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%
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:
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.
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:
(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:
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:
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.
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.

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.
Item 3.

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.

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.

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.
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.
Item 8.

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
ARISTAR, INC. and Subsidiaries Consolidated Statements of Financial Condition
See Notes to Consolidated Financial Statements.
ARISTAR, INC. and Subsidiaries Consolidated Statements of Operations and Retained Earnings
See Notes to Consolidated Financial Statements.
ARISTAR, INC. and Subsidiaries Consolidated Statements of Cash Flows
See Notes to Consolidated Financial Statements.
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.
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.
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.
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.
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
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 Finance Receivables
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.
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:
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:
Note 6 Investment Securities
Investment securities as of December 31, 1996 and 1995 are as follows:
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)
Note 7 Deferred Charges
Deferred charges, net of amortization, as of December 31, 1996 and 1995 are as follows:
Amortization of deferred charges for each of the last three years is as follows:
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:
Weighted average interest rates include the effect of commitment fees.
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.
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
Aggregate maturities at December 31, 1996 are as follows:
(Dollars in thousands)
The approximate fair value of the Company's long-term debt as of December 31, 1996 and 1995 is as follows:
(Dollars in thousands)
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.
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:
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.
Note 11 Income Taxes
The components of income tax expense are as follows:
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:
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:
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.
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)
See Note 1 and the referenced Notes for additional information.
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:
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.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART IV
Item 14.

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)
(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.
(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.
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