1995 1994 1993
Notes and Contracts Receivable $ 1,681,855 $ 1,581,225 $ 1,492,232
Type as a percent of
Total Receivables
Real Estate Secured Loans 27.9% 27.0% 27.3%
Other Direct Loans 53.5 54.3 53.4
Retail Instalment Sales Contracts 18.6 18.7 19.3
100.0% 100.0% 100.0%
Notes and contracts written including balances renewed, but excluding bulk
purchases, for the years ended December 31, 1995, 1994 and 1993 totaled $1.81
billion, $1.75 billion and $1.60 billion, respectively.
Credit Loss Experience
The Company closely monitors portfolio delinquency in measuring the quality of
the portfolio and the potential for ultimate credit losses. Under the
Company's policy, non-real estate secured delinquent accounts are charged off
based on the number of days contractually delinquent (120 days for closed-end
loans and 180 days for open-end loans). Collection efforts continue after an
account has been charged off until the customer obligation is satisfied or
until it is determined that the obligation is not collectible or that the cost
of continuing collection efforts will not be offset by the potential recovery.
5
The following table sets forth the credit loss experience for the past three
years and the allowance for doubtful accounts at the end of each year:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Allowance for Doubtful Accounts
at End of Year $ 44,122 $ 41,311 $ 39,094
Percent of Year-End Net Receivables 2.6% 2.6% 2.6%
Provision for Credit Losses 46,902 38,334 35,131
Amounts Charged-Off Net of Recoveries:
Amount 45,401 37,137 33,570
Percent of Average Net Receivables(1) 2.9% 2.5% 2.4%
(1) Average of notes and contracts receivable (net of unearned finance
charges) at each month end during the period.
Accounts past due 60 days and over, based on contract payments, were as
follows as of the end of each of the past three years:
December 31,
(Dollars in thousands) 1995 1994 1993
Amount $ 37,614 $ 32,712 $ 31,883
Percent of Year-End Gross Receivables 1.9% 1.7% 1.8%
Interest Rate Spreads and Cost of Borrowed Funds
A relatively high ratio of borrowings to invested capital is customary in
consumer finance activities due to the liquidity of the assets employed by the
business. The spread between the revenues received from loans and interest
expense is a significant factor in determining the net income of the Company.
6
The table below sets forth certain percentages relative to the spread between
interest the Company received on the loan portfolio and interest expense for
each of the last three years:
Year Ended December 31,
1995 1994 1993
Ratio to Average Net Receivables:
Interest and Fee Income 19.8% 20.0% 21.0%
Interest and Debt Expense 5.8 5.8 6.2
Gross Spread 14.0% 14.2% 14.8%
Credit Insurance Operations
The Company makes available, at the option of its customers, credit life,
credit accident and health, and credit casualty insurance products. Credit
life insurance provides that the customer's credit obligation, to the extent
of the policy limits, is paid in the event of death. Credit accident and
health insurance provides for the payment of instalments due on the customer's
credit obligation in the event of disability resulting from illness or injury.
Credit casualty insurance insures payment, to the extent of the policy limits,
of the credit obligation or cost to repair certain property used as collateral
for such obligation in the event such property is destroyed or damaged.
Purchase of such insurance is not a condition to obtaining a loan, although
the Company may require casualty insurance covering collateral to be obtained
from unaffiliated sources by the customer. The Company does not sell
insurance to non-customers. Credit insurance sold by the Company is written
by unaffiliated insurance companies and is substantially all reinsured by the
Company, which earns reinsurance premiums thereon.
Ratio of Earnings to Fixed Charges
The Company's ratio of earnings to fixed charges, which represents the number
of times fixed charges were covered by earnings, was 1.99 in 1995, 2.02 in
1994, 1.89 in 1993, 1.83 in 1992 and 1.77 in 1991. For purposes of computing
this ratio, earnings consist of income from operations before income taxes
and, in 1992, before the cumulative effect of a change in accounting method,
plus fixed charges. Fixed charges consist of interest and debt expense and an
appropriate portion of rentals.
7
Governmental Regulation
The Company's operations are, for the most part, regulated by federal and
state consumer finance laws or similar legislation. All of the states in
which finance subsidiaries of the Company are licensed to do business have
laws, which vary from state to state, regulating the consumer finance
business. These laws, among other things, typically limit the size of loans,
set maximum interest rates and maximum maturities and regulate certain lending
and collection activities. Although consumer finance laws have been in effect
for many years, amending and new legislation is frequently proposed. The
Company is unable to predict whether or when any such proposals might
ultimately be enacted into law or to assess the impact any such enactment
might have on the Company.
The Company has been named as a defendant in a number of class action suits,
in which various industry-wide practices arising from routine business
activities are being challenged and various damages are being sought. The
Company believes that its practices are permissible under state and federal
laws and will defend these suits accordingly. At this time, the Company is
unable to determine the probability of any adverse outcome or the effect, if
any, of such an outcome on the Company.
Competition
The consumer finance business is highly competitive. The Company's principal
competitors are other local, regional and national finance companies, banks,
credit unions, savings associations, and other similar financial institutions.
Employees
The Company employs approximately 2,300 full-time employees. None of these
employees are represented by a union. Management considers relations with its
employees to be satisfactory.
Item 2. Properties
The Company completed the relocation of its headquarters from Memphis,
Tennessee to Tampa, Florida in the first quarter of 1994. In connection with
this relocation, the Company constructed a 71,000 square foot headquarters
building on 6 acres of land at a total cost of approximately $8 million. In
Memphis, Tennessee, the Company had leased approximately 62,000 square feet of
office space as its headquarters; this lease, which would have expired on
October 31, 1994, was terminated in the first quarter of 1994.
The Company's consumer finance offices, located in 22 states, are leased
typically for terms of three to five years with options to renew. Typical
locations include shopping centers, office buildings and storefronts,
generally of relatively small size sufficient to accommodate a staff of four
to eight employees.
See Note 10 to the Consolidated Financial Statements for additional
information on rental expense and lease commitments.
8
Item 3. Legal Proceedings
The Company and its subsidiaries are routinely involved in litigation
incidental to their businesses. It is management's opinion that the aggregate
liability arising from the disposition of all such pending litigation will not
have a material adverse effect on the Company.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company is an indirect wholly-owned subsidiary of GWFC and the Company's
common stock is not traded on any national exchange or in any other
established market.
Payment of dividends is within the discretion of the Company's Board of
Directors; however, it is projected that the Company will pay quarterly
dividends in 1996 at the approximate levels paid in prior years. Provisions
of certain of the Company's debt agreements restrict the payment of dividends
to a maximum prescribed proportion of cumulative earnings and contributed
capital and otherwise provide for the maintenance of minimum levels of equity
and maximum leverage ratios. The Company declared and paid dividends on a
quarterly basis, totaling $22.5 million during 1995 and $25 million during
1994.
Item 7. Management's Analysis of the Results of Operations for the Year
Ended December 31, 1995
The Company's average net finance receivables grew $74.5 million, or 5.0%, in
1995, while, as a reflection of interest rate and competitive pressures, the
overall portfolio yield decreased .24% as compared to the prior year. As a
result, loan interest and fee income increased $11.1 million, or 3.7%, for the
year ended December 31, 1995, as compared to the prior year. Income from
investment securities increased $1.7 million, or 28.7%, with both the total
invested balances and the yield thereon increasing over the prior year. As a
result, total interest income increased by $12.8 million, or 4.2%, over the
prior year. On the other hand, average debt outstanding increased $53 million
or 4.5%, and the weighted average interest rate on such debt increased by 2
basis points, resulting in an increase in interest and debt expense of $4.2
million, or 4.8%, for the year ended December 31, 1995, as compared to 1994.
These factors resulted in an increase in net interest income before provision
for credit losses of $8.6 million, or 4.0%.
In July, 1995, the Company issued $100 million of 6.30% senior notes maturing
in 2000. The proceeds were used to reduce outstanding commercial paper.
The provision for credit losses for the year ended December 31, 1995 was 2.97%
as an annualized percentage of average net finance receivables for that
period, as compared to 2.55% for 1994. The increase in provision rate
reflects management's assessment of the quality of the Company's receivables
portfolio at this time.
9
Income from insurance operations increased $1.3 million, or 5.9%, in 1995 as
compared to 1994, paralleling the growth in net finance receivables. However,
1994 included other income of $1.2 million from a sale of a nonexclusive right
to the Company s proprietary computer software; therefore, net insurance
operations and other income increased $533 thousand, or 1.9%, over the prior
period.
Personnel expenses were $423 thousand, or 0.7%, lower in 1995 as compared to
1994, because, while 1995 includes normal compensation increases, 1994
reflected various one-time charges related to the relocation of the Company s
headquarters.
Productivity, defined as the ratio of operating and administrative expenses
(before deferral of direct loan costs) to average outstanding finance
receivables, improved to 8.1% in 1995 as compared to 8.5% in 1994.
Contributing to this improvement is the fact that 1994 included $1.4 million
in amortization of the cost of the Company s proprietary computer software,
which became fully amortized in 1994.
10
Item 8. Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholder of
Aristar, Inc.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of operations and retained
earnings and of cash flows present fairly, in all material respects, the
financial position of Aristar, Inc. and its subsidiaries at December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Tampa, Florida
January 15, 1996
11
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Financial Condition
(Dollars in thousands) December 31, 1995 December 31, 1994
ASSETS
Finance receivables, net $1,637,733 $1,539,914
Investment securities 120,952 106,600
Cash and cash equivalents 7,142 9,668
Property and equipment, less accumulated
depreciation and amortization: 1995,
$19,249; 1994, $21,684 11,192 13,327
Deferred charges 11,570 12,605
Excess of cost over equity of
companies acquired, less accumulated
amortization: 1995, $45,028; 1994, $38,021 61,983 68,990
Other assets 11,350 19,832
TOTAL ASSETS $1,861,922 $1,770,936
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Short-term debt $ 312,876 $ 179,085
Long-term debt 1,003,809 1,092,545
Total debt 1,316,685 1,271,630
Accounts payable and other liabilities 42,189 45,636
Federal and state income taxes 8,883 421
Insurance claims and benefits reserves 7,900 7,792
Unearned insurance premiums and
commissions 56,604 53,890
Total liabilities 1,432,261 1,379,369
Commitments and contingencies
(Notes 10 and 11)
Stockholder's equity
Common stock: $1.00 par value;
10,000 shares authorized: 1,000
shares issued and outstanding 1 1
Paid-in capital 44,894 44,894
Retained earnings 384,227 350,266
Net unrealized holding gain (loss) on
investment securities 539 (3,594)
Total stockholder's equity 429,661 391,567
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $1,861,922 $1,770,936
See Notes to Consolidated Financial Statements.
12
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Operations and Retained Earnings
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Loan interest and fee income $ 312,066 $ 300,969 $ 294,474
Investment securities income 7,744 6,018 5,854
Total interest income 319,810 306,987 300,328
Interest and debt expense 91,257 87,074 86,385
Net interest income before
provision for credit losses 228,553 219,913 213,943
Provision for credit losses 46,902 38,334 35,131
Net interest income 181,651 181,579 178,812
Other operating income
Net insurance operations
and other income 29,212 28,679 25,816
Other expenses
Personnel expenses 60,930 61,353 63,882
Occupancy expense 9,013 8,504 9,075
Advertising expense 5,208 5,240 5,027
Amortization of excess cost over
equity of companies acquired 7,007 7,007 7,007
Other operating expenses 35,571 36,562 39,954
117,729 118,666 124,945
Income before income taxes 93,134 91,592 79,683
Provision for federal and state income
taxes 36,673 33,395 28,560
Net Income 56,461 58,197 51,123
Retained earnings
Beginning of year 350,266 317,069 286,446
Dividends (22,500) (25,000) (20,500)
End of year $ 384,227 $ 350,266 $ 317,069
See Notes to Consolidated Financial Statements.
13
ARISTAR, INC. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Cash flows from operating activities
Net income $ 56,461 $ 58,197 $ 51,123
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for credit losses 46,902 38,334 35,131
Depreciation and amortization 13,012 15,350 14,714
Deferred income taxes (53) 600 (14,900)
Increase (decrease) in
Accounts payable and other liabilities (3,447) (26,605) 8,970
Unearned insurance premiums and commissions
and insurance claims and benefits reserves 2,822 3,152 3,012
Currently payable income taxes 6,228 (6,744) (7,212)
(Increase) decrease in other assets 8,482 (8,705) 2,860
Net cash provided by operating activities 130,407 73,579 93,698
Cash flows from investing activities
Securities purchased (43,989) (43,252) (51,257)
Securities matured 36,134 23,278 51,153
Loans originated or purchased (1,190,878) (1,166,986) (1,039,439)
Loans repaid or sold 1,045,156 1,040,918 927,335
Capital expenditures, net (394) (4,039) (5,967)
Net cash used in investing activities (153,971) (150,081) (118,175)
Cash flows from financing activities
Net change in commercial paper and other
short-term borrowings 133,791 (100,522) 76,515
Proceeds from issuance of long-term debt 99,909 249,625 149,769
Long-term debt issue costs (1,162) (1,657) (1,095)
Repayments of long-term debt (189,000) (50,000) (175,000)
Dividends paid (22,500) (25,000) (20,500)
Net cash provided by financing activities 21,038 72,446 29,689
Net increase (decrease) in cash
and cash equivalents (2,526) (4,056) 5,212
Cash and cash equivalents
Beginning of year 9,668 13,724 8,512
End of year $ 7,142 $ 9,668 $ 13,724
Supplemental disclosures of cash flow
information
Interest paid $ 90,387 $ 88,612 $ 88,251
Intercompany payments in lieu of
federal and state income taxes 27,929 40,734 53,473
See Notes to Consolidated Financial Statements.
14
ARISTAR, INC. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 Ownership and Operations
Aristar, Inc. is an indirect, wholly-owned subsidiary of Great Western
Financial Corporation ( GWFC ). Aristar, Inc. and its subsidiaries, all of
which are wholly-owned, are referred to hereinafter as the Company.
The Company is engaged primarily in the consumer finance business and its
operations consist principally of a network of 476 consumer finance offices
located in 22 states, primarily in the Southeastern United States, which
generally operate under the names Blazer Financial Services and City Finance
Company. The Company makes direct consumer instalment loans and purchases
retail instalment contracts from local retail establishments. Theses consumer
credit transactions are primarily for personal, family or household purposes.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include
the accounts of Aristar, Inc. and its subsidiaries, all of which are wholly-
owned, after elimination of all material intercompany balances and
transactions. Certain amounts in prior years have been reclassified to
conform to the current year's presentation.
Estimates. 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.
Income Recognition from Finance Operations. Unearned finance charges on all
types of consumer notes and contracts receivable are recognized on an accrual
basis, using the interest method. Accrual generally is suspended when
payments are more than three months contractually overdue. Loan fees and
directly related lending costs are deferred and amortized using the interest
method over the contractual life of the related loans.
Provision and Allowance for Credit Losses. The Company provides, through
charges to income, an allowance for losses which, based upon management's
evaluation of numerous factors, including current economic trends, loan
portfolio agings, historical loss experience and evaluation of collateral, is
deemed adequate to cover reasonably expected losses on outstanding loans.
Losses on loans are charged to the allowance for credit losses based upon the
number of days delinquent or when collectibility becomes questionable and the
underlying collateral, if any, is considered insufficient to liquidate the
loan balance (see Note 3). Recoveries on previously written-off loans are
credited to the allowance.
15
Investment Securities. Debt and equity securities are classified as
available for sale and are reported at fair value, with unrealized gains and
losses excluded from earnings and reported, net of taxes, as a separate
component of stockholder's equity. Gains and losses on investment securities
are recorded when realized on a specific identity basis. Investment security
transactions are recorded using trade date accounting.
Property, Equipment and Leasehold Improvements. Property, equipment and
leasehold improvements are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are provided principally on the
straight-line method over the estimated useful life or, if less, the term of
the lease.
Deferred Charges. Expenditures that are deferred are amortized over the
period benefited. Amortization is computed principally using the straight-
line method.
Excess of Cost Over Equity of Companies Acquired. The excess of cost over
the fair value of net assets of companies acquired is amortized on a straight-
line basis, generally over periods of up to 25 years.
Insurance Premiums and Acquisition Costs. Insurance premiums are deferred
and subsequently amortized into revenue over the terms of the related
insurance contracts. The methods of amortization used are pro rata, sum-of-
the-digits and a combination thereof. Policy acquisition costs (principally
ceding commissions and premium taxes) are deferred and charged to expense over
the terms of the related policies in proportion to premium recognition.
Insurance Claims and Benefits Reserves. Reserves for reported claims on
credit life and health insurance are established based upon standard actuarial
assumptions used in the insurance business for such purposes. Claims reserves
for reported property and casualty insurance claims are based upon estimates
of costs and expenses to settle each claim. Additional amounts of reserves,
based upon prior experience and insurance in force, are provided for each
class of insurance for claims which have been incurred but not reported as of
the balance sheet date.
Income Taxes. The Company is included in the consolidated Federal income tax
return filed by GWFC. Currently payable Federal income taxes will be paid to
GWFC. Federal income taxes are allocated between GWFC and its subsidiaries in
proportion to the respective contribution to consolidated income or loss.
Allocations for state income taxes approximate the amount the Company would
have paid on a separate entity basis. Deferred income taxes are provided on
elements of income or expense that are recognized in different periods for
financial and tax reporting purposes.
Taxes on income are determined by using the liability method as prescribed by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FAS 109"). This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, FAS 109 requires the consideration of all
expected future events other than enactments of changes in the tax law or
rates.
16
Statement of Cash Flows. For purposes of reporting cash flows, the Company
considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents.
Fair Value Disclosures. Quoted market prices are used, where available, to
estimate the fair value of the Company s financial instruments. Because no
quoted market prices exist for a significant portion of the Company's
financial instruments, fair value is estimated using comparable market prices
for similar instruments or using management's estimates of appropriate
discount rates and cash flows for the underlying asset or liability. A change
in management's assumptions could significantly affect these estimates;
accordingly, the Company's fair value estimates are not necessarily indicative
of the value which would be realized upon disposition of the financial
instruments.
17
Note 3 Finance Receivables
Finance receivables at December 31, 1995 and 1994 are summarized as follows:
(Dollars in thousands) 1995 1994
Consumer finance receivables
Real estate secured loans $ 567,377 $ 518,757
Other consumer finance instalment loans 1,097,334 1,055,723
Retail instalment contracts 343,902 331,424
Gross consumer finance receivables 2,008,613 1,905,904
Less: Unearned finance charges and
deferred loan fees (326,758) (324,679)
Allowance for credit losses (44,122) (41,311)
Net consumer finance receivables $1,637,733 $1,539,914
The amount of gross nonaccruing receivables included above was approximately
$21.9 million and $19.8 million at December 31, 1995 and 1994, respectively.
Contractual maturities, net of unearned finance charges and deferred loan
fees, at December 31, 1995 are as follows:
Over 1
But
Within Within Over
1 year 5 years 5 years Total
(Dollars in thousands)
Real estate secured loans $ 55,014 $176,460 $238,024 $ 469,498
Other consumer finance
instalment loans 352,323 547,708 278 900,309
Retail instalment contracts 121,190 190,454 404 312,048
$528,527 $914,622 $238,706 $1,681,855
Consumer finance receivables have maximum terms of 180 months, while retail
contracts have maximum terms of 60 months. The weighted average contractual
term of all loans and contracts written during the years ended December 31,
1995 and 1994 was 44 months and 41 months, respectively. Experience has shown
that a substantial portion of the receivables will be renewed or repaid prior
to contractual maturity. Therefore, the tabulation of contractual payments
should not be regarded as a forecast of future cash collections. During the
years ended December 31, 1995 and 1994, the ratio of principal cash
collections to average net consumer finance receivables outstanding was 66%
and 69%, respectively. The majority of loans provide for a fixed rate of
interest over the contractual life of the loan.
18
The approximate fair value of the Company's net finance receivables as of
December 31, 1995 and 1994 follows:
(Dollars in thousands) 1995 1994
Approximate Approximate
Net Book Fair Net Book Fair
Value Value Value Value
Real estate secured loans $ 469,498 $ 469,885 $ 426,234 $ 417,456
Other consumer finance
instalment loans 900,309 895,181 858,981 855,318
Retail instalment contracts 312,048 312,048 296,010 296,010
$1,681,855 $1,677,114 $1,581,225 $1,568,784
The approximate fair value of finance receivables is estimated by discounting
the future cash flows using current rates at which similar loans would be made
with similar maturities to borrowers with similar credit ratings. The current
rates for finance receivables approximate the weighted average rates of the
portfolio at December 31, 1995 and 1994; therefore, there is no significant
difference between the estimated fair value of the loan portfolio and its net
book value. The fair value is not adjusted for the value of potential loan
renewals from existing borrowers.
Because the Company primarily lends to consumers, it did not have receivables
from any industry group that comprised 10 percent or more of total consumer
finance receivables at December 31, 1995.
Activity in the Company's allowance for credit losses is as follows:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Balance, January 1 $ 41,311 $ 39,094 $ 36,046
Provision for credit losses 46,902 38,334 35,131
Amounts charged off (60,822) (52,197) (48,635)
Recoveries 15,421 15,060 15,065
Allowances on notes purchased 1,310 1,020 1,487
Balance, December 31 $ 44,122 $ 41,311 $ 39,094
19
Note 4 Investment Securities
Investment securities as of December 31, 1995 and 1994 are as follows:
(Dollars in thousands) December 31, 1995
Approximate
Original Amortized Gross Unrealized Fair
Cost Cost Gains Losses Value
Government obligations $ 14,481 $ 14,484 $ 33 $ 146 $ 14,371
Corporate obligations 93,742 93,353 984 24 94,313
Certificates of deposit
and other 12,462 12,223 163 118 12,268
$120,685 $120,060 $1,180 $ 288 $120,952
(Dollars in thousands) December 31, 1994
Approximate
Original Amortized Gross Unrealized Fair
Cost Cost Gains Losses Value
Government obligations $ 18,357 $ 18,352 $ 2 $ 1,487 $ 16,867
Corporate obligations 89,763 89,237 107 4,023 85,321
Certificates of deposit
and other 4,525 4,540 37 165 4,412
$112,645 $112,129 $ 146 $ 5,675 $106,600
There were no significant realized gains or losses during 1995 or 1994.
The following table presents the maturity of the investment securities at
December 31, 1995:
(Dollars in thousands)
Approximate
Amortized Fair
Cost Value
Due in one year or less $ 24,289 $ 24,275
Due after one year through five years 66,631 66,934
Due after five years through ten years 24,313 24,929
Due after ten years 4,827 4,814
$ 120,060 $ 120,952
20
Note 5 Deferred Charges
Deferred charges, net of amortization, as of December 31, 1995 and 1994 are as
follows:
(Dollars in thousands) 1995 1994
Long-term debt issuance costs $ 3,712 $ 3,838
Premiums on purchased accounts 7,858 8,767
$ 11,570 $ 12,605
Amortization of deferred charges for each of the last three years is as
follows:
(Dollars in thousands) 1995 1994 1993
Long-term debt issuance costs $ 1,287 $ 1,268 $ 1,581
Premiums on purchased accounts 3,128 3,385 3,667
System development costs 1,378 2,052
Note 6 Short-term Debt
Short-term debt at December 31, 1995 and 1994 consisted of commercial paper
notes. Such debt outstanding at December 31, 1995 had been issued in the
minimum amount of $405,000 and with a maximum original term of 90 days.
The book value of short-term debt at December 31, 1995 approximates its
estimated fair value.
Additional information concerning total short-term borrowings is as follows:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Outstanding during the year
Maximum amount at any month end $ 312,876 $ 287,793 $ 279,607
Average amount 210,684 235,682 170,852
Weighted average interest rate 6.0% 4.2% 3.6%
Balance at end of year
Amount $ 312,876 $ 179,085 $ 279,607
Weighted average interest rate 5.9% 6.0% 3.8%
Weighted average interest rates include the effect of commitment fees.
21
Short-term notes totaling $75 million and $74 million were issued in December,
1995 and 1994, respectively. The proceeds of these notes were used to
purchase investment securities and were repaid through liquidation of these
securities in the month following issuance. This short-term debt has been
reflected net of the securities balances in the accompanying Consolidated
Statements of Financial Condition.
In 1994, the Company entered into a $450 million revolving credit agreement
with several domestic and foreign banks. The agreement, which replaced
previous revolving credit agreements of $120 million and $200 million, has a
four-year term with repayment in full of any balance outstanding in October,
1998. This revolving credit agreement has restrictive covenants as described
further in Note 7.
There were no borrowings under any revolving credit agreements in 1995 or
1994.
22
Note 7 Long-term Debt
Long-term debt at December 31, 1995 and 1994 was comprised of the following:
(Dollars in thousands) 1995 1994
Senior Debentures and Notes
9.47%, due April 6, 1995 $ 50,000
8.55%, due June 1, 1995 100,000
9.5%, due July 30, 1995 21,000
6.25%, due July 15, 1996 $ 99,995 99,986
7.375%, due February 15, 1997 99,974 99,953
8.125%, due December 1, 1997 99,812 99,722
5.75%, due July 15, 1998 149,875 149,830
7.875%, due February 15, 1999 99,864 99,827
6.3%, due July 15, 2000 99,913
7.75%, due June 15, 2001 149,917 149,905
Medium Term Notes, Series C, due through
1996, at interest rates of 8.75% to 8.90% 5,000 10,000
Medium Term Notes, Series D, due through
1995, at interest rate of 9.72% 13,000
Total Senior Debt 804,350 893,223
Senior Subordinated Notes and Debentures
8.875%, due August 15, 1998 99,920 99,894
7.5%, due July 1, 1999 99,539 99,428
Total Senior Subordinated Debt 199,459 199,322
Total Long-term Debt $1,003,809 $1,092,545
23
Aggregate maturities at December 31, 1995 are as follows:
(Dollars in thousands)
Senior
Senior Subordinated
Debt Notes Total
1996 $ 104,995 $ 104,995
1997 199,786 199,786
1998 149,875 $ 99,920 249,795
1999 99,864 99,539 199,403
2000 99,913 99,913
Thereafter 149,917 149,917
$ 804,350 $ 199,459 $1,003,809
The approximate fair value of the Company's long-term debt as of December 31,
1995 and 1994 is as follows:
(Dollars in thousands)
1995 1994
Book Approximate Book Approximate
Value Fair Value Value Fair Value
Senior debt $ 804,350 $ 834,130 $ 893,223 $ 869,781
Senior subordinated
notes 199,459 213,600 199,322 196,035
$1,003,809 $1,047,730 $1,092,545 $1,065,816
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the approximate fair value of
existing debt.
The Company issued in July, 1994, $150 million of 7.75% senior notes maturing
June 15, 2001; and in December, 1994, $100 million of 8.125% senior notes
maturing December 1, 1997. In March, 1995, the Company filed a $600 million
shelf registration statement. Under this registration statement, the Company
issued in July, 1995, $100 million of 6.3% senior notes maturing July 15, 2000.
The proceeds of each of these issues were used principally to reduce
outstanding commercial paper.
Provisions of certain of the Company's long and short-term debt agreements
restrict the payment of dividends to a maximum prescribed proportion of
cumulative earnings and contributed capital and provide for the maintenance of
minimum levels of equity and maximum leverage ratios. At December 31, 1995,
approximately $101 million was available under the debt agreement restriction
for future dividends.
24
Note 8 Income Taxes
The components of income tax expense are as follows:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Currently payable
Federal $ 30,995 $ 27,562 $ 37,270
State 5,731 5,233 6,190
Deferred (53) 600 (14,900)
$ 36,673 $ 33,395 $ 28,560
Deferred taxes result from temporary differences in the recognition of certain
items for tax and financial reporting purposes. Deferred tax liabilities
(assets) are comprised of the following:
December 31,
(Dollars in thousands) 1995 1994
Amortization of intangibles $ 17,837 $ 19,649
Employee benefits accruals 1,599 1,613
Depreciation 678 1,175
Loan interest and fee income 3,087 272
Other deferred income items 399 91
Total deferred tax liabilities 23,600 22,800
Credit loss reserves (14,080) (12,852)
Unearned insurance commissions (2,980) (2,833)
Other miscellaneous accruals (2,415) (2,392)
State taxes (3,162) (4,898)
Other deferred deduction items (2,863) (3,960)
Total deferred tax assets (25,500) (26,935)
Net deferred tax asset $ (1,900) $ (4,135)
25
The provisions for income taxes differ from the amounts determined by
multiplying pretax income by the statutory Federal income tax rate of 35% for
1995, 1994 and 1993. A reconciliation between these amounts is as follows:
Year Ended December 31,
(Dollars in thousands) 1995 1994 1993
Income taxes at statutory rates $ 32,597 $ 32,057 $ 27,889
Increase (reduction) in taxes
resulting from:
State income taxes, net of
Federal benefit 3,725 3,467 3,024
Other 351 (2,129) (2,353)
$ 36,673 $ 33,395 $ 28,560
Note 9 Retirement and Savings Plans
GWFC's non-contributory defined benefit pension plan covers substantially all
of the Company's employees. Accumulated plan benefits and annual pension cost
are derived from an allocation formula based on the Company's total
participants and the Plan's total participants.
Pension cost for the Company's participants for the years ended December 31,
1995, 1994, and 1993 was $1,455,000, $1,717,000 and $1,492,000, respectively.
Due to the Company's participation in a multi-employer defined benefit plan,
information as to separate Company participant assets and vested benefits is
not presented.
The Company's employees also participate in GWFC's employee savings plan,
which allows employees to defer part of their pretax compensation until
retirement. Company contributions equal 50% of the contributions made by
employees up to 6% plus annual discretionary amounts, if any, as determined by
management. The Company's cost is based on the actual contribution related to
its participating employees. Total expense was $1,112,000, $1,277,000 and
$1,342,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company's employees also participate in GWFC's defined benefit
postretirement plans which provide medical and life insurance coverage to
eligible employees and dependents based on age and length of service. Medical
coverage options are the same as available to active employees. The
accumulated postretirement benefit obligation and related expense are derived
from an allocation formula based on the Company's total participants and the
Plan's total participants.
The net postretirement medical and life insurance expense allocated to the
Company for the years ended December 31, 1995, 1994 and 1993 were $495,000,
$737,000 and $1,300,000, respectively.
26
Note 10 Leases
At December 31, 1995, the Company was lessee of office space, principally for
loan offices, computer and other office equipment and automobiles, generally
for terms of five or fewer years. The lease for the Company's former
headquarters was terminated in the first quarter of 1994 due to the purchase
of its new headquarters in Tampa, Florida.
The Company has no material capital leases. Under operating leases that have
initial or remaining noncancelable lease terms in excess of one year,
approximate aggregate annual minimum rentals are $6,600,000 in 1996;
$5,200,000 in 1997; $2,600,000 in 1998; $1,400,000 in 1999; and $600,000 in
2000. Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$8,713,000, $7,687,000, and $8,560,000, respectively.
Note 11 Contingencies
The Company is routinely involved in litigation incidental to its businesses.
It is management's opinion that the aggregate liability arising from the
disposition of all such pending litigation will not have a material adverse
effect on the Company.
Note 12 Transactions with Related Parties
Significant transactions with GWFC or its subsidiaries are identified as
follows:
* The Company provides supervisory and administrative services to
affiliates engaged in industrial banking and other consumer finance
activities at no cost to such affiliates. The Company also provides
data processing services to such affiliates, and revenue from these
services totaled approximately $572,000 in 1995, $757,000 in 1994,
and $768,000 in 1993. From time to time, the Company advances funds
to these operations. At December 31, 1995 and 1994, there were
outstanding advances of $1,426,000 and $7,981,000, respectively.
* A subsidiary of GWFC provides the Company with certain administrative
services, including human resources and cash management. The Company
paid this affiliate management fees of $1,358,000 in 1995, $1,365,000
in 1994, and $1,239,000 in 1993.
* The Company makes payments to GWFC in accordance with GWFC's tax
allocation policy and in connection with the retirement and savings
plans.
27
Note 13 Approximate Fair Values of Financial Instruments
A summary of the approximate fair values of the Company's financial instruments,
as compared to their carrying values, is set forth in the following table:
(Dollars in thousands)
December 31, 1995 December 31, 1994
Carrying Approximate Carrying Approximate
Value Fair Value Value Fair Value
Finance receivables Note 3 $1,681,855 $1,677,114 $1,581,225 $1,568,784
Investment securities Note 4 120,952 120,952 106,600 106,600
Short-term debt Note 6 312,876 312,876 179,085 179,085
Long-term debt Note 7 1,003,809 1,047,730 1,092,545 1,065,816
See the referenced Notes for additional information.
Note 14 Selected Quarterly Financial Data (Unaudited)
A summary of the quarterly results of operations for the years ended December
31, 1995 and 1994 is set forth below:
Quarter Ended
March 31, June 30, September 30, December 31,
(Dollars in thousands) 1995 1994 1995 1994 1995 1994 1995 1994
Revenue $85,815 $83,032 $86,048 $82,062 $86,719 $83,400 $90,440 $87,172
Interest and other
expenses 54,227 51,868 53,211 51,775 51,378 51,853 50,170 50,244
Provision for credit
losses 9,892 8,552 9,938 7,621 10,805 9,513 16,267 12,648
Total expenses 64,119 60,420 63,149 59,396 62,183 61,366 66,437 62,892
Income before taxes 21,696 22,612 22,899 22,666 24,536 22,034 24,003 24,280
Income tax provision 8,542 8,143 9,116 8,183 9,686 7,695 9,329 9,374
Net income $13,154 $14,469 $13,783 $14,483 $14,850 $14,339 $14,674 $14,906
28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Index of Documents filed as a part of this Report:
1. Financial Statements
Included in Part II of this Report:
PAGE
Report of Independent Certified Public Accountants. . . . . .10
Aristar, Inc. and Subsidiaries:
Consolidated Statements of Financial Condition
at December 31, 1995 and 1994. . . . . . . . . . . . . . . .11
Consolidated Statements of Operations and Retained Earnings
for the Years Ended December 31, 1995, 1994 and 1993 . . . .12
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994 and 1993 . . . .13
Notes to Consolidated Financial Statements . . . . . . . . .14
2. Financial Statement Schedules
All schedules are omitted because of the absence of the
conditions under which they are required or because the
required information is set forth in the financial
statements or related notes.
3. Exhibits
Included in Part IV of this Report:
Exhibit
Number
(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 15, 1984, between Aristar,
Inc. and Bank of Montreal Trust Company, as trustee. (2)
(b) First supplemental indenture to Exhibit (4)(a) dated as of
June 1, 1987. (2)
29
(c) Indenture dated as of August 15, 1988 between Aristar, Inc.
and Bank of Montreal Trust Company, as trustee. (3)
(d) Indenture dated as of May 1, 1991 between Aristar, Inc. and
Security Pacific National Bank, as trustee. (4)
(e) Indenture dated as of May 1, 1991 between Aristar, Inc. and
The First National Bank of Boston, as trustee. (4)
(f) Indenture dated as of July 1, 1992 between Aristar, Inc. and
The Chase Manhattan Bank, N.A., as trustee. (5)
(g) Indenture dated as of July 1, 1992 between Aristar, Inc. and
Citibank, N.A., as trustee. (5)
(h) Indenture dated as of July 1, 1995 between Aristar, Inc. and
The Bank of New York, as trustee. (6)
(i) 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 and its consolidated subsidiaries.
(10) Income Tax Allocation Agreement dated as of December 15,1995
between Aristar, Inc. and Great Western Financial Corporation.
(12) Statement Re: Computation of Ratios.
(23) Consent of Independent Certified Public Accountants.
(24) Power of Attorney included on Page 31 of the Form 10-K.
(27) Financial Data Schedule.
30
(1) Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987, Commission
file number 1-3521.
(2) Incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1993, Commission
file number 1-3521.
(3) Incorporated by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1988,
Commission file number 1-3521.
(4) Incorporated by reference to Registrant's Current Report on
Form 8-K dated May 29, 1991, Commission file number 1-3521.
(5) Incorporated by reference to Registrant's Current Report on
Form 8-K dated June 24, 1992, Commission file number 1-3521.
(6) Incorporated by reference to Registrant s Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995, Commission
file number 1-3521.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter
of the period covered by this report.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ James A. Bare March 26, 1996
James A. Bare, Executive Vice President Date
and Chief Financial Officer (and Principal
Accounting Officer)
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes James A. Bare as
attorney-in-fact to sign on his behalf as an individual and in every capacity
stated below, and to file all amendments to the registrant's Form 10-K, and
the registrant hereby confers like authority to sign and file in its behalf.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 26, 1996.
/s/ Michael M. Pappas
Michael M. Pappas, President and Director
(Principal Executive Officer)
/s/ James A. Bare
James A. Bare, Director
/s/ Carl F. Geuther
Carl F. Geuther, Director
/s/ J. Lance Erikson
J. Lance Erikson, Director