UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number Q-6673
PACIFIC SECURITY COMPANIES
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0669906
-------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
N. 10 Post Street
525 Peyton Building
Spokane, Washington 99201 (509) 624-0183
-------------------------------- ---------------------------
(Address of principal Registrant's telephone number,
executive offices) including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
<PAGE>
Part I. Financial Information
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 46,191 $ 511,861
Restricted 172,092 362,239
------------- -------------
218,283 874,100
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 1,080,265 1,093,593
Unrelated 13,319,364 13,364,365
------------- -------------
14,399,629 14,457,958
Accrued interest 120,642 125,047
Other (6,393) 63,854
------------- -------------
14,513,878 14,646,859
------------- -------------
Investment in rental properties 15,693,515 15,742,637
------------- -------------
Other investments:
Property held for sale 3,190,683 2,931,796
Marketable securities 103,317 127,704
Restricted investments 276,269 50,448
Other, at cost 76,933 76,933
------------- -------------
Total other investments 3,647,202 3,186,881
------------- -------------
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- ------------
<S> <C> <C>
Other assets:
Vehicle and equipment, less
accumulated depreciation of $189,628
and $179,026, respectively $ 32,309 $ 41,531
Prepaid expenses 310,422 350,671
------------- -------------
Total other assets 342,731 392,202
------------- -------------
Total assets $ 34,415,609 $ 34,842,679
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable, bank $ 5,476,763 $ 7,023,541
Installment contracts and
mortgage notes payable:
Related parties 7,118 7,819
Unrelated 7,632,813 6,647,708
------------- -------------
7,639,931 6,655,527
Debenture bonds 8,595,225 8,567,231
Accrued expenses and other
liabilities:
Related parties 328,969 303,094
Unrelated parties 705,034 756,742
------------- -------------
1,034,003 1,059,836
Federal income taxes:
Currently payable 35,000 28,203
Deferred 1,421,340 1,424,986
------------- -------------
1,456,340 1,453,189
Total liabilities 24,202,262 24,759,324
------------- -------------
Commitments and contingencies
Redeemable Class A preferred stock,
$100 par value; authorized
20,000 shares; issued and
outstanding 10,400 shares 1,040,000 1,040,000
Less: Discount on issuance of
preferred stock (520,000) (520,000)
------------- -------------
520,000 520,000
------------- -------------
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
<TABLE>
<CAPTION>
January 31, July 31,
1995 1994
----------- ------------
<S> <C> <C>
Stockholders' equity:
Common stock authorized
(2,500,000 non-par value
shares, $3 stated value;
issued and outstanding
1,957,156 and 1,965,595
shares, respectively) $ 5,871,470 $ 5,896,786
Additional paid-in capital 1,748,322 1,760,261
Retained earnings 2,075,133 1,883,499
Net unrealized gain (loss) on
marketable securities (1,578) 22,809
------------- -------------
Total stockholders' equity 9,693,347 9,563,355
------------- -------------
Total liabilities and
stockholders' equity $ 34,415,609 $ 34,842,679
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For Three Months Ending
January 31,
1995 1994
------------- -------------
<S> <C> <C>
Income:
Rental $ 709,348 $ 648,405
Interest (related parties $22,319
and $30,034, respectively) 353,613 362,061
Gain on sale of securities 0 3,275
Service fees and options 2,600 0
Amortization of discounts on
real estate contracts 18,045 25,707
Gain on sales of real estate 0 28,567
Other 11,529 18,244
------------- -------------
1,095,135 1,086,259
------------- -------------
Expenses:
Rental operations:
Depreciation and amortization 172,979 175,694
Interest 148,129 88,371
Other 326,171 292,706
------------- -------------
647,279 556,771
------------- -------------
Interest (related parties $7,661
and $24,644, respectively),
net of amount capitalized 296,250 356,905
Salaries and commissions 137,208 138,225
General and administrative 78,052 74,721
Depreciation 5,324 5,167
------------- -------------
1,164,113 1,131,789
------------- -------------
Loss before federal income tax (68,978) (45,530)
Federal income tax provision
(benefit) (23,253) 19,366
------------- -------------
Net loss $ (45,725) $ (64,896)
============= =============
Net loss per common share $ (.02) $ (.03)
============= =============
Weighted average common shares
outstanding 1,961,376 1,979,103
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
For Six Months Ending
January 31,
1995 1994
------------- -------------
<S> <C> <C>
Income:
Rental $ 1,419,534 $ 1,270,554
Interest (related parties $61,386
and $68,269, respectively) 705,803 754,971
Gain (loss) on sale of securities 0 4,445
Service fees and options 2,600 980
Amortization of discounts on
real estate contracts 51,707 59,892
Gain on sales of real estate 403,154 226,672
Other 13,854 42,237
------------- -------------
2,596,652 2,359,751
------------- -------------
Expenses:
Rental operations:
Depreciation and amortization 349,447 340,235
Interest 244,225 186,646
Other 615,032 586,793
------------- -------------
1,208,704 1,113,674
------------- -------------
Interest (related parties $17,104
and $45,859, respectively),
net of amount capitalized 614,626 704,448
Salaries and commissions 291,695 281,879
General and administrative 183,451 185,084
Depreciation 10,602 9,833
------------- -------------
2,309,078 2,294,918
------------- -------------
Income before federal income tax 287,574 64,833
Federal income tax provision 98,151 35,850
------------- -------------
Net income $ 189,423 $ 28,983
============= =============
Net income per common share $ .10 $ .01
============= =============
Weighted average common shares
outstanding 1,961,376 1,979,046
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For Six Months Ending
January 31,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rentals $ 1,496,116 $ 1,321,721
Interest received 707,138 768,834
Cash paid to suppliers and employees (1,077,721) (935,519)
Interest paid, net of amounts
capitalized (617,442) (616,728)
Income taxes paid (95,000) (4,452)
------------- -------------
Net cash provided by
operating activities 413,091 533,856
------------- -------------
Cash flows from investing activities:
Proceeds of sales of real estate 263,960 629,327
Proceeds of sales of marketable
securities 25,085
Collections on contracts, mortgages
and finance notes 931,444 2,299,911
Investment in contracts, mortgages
and finance notes receivable (198,246) (70,250)
Additions to rental properties,
vehicles and equipment (1,038,104) (2,015,106)
Purchase of marketable securities 1,368
Increase in restricted investments
and cash equivalents (29,006) (12,340)
------------- -------------
Net cash provided by (used in)
investing activities (69,952) 857,995
------------- -------------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreement (1,546,778) 334,444
Installment contracts, mortgage
notes and notes payable 1,700,000
Payments on installment contracts,
mortgage notes and notes payable (715,597) (1,455,448)
Proceeds of sales of debenture bonds 628,691 729,959
Redemption of debenture bonds (837,872) (1,210,579)
Purchase and retirement of
treasury stock (37,255) (6,371)
------------- -------------
Net cash used in
financing activities (808,811) (1,607,995)
------------- -------------
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
For Six Months Ending
January 31,
1995 1994
------------- -------------
<S> <C> <C>
Net decrease in cash and cash
equivalents $ (465,672) $ (216,144)
Cash and cash equivalents, beginning
of period 511,863 345,706
------------- -------------
Cash and cash equivalents, end of
period $ 46,191 $ 129,562
============= =============
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 189,424 $ 28,983
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 360,049 350,301
Deferred financing income
realized (54,258) (67,275)
Interest accrued on debenture
bonds 237,176 247,903
(Gain) on sales of
marketable securities (4,445)
Gain on sale of real estate (403,154) (226,672)
Decrease (increase) in assets:
Accrued interest receivable 1,769 14,327
Other 104,309 (5,971)
Increase (decrease) in
liabilities:
Accrued expenses (25,375) 165,307
Income tax 6,797 31,398
Deferred income tax (3,646)
------------- -------------
Net cash provided by
operating activities $ 413,091 $ 533,856
============= =============
Supplemental schedule of noncash
investing and financing activities:
Additions to investment in rental
properties and properties held
for sale through contract
foreclosure $ 6,060 $ 23,225
Mortgages and contracts payable
financing related to investments
in properties 134,764
Utility assessment on rental
property 223,300
Company financed sale of property 623,000 2,787,460
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Pacific
Security Companies and its subsidiaries ("Company"). In the opinion of
the Company, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the Company's financial position, results of
operations and cash flows for the periods presented.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and the related disclosures
contained in the Company's annual report on Form 10-K for the year ended
July 31, 1994, filed with the Securities and Exchange Commission.
The results of operations for the six months ended January 31, 1995 are
not necessarily indicative of the results to be expected for the full
year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At January 31, 1995, the Company had total stockholder's equity of
approximately $9,693,000 and a total liabilities to equity ratio of 2.50
to 1, which improved from 2.59 to 1 at July 31, 1994. During the first
six months of the fiscal year, the Company's primary sources of funds were
approximately $413,000 from operations, $264,000 from sales of real estate
and $931,000 in real estate contract collections. The primary uses of
funds were approximately $1,038,000 for rental property improvements and
approximately $772,000 in net repayment of interest-bearing debt. The
Company anticipates that cash flow from operations, sales of debentures
under its present offering and the availability of funds under its
$8,000,000 line-of-credit agreement, of which only $5,476,763 was
outstanding at January 31, 1995, will be sufficient to provide for the
retirement of maturing debentures and mortgage obligations. The Company
plans to continue using funds to make improvements to its existing office
buildings and to develop land held for sale or development.
Results of Operations (Three Months)
The Company's net loss for the quarter ended January 31, 1995 was
approximately $46,000 compared with a net loss of approximately $65,000
for the quarter ended January 31, 1994. The loss was primarily
attributable to a reduction in gain on sales of real estate and higher
salaries, commissions and administrative expenses.
Rental income increased by $60,943 (9.4%) to approximately $709,000 in the
quarter ended January 31, 1995 from approximately $648,000 in 1994.
Rental income received from tenants in newly-remodeled office building
space more than offset the reduction of approximately $23,000 in rent due
to the sale of the Hastings Building.
Rental property expenses were $90,508 (16.3%) higher in fiscal 1995 than
for the comparable three months in 1994. This primarily resulted from
increased interest expense of $59,758 (67.6%) due to the $1.7 million
mortgage loan on the Pier One Building and other operating expenses of
$33,465 (11.4%), which more than offset a reduction in depreciation of
$2,715 (1.5%).
Interest income and amortized discount was $16,110 (4.3%) less for the
three months ending January 31, 1995, compared with the similar period in
1994, as the average outstanding balance in contracts and notes receivable
declined during the period.
Interest expense, exclusive of interest on debt associated with rental
properties, decreased by $60,655 in fiscal 1995 compared with fiscal 1994.
This was primarily caused by a reduction in interest-bearing debt and
increased capitalization of interest on land being developed.
<PAGE>
Results of Operations (Six Months)
The Company's net income for the six months ended January 31, 1995 was
approximately $189,000 compared with net income of approximately $29,000
for the six months ended January 31, 1994. The increase in rental income
and gain on sales of real estate was partially offset by a decline in
interest income and amortized discount on real estate contracts in fiscal
1995 compared with fiscal 1994. The fiscal 1995 sale of the Hastings
Building resulted in a gain of approximately $403,000. Seller financing
was provided for $623,000 of the $965,000 sales price for the Hastings
Building.
Rental income increased by $149,000 (11.7%) to approximately $1,420,000 in
the six months ended January 31, 1995 from approximately $1,271,000 in
fiscal 1994. This primarily resulted from rental income received from
tenants in newly-remodeled office building space which more than offset
the reduction of approximately $31,000 in rent due to the sale of the
Hastings Building.
Rental property expenses were $95,030 (8.5%) higher in fiscal 1995 than
for fiscal 1994. This resulted from increased interest expense of $57,579
(30.8%), depreciation of $9,212 (2.7%) and other operating expenses of
$28,239 (8.5%).
Interest income and amortized discount was $57,353 (7.0%) less for the six
months ending January 31, 1995 compared with the similar period in 1994,
as the average outstanding balance in contracts and notes receivable
declined during the period.
Interest expense, exclusive of interest on debt associated with rental
properties, decreased by $89,822 (12.8%) in fiscal 1995 compared with
fiscal 1994. This was primarily caused by a reduction in interest-bearing
debt and increased capitalization of interest on land being developed.
Salaries and commissions increased by $9,816 (3.5%) in fiscal 1995
compared with fiscal 1994 primarily because of pay rate increases.
General and administrative expenses decreased by $1,633 (.9%) in fiscal
1995 compared with fiscal 1994. Management closely reviews these
expenses.
Federal income tax provision increased by $62,301 (173.8%) in fiscal 1995
compared with fiscal 1994 due to the increase in taxable income.
<PAGE>
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFIC SECURITY COMPANIES
/s/ Wayne E. Guthrie February 23, 1995
--------------------------- -----------------
Wayne E. Guthrie Date
President and Chief Executive Officer
/s/ Donald J. Migliuri February 23, 1995
--------------------------- -----------------
Donald J. Migliuri Date
Secretary-Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 218
<SECURITIES> 103
<RECEIVABLES> 14514
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 222
<DEPRECIATION> 190
<TOTAL-ASSETS> 34416
<CURRENT-LIABILITIES> 0
<BONDS> 1034
<COMMON> 5871
520
0
<OTHER-SE> 9687
<TOTAL-LIABILITY-AND-EQUITY> 34416
<SALES> 2597
<TOTAL-REVENUES> 2597
<CGS> 1209
<TOTAL-COSTS> 1209
<OTHER-EXPENSES> 486
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 858
<INCOME-PRETAX> 287
<INCOME-TAX> 98
<INCOME-CONTINUING> 189
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
