-----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, KU0SB9L2IWrzoatgSOo+pzoNtzDRv7h4TzeLTDKvsu284ajqvOltKOYC11sLHv+C MBdoPnRtPVy5zV0KJcMLQA== 0000007214-98-000003.txt : 19980401 0000007214-98-000003.hdr.sgml : 19980401 ACCESSION NUMBER: 0000007214-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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: SEC FILE NUMBER: 001-03521 FILM NUMBER: 98582462 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 ARISTAR, INC. ANNUAL REPORT ON FORM 10-K Table of Contents Page PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . .3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 14 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . 14 Item 7. Management's Analysis of the Results of Operations for the Year Ended December 31, 1997. . . . . . . . 15 Item 8. Financial Statements and Supplementary Data. . . . . 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 40 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . 40 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 Washington Mutual, Inc. ("Washington Mutual"). The Company's operations consist principally of a network of approximately 500 branch offices located in 23 states, primarily in the Southeast and Southwest. These offices generally operate under the names Blazer Financial Services, City Finance Company and First Community Financial Services. The Company's branch offices are generally located in small to medium-sized communities in suburban or rural areas and are managed by individuals who generally have considerable consumer lending experience. The primary market for the Company's consumer loans consists of households with an annual income of $20,000 to $50,000. The Company makes consumer installment loans and purchases retail installment contracts from local retail establishments. These consumer credit transactions are primarily for personal, family or household purposes. The Company also provides consumer financial services through its industrial banking subsidiaries in Colorado and Utah. In addition to making consumer installment loans and purchasing retail installment contracts, these subsidiaries also take customers' savings deposits (insured by the Federal Deposit Insurance Corporation ("FDIC")). Customer installment loans written in 1997 had original terms ranging from 12 to 360 months and averaged 64 months. For the year ended December 31, 1997, 72% of the volume of all consumer installment loans was either unsecured or secured by guarantors, luxury consumer goods, automobiles or other personal property, with the remaining 28% being secured by real estate. While the interest yield on real estate secured loans is generally lower than for other installment loans, such loans are typically larger and the ratio of cost to amounts loaned is lower. Additionally, credit loss experience on real estate secured loans has been significantly lower than on other loan types. Retail installment 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 1997 had an average original term of 26 months. 4 Also, during 1997, the Company initiated a program to issue VISA credit cards to its qualified existing customers. At December 31, 1997, the Company had $22.4 million in credit card receivables outstanding. Customer installment loans are generally originated by customer application either at the branch or by telephone with branch personnel. A portion of other installment loans is generated through direct mail campaigns. Retail installment contracts are generally acquired through the originating merchant; the Company had such arrangements with over 3,000 merchants at December 31, 1997. From time to time, the Company also makes bulk purchases of existing loans and contracts from the originating competitors or merchants. Consumer finance receivables acquired through such bulk purchases totaled $98.5 million in 1997, $88.1 million in 1996 and $64.7 million in 1995. The following table sets forth the Company's loan originations including renewals for the periods indicated: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Real estate secured loans $ 490,522 $ 453,821 $ 365,515 Other installment loans 1,283,553 1,090,601 1,290,408 Retail installment contracts 409,409 451,274 468,445 $ 2,183,484 $ 1,995,696 $ 2,124,368
Portfolio Composition The following table provides an analysis by type of the Company's consumer finance receivables (net of unearned finance charges and deferred loan fees) at the dates shown: December 31, (Dollars in thousands) 1997 1996 1995 Notes and Contracts Receivable: Amount $ 2,309,403 $ 2,185,903 $ 2,133,065 Number of accounts 1,029,532 1,064,142 1,068,269 Type as a percent of Total Receivables Real estate secured loans 42.0% 40.7% 37.0% Other installment loans 44.0 42.6 46.1 Retail installment contracts 14.0 16.7 16.9 100.0% 100.0% 100.0%
5 At December 31, 1997, the average portfolio yield written by loan type was as follows: Average Yield Real estate secured loans 12.7% Other installment loans 25.2% Retail installment contracts 19.0% The following table sets forth the percentage of net consumer finance receivables by state at December 31, 1997. State % Maryland 1.9% Alabama 3.8% Mississippi 4.4% California 8.5% New Mexico 1.3% Colorado 8.5% North Carolina 9.2% Delaware 2.3% Oklahoma 3.1% Florida 5.4% Pennsylvania 2.7% Georgia 2.6% South Carolina 5.7% Idaho 1.2% Tennessee 10.9% Illinois 0.6% Texas 10.7% Kansas 0.2% Utah 3.3% Kentucky 2.1% Virginia 4.9% Louisiana 4.9% West Virginia 1.8% Geographic diversification of consumer finance receivables reduces the concentration of credit risk associated with a recession in any one region. 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. 6 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) 1997 1996 1995 Balance, January 1 $ 70,045 $ 55,568 $ 53,217 Provision for Credit Losses 66,600 58,800 48,500 Amounts Charged-Off Net of Recoveries: Amount(1) (65,051) (46,418) (47,879) Percent of Average Net Receivables(2) (3.0%) (2.2%) (2.4%) Allowance on notes purchased 2,729 2,095 1,730 Balance, December 31 $ 74,323 $ 70,045 $ 55,568 Percent of Year-End Net Receivables 3.2% 3.2% 2.6%
(1) 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). Because of this change in policy, the charge- offs for the three years presented are not comparable. The Company is not able to determine what the charge-offs would have been in prior years under the new policy had it been in effect January 1, 1995. (2) Average of consumer finance receivables (net of unearned finance charges) at each month end during the period. 7 Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Balance, January 1 $ 70,045 $ 55,568 $ 53,217 Provision 66,600 58,800 48,500 Amounts charged off Real estate secured loans (1,292) (1,582) (1,324) Other installment loans (64,460) (50,086) (51,208) Retail installment contracts (13,946) (10,947) (11,404) (79,698) (62,615) (63,936) Recoveries Real estate secured loans 556 442 590 Other installment loans 11,538 12,892 12,543 Retail installment contracts 2,553 2,863 2,924 14,647 16,197 16,057 Net charge-offs (65,051) (46,418) (47,879) Allowances on notes purchased 2,729 2,095 1,730 Balance, December 31 $ 74,323 $ 70,045 $ 55,568
Due to the nature of the finance business, some customer delinquency and loss is unavoidable. The management of the consumer finance business attempts to control customer delinquency through careful evaluation of each borrower's application and credit history at the time the loan is made or acquired, and appropriate collection activity. The Company seeks to reduce its risk by focusing on individual lending, making a greater number of smaller loans than would be practical in commercial markets, and maintaining disciplined control over the underwriting process. The Company has a geographically diverse portfolio as described in Portfolio Composition. An account is considered delinquent for financial reporting purposes when a payment is 60 days or more past due, based on the original or extended terms of the contract. The delinquency and loss experience on real estate-secured loans is generally more favorable than on other installment loans. The following table sets forth the ratio of receivables delinquent for 60 days or more on a contractual basis to gross receivables outstanding: December 31, 1997 1996 1995 Real estate secured loans 0.8% 0.9% 1.2% Other installment loans 4.3 4.0 2.2 Retail installment contracts 3.2 2.6 1.7
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. 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, 1997 1996 1995 Ratio to Average Net Receivables: Interest and Fee Income 16.8% 17.6% 18.1% Interest and Debt Expense 5.7 5.6 5.6 Gross Spread 11.1% 12.0% 12.5%
The Company funds its consumer finance operations principally through net cash flows from operating activities, short-term borrowings in the commercial paper market, issuances of long-term debt and customer deposits. The Company had commercial paper outstanding at December 31, 1997 of $357.5 million at a 6.1% weighted average interest rate. 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. There were no borrowings under any of the above-described revolving credit agreements in 1997 or 1996. In June, 1997, the Company filed an $800 million shelf registration statement. Under this registration statement, the Company issued in October, 1997, $150 million of 6.3% senior notes maturing October 1, 2002; and, in November, 1997, $150 million of 6.5% senior notes maturing November 15, 2003. The Company also accepts customer deposits in its industrial banks. Such deposits totaled $163.2 million at December 31, 1997, $146.1 million at December 31, 1996, and $160.8 million at December 31, 1995. 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, 1997, approximately $23 million was available under the debt agreement restriction for future dividends. 9 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 installments 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. Risk Factors In addition to the other information in this Report on Form 10-K, the following factors should be considered carefully: Decline of Collateral Value May Adversely Affect Loan-to-Value Ratios Approximately 42% of the Company's finance receivables outstanding were secured by real estate at December 31, 1997, of which approximately 59% were first mortgages. The Company's lending policies limit the loan to value ("LTV") ratio of such loans to a maximum of 80%. Nevertheless, any material decline in real estate values reduces the ability of borrowers to use home equity to support borrowings and increases the LTV's of loans previously made by the Company, thereby weakening collateral coverage and increasing the possibility of a loss in the event of a borrower default. Further, delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. Any sustained period of such increased delinquencies, foreclosures and losses could adversely affect the Company's results of operations and financial condition. At December 31, 1997, the Company held forty-two (42) foreclosed single-family dwellings with a carrying value of approximately $1.6 million. 10 Change in Delinquency Rate As of December 31, 1997, total delinquent loans (60 days or more past due) as a percentage of the Company's portfolio of finance receivables was 2.7% compared to 2.6% as of December 31, 1996. For the year ended December 31, 1997, loan charge-offs were 3.0% of average loan receivables for the year. While the Company employs underwriting criteria and collection methods to mitigate the risks inherent in loans made to its customers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. In the event that the Company's portfolio of finance receivables experiences higher delinquencies, foreclosures or losses than anticipated, the Company's results of operations or financial condition could be adversely affected. Impact of Regulation and Legislation; Regulatory Enforcement The Company's business is subject to extensive regulation, supervision and licensing by governmental authorities in the United States (including federal, state and local authorities). The Company is also subject to various laws, regulations and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. The Company's lending activities are subject to the Truth-in-Lending Act (including the Home Ownership and Equity Protection Act of 1994), the Fair Housing Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act ("RESPA"), the Home Mortgage Disclosure Act and the Fair Debt Collection Practices Act and regulations promulgated thereunder, as well as other federal, state and local statutes and regulations affecting the Company's activities. The Company is also subject to the rules and regulations of, and examinations by, state regulatory authorities with respect to originating, processing, underwriting and servicing loans. These rules and regulations, among other things, (i) impose licensing obligations on the Company, (ii) establish eligibility criteria for mortgage loans, (iii) prohibit discrimination, (iv) provide for inspections and appraisals of properties, (v) require credit reports on loan applicants, (vi) regulate assessment, collection, foreclosure and claims handling, (vii) mandate certain disclosures and notices to borrowers and (viii) in some cases, fix maximum interest rates, fees and loan amounts. Failure to comply with these requirements can lead to termination or suspension of the Company's ability to make and collect loans, certain rights of rescission for mortgage loans, class action lawsuits and administrative enforcement actions. Recent Federal legislation, the Riegle Community Development and Regulatory Improvement Act (the "Riegle Act"), has brought additional regulatory attention to mortgage loans having relatively higher origination fees and interest rates, such as those made by the Company, and the Company expects its business to be the focus of additional United States federal and state legislation, regulation and possible enforcement in the future. Additionally, the Company's sale of credit life, credit disability, and credit property insurance to its customers is subject to state and federal statutes and regulations. Failure to comply with any of the foregoing state and federal requirements could lead to imposition of civil penalties on the Company, class action lawsuits and administrative enforcement activities. 11 The laws and regulations described above are subject to legislative, administrative and judicial interpretation, and certain of these laws and regulations have been infrequently interpreted or only recently enacted. Infrequent interpretations of these laws and regulations or an insignificant number of interpretations of recently enacted regulations can result in ambiguity with respect to permitted conduct under these laws and regulations. Any ambiguity under the regulations to which the Company is subject may lead to regulatory investigations or enforcement actions and private causes of action, such as class action lawsuits, with respect to the Company's compliance with the applicable laws and regulations. As a consumer lender, the Company has been, and expects to continue to be, subject to regulatory enforcement actions and private causes of action from time to time with respect to its compliance with applicable laws and regulations. The Company's lending practices have in the past been and currently are under regulatory review by various state authorities. Although the Company utilizes systems and procedures to facilitate compliance with these legal requirements and believes that it is in compliance in all material respects with applicable laws, rules and regulations, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future, or that existing laws and regulations will not be interpreted in a more restrictive manner, which could make compliance more difficult or expensive. See "Business- Regulation." Risks Relating to Credit Card Program During 1997, the Company initiated a program to issue VISA credit cards to its qualified existing customers. At December 31, 1997, the Company had $22.4 million in credit card receivables outstanding. Due to the recent introduction of its credit card product, the Company does not yet have a reliable loss experience with respect to its credit card portfolio. To the extent that actual losses in the credit card portfolio are greater than the Company's loss experience on the balance of its portfolio, there could be a material adverse effect on the Company's results of operations. Changes in laws and regulations applicable to the VISA cards could adversely affect the demand for acquisition and use of VISA cards by consumers and, therefore, could adversely affect the benefits of the VISA card program or result in losses to the Company. Risk of Litigation In the ordinary course of its business, the Company is subject to claims made against it by borrowers arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of employees, officers and agents of the Company, incomplete documentation and failures by the Company to comply with various laws and regulations applicable to its business. The Company believes that liability with respect to any currently asserted claims or legal actions is not likely to be material to the Company's consolidated results of operations or financial condition; however, any claims asserted in the future may result in legal expenses or liabilities that could have a material adverse effect on the Company's results of operations and financial condition and could distract members of management from the operations of the Company. 12 Fluctuations in Interest Rates May Adversely Affect Profitability The profitability of the Company is likely to be adversely affected during any period of rapid changes in interest rates. A substantial and sustained increase in interest rates could adversely affect the spread between the rate of interest received by the Company on its loans and the interest rates payable under its debt and deposit liability agreements. Such interest rate increases could also affect the ability of the Company to originate loans. A significant decline in interest rates could decrease the balance of the finance receivables portfolio by increasing the level of loan prepayments. New Market Risk The State of Texas recently passed a constitutional amendment which permits home equity lending. The Company anticipates that a large market for home equity loans will develop in Texas. The Company has operated its consumer finance business in Texas for many years and intends to introduce its home equity products in Texas to take advantage of this new opportunity. Since there is no industry experience with home equity lending in Texas and since no cases interpreting the home equity lending provisions in Texas have yet been decided, no assurance can be given that the Company's loss experience in its home equity lending in Texas will not exceed that of its real estate secured loan portfolio in other states. Competition Could Adversely Affect Results of Operations Competition in the consumer finance business is intense. The consumer lending market is highly fragmented and has been serviced by commercial banks, credit unions, and savings institutions, as well as by other consumer finance companies. Many of these competitors have greater financial resources and may have significantly lower costs of funds than the Company. Even after the Company has made a loan to a borrower, the Company's competitors may seek to refinance the Company's loan in order to offer additional loan amounts or reduce payments. Furthermore, the profitability of the Company and other similar lenders is attracting additional competitors into this market, with the possible effect of reducing the Company's ability to charge its customary origination fees and interest rates. In addition, if the Company expands into new geographic markets, it will face competition from lenders with established positions in these locations. There can be no assurance that the Company will be able to continue to compete successfully in the markets it serves. Such an event could have a material adverse effect on the Company's results of operations and financial conditions. See "Business-Competition." 13 Environmental Liabilities Substantially all of the Company's real estate receivables are secured by single-family dwellings. In the course of its business, the Company has acquired, and may acquire in the future, such properties securing loans that are in default. There is a risk that hazardous substances or waste, contaminants, pollutants or sources thereof could be discovered on such properties after acquisition by the Company. In such event, the Company may be required by law to remove such substances from the affected properties at its sole cost and expense. There can be no assurance that (i) the cost of such removal would not substantially exceed the value of the affected properties or the loans secured by the properties, (ii) the Company would have adequate remedies against the prior owner or other responsible parties or (iii) the Company would not find it difficult or impossible to sell the affected properties either prior to or following such removal. At December 31, 1997, the Company held forty-two (42) foreclosed single-family dwellings with a carrying value of approximately $1.6 million. 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 FDIC and the relevant state banking authorities. 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. 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 1.57 in 1997, 1.80 in 1996, 1.91 in 1995, 1.96 in 1994 and 1.90 in 1993. For purposes of computing this ratio, earnings consist of income from operations before income taxes plus fixed charges. Fixed charges consist of interest and debt expense and an appropriate portion of rentals. 14 Employees The Company employs approximately 2,400 full-time employees. The Company also employs part-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 14 to the Consolidated Financial Statements for additional information on rental expense and lease commitments. Item 3. Legal Proceedings The Company and certain of its subsidiaries are parties to various lawsuits and proceedings arising in the ordinary course of business. The Company has also 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. Certain of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, the Company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the Company's consolidated results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any given suit. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company is an indirect wholly-owned subsidiary of Washington Mutual 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 anticipated that the Company will pay quarterly dividends in 1998 of 30% of net income. 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 totaling $17.5 million during 1997 and $116.8 million during 1996. 15 Item 7. Management's Analysis of the Results of Operations for the Year Ended December 31, 1997 The Company's average net consumer finance receivables outstanding were $90.8 million, or 4.3%, greater in 1997. However, because real estate secured loans made up a greater portion of the loan portfolio during 1997 as compared to 1996, and because of interest rate and competitive pressures, the overall portfolio yield decreased 80 basis points to 16.8% from 17.6%. In the year ended December 31, 1997, the Company reduced interest and fee income by the pre-tax amount of $4.2 million, resulting from the revision of its estimate of interest earnings on "same as cash" retail installment contracts. (See Note 5 to the accompanying financial statements.) As a result, loan interest and fee income decreased $714 thousand, or 0.2%, for the year ended December 31, 1997, as compared to the prior year. Income from investment securities increased $1.2 million, or 13.0%, over the prior year. As a result, total interest income increased by $476 thousand, or 0.1%, over the prior year. Average debt outstanding increased $248 thousand, or 15.1%, and the weighted average interest rate on such debt decreased by 53 basis points, resulting in an increase in interest and debt expense of $8.1 million, or 6.7%, for the year ended December 31, 1997, as compared to 1996. During 1997, the Company issued the following senior notes: in October, $150 million at 6.30% maturing in 2002; and, in November, $150 million at 6.50% maturing in 2003. The proceeds were used to reduce borrowings of the Company (including outstanding commercial paper) and for general corporate purposes. The provision for credit losses for the year ended December 31, 1997 was 3.03% as a percentage of average net finance receivables for that period, as compared to 2.79% for 1996. 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. Delinquencies in excess of 60 days rose to 2.7% at December 31, 1997 compared to 2.6% at December 31, 1996, and 1.8% at December 31, 1995. Correspondingly, the charge-off rate as a percent of average net receivables moved higher in 1997, reaching 3.0% as compared to 2.2% in 1996, and 2.4% in 1995. 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). Because of this change in policy, the charge-offs for the three years presented are not comparable. The Company is not able to determine what the charge-offs would have been in prior years under the new policy had it been in effect January 1, 1995. This increase in delinquencies and charge-offs reflects a continued high level of personal bankruptcies, a national trend which has drawn the attention of federal and state legislators. Personnel expenses were $2.3 million, or 3.1%, lower in 1997 as compared to 1996. This is primarily due to a reduction in allocated employee benefit costs. 16 In 1996, there was 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.) Other operating expenses before the above-described insurance recovery were $531 thousand, or 1.3%, higher in 1997 as compared to 1996. Productivity, defined as the ratio of operating and administrative expenses (before deferral of direct loan costs and, in 1996, the above described insurance recovery) to average outstanding finance receivables, improved to 6.6% in 1997 as compared to 6.8% in 1996. The Company has initiated a program to prepare the Company's computer system and applications for years after 1999. Many computer programs use two digits to identify the year in a date field. When computations involve years after 1999, such programs could create erroneous results or fail. The Company is assessing all internal programs and systems as well as contacting software vendors and others with which it conducts business to ensure that potential problems are identified and resolved. The Company expects to incur internal staff costs as well as consulting and other expenses related to infrastructure enhancements necessary to prepare the systems for the years after 1999 and to perform appropriate testing. The Company does not believe that such process will result in a material cost to the Company. 17 Item 8. Financial Statements and Supplementary Data Report of Independent Certified Public Accountants To the Board of Directors and Stockholder of Aristar, Inc. We have audited the accompanying consolidated statement of financial condition of Aristar, Inc. and subsidiaries (the "Company") as of December 31, 1997, and the related consolidated statements of operations and retained earnings, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company for the years ended December 31, 1996 and 1995 were audited by other auditors whose report, dated January 17, 1997, expressed an unqualified opinion on those consolidated statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such 1997 consolidated financial statements present fairly, in all material respects, the financial condition of the Company as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Tampa, Florida January 20, 1998 18 Report of Independent Certified Public Accountants To the Board of Directors and Stockholder of Aristar, Inc. In our opinion, the consolidated statements of financial condition and the related consolidated statements of operations and retained earnings and of cash flows as of and for each of the two years in the period ended December 31, 1996 (appearing on pages 19 through 21 of this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operation and cash flows of Aristar, Inc. and it subsidiaries as of and for each of the two 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 the 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. We have not audited the consolidated financial statements of Aristar, Inc. and its subsidiaries for any period subsequent to December 31, 1996. 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 19 ARISTAR, INC. and Subsidiaries Consolidated Statements of Financial Condition (Dollars in thousands) December 31, 1997 December 31, 1996 ASSETS Consumer finance receivables, net $ 2,235,080 $ 2,115,858 Investment securities 154,475 137,072 Cash and cash equivalents 26,446 22,660 Property and equipment, less accumulated depreciation and amortization: 1997, $22,310; 1996, $21,528 9,687 10,338 Deferred charges 24,504 11,956 Excess of cost over equity of companies acquired, less accumulated amortization: 1997, $59,702; 1996, $52,638 49,591 56,655 Other assets 34,245 37,319 TOTAL ASSETS $ 2,534,028 $ 2,391,858 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Short-term debt $ 357,532 $ 398,006 Long-term debt 1,472,872 1,352,770 Total debt 1,830,404 1,750,776 Customer deposits 163,185 146,138 Accounts payable and other liabilities 47,209 46,366 Federal and state income taxes 24,628 13,836 Insurance claims and benefits reserves 7,824 7,702 Unearned insurance premiums and commissions 62,594 57,800 Total liabilities 2,135,844 2,022,618 Commitments and contingencies (Notes 14 and 15) 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 352,756 323,969 Net unrealized holding gain on investment securities 533 376 Total stockholder's equity 398,184 369,240 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,534,028 $ 2,391,858
See Notes to Consolidated Financial Statements. 20 ARISTAR, INC. and Subsidiaries Consolidated Statements of Operations and Retained Earnings Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Loan interest and fee income $ 369,600 $ 370,314 $ 363,448 Investment securities income 10,373 9,183 8,801 Total interest income 379,973 379,497 372,249 Interest and debt expense 128,887 120,758 114,917 Net interest income before provision for credit losses 251,086 258,739 257,332 Provision for credit losses 66,600 58,800 48,500 Net interest income 184,486 199,939 208,832 Other operating income Net insurance operations and other income 26,555 27,205 29,235 Other expenses Personnel expenses 69,468 71,724 67,938 Occupancy expense 10,068 9,919 10,681 Advertising expense 5,807 4,848 5,873 Amortization of excess cost over equity of companies acquired 7,064 7,063 7,065 Other operating expenses 42,603 34,072 38,768 135,010 127,626 130,325 Income before income taxes 76,031 99,518 107,742 Provision for federal and state income taxes 29,744 37,000 42,445 Net Income 46,287 62,518 65,297 Retained earnings Beginning of year 323,969 428,273 385,476 Dividends (17,500) (116,800) (22,500) Transfer to Great Western Bank, A Federal Savings Bank (15,192) Transfer to Great Western Financial Corporation (34,830) End of year $ 352,756 $ 323,969 $ 428,273
See Notes to Consolidated Financial Statements. 21 ARISTAR, INC. and Subsidiaries Consolidated Statements of Cash Flows Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Cash flows from operating activities Net income $ 46,287 $ 62,518 $ 65,297 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 66,600 58,800 48,500 Depreciation and amortization 13,750 13,523 13,148 Deferred income taxes (4,060) (16,188) (13) Increase (decrease) in Accounts payable and other liabilities 843 (21,313) (30,432) Unearned insurance premiums and commissions and insurance claims and benefits reserves 4,916 737 2,900 Currently payable income taxes 14,734 18,455 4,511 (Increase) decrease in other assets 3,074 (23,464) 10,021 Net cash provided by operating activities 146,144 93,068 113,932 Cash flows from investing activities Investment securities purchased (62,582) (40,331) (55,884) Investment securities matured 45,454 43,317 43,223 Consumer finance receivables originated or purchased (1,493,058) (1,407,334) (1,484,545) Consumer finance receivables repaid 1,293,161 1,308,184 1,299,233 Net change in property and equipment (998) (665) (602) Net cash used in investing activities (218,023) (96,829) (198,575) Cash flows from financing activities Net change in short-term borrowings (40,474) 85,130 133,791 Proceeds from issuance of long-term debt 326,344 453,539 99,909 Long-term debt issue costs (2,952) (2,615) (1,162) Repayments of long-term debt (206,800) (105,000) (189,000) Net change in customer deposits 17,047 (14,634) 30,719 Net change in due to affiliate (237,576) 34,361 Dividends paid (17,500) (116,800) (22,500) 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 75,665 12,022 86,118 Net increase in cash and cash equivalents 3,786 8,261 1,475 Cash and cash equivalents Beginning of year 22,660 14,399 12,924 End of year $ 26,446 $ 22,660 $ 14,399 Supplemental disclosures of cash flow information Interest paid $ 125,841 $ 118,038 $ 113,665 Intercompany payments in lieu of federal and state income taxes 23,011 49,612 35,339
See Notes to Consolidated Financial Statements. 22 ARISTAR, INC. and Subsidiaries Notes to Consolidated Financial Statements Note 1 Ownership and Operations At June 30, 1997, Aristar, Inc. was an indirect, wholly-owned subsidiary of Great Western Financial Corporation ("GWFC"). On July 1, 1997, pursuant to an Agreement and Plan of Merger announced March 6, 1997, GWFC merged with and into a wholly-owned subsidiary of Washington Mutual, Inc. ("Washington Mutual") (the "Great Western Merger"). As a result of this merger, Aristar, Inc. became an indirect, wholly-owned subsidiary of Washington Mutual. The Great Western Merger was accounted for as a pooling of interests. Accordingly, these financial statements reflect historical cost. 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 Southeast and Southwest. These offices generally operate under the names Blazer Financial Services, City Finance Company and First Community Financial Services. The Company makes consumer installment loans and purchases retail installment 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 consumer installment loans and purchasing retail installment 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 finance receivables 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 receivables. A portion of the Company's retail installment contracts are "same as cash". This provides a period during which the customer is allowed to pay the account balance in full without interest charges. The Company recognizes interest income only on the portion of these receivables which it estimates will not be paid in full without interest charges. 23 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 receivables. The Company's consumer finance receivables are a large group of smaller-balance homogenous loans that are collectively evaluated for impairment. Losses on receivables 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 receivable balance. Non-real estate secured delinquent receivables are generally charged off when they are 180 days contractually delinquent (120 days prior to October 1, 1996). Recoveries on previously written-off receivables 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. The Company periodically reviews intangibles to assess recoverability and impairment is recognized in operations if permanent loss of value occurs. 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. 24 Income Taxes. The Company is included in the consolidated Federal income tax return filed by Washington Mutual. Currently payable Federal income taxes will be paid to Washington Mutual. Federal income taxes are allocated between Washington Mutual 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 ("SFAS") No. 109, Accounting for Income Taxes. 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, SFAS No. 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: Consumer finance receivables. The approximate fair value of consumer 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 for long-term debt is estimated using rates currently available to the Company for debt with similar terms and remaining maturities. 25 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 aggregate 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. Adoption of Recently Issued Accounting Standards. SFAS No. 130, Reporting Comprehensive Income was issued in June 1997 and requires businesses to disclose comprehensive income and its components in their financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997, and is applicable to interim periods. This statement will not affect the results of operations or financial position of the Company. SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information was issued in June 1997 and redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. SFAS No. 131 is effective beginning January 1, 1998. The statement will not affect the results of operations or financial position of the Company. Note 3 Transfers from Related Parties On April 30, 1996, Great Western Bank, a Federal Savings Bank ("GWB"), then 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 time. 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. 26 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. Note 5 Consumer Finance Receivables Consumer finance receivables at December 31, 1997 and 1996 are summarized as follows: (Dollars in thousands) 1997 1996 Consumer finance receivables Real estate secured loans $ 1,094,061 $ 994,097 Other installment loans 1,197,788 1,109,143 Retail installment contracts 362,373 400,530 Gross consumer finance receivables 2,654,222 2,503,770 Less: Unearned finance charges and deferred loan fees (344,819) (317,867) Allowance for credit losses (74,323) (70,045) Net consumer finance receivables $ 2,235,080 $ 2,115,858
The amount of gross nonaccruing consumer finance receivables included above was approximately $50.9 million and $45.6 million at December 31, 1997 and 1996, respectively. Contractual maturities, net of unearned finance charges and deferred loan fees, at December 31, 1997 are as follows: Over 1 But Within Within Over 1 year 5 years 5 years Total (Dollars in thousands) Real estate secured loans $ 129,943 $ 377,591 $ 463,518 $ 971,052 Other installment loans 448,306 566,589 394 1,015,289 Retail installment contracts 123,810 199,065 187 323,062 $ 702,059 $1,143,245 $ 464,099 $ 2,309,403
27 Consumer installment loans have maximum terms of 360 months, while retail installment contracts have maximum terms of 60 months. The weighted average contractual term of all consumer finance receivables written during the years ended December 31, 1997 and 1996 was 49 months and 50 months, respectively. Experience has shown that a substantial portion of the consumer finance 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, 1997 and 1996, the ratio of principal cash collections to average net consumer finance receivables outstanding was 59% and 63%, respectively. The majority of loans provide for a fixed rate of interest over the contractual life of the loan. The approximate fair value of the Company's consumer finance receivables (net of unearned finance charges and deferred loan fees) as of December 31, 1997 and 1996 follows: (Dollars in thousands) 1997 1996 Approximate Approximate Net Book Fair Net Book Fair Value Value Value Value Real estate secured loans $ 971,052 $ 955,491 $ 889,970 $ 874,959 Other installment loans 1,015,289 972,488 929,977 908,762 Retail installment contracts 323,062 323,062 365,956 365,956 $2,309,403 $ 2,251,041 $ 2,185,903 $2,149,677
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, 1997. Geographic diversification of consumer finance receivables reduces the concentration of credit risk associated with a recession in any one region. 28 Activity in the Company's allowance for credit losses is as follows: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Balance, January 1 $ 70,045 $ 55,568 $ 53,217 Provision 66,600 58,800 48,500 Amounts charged off Real estate secured loans (1,292) (1,582) (1,324) Other installment loans (64,460) (50,086) (51,208) Retail installment contracts (13,946) (10,947) (11,404) (79,698) (62,615) (63,936) Recoveries Real estate secured loans 556 442 590 Other installment loans 11,538 12,892 12,543 Retail installment contracts 2,553 2,863 2,924 14,647 16,197 16,057 Net charge-offs (65,051) (46,418) (47,879) Allowances on notes purchased 2,729 2,095 1,730 Balance, December 31 $ 74,323 $ 70,045 $ 55,568
During 1997, the Company reduced interest and fee income by the pre-tax amount of $4.2 million, resulting from the revision of its estimate of interest earnings on "same as cash" retail installment contracts. "Same as cash" contracts provide a period during which the customer is allowed to pay the account balance in full with no interest charges. The percentage of customers exercising such option has been greater than originally estimated by the Company, thereby requiring the above-described adjustment. 29 Note 6 Investment Securities Investment securities as of December 31, 1997 and 1996 are as follows: (Dollars in thousands) December 31, 1997 Approximate Original Amortized Gross Unrealized Fair Cost Cost Gains Losses Value Government obligations $ 22,685 $ 22,284 $ 115 $ 115 $ 22,284 Corporate obligations 98,875 98,316 1,180 266 99,230 Certificates of deposit and other 34,905 32,917 186 142 32,961 $156,465 $ 153,517 $1,481 $ 523 $ 154,475
(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
There were no significant realized gains or losses during 1997 or 1996. The following table presents the maturity of the investment securities at December 31, 1997: (Dollars in thousands) Approximate Amortized Fair Cost Value Due in one year or less $ 33,940 $ 33,804 Due after one year through five years 71,191 71,711 Due after five years through ten years 43,519 44,091 Due after ten years 4,867 4,869 $ 153,517 $ 154,475
30 Note 7 Deferred Charges Deferred charges, net of amortization, as of December 31, 1997 and 1996 are as follows: (Dollars in thousands) 1997 1996 Long-term debt issue costs $ 5,195 $ 4,711 Premiums on purchased accounts 19,309 7,245 $ 24,504 $ 11,956 Amortization of deferred charges for each of the last three years is as follows: (Dollars in thousands) 1997 1996 1995 Long-term debt issue costs $ 2,468 $ 1,616 $ 1,287 Premiums on purchased accounts 2,697 3,495 3,198 Note 8 Short-term Debt Short-term debt at December 31, 1997 and 1996 consisted of commercial paper notes. Such debt outstanding at December 31, 1997 had been issued in the minimum amount of $1,045,000 and with a maximum original term of 74 days. The book value of short-term debt at December 31, 1997 approximates its estimated fair value. Additional information concerning total short-term borrowings is as follows: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Outstanding during the year Maximum amount at any month end $ 471,980 $ 578,743 $ 312,876 Average amount 406,992 391,936 210,684 Weighted average interest rate 5.8% 5.2% 6.0% Balance at end of year Amount $ 357,532 $ 398,006 $ 312,876 Weighted average interest rate 6.1% 5.7% 5.9%
Weighted average interest rates include the effect of commitment fees. 31 Short-term notes totaling $67 million and $66 million were issued in December, 1997 and 1996, 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 1997 or 1996. 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 expired August 15, 1997, interest was payable monthly at FHLB's cash management rate. During 1997 and 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. 32 Note 9 Long-term Debt Long-term debt at December 31, 1997 and 1996 was comprised of the following: (Dollars in thousands) 1997 1996 Senior Debentures and Notes 7.375%, due February 15, 1997 $ 99,997 8.125%, due December 1, 1997 99,909 5.75%, due July 15, 1998 $ 149,972 149,922 7.875%, due February 15, 1999 99,947 99,904 6.75%, due May 15, 1999 99,992 99,986 6.3%, due July 15, 2000 99,949 99,931 6.125%, due December 1, 2000 149,702 149,610 7.75%, due June 15, 2001 149,944 149,930 7.25%, due June 15, 2001 99,885 99,857 6.75%, due August 15, 2001 99,933 99,917 6.30%, due October 1, 2002 149,561 6.50%, due November 15, 2003 149,320 Total Senior Debt 1,248,205 1,148,963 Senior Subordinated Notes and Debentures 8.875%, due August 15, 1998 99,979 99,948 7.5%, due July 1, 1999 99,788 99,659 Total Senior Subordinated Debt 199,767 199,607 Federal Home Loan Bank Notes 4.98%, due December 3, 2001 4,200 6.54%, due May 1,2001 18,900 5.39%, due June 3, 2002 6,000 Total Federal Home Loan Bank Notes 24,900 4,200 Total Long-term Debt $ 1,472,872 $ 1,352,770
33 Aggregate maturities at December 31, 1997 are as follows: (Dollars in thousands) Senior Federal Senior Subordinated Home Loan Debt Notes Bank Notes Total 1998 $ 149,972 $ 99,979 $ 249,951 1999 199,939 99,788 299,727 2000 249,651 249,651 2001 349,762 $ 18,900 368,662 2002 149,561 6,000 155,561 2003 149,320 149,320 $ 1,248,205 $ 199,767 $ 24,900 $1,472,872
The approximate fair value of the Company's long-term debt as of December 31, 1997 and 1996 is as follows: (Dollars in thousands) 1997 1996 Book Approximate Book Approximate Value Fair Value Value Fair Value Senior debt $ 1,248,205 $ 1,274,620 $ 1,148,963 $ 1,192,141 Senior subordinated notes 199,767 204,114 199,607 215,083 Federal Home Loan Bank notes 24,900 24,913 4,200 4,200 $ 1,472,872 $ 1,503,647 $ 1,352,770 $ 1,411,431
On May 1, 1997, the Company obtained an adjustable rate advance from the FHLB of Topeka in the amount of $21,500,000. Under the credit agreement, which matures May 1, 2001, interest is payable monthly and adjusts every seven days to a rate equal to the FHLB's One Week Repo rate plus 10 basis points (6.54% at December 31, 1997). As a result of prepayments made in 1997, the outstanding balance as of December 31, 1997 is $18,900,000. On June 3, 1997, the Company obtained a putable advance from the FHLB of Seattle in the amount of $6,000,000. On a specified day each quarter, the FHLB has the option to call the advance at par. Under the credit agreements, which matures June 3, 2002, interest is payable monthly and is determined using a fixed annual interest rate of 5.39%. Interest expense related to FHLB debt in 1997 and 1996 was approximately $1,116,000 and $15,000 respectively. 34 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. In June, 1997, the Company filed an $800 million shelf registration statement. Under this registration statement, the Company issued in October, 1997, $150 million of 6.3% senior notes maturing October 1, 2002; and, in November, 1997, $150 million of 6.5% senior notes maturing November 15, 2003. The proceeds of these issues were used to reduce borrowings of the Company (including outstanding commercial paper) 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, 1997, approximately $23 million was available under the debt agreement restriction for future dividends. 35 Note 10 Customer Deposits The net book value and approximate fair value of the Company's customer deposits as of December 31, 1997 and 1996 are as follows: (Dollars in thousands) 1997 1996 Book Approximate Book Approximate Value Fair Value Value Fair Value Certificates of deposit $100,000 and over $ 12,768 $ 12,820 $ 10,674 $ 10,714 Certificates of deposit under $100,000 133,041 133,373 117,588 117,943 Savings accounts 1,493 1,493 1,534 1,534 Money market accounts 15,883 15,883 16,342 16,342 $ 163,185 $ 163,569 $ 146,138 $ 146,533
Maturities of time deposits are $98,421,000 in 1998, $33,975,000 in 1999, $7,131,000 in 2000 and $6,282,000 thereafter. Note 11 Income Taxes The components of income tax expense are as follows: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Currently payable Federal $ 28,567 $ 44,871 $ 35,739 State 5,237 8,317 6,719 Deferred (4,060) (16,188) (13) $ 29,744 $ 37,000 $ 42,445
36 The provisions for income taxes differ from the amounts determined by multiplying pretax income by the statutory Federal income tax rate of 35% for 1997, 1996 and 1995. A reconciliation between these amounts is as follows: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Income taxes at statutory rates $ 26,611 $ 34,831 $ 37,709 Increase (reduction) in taxes resulting from: State income taxes, net of Federal benefit 2,972 5,406 4,367 Other 161 (3,237) 369 $ 29,744 $ 37,000 $ 42,445
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) 1997 1996 Amortization of intangibles $ 9,537 $ 11,606 Employee benefits accruals 2,338 2,335 Depreciation 86 426 Loan interest and fee income 3,173 3,374 Other deferred income items 1,389 378 Total deferred tax liabilities 16,523 18,119 Credit loss reserves (26,391) (24,788) Unearned insurance commissions (4,700) (3,956) Other miscellaneous accruals (2,099) (2,598) State taxes (4,100) (4,076) Other deferred deduction items (3,655) (3,181) Total deferred tax assets (40,945) (38,599) Net deferred tax asset $ (24,422) $ (20,480)
37 Note 12 Net Insurance Operations and Other Income Net insurance operations and other income is comprised as follows: Year Ended December 31, (Dollars in thousands) 1997 1996 1995 Premium and commission income $ 37,422 $ 36,691 $ 37,448 Claims, ceding fees and other expenses (15,627) (14,335) (14,774) Net Insurance 21,795 22,356 22,674 Other Income 4,760 4,849 6,561 $ 26,555 $ 27,205 $ 29,235
Note 13 Retirement and Savings Plans Substantially all of the Company's employees participate in a noncontibutory defined contribution pension plan maintained by Washington Mutual. 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, 1997, 1996, and 1995 was $(150,000), $490,000 and $1,455,000, 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 an employee savings plan maintained by Washington Mutual, which allows employees to defer part of their pretax compensation until retirement. Company contributions for the years disclosed equaled 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 $1,034,000, $1,360,000 and $1,161,000 for the years ended December 31, 1997, 1996 and 1995, respectively. The Company's employees who retired prior to July 1, 1997 also participate in GWFC's defined benefit postretirement plans which cover a portion of the costs of 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, 1997, 1996 and 1995 were $358,000, $521,000 and $532,000, respectively. 38 Note 14 Leases At December 31, 1997, 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 $7,576,000 in 1998; $5,402,000 in 1999; $2,730,000 in 2000; $1,375,000 in 2001; and $576,000 in 2002. Rent expense for the years ended December 31, 1997, 1996 and 1995 was $10,804,000, $9,975,000, and $9,274,000, respectively. Note 15 Contingencies The Company and certain of its subsidiaries are parties to various lawsuits and proceedings arising in the ordinary course of business. The Company has also 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. Certain of these lawsuits and proceedings arise in jurisdictions, such as Alabama, that permit damage awards disproportionate to the actual economic damages incurred. Based upon information presently available, the Company believes that the total amounts that will ultimately be paid, if any, arising from these lawsuits and proceedings will not have a material adverse effect on the Company's consolidated results of operations and financial position. However, it should be noted that the frequency of large damage awards, including large punitive damage awards, that bear little or no relation to actual economic damages incurred by plaintiffs in jurisdictions like Alabama continues to increase and creates the potential for an unpredictable judgment in any give suit. Note 16 Transactions with Related Parties Significant transactions with Washington Mutual or its subsidiaries in addition to those described in Note 3 are identified as follows: Washington Mutual Bank FA, another subsidiary of Washington Mutual, provided the Company with certain administrative services, including human resources and cash management, for which the Company paid management fees of $1,900,000 in 1997, $1,770,000 in 1996 and $1,358,000 in 1995. The Company made payments to Washington Mutual pursuant to a tax allocation policy and in connection with the retirement and savings plans. 39 Note 17 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, 1997 December 31, 1996 Carrying Approximate Carrying Approximate Value Fair Value Value Fair Value Consumer finance receivables Note 5 $2,309,403 $2,251,041 $2,185,903 $2,149,677 Investment securities Note 6 153,517 154,475 136,390 137,072 Short-term debt Note 8 357,532 357,532 398,006 398,006 Long-term debt Note 9 1,472,872 1,503,647 1,352,770 1,411,431 Customer deposits Note 10 163,185 163,569 146,138 146,533
See Note 2 and the referenced Notes for additional information. Note 18 Selected Quarterly Financial Data (Unaudited) A summary of the quarterly results of operations for the years ended December 31, 1997 and 1996 is set forth below: Quarter Ended March 31, June 30, September 30, December 31, (Dollars in thousands) 1997 1996 1997 1996 1997 1996 1997 1996 Revenue $ 99,723 $102,688 $100,836 $ 99,806 $ 97,991 $ 99,605 $107,978 $104,603 Interest and other expenses 66,298 64,756 63,654 53,931 64,746 63,314 69,199 66,383 Provision for credit losses 15,400 14,500 15,600 13,600 16,200 15,300 19,400 15,400 Total expenses 81,698 79,256 79,254 67,531 80,946 78,614 88,599 81,783 Income before taxes 18,025 23,432 21,582 32,275 17,045 20,991 19,379 22,820 Income tax provision 7,100 9,200 8,500 12,800 6,800 8,200 7,344 6,800 Net income $ 10,925 $ 14,232 $ 13,082 $ 19,475 $ 10,245 $ 12,791 $ 12,035 $ 16,020
40 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 Reports of Independent Certified Public Accountants . . . . . . . 17 Aristar, Inc. and Subsidiaries: Consolidated Statements of Financial Condition at December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . 19 Consolidated Statements of Operations and Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . 20 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 . . . . . . 21 Notes to Consolidated Financial Statements . . . . . . . . . . . 22 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) 41 (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) (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 July 15, 1984, between Aristar, Inc. and Bank of Montreal Trust Company, as trustee.(5) (b) First supplemental indenture to Exhibit (4)(a) dated as of June 1, 1987.(5) (c) Indenture dated as of August 15, 1988 between Aristar, Inc. and Bank of Montreal Trust Company, as trustee.(6) (d) Indenture dated as of May 1, 1991 between Aristar, Inc. and Security Pacific National Bank, as trustee.(7) (e) Indenture dated as of May 1, 1991 between Aristar, Inc. and The First National Bank of Boston, as trustee. (7) (f) Indenture dated as of October 1, 1997 between Aristar, Inc. and First Union National Bank, as trustee. (8) (g) Indenture dated as of November 15,1997 between Aristar, Inc. and First Union National Bank, as trustee. (9) (h) 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. (10) (12) Statement Re: Computation of Ratios. (23) Consents of Independent Certified Public Accountants. (24) Power of Attorney included on Page 43 of the Form 10-K. (27) Financial Data Schedule. 42 (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 Current Report on Form 8-K dated October 6, 1997, Commission file number 1-3521. (9) Incorporated by reference to Registrant's Report on Form 424B2 dated November 6, 1997, Commission file number 1-3521. (10) 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 October 8, 1997, the Company filed a Current Report on Form 8-K, dated October 6, 1997, disclosing, under item (7) thereof, the terms of the issuance of $150,000,000 aggregate principal amount of its 6.3% senior notes maturing October 1, 2002. 43 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 R. Hillsman March 31, 1998 James R. Hillsman, Senior Vice President Date and Deputy Chief Financial Officer (Principal Accounting Officer) POWER OF ATTORNEY Each person whose signature appears below hereby authorizes James R. Hillsman 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 31, 1998. /s/ Craig E. Tall Craig E. Tall, President and Director (Principal Executive Officer) /s/ Fay L. Chapman Fay L. Chapman, Director /s/ Wayne L. Evans Wayne L. Evans, Director /s/ James B. Fitzgerald James B. Fitzgerald, Director /s/ William A. Longbrake William A. Longbrake, Director EX-27 2
9 This Schedule contains summary financial information extracted from the Company's financial statements filed as part of its Report on Form 10-K for the years ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1997 DEC-31-1997 26,446 0 0 0 154,475 0 0 2,309,403 (74,323) 2,534,028 163,185 357,532 47,209 1,472,872 0 0 1 398,183 2,534,028 369,600 10,373 0 379,973 8,873 128,887 251,086 66,600 0 135,010 76,031 0 0 0 46,287 0 0 7.85 50,930 0 0 0 70,045 (79,698) 14,647 74,323 0 0 74,323 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 Decmeber 31, 1997 using the Article 9 format.
EX-23 3 Exhibit 23 (a) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-29049 of Aristar, Inc. on Form S-3 of our report dated January 20, 1998, appearing in this Annual Report on Form 10-K of Aristar, Inc. for the year ended December 31, 1997. DELOITTE & TOUCHE LLP March 31, 1998 EX-12 4 Exhibit 12 ARISTAR, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) Year Ended December 31, (Dollars in thousands) 1997 1996 1995 1994 1993 Income from operations before income taxes $ 76,031 $ 99,518 $107,741 $101,311 $ 91,523 Fixed charges: Interest and debt expense on all indebtedness 128,887 120,758 114,917 102,224 98,600 Appropriate portion of rentals (33%) 3,565 3,292 3,359 3,020 3,276 Total fixed charges 132,452 124,050 118,276 105,244 101,876 Earnings available for fixed charges $208,483 $223,568 $226,017 $206,555 $193,399 Ratio of earnings to fixed charges 1.57 1.80 1.91 1.96 1.90
EX-23 5 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 333-29049) of Aristar, Inc. and subsidiaries of our report dated January 17, 1997 appearing on page 18 of this Form 10-K. PRICE WATERHOUSE LLP Tampa, Florida March 30, 1998 -----END PRIVACY-ENHANCED MESSAGE-----