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 April 30, 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
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
(Unaudited)
----------- ------------
<S> <C> <C>
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 22,100 $ 511,861
Restricted 189,764 362,239
------------- -------------
211,864 874,100
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 1,113,274 1,093,593
Unrelated 12,206,346 13,364,365
------------- -------------
13,319,620 14,457,958
Accrued interest 109,102 125,047
Other 46,074 63,854
------------- -------------
13,474,796 14,646,859
------------- -------------
Investment in rental properties 15,625,257 15,742,637
------------- -------------
Other investments:
Property held for sale 3,380,633 2,931,796
Marketable securities 95,804 127,704
Restricted investments 276,180 50,448
Other, at cost 49,768 76,933
------------- -------------
Total other investments 3,802,385 3,186,881
------------- -------------
Other assets:
Vehicle and equipment, less
accumulated depreciation of
$194,092 and $179,026,
respectively 28,622 41,531
Prepaid expenses 283,329 350,671
------------- -------------
Total other assets 311,951 392,202
------------- -------------
Total assets $ 33,426,253 $ 34,842,679
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
(Unaudited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable, bank $ 5,180,833 $ 7,023,541
Installment contracts and
mortgage notes payable:
Related parties 6,931 7,819
Unrelated 7,027,977 6,647,708
------------- -------------
7,034,908 6,655,527
Debenture bonds 8,802,418 8,567,231
Accrued expenses and other
liabilities:
Related parties 222,711 303,094
Unrelated parties 646,236 756,742
------------- -------------
868,947 1,059,836
Federal income taxes:
Currently payable 30,484 28,203
Deferred 1,364,986 1,424,986
------------- -------------
1,395,470 1,453,189
Total liabilities 23,282,576 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, Continued
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
(Unaudited)
----------- ------------
<S> <C> <C>
Stockholders' equity:
Common stock authorized
(2,500,000 no par value
shares, $3 stated value;
issued and outstanding
1,958,595 and 1,965,595
shares, respectively) $ 5,875,786 $ 5,896,786
Additional paid-in capital 1,746,261 1,760,261
Retained earnings 2,010,722 1,883,499
Net unrealized gain (loss) on
marketable securities (9,092) 22,809
------------- -------------
Total stockholders' equity 9,623,677 9,563,355
------------- -------------
Total liabilities and
stockholders' equity $ 33,426,253 $ 34,842,679
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For Three Months Ending
April 30,
1995 1994
------------- -------------
<S> <C> <C>
Income:
Rental $ 711,887 $ 672,877
Interest (related parties $30,799
and $20,742, respectively) 337,700 362,517
Amortization of discounts on
real estate contracts 18,611 37,134
Gain on sales of real estate 9,275 (38,143)
Other (22,695) 20,424
------------- -------------
1,054,778 1,054,809
------------- -------------
Expenses:
Rental operations:
Depreciation and amortization 174,518 167,828
Interest 125,932 86,461
Other 313,599 255,420
------------- -------------
614,049 509,709
------------- -------------
Interest (related parties $5,239
and $15,362, respectively),
net of amount capitalized 283,054 345,913
Salaries and commissions 187,937 177,606
General and administrative 58,056 40,168
Depreciation 4,463 4,765
Uncollectible accounts 821
------------- -------------
1,147,559 1,078,982
------------- -------------
Loss before federal income tax (92,781) (24,173)
Federal income tax (provision)
benefit 28,370 25,088
------------- -------------
Net income (loss) $ (64,411) $ 915
============= =============
Net loss per common share $ (.03) $ .00
============= =============
Weighted average common shares
outstanding 1,957,156 1,978,823
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
For Nine Months Ending
April 30,
1995 1994
------------- -------------
<S> <C> <C>
Income:
Rental $ 2,131,421 $ 1,943,431
Interest (related parties $92,185
and $89,011, respectively) 1,043,503 1,117,488
Gain on sale of securities 4,445
Service fees and options 2,600 980
Amortization of discounts on
real estate contracts 70,318 97,026
Gain on sales of real estate 412,429 188,529
Other (8,841) 62,661
------------- -------------
3,651,430 3,414,560
------------- -------------
Expenses:
Rental operations:
Depreciation and amortization 523,965 508,063
Interest 370,157 273,107
Other 928,631 842,213
------------- -------------
1,822,753 1,623,383
------------- -------------
Interest (related parties $22,343
and $61,221, respectively),
net of amount capitalized 897,680 1,050,361
Salaries and commissions 479,632 459,485
General and administrative 241,507 225,252
Depreciation 15,065 14,598
Uncollectible accounts 821
------------- -------------
3,456,637 3,373,900
------------- -------------
Income before federal income tax 194,793 40,660
Federal income tax provision 69,781 10,762
------------- -------------
Net income $ 125,012 $ 29,898
============= =============
Net income per common share $ .06 $ .02
============= =============
Weighted average common shares
outstanding 1,961,376 1,978,543
============= =============
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For Nine Months Ending
April 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rentals $ 2,202,455 $ 2,043,129
Interest received 1,056,567 1,108,928
Cash paid to suppliers and employees (1,801,321) (1,649,430)
Interest paid, net of amounts
capitalized (913,519) (948,294)
Income taxes paid (127,500)
------------- -------------
Net cash provided by
operating activities 416,682 554,333
------------- -------------
Cash flows from investing activities:
Proceeds of sales of real estate 264,257 712,279
Proceeds of sales of marketable
securities 38,553
Collections on contracts, mortgages
and finance notes 2,132,942 3,154,190
Investment in contracts, mortgages
and finance notes receivable (242,264) (90,405)
Additions to rental properties,
vehicles and equipment (1,396,413) (2,575,891)
Increase in restricted investments
and cash equivalents (46,794) (25,544)
------------- -------------
Net cash provided by
investing activities 711,728 1,213,182
------------- -------------
Cash flows from financing activities:
Net borrowings (payments) under
line-of-credit agreement (1,842,708) 663,813
Proceeds from installment contracts,
mortgage notes and notes payable 1,700,000
Payments on installment contracts,
mortgage notes and notes payable (1,320,620) (1,929,913)
Proceeds of sales of debenture bonds 813,115 923,975
Redemption of debenture bonds (932,958) (1,588,303)
Purchase and retirement of
treasury stock (35,000) (7,931)
------------- -------------
Net cash used in
financing activities (1,618,171) (1,938,359)
------------- -------------
</TABLE>
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
For Nine Months Ending
April 30,
1995 1994
------------- -------------
<S> <C> <C>
Net decrease in cash and cash
equivalents $ (489,761) $ (170,844)
Cash and cash equivalents, beginning
of period 511,861 345,707
------------- -------------
Cash and cash equivalents, end of
period $ 22,100 $ 174,863
============= =============
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 125,012 $ 29,898
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 539,044 523,010
Deferred financing income
realized (73,045) (104,776)
Interest accrued on debenture
bonds 355,030 365,814
(Gain) on sales of
marketable securities (4,445)
Gain on sale of real estate (412,429) (188,529)
Bad debts 822
Decrease (increase) in assets:
Accrued interest receivable 13,375 (7,907)
Other 106,181 (94,085)
Increase (decrease) in
liabilities:
Accrued expenses (178,769) 23,770
Income tax (57,719) 10,762
------------- -------------
Net cash provided by
operating activities $ 416,680 $ 554,334
============= =============
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 71,224
Company financed sale of property 639,400 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 nine months ended April 30, 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 April 30, 1995, the Company had total stockholder's equity of
approximately $9,624,000 and a total liabilities to equity ratio of 2.42
to 1, which improved from 2.59 to 1 at July 31, 1994. During the first
nine months of the fiscal year, the Company's primary sources of funds
were approximately $417,000 from operations, $264,000 from sales of real
estate and $2,133,000 in real estate contract collections. The primary
uses of funds were approximately $1,396,000 for rental property
improvements and approximately $1,583,000 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
$5,180,833 was outstanding at April 30, 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, including a golf driving range and instruction
facility.
Results of Operations (Three Months)
The Company's net loss for the quarter ended April 30, 1995 was
approximately $64,000 compared with net income of approximately $1,000 for
the quarter ended April 30, 1994. The loss was primarily attributable to
higher rental expenses.
Rental income increased by $39,000 (5.8%) to approximately $712,000 in the
quarter ended April 30, 1995 from approximately $673,000 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 $104,340 (20.5%) higher in fiscal 1995 than
for the comparable three months in 1994. This resulted from increased
interest expense of $39,471 (45.7%) primarily due to the $1,700,000
mortgage loan on the Pier One Building, increased other operating expenses
of $58,179 (22.8%) and increased depreciation of $6,690 (4.0%).
Interest income and amortized discount was $43,340 (10.8%) less for the
three months ended April 30, 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 $62,859 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 (Nine Months)
The Company's net income for the nine months ended April 30, 1995 was
approximately $125,000 compared with net income of approximately $30,000
for the nine months ended April 30, 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 which more than
doubled the prior year's gain on sale of real estate. Seller financing
was provided for $623,000 of the $965,000 sales price for the Hastings
Building.
Rental income increased by $188,000 (9.7%) to approximately $2,131,000 in
the nine months ended April 30, 1995 from approximately $1,943,000 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 $54,000 in rent due to the sale of the
Hastings Building.
Rental property expenses were $199,370 (12.3%) higher in fiscal 1995 than
for fiscal 1994. This resulted from increased interest expense of $97,050
(35.5%) depreciation of $15,902 (3.1%) and other operating expenses of
$86,418 (10.3%).
Interest income and amortized discount was $100,693 (8.3%) less for the
nine months ended April 30, 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 $152,681 (14.5%) 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 $20,147 (4.4%) in fiscal 1995
compared with fiscal 1994 primarily because of pay rate increases.
General and administrative expenses increased by $16,255 (7.2%) in fiscal
1995 compared with fiscal 1994 primarily because of increased legal
expenses.
Federal income tax provision increased by $59,019 (548.4%) 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.
Reports on Form 8-K:
None
Exhibits:
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 June 2, 1995
--------------------------- -----------------
Wayne E. Guthrie Date
President and Chief Executive Officer
/s/ Donald J. Migliuri June 2, 1995
--------------------------- -----------------
Donald J. Migliuri Date
Secretary-Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> APR-30-1995
<CASH> 212
<SECURITIES> 96
<RECEIVABLES> 13475
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 223
<DEPRECIATION> 194
<TOTAL-ASSETS> 33426
<CURRENT-LIABILITIES> 0
<BONDS> 8802
<COMMON> 5876
520
0
<OTHER-SE> 3748
<TOTAL-LIABILITY-AND-EQUITY> 33426
<SALES> 3651
<TOTAL-REVENUES> 3651
<CGS> 1823
<TOTAL-COSTS> 1823
<OTHER-EXPENSES> 737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 898
<INCOME-PRETAX> 195
<INCOME-TAX> 70
<INCOME-CONTINUING> 125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
