-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QcccDCno6eKDn/P5jBuFSPaOuigk3SdBOhN4bDudBQWmE9vndL7vJtK9M73DwHs1 gKrRii8iRlee5AbPM4zFvw== 0000007214-97-000007.txt : 19970317 0000007214-97-000007.hdr.sgml : 19970317 ACCESSION NUMBER: 0000007214-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARISTAR INC CENTRAL INDEX KEY: 0000007214 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 954128205 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03521 FILM NUMBER: 97556478 BUSINESS ADDRESS: STREET 1: 8900 GRAND OAK CIRCLE CITY: TAMPA STATE: FL ZIP: 33637-1050 BUSINESS PHONE: 8136324500 MAIL ADDRESS: STREET 1: 8900 GRAND OAK CIRCLE CITY: TAMPA STATE: FL ZIP: 33637 FORMER COMPANY: FORMER CONFORMED NAME: FAMILY FINANCE CORP QUALIFIED STOCK OPTI DATE OF NAME CHANGE: 19761222 FORMER COMPANY: FORMER CONFORMED NAME: FAMILY FINANCE CORP THRIFT CLUB DATE OF NAME CHANGE: 19731106 FORMER COMPANY: FORMER CONFORMED NAME: FAMILY FINANCE CORP DATE OF NAME CHANGE: 19730712 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 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) Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange Title of each class on which registered 7 % Senior Notes due June 15, 2001 New York Stock Exchange 71/2 % Senior Subordinated Notes due July 1, 1999New 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 28, 1997, there were 1,000 shares of Common Stock outstanding. Documents incorporated by reference: None Registrant meets the conditions set forth in General Instruction (I)(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, 1996. . . . . . . . .8 Item 8. Financial Statements and Supplementary Data. . . . . 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 31 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . 31 Note: Items 4, 6, 10, 11, 12 and 13 are not included as per conditions met by Registrant set forth in General Instruction I(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 financial services business. All of the Company's equity securities are owned indirectly by Great Western Financial Corporation ("GWFC"). The Company's operations consist principally of a network of approximately 500 branch offices located in 23 states, primarily in the Southeastern United States and in California. These offices generally operate under the names Blazer Financial Services, City Finance Company, and First Community Financial Services. 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. The Company also engages in the industrial banking business through its subsidiaries in Colorado and Utah. In addition to making direct consumer instalment loans and purchasing retail instalment contracts, these subsidiaries also take customers' savings deposits. Instalment loans written in 1996 had original terms ranging from 12 to 360 months and averaged 72 months. For the year ended December 31, 1996, 59% 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 41% 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 1996 had an average original term of 26 months. At December 31, 1996, the average portfolio yield written by loan type was as follows: Average Yield Real Estate Secured Loans 12.3% Other Direct Loans 24.7% Retail Instalment Sales Contracts 18.7% 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) 1996 1995 1994 Notes and Contracts Receivable $ 2,185,903 $2,133,065 $ 1,994,903 Type as a percent of Total Receivables Real Estate Secured Loans 40.7% 37.0% 36.4% Other Direct Loans 42.6 46.1 46.3 Retail Instalment Sales Contracts 16.7 16.9 17.3 100.0% 100.0% 100.0%
Notes and contracts written including balances renewed, but excluding bulk purchases, for the years ended December 31, 1996, 1995 and 1994 totaled $1.96 billion, $2.10 billion and $2.0 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 when they become 180 days contractually delinquent (120 days prior to October 1, 1996). 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) 1996 1995 1994 Allowance for Doubtful Accounts at End of Year $ 70,045 $ 55,568 $ 53,217 Percent of Year-End Net Receivables 3.2% 2.6% 2.7% Provision for Credit Losses 58,800 48,500 41,900 Amounts Charged-Off Net of Recoveries: Amount 46,418 47,879 39,680 Percent of Average Net Receivables(1) 2.2% 2.4% 2.2%
(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) 1996 1995 1994 Amount $ 63,661 $ 42,921 $ 35,320 Percent of Year-End Gross Receivables 2.5% 1.7% 1.5%
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, 1996 1995 1994 Ratio to Average Net Receivables: Interest and Fee Income 17.7% 18.3% 18.5% Interest and Debt Expense 5.8 5.8 5.5 Gross Spread 11.9% 12.5% 13.0%
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 1.80 in 1996, 1.91 in 1995, 1.96 in 1994, 1.90 in 1993 and 1.83 in 1992. 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. In addition, as they accept customers' deposits, the two banking subsidiaries are subject to regulation by the Federal Deposit Insurance Corporation and the relevant state banking authorities. 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. Competition The consumer financial services 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 2,400 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 owns its 71,000 square foot headquarters building on 6 acres of land, which it built in 1994 at a total cost of approximately $8 million. The Company's branch offices, located in 23 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 13 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 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. 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 $116.8 million during 1996 and $22.5 million during 1995. Item 7. Management's Analysis of the Results of Operations for the Year Ended December 31, 1996 The Company's average net finance receivables grew $98.5 million, or 5.0%, in 1996, while, as a reflection of interest rate and competitive pressures, the overall portfolio yield decreased .54% as compared to the prior year. As a result, loan interest and fee income increased $6.9 million, or 1.9%, for the year ended December 31, 1996, as compared to the prior year. Income from investment securities increased $382 thousand, or 4.3%, over the prior year. As a result, total interest income increased by $7.2 million, or 2.0%, over the prior year. Average debt outstanding increased $208.3 million, or 16.9%, and the weighted average interest rate on such debt decreased by 94 basis points, resulting in an increase in interest and debt expense of $5.8 million, or 5.1%, for the year ended December 31, 1996, as compared to 1995. These factors resulted in an increase in net interest income before provision for credit losses of $1.4 million, or 0.6%. During 1996, the Company issued the following senior notes: in June, $100 million at 7.25% maturing in 2001; in July, $100 million at 6.75% maturing in 1999; in August, $100 million at 6.75% maturing in 2001; and, in December, $150 million at 6.125% maturing in 2000. The respective proceeds were used as follows: to reduce outstanding commercial paper issued to fund the purchase price of the Company's acquisition of Great Western Financial Services as described in Note 3 to the accompanying financial statements; to reduce outstanding commercial paper issued to pay $100 million of 6.25% senior notes at their July 15, 1996 maturity; to reduce outstanding commercial paper; and, to fund the purchase price of the Company's acquisition of Blazer Financial Corporation ("BFC") as described in Note 3 to the accompanying financial statements, to repay approximately $69.6 million of outstanding intercompany indebtedness owed by BFC and its subsidiaries to Great Western Bank, and for general corporate purposes. 9 The provision for credit losses for the year ended December 31, 1996 was 2.81% as an annualized percentage of average net finance receivables for that period, as compared to 2.44% for 1995. The increase in provision rate reflects management's assessment of the quality of the Company's receivables portfolio at this time including current economic trends, loan portfolio agings, historical loss experience and evaluation of collateral. Personnel expenses were $3.8 million, or 5.6%, higher in 1996 as compared to 1995. This is primarily due to normal compensation increases. Other operating expenses were $4.7 million, or 12.1%, lower in 1996 as compared to 1995, primarily because of an $8.0 million insurance recovery resulting from fraudulently over-billed marketing costs which had occurred over a number of years. (See Note 4 to the accompanying financial statements.) Productivity, defined as the ratio of operating and administrative expenses (before deferral of direct loan costs and the above described insurance recovery) to average outstanding finance receivables, improved to 6.9% in 1996 as compared to 7.0% in 1995. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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. As described in Note 3, during 1996, the Company acquired two businesses from affiliated companies. Both transactions were accounted for in a manner similar to a pooling of interests, which gave retroactive effect to these acquisitions. PRICE WATERHOUSE LLP Tampa, Florida January 17, 1997 1 ARISTAR, INC. and Subsidiaries Consolidated Statements of Financial Condition (Dollars in thousands) December 31, 1996 December 31, 1995 ASSETS Finance receivables, net $ 2,115,858 $ 2,077,497 Investment securities 137,072 140,240 Cash and cash equivalents 22,660 14,399 Property and equipment, less accumulated depreciation and amortization: 1996, $21,528; 1995, $19,961 10,338 11,484 Deferred charges 11,956 11,570 Excess of cost over equity of companies acquired, less accumulated amortization: 1996, $52,638; 1995, $45,575 56,655 63,718 Other assets 37,319 13,855 TOTAL ASSETS $ 2,391,858 $ 2,332,763 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Short-term debt $ 398,006 $ 312,876 Long-term debt 1,352,770 1,003,809 Total debt 1,750,776 1,316,685 Customer deposits 146,138 160,772 Accounts payable and other liabilities 46,366 67,679 Due to affiliate 237,576 Federal and state income taxes 13,836 11,602 Insurance claims and benefits reserves 7,702 7,900 Unearned insurance premiums and commissions 57,800 56,865 Total liabilities 2,022,618 1,859,079 Commitments and contingencies (Notes 13 and 14) 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 323,969 428,273 Net unrealized holding gain on investment securities 376 516 Total stockholder's equity 369,240 473,684 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,391,858 $ 2,332,763
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) 1996 1995 1994 Loan interest and fee income $ 370,314 $ 363,448 $ 342,329 Investment securities income 9,183 8,801 6,766 Total interest income 379,497 372,249 349,095 Interest and debt expense 120,758 114,917 102,224 Net interest income before provision for credit losses 258,739 257,332 246,871 Provision for credit losses 58,800 48,500 41,900 Net interest income 199,939 208,832 204,971 Other operating income Net insurance operations and other income 27,205 29,235 28,640 Other expenses Personnel expenses 71,724 67,938 68,633 Occupancy expense 9,919 10,681 10,182 Advertising expense 4,848 5,873 5,760 Amortization of excess cost over equity of companies acquired 7,063 7,065 7,069 Other operating expenses 34,072 38,768 40,656 127,626 130,325 132,300 Income before income taxes 99,518 107,742 101,311 Provision for federal and state income taxes 37,000 42,445 37,200 Net Income 62,518 65,297 64,111 Retained earnings Beginning of year 428,273 385,476 346,365 Dividends (116,800) (22,500) (25,000) Transfer to Great Western Bank, A Federal Savings Bank (15,192) Transfer to Great Western Financial Corporation (34,830) End of year $ 323,969 $ 428,273 $ 385,476
See Notes to Consolidated Financial Statements. 13 ARISTAR, INC. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, (Dollars in thousands) 1996 1995 1994 Cash flows from operating activities Net income $ 62,518 $ 65,297 $ 64,111 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 58,800 48,500 41,900 Depreciation and amortization 13,523 13,148 15,466 Deferred income taxes (16,188) (13) (1,170) Increase (decrease) in Accounts payable and other liabilities (21,313) (30,432) (8,096) Unearned insurance premiums and commissions and insurance claims and benefits reserves 737 2,900 3,171 Currently payable income taxes 18,455 4,511 (4,388) (Increase) decrease in other assets (23,464) 10,021 (9,924) Net cash provided by operating activities 93,068 113,932 101,070 Cash flows from investing activities Investment securities purchased (40,331) (55,884) (52,229) Investment securities matured 43,317 43,223 31,838 Finance receivables originated or purchased (1,407,334) (1,484,545) (1,418,656) Finance receivables repaid or sold 1,308,184 1,299,233 1,212,149 Net change in property and equipment (665) (602) (4,041) Net cash used in investing activities (96,829) (198,575) (230,939) Cash flows from financing activities Net change in commercial paper and other short-term borrowings 85,130 133,791 (100,522) Proceeds from issuance of long-term debt 453,539 99,909 249,625 Long-term debt issue costs (2,615) (1,162) (1,657) Repayments of long-term debt (105,000) (189,000) (50,000) Net change in customer deposits (14,634) 30,719 (10,264) Net change in due to affiliate (237,576) 34,361 61,963 Dividends paid (116,800) (22,500) (25,000) Transfer to Great Western Bank, A Federal Savings Bank (15,192) Transfer to Great Western Financial Corporation (34,830) Net cash provided by financing activities 12,022 86,118 124,145 Net increase (decrease) in cash and cash equivalents 8,261 1,475 (5,724) Cash and cash equivalents Beginning of year 14,399 12,924 18,648 End of year $ 22,660 $ 14,399 $ 12,924 Supplemental disclosures of cash flow information Interest paid $ 118,038 $ 113,665 $ 100,949 Intercompany payments in lieu of federal and state income taxes 49,612 35,339 45,718
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 financial services business and its operations consist principally of a network of approximately 500 branch offices located in 23 states, primarily in the Southeastern United States and in California. These offices generally operate under the names Blazer Financial Services, City Finance Company, and First Community Financial Services. 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. The Company also engages in the industrial banking business through its subsidiaries in Colorado and Utah. In addition to making direct consumer instalment loans and purchasing retail instalment contracts, these subsidiaries also take customers' savings deposits. 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. 15 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 5). Non-real estate secured delinquent loans are generally charged off when they are 180 days contractually delinquent (120 days prior to October 1, 1996). Recoveries on previously written-off loans are credited to the allowance. 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. 16 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. 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. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Finance receivables. 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 fair value is not adjusted for the value of potential loan renewals from existing borrowers. Investment securities. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Debt. The carrying amount reported in the statement of financial condition for short-term debt approximates its fair value given its brief maximum term. The approximate fair value of long-term debt is estimated using rates currently available to the Company for debt with similar terms and remaining maturities. Deposit liabilities. The fair values disclosed for fixed-rate savings certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected maturities on time deposits. The fair values disclosed for savings and money market accounts are, by definition, equal to the amount payable on demand at the reporting date. 17 Note 3 Transfers from Related Parties On April 30, 1996, Great Western Bank, a Federal Savings Bank ("GWB"), also a wholly owned subsidiary of GWFC, transferred to the Company a portion of its consumer finance business, hereinafter referred to as Great Western Financial Services ("GWFS"). GWFS was comprised primarily of approximately $242 million in net consumer finance receivables. The Company paid fair value (as determined by independent appraisal) of approximately $252 million in cash raised through the issuance of commercial paper. The Company accounted for the approximate $10 million premium as a dividend to GWFC. Additionally, at the purchase date, the Company recorded a transfer to GWB of approximately $15 million, representing the accumulated earnings of GWFS at that date. On December 31, 1996, GWFC transferred to the Company a portion of its consumer banking business, hereinafter referred to as Blazer Financial Corporation ("BFC"). BFC was comprised primarily of approximately $229 million in net consumer finance receivables and $147 million in customer deposits. The Company recorded, at the purchase date, a transfer to GWFC of approximately $35 million, representing the accumulated earnings of BFC at that date. In accordance with Interpretation Number 39, "Transfers and Exchanges of Companies under Common Control," to Accounting Principles Opinion Number 16, "Business Combinations," both of the above-described acquisitions have been accounted for in a manner similar to a pooling of interests. Accordingly, the assets acquired and liabilities assumed have been recorded at historical cost and prior period financial statements of the Company have been restated for the acquisitions. Eliminations have been made for material intercompany transactions between the combined entities. In connection with the GWFS transaction, the Company previously restated its financial statements to give retroactive effect to the pooling. The following table summarizes the impact of the BFC transaction on the Company's net interest income, income before income taxes and net income. Net Interest Income Before Net Income Income Taxes Income 1995 Aristar, as restated for the GWFS transaction $ 194,768 $ 99,108 $ 59,982 BFC, net of eliminations 14,064 8,634 5,315 Aristar, as restated $ 208,832 $ 107,742 $ 65,297 1994 Aristar, as restated for the GWFS transaction $ 192,403 $ 93,806 $ 59,502 BFC, net of eliminations 12,568 7,505 4,609 Aristar, as restated $ 204,971 $ 101,311 $ 64,111
18 The following table summarizes the impact of the BFC transaction on the Company's previously reported retained earnings at January 1: Retained Earnings, beginning of period 1996 1995 1994 Aristar, as restated for the GWFS transaction $ 398,364 $ 360,882 $ 326,380 BFC, net of eliminations 29,909 24,594 19,985 Aristar, as restated $ 428,273 $ 385,476 $ 346,365
Note 4 Insurance Recovery In May 1996, the Company filed a fidelity bond claim, subsequently paid by the insurer, in the amount of $8.0 million for the recovery of fraudulently over-billed marketing costs which had occurred over a number of years. The $8.0 million recovery has been reflected as a reduction of other operating expenses in the accompanying statement of operations and retained earnings for the year ended December 31, 1996. 19 Note 5 Finance Receivables Finance receivables at December 31, 1996 and 1995 are summarized as follows: (Dollars in thousands) 1996 1995 Consumer finance receivables Real estate secured loans $ 994,097 $ 891,092 Other consumer finance instalment loans 1,109,143 1,182,891 Retail instalment contracts 400,530 397,977 Gross consumer finance receivables 2,503,770 2,471,960 Less: Unearned finance charges and deferred loan fees (317,867) (338,895) Allowance for credit losses (70,045) (55,568) Net consumer finance receivables $ 2,115,858 $ 2,077,497
The amount of gross nonaccruing receivables included above was approximately $45.6 million and $25.8 million at December 31, 1996 and 1995, respectively. Contractual maturities, net of unearned finance charges and deferred loan fees, at December 31, 1996 are as follows: Over 1 But Within Within Over 1 year 5 years 5 years Total (Dollars in thousands) Real estate secured loans $ 134,226 $ 346,148 $ 409,596 $ 889,970 Other consumer finance instalment loans 443,148 486,371 458 929,977 Retail instalment contracts 129,970 235,777 209 365,956 $ 707,344 $1,068,296 $ 410,263 $2,185,903 Consumer finance receivables have maximum terms of 360 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, 1996 and 1995 was 50 months and 46 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, 1996 and 1995, the ratio of principal cash collections to average net consumer finance receivables outstanding was 63% and 65%, respectively. The majority of loans provide for a fixed rate of interest over the contractual life of the loan. 20 The approximate fair value of the Company's finance receivables (net of unearned finance charges and deferred loan fees) as of December 31, 1996 and 1995 follows: (Dollars in thousands) 1996 1995 Approximate Approximate Net Book Fair Net Book Fair Value Value Value Value Real estate secured loans $ 889,970 $ 874,959 $ 788,947 $ 792,849 Other consumer finance installment loans 929,977 908,762 984,228 980,249 Retail instalment contracts 365,956 365,956 359,890 359,890 $2,185,903 $2,149,677 $ 2,133,065 $ 2,132,988
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, 1996. Activity in the Company's allowance for credit losses is as follows: Year Ended December 31, (Dollars in thousands) 1996 1995 1994 Balance, January 1 $ 55,568 $ 53,217 $ 49,790 Provision for credit losses 58,800 48,500 41,900 Amounts charged off (62,615) (63,936) (55,249) Recoveries 16,197 16,057 15,569 Allowances on notes purchased 2,095 1,730 1,207 Balance, December 31 $ 70,045 $ 55,568 $ 53,217
21 Note 6 Investment Securities Investment securities as of December 31, 1996 and 1995 are as follows: (Dollars in thousands) December 31, 1996 Approximate Original Amortized Gross Unrealized Fair Cost Cost Gains Losses Value Government obligations $19,628 $ 19,513 $ 110 $ 175 $ 19,448 Corporate obligations 86,339 86,255 1,060 352 86,963 Certificates of deposit and other 30,579 30,622 171 132 30,661 $136,546 $136,390 $1,341 $ 659 $137,072
(Dollars in thousands) December 31, 1995 Approximate Original Amortized Gross Unrealized Fair Cost Cost Gains Losses Value Government obligations $20,621 $ 20,630 $ 53 $ 209 $ 20,474 Corporate obligations 94,739 94,351 984 24 95,311 Certificates of deposit and other 24,652 24,405 168 118 24,455 $ 140,012 $139,386 $1,205 $ 351 $ 140,240
There were no significant realized gains or losses during 1996 or 1995. The following table presents the maturity of the investment securities at December 31, 1996: (Dollars in thousands) Approximate Amortized Fair Cost Value Due in one year or less $ 31,869 $ 31,751 Due after one year through five years 60,317 60,519 Due after five years through ten years 37,818 38,435 Due after ten years 6,386 6,367 $ 136,390 $ 137,072
22 Note 7 Deferred Charges Deferred charges, net of amortization, as of December 31, 1996 and 1995 are as follows: (Dollars in thousands) 1996 1995 Long-term debt issuance costs $ 4,711 $ 3,712 Premiums on purchased accounts 7,245 7,858 $ 11,956 $ 11,570
Amortization of deferred charges for each of the last three years is as follows: (Dollars in thousands) 1996 1995 1994 Long-term debt issuance costs $ 1,616 $ 1,287 $ 1,268 Premiums on purchased accounts 3,495 3,198 3,444 System development costs 1,378
Note 8 Short-term Debt Short-term debt at December 31, 1996 and 1995 consisted of commercial paper notes. Such debt outstanding at December 31, 1996 had been issued in the minimum amount of $456,000 and with a maximum original term of 97 days. The book value of short-term debt at December 31, 1996 approximates its estimated fair value. Additional information concerning total short-term borrowings is as follows: Year Ended December 31, (Dollars in thousands) 1996 1995 1994 Outstanding during the year Maximum amount at any month end $ 578,743 $ 312,876 $ 287,793 Average amount 391,936 210,684 235,682 Weighted average interest rate 5.2% 6.0% 4.2% Balance at end of year Amount $ 398,006 $ 312,876 $ 179,085 Weighted average interest rate 5.7% 5.9% 6.0%
Weighted average interest rates include the effect of commitment fees. 23 Short-term notes totaling $66 million and $75 million were issued in December, 1996 and 1995, 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 1996, the Company entered into a $550 million revolving credit agreement with several domestic and foreign banks. The agreement, which replaced the previous revolving credit agreement of $450 million, has a four-year term with repayment in full of any balance outstanding in August, 2000. This revolving credit agreement has restrictive covenants as described further in Note 9. There were no borrowings under any of the above-described revolving credit agreements in 1996 or 1995. On August 16, 1996, the Company obtained a revolving credit line of $2,685,000 from the Federal Home Loan Bank ("FHLB"). Under the revolving credit line, which expires August 15, 1997, interest is payable monthly at FHLB's cash management rate (7.20% at December 31, 1996). At December 31, 1996, there were no outstanding borrowings under the line of credit. Interest expense in 1996 related to the borrowings on the revolving credit line was approximately $14,000. 24 Note 9 Long-term Debt Long-term debt at December 31, 1996 and 1995 was comprised of the following: (Dollars in thousands) 1996 1995 Senior Debentures and Notes 6.25%, due July 15, 1996 $ 99,995 7.375%, due February 15, 1997 $ 99,997 99,974 8.125%, due December 1, 1997 99,909 99,812 5.75%, due July 15, 1998 149,922 149,875 7.875%, due February 15, 1999 99,904 99,864 6.75%, due May 15, 1999 99,986 6.3%, due July 15, 2000 99,931 99,913 6.125%, due December 1, 2000 149,610 7.75%, due June 15, 2001 149,930 149,917 7.25%, due June 15, 2001 99,857 6.75%, due August 15, 2001 99,917 Medium Term Notes, Series C, due through 1996, at interest rates of 8.75% to 8.90% 5,000 Total Senior Debt 1,148,963 804,350 Senior Subordinated Notes and Debentures 8.875%, due August 15, 1998 99,948 99,920 7.5%, due July 1, 1999 99,659 99,539 Total Senior Subordinated Debt 199,607 199,459 Federal Home Loan Bank Notes 4.98%, due December 3, 2001 4,200 Total Federal Home Loan Bank Notes 4,200 Total Long-term Debt $ 1,352,770 $ 1,003,809 25 Aggregate maturities at December 31, 1996 are as follows: (Dollars in thousands) Senior Federal Senior Subordinated Home Loan Debt Notes Bank Notes Total 1997 $ 199,906 $ 199,906 1998 149,922 $ 99,948 249,870 1999 199,890 99,659 299,549 2000 249,541 249,541 2001 349,704 $ 4,200 353,904 $ 1,148,963 $ 199,607 $ 4,200 $1,352,770
The approximate fair value of the Company's long-term debt as of December 31, 1996 and 1995 is as follows: (Dollars in thousands) 1996 1995 Book Approximate Book Approximate Value Fair Value Value Fair Value Senior debt $ 1,148,963 $ 1,192,141 $ 804,350 $ 834,130 Senior subordinated notes 199,607 215,083 199,459 213,600 Federal Home Loan Bank notes 4,200 4,207 $ 1,352,770 $ 1,411,431 $1,003,809 $1,047,730
The Company has a note payable to the FHLB of Seattle in the amount of $4,200,000. On a specified day each quarter, upon giving the Company a five business day written notice, FHLB has the option to terminate the advance at par. Under the credit agreement, which matures December 3, 2001, interest is payable monthly and determined using a fixed annual interest rate of 4.98%. Interest expense in 1996 related to the above debt was approximately $15,000. 26 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; in June, 1996, the Company issued $100 million of 7.25% senior notes maturing June 15, 2001; in July, 1996, the Company issued $100 million of 6.75% senior notes maturing May 15, 1999; in August, 1996, the Company issued $100 million of 6.75% senior notes maturing August 15, 2001; and in December, 1996, the Company issued $150 million of 6.125% senior notes maturing December 1, 2000. The respective proceeds of these issues were used as follows: to reduce outstanding commercial paper issued to pay $100 million of 8.55% senior notes at their June 1, 1995 maturity; to reduce outstanding commercial paper issued to fund the purchase price of the Company's acquisition of GWFS as described in Note 3; to reduce outstanding commercial paper issued to pay $100 million of 6.25% senior notes at their July 15, 1996 maturity; to reduce outstanding commercial paper; and, to fund the purchase price of the Company's acquisition of BFC as described in Note 3, to repay approximately $69.6 million of outstanding intercompany indebtedness owed by BFC and its subsidiaries to GWB, and for general corporate purposes. 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 provide for the maintenance of minimum levels of equity and maximum leverage ratios. At December 31, 1996, approximately $16 million was available under the debt agreement restriction for future dividends. Note 10 Customer Deposits The net book value and approximate fair value of the Company's customer deposits as of December 31, 1996 and 1995 are as follows: (Dollars in thousands) 1996 1995 Book Approximate Book Approximate Value Fair Value Value Fair Value Certificates of deposit $100,000 and over $ 10,674 $ 10,714 $ 10,136 $ 10,243 Certificates of deposit under $100,000 117,588 117,943 131,100 132,168 Savings accounts 1,534 1,534 1,675 1,675 Money market accounts 16,342 16,342 17,861 17,861 $ 146,138 $ 146,533 $ 160,772 $ 161,947
Maturities of time deposits are $85,855,000 in 1997, $28,891,000 in 1998, $6,753,000 in 1999 and $6,763,000 thereafter. 27 Note 11 Income Taxes The components of income tax expense are as follows: Year Ended December 31, (Dollars in thousands) 1996 1995 1994 Currently payable Federal $ 44,871 $ 35,739 $ 32,607 State 8,317 6,719 5,763 Deferred (16,188) (13) (1,170) $ 37,000 $ 42,445 $ 37,200
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) 1996 1995 Amortization of intangibles $ 11,606 $ 17,837 Employee benefits accruals 2,335 1,599 Depreciation 426 678 Loan interest and fee income 3,374 3,087 Other deferred income items 378 399 Total deferred tax liabilities 18,119 23,600 Credit loss reserves (24,788) (16,031) Unearned insurance commissions (3,956) (2,980) Other miscellaneous accruals (2,598) (2,415) State taxes (4,076) (3,162) Other deferred deduction items (3,181) (2,982) Total deferred tax assets (38,599) (27,570) Net deferred tax asset $ (20,480) $ (3,970)
28 The provisions for income taxes differ from the amounts determined by multiplying pretax income by the statutory Federal income tax rate of 35% for 1996, 1995 and 1994. A reconciliation between these amounts is as follows: Year Ended December 31, (Dollars in thousands) 1996 1995 1994 Income taxes at statutory rates $ 34,831 $ 37,709 $ 35,459 Increase (reduction) in taxes resulting from: State income taxes, net of Federal benefit 5,406 4,367 3,746 Other (3,237) 369 (2,005) $ 37,000 $ 42,445 $ 37,200
Note 12 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, 1996, 1995, and 1994 was $490,000, $1,455,000 and $1,717,000, 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 $1,360,000, $1,161,000 and $1,325,000 for the years ended December 31, 1996, 1995 and 1994, 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, 1996, 1995 and 1994 were $521,000, $532,000 and $737,000, respectively. 29 Note 13 Leases At December 31, 1996, 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 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 $7,004,000 in 1997; $5,084,000 in 1998; $2,767,000 in 1999; $1,446,000 in 2000; and $627,000 in 2001. Rent expense for the years ended December 31, 1996, 1995 and 1994 was $9,975,000, $9,274,000, and $8,247,000, respectively. Note 14 Contingencies The Company is 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 15 Transactions with Related Parties Significant transactions with GWFC or its subsidiaries in addition to those described in Note 3 are identified as follows: GWB provides the Company with certain administrative services, including human resources and cash management, for which the Company paid management fees of $1,770,000 in 1996, $1,358,000 in 1995 and $1,365,000 in 1994. The Company makes payments to GWFC in accordance with GWFC's tax allocation policy and in connection with the retirement and savings plans. Note 16 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, 1996 December 31, 1995 Carrying Approximate Carrying Approximate Value Fair Value Value Fair Value Finance receivables Note 5 $ 2,185,903 $ 2,149,677 $ 2,133,065 $ 2,132,988 Investment securities Note 6 137,072 137,072 140,240 140,240 Short-term debt Note 8 398,006 398,006 312,876 312,876 Long-term debt Note 9 1,352,770 1,411,431 1,003,809 1,047,730 Customer deposits Note 10 147,080 147,475 161,679 162,854
See Note 1 and the referenced Notes for additional information. 30 Note 17 Selected Quarterly Financial Data (Unaudited) A summary of the quarterly results of operations for the years ended December 31, 1996 and 1995 is set forth below: Quarter Ended March 31, June 30, September 30, December 31, (Dollars in thousands) 1996 1995 1996 1995 1996 1995 1996 1995 Revenue $102,688 $97,934 $99,806 $98,697 $99,605 $100,338 $104,603 $104,515 Interest and other expenses 64,756 63,238 53,931 61,983 63,314 60,340 66,383 59,681 Provision for credit losses 14,500 10,600 13,600 9,200 15,300 11,600 15,400 17,100 Total expenses 79,256 73,838 67,531 71,183 78,614 71,940 81,783 76,781 Income before taxes 23,432 24,096 32,275 27,514 20,991 28,398 22,820 27,734 Income tax provision 9,200 9,500 12,800 10,974 8,200 11,236 6,800 10,735 Net income $ 14,232 $14,596 $ 19,475 $16,540 $12,791 $ 17,162 $ 16,020 $ 16,999
The variances between the above quarterly data and the information reported in the Company's previously filed Forms 10-Q result from the acquisition of BFC as discussed in Note 3. 31 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, 1996 and 1995. . . . . . . . . . . . . . . .11 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994 . . . 12 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 . . . 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 (2) (a) Agreement dated as of April 30, 1996, between Great Western Bank and First Community Financial Services, Inc. (1) (b) Amendment to Exhibit (2) (a) dated as of August 31, 1996. (2) (c) Agreement dated as of April 30, 1996, between Great Western Bank and Blazer Financial Services, Inc. (1) (d) Amendment to Exhibit (2) (c) dated as of August 31, 1996. (2) (e) Agreement dated as of April 30, 1996, between Great Western Bank and Blazer Financial Services, Inc. of Florida. (1) (f) Amendment to Exhibit (2) (e) dated as of August 31, 1996.(2) 32 (g) Agreement dated as of December 31, 1996, between Great Western Financial Corporation and Aristar, Inc. (3) (3) (a) Certificate of Incorporation of Aristar, Inc. as presently in effect.(4) (b) By-Laws of Aristar, Inc. as presently in effect. (4) (4) (a) Indenture dated as of May 1, 1991 between Aristar, Inc. and Security Pacific National Bank, as trustee. (5) (b) Indenture dated as of May 1, 1991 between Aristar, Inc. and The First National Bank of Boston, as trustee. (5) (c) Indenture dated as of July 1, 1992 between Aristar, Inc. and The Chase Manhattan Bank, N.A., as trustee. (6) (d) Indenture dated as of July 1, 1992 between Aristar, Inc. and Citibank, N.A., as trustee. (6) (e) Indenture dated as of July 1, 1995 between Aristar, Inc. and The Bank of New York, as trustee. (7) (f) 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.(8) (12) Statement Re: Computation of Ratios. (23) Consent of Independent Certified Public Accountants. (24) Power of Attorney included on Page 34 of the Form 10-K. (27) Financial Data Schedule. 33 (1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, Commission file number 1-3521. (2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, Commission file number 1-3521. (3) Incorporated by reference to Registrant's Current Report on Form 8-K dated December 31, 1996, Commission file number 1-3521. (4) Incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987, Commission file number 1-3521. (5) Incorporated by reference to Registrant's Current Report on Form 8-K dated May 29, 1991, Commission file number 1-3521. (6) Incorporated by reference to Registrant's Current Report on Form 8-K dated June 24, 1992, Commission file number 1-3521. (7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, Commission file number 1-3521. (8) Incorporated by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995, Commission file number 1-3521. (b) Reports on Form 8-K On December 3, 1996, the Company filed a Current Report on Form 8-K, dated December 3, 1996, disclosing, under item (5) thereof, the pending acquisition of Blazer Financial Corporation. On December 5, 1996, the Company filed a Current Report on Form 8-K, dated December 3, 1996, disclosing, under item (7) thereof, the terms of the issuance of $150,000,000 aggregate principal amount of its 6.125% senior notes maturing December 1, 2000. 34 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 12, 1997 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 12, 1997. /s/ Michael M. Pappas Michael M. Pappas, President and Director (Principal Executive Officer) /s/ Carl F. Geuther Carl F. Geuther, Director /s/ J. Lance Erikson J. Lance Erikson, Director /s/ John F. Maher John F. Maher, Director /s/ A. William Schenck A. William Schenck, III, Director 36 EX-12 2 Exhibit 12 ARISTAR, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) Year Ended December 31, (Dollars in thousands) 1996 1995 1994 1993 1992 Income from operations before income taxes and, in 1992, cumulative effect of a change in accounting principle $ 99,518 $ 107,741 $ 101,311 $ 91,523 $ 88,440 Fixed charges: Interest and debt expense on all indebtedness 120,758 114,917 102,224 98,600 103,425 Appropriate portion of rentals (33%) 3,292 3,359 3,020 3,276 2,739 Total fixed charges 124,050 118,276 105,244 101,876 106,164 Earnings available for fixed charges $ 223,568 $ 226,017 $206,555 $193,399 $194,604 Ratio of earnings to fixed charges 1.80 1.91 1.96 1.90 1.83
EX-23 3 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (no. 33-58361) of Aristar, Inc. and subsidiaries of our report dated January 17, 1997 appearing on page 10 of this Form 10-K. PRICE WATERHOUSE LLP Tampa, Florida March 12, 1997 EX-27 4
9 This Schedule contains summary financial information extracted from the Company's financial statements as part of its Report on Form 10-K for the year ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1996 DEC-31-1996 22,600 0 0 0 137,072 0 0 2,185,903 (70,045) 2,391,858 146,138 398,006 46,366 1,352,770 0 0 1 369,239 2,391,858 370,314 9,183 0 379,497 9,166 120,758 258,739 58,800 0 127,626 99,518 0 0 0 62,518 0 0 8.89 45,631 0 0 0 55,568 (62,615) 16,197 70,045 0 0 70,045 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 year ended December 31, 1996 using the Article 9 format.
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9 RESTATED FINANCIAL DATA SCHEDULE 9-MOS DEC-31-1996 SEP-30-1996 20,230 0 0 0 134,074 0 0 2,115,011 (58,585) 2,323,088 147,079 403,057 107,776 1,198,849 0 0 1 393,745 2,323,088 276,341 6,831 0 283,172 7,011 87,135 196,037 43,400 0 94,866 76,698 0 0 0 46,498 0 0 9.11 29,304 0 0 0 55,568 (54,362) 12,369 58,585 0 0 58,585 Aristar, Inc. is technically a Commercial and Industrial Company subject to Article 5 of Regulation S-X. However, as its primary business is consumer finance, the Company, although not a bank holding company, is engaged in similar lending activities. Therefore, in accordance with Staff Accounting Bulletin Topic 11-K, "Application of Article 9 and Guide 3," the Company has prepared its Financial Data Schedule for the nine months ended September 30, 1996 using the Article 9 format.
EX-27 6
9 RESTATED FINANCIAL DATA SCHEDULE 6-MOS DEC-31-1996 JUN-30-1996 20,080 0 0 0 130,780 0 0 2,081,803 (57,587) 2,279,975 153,618 405,278 83,180 1,098,846 0 0 1 462,998 2,279,975 187,901 4,510 0 189,411 4,763 57,338 132,073 28,100 0 61,349 55,707 0 0 0 33,707 0 0 9.31 27,260 0 0 0 55,568 (35,335) 8,380 57,587 0 0 57,587 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, 1996 using the Article 9 format.
EX-27 7
9 RESTATED FINANCIAL DATA SCHEDULE 3-MOS DEC-31-1996 MAR-31-1996 14,777 0 0 0 140,234 0 0 1,881,156 (56,615) 2,263,206 160,303 261,329 50,888 1,003,906 0 0 1 478,491 2,263,206 93,888 2,204 0 96,092 2,419 28,919 67,173 14,500 0 35,837 23,432 0 0 0 14,232 0 0 9.39 26,044 0 0 0 55,568 (17,962) 4,146 56,615 0 0 56,615 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 Schedules for the three months ended March 31, 1996 using the Article 9 format.
EX-27 8
9 RESTATED FINANCIAL DATA SCHEDULE 12-MOS DEC-31-1995 DEC-31-1995 14,399 0 0 0 140,240 0 0 2,133,065 (55,568) 2,332,763 160,772 312,876 67,679 1,003,809 0 0 1 473,683 2,332,763 363,448 8,801 0 372,249 8,626 114,917 257,332 48,500 0 130,325 107,742 0 0 0 65,297 0 0 9.73 25,772 0 0 0 53,217 (63,936) 16,057 55,568 0 0 55,568 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 year ended December 31, 1995 using the Article 9 format.
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9 RESTATED FINANCIAL DATA SCHEDULE 9-MOS DEC-31-1995 SEP-30-1995 15,549 0 0 0 132,338 0 0 2,015,909 (52,668) 2,217,040 156,617 212,695 64,982 1,016,715 0 0 1 455,886 2,217,040 269,543 6,358 0 275,901 6,211 86,268 189,633 31,400 0 99,293 80,008 0 0 0 48,298 0 0 9.95 24,348 0 0 0 53,217 (45,076) 12,272 52,668 0 0 52,668 Aristar, Inc. is technically a Commercial and Industrial Company subject to Article 5 of Regulation S-X. However, as its primary business is consumer finance, the Company, although not a bank holding company, is engaged in similar lending activities. Therefore, in accordance with Staff Accounting Bulletin Topic 11-K, "Application of Article 9 and Guide 3," the Company has prepared its Financial Data Schedule for the nine months ended September 30, 1995 using the Article 9 format.
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9 RESTATED FINANCIAL DATA SCHEDULE 6-MOS DEC-31-1995 JUN-30-1995 13,178 0 0 0 127,959 0 0 2,000,301 (52,722) 2,193,650 149,739 285,286 85,487 937,717 0 0 1 446,149 2,193,650 178,377 4,237 0 182,614 3,888 57,760 124,854 19,800 0 67,461 51,610 0 0 0 31,136 0 0 9.96 21,816 0 0 0 53,217 (28,994) 8,338 52,722 0 0 52,722 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, 1995 using the Article 9 format.
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9 RESTATED FINANCIAL DATA SCHEDULE 3-MOS DEC-31-1995 MAR-31-1995 11,625 0 0 0 124,251 0 0 1,965,879 (53,106) 2,156,377 138,435 121,082 81,220 1,092,630 0 0 1 435,056 2,156,377 88,896 1,967 0 90,863 1,766 29,169 61,694 10,600 0 34,069 24,096 0 0 0 14,596 0 0 9.72 20,503 0 0 0 53,217 (14,806) 4,090 53,106 0 0 53,106 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, 1995 using the Article 9 format.
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9 RESTATED FINANCIAL DATA SCHEDULE 12-MOS DEC-31-1994 DEC-31-1994 12,924 0 0 0 120,601 0 0 1,994,903 (53,217) 2,195,956 130,053 179,085 98,111 1,092,545 0 0 1 426,446 2,195,956 342,329 6,766 0 349,095 8,393 102,224 246,871 41,900 0 132,300 101,311 0 0 0 64,111 0 0 10.31 21,276 0 0 0 49,790 (55,249) 15,569 53,217 0 0 53,217 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 year ended December 31, 1994 using the Article 9 format.
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