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 October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets
October 31, July 31,
ASSETS 1996 1996
----------- -----------
Cash and cash equivalents:
Unrestricted $ 11,109 $ 464,471
Restricted 152,009 152,346
----------- -----------
163,118 616,817
----------- -----------
Receivables:
Contracts, mortgages and finance notes
receivable, net:
Related parties 845,550 845,672
Unrelated 9,946,978 9,647,272
----------- -----------
10,792,528 10,492,944
Accrued interest 85,266 90,111
Other 283,075 72,542
----------- -----------
11,160,869 10,655,597
----------- -----------
Investment in rental properties, net 14,582,063 15,150,040
----------- -----------
Investment in golf center, net 2,112,182 2,124,230
----------- -----------
Other investments:
Property held for sale and development 3,728,338 3,797,395
Marketable securities 77,826 75,880
Restricted investments 277,349 221,840
Other 20,931 20,931
----------- -----------
4,104,444 4,116,046
----------- -----------
Other assets:
Vehicles and equipment, net 28,732 30,983
Prepaid expenses 255,203 283,042
Golf center inventories 59,909 83,352
----------- -----------
343,844 397,377
----------- -----------
Total assets $32,466,520 33,060,107
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
October 31, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996
----------- -----------
Liabilities:
Note payable to bank $ 4,332,445 $ 4,448,010
----------- -----------
Installment contracts, mortgage notes
and notes payable:
Related parties 200,933 204,136
Unrelated 5,767,450 6,403,773
----------- -----------
5,968,383 6,607,909
----------- -----------
Debenture bonds 9,642,813 9,718,260
----------- -----------
Accrued expenses and other liabilities:
Related parties 243,683 165,438
Unrelated 592,310 786,166
----------- -----------
835,993 951,604
----------- -----------
Federal income taxes:
Currently payable 268,332 244,944
Deferred 1,069,036 1,068,375
----------- -----------
1,337,368 1,313,319
----------- -----------
Total liabilities 22,117,002 23,039,102
----------- -----------
Commitments and contingencies (Note 10)
Redeemable Class A preferred stock,
$100 par value; $100 redemption value;
authorized 20,000 shares; issued and
outstanding, 10,400 shares 1,040,000 1,040,000
Less: Net discount on issuance of pre-
ferred stock (403,000) (416,000)
----------- -----------
637,000 624,000
----------- -----------
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
LIABILITIES AND STOCKHOLDERS' October 31, July 31,
EQUITY, CONTINUED 1996 1996
----------- -----------
Stockholders' equity:
Common stock:
Original class, authorized 2,500,000
no par value shares, $3 stated value;
issued and outstanding, 1,895,597
and 1,918,085 shares $ 5,686,790 $ 5,754,256
Class B, authorized 30,000 no par
value shares; no shares issued and
outstanding
Additional paid-in capital 1,837,609 1,805,000
Retained earnings 2,202,362 1,853,275
Unrealized loss on marketable securities (14,243) (15,526)
----------- -----------
Total stockholders' equity 9,712,518 9,397,005
----------- -----------
Total liabilities and stockholders'
equity $32,466,520 $33,060,107
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Income
Three Months Ended
October 31,
----------------------
1996 1995
---------- ----------
Restated
Income:
Rental $ 707,241 $ 687,137
Interest 241,397 333,217
Amortization of discounts on
real estate contracts 10,145 14,429
Gain on sales of real estate 808,584 243,692
Golf center sales (including
lessons of $8,665 and $2,105) 81,042 18,816
Other, net 56 9,666
---------- ----------
1,848,465 1,306,957
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 175,101 175,727
Interest 102,080 109,366
Other 314,359 320,596
---------- ----------
591,540 605,689
Interest, net of amount capitalized 265,720 318,591
Salaries and commissions 168,807 142,891
General and administrative 113,620 103,483
Depreciation 24,149 13,554
Cost of golf merchandise sales 29,366 2,712
Uncollectible accounts 2,788
---------- ----------
1,195,990 1,186,920
Income before federal income tax
provision 652,475 120,037
Federal income tax provision 229,268 38,160
---------- ----------
Net income 423,207 81,877
Less accretion of discount on
preferred stock (13,000) (13,000)
---------- ----------
Income applicable to common stockholders $ 410,207 $ 68,877
========== ==========
Income per common share $ 0.22 $ 0.04
========== ==========
Weighted average common shares
outstanding 1,906,841 1,957,170
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rentals and golf center sales $ 597,207 $ 628,201
Interest received 246,243 333,517
Cash paid to suppliers and employees (809,641) (1,028,940)
Interest paid, net of amounts capitalized (134,217) (293,057)
Income taxes paid (267,000) (22,500)
----------- -----------
Net cash used in operating activities (367,408) (382,779)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of real estate 452,517 56,270
Collections on contracts, mortgages and finance
notes receivable 799,513 546,223
Investment in contracts, mortgages and finance notes
receivable (9,777) (18,303)
Additions to rental properties, property held for sale,
property under development, golf center, vehicles and
equipment (270,346) (763,425)
Change in restricted investments and cash equivalents (53,374) (18,782)
----------- -----------
Net cash provided by (used in) investing
activities 918,533 (198,017)
----------- -----------
Cash flows from financing activities:
Net (repayments) borrowings under line-of-credit
agreement (115,565) (88,473)
Proceeds from installment contracts, mortgage notes and
notes payable 547,551
Payments on installment contracts, mortgage notes and
notes payable (639,526) (339,866)
Proceeds from sales of debenture bonds 21,155 180,538
Redemption of debenture bonds (233,694) (237,969)
Purchase and retirement of treasury stock (34,857) (2,782)
----------- -----------
Net cash provided by (used in) financing activities (1,002,487) 58,999
----------- -----------
Net increase (decrease) in cash and cash equivalents (451,362) (521,797)
Cash and cash equivalents, beginning of year 462,471 575,351
----------- -----------
Cash and cash equivalents, end of year $ 11,109 $ 53,554
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 423,207 $ 81,877
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 199,250 195,240
Deferred financing income realized (10,145) (20,294)
Interest accrued on debenture bonds 137,092 130,489
Gain on sales of real estate (808,584) (243,692)
Uncollectible accounts 2,788
Change in assets and liabilities:
Accrued interest receivable 4,846 6,164
Prepaid expenses 27,838 5,472
Inventories 23,443 (39,102)
Accrued expenses (116,090) (431,382)
Income taxes payable (37,732) 15,660
Other, net (213,321) (83,211)
----------- -----------
Net cash used in operating activities $ (367,408) $ (382,779)
=========== ===========
Supplemental schedule of noncash investing
and financing activities:
Mortgages and contracts payable financing
related to investments in properties $ 562,000
Company financed sale of property $ 1,078,495 467,648
Accretion of discount on preferred stock 13,000 13,000
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
NOTES TO UNAUDITED 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, 1996, filed with the Securities and Exchange
Commission.
The results of operations for the three months ended October 31, 1996
are not necessarily indicative of the results to be expected for the
full year.
Note 2. Business Segment Reporting
In September 1995, the Company completed construction of and began
operating Birdies Golf Center (Birdies). The facility consists of a
driving range, lighted fairway with five target greens, a pro shop, a
putting green and teaching studies. The financial position and
results of operations of Birdies are included in the consolidated
financial statements.
Information about the Company's separate business segments and in
total as of and for the quarter ended October 31, 1996 is as follows:
<TABLE>
<CAPTION>
Birdies Rental and
Golf Receivable
Center Operations Total
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 81,042 $ 1,767,423 $ 1,848,465
Earnings (loss) from
operations (51,676) 704,151 652,475
Identifiable assets, net 2,190,990 30,275,530 32,466,520
Depreciation and amortization 21,898 177,352 199,250
Capital expenditures 9,850 260,496 270,346
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At October 31, 1996, the Company had total stockholder's equity of
approximately $9,713,000 and a total liabilities to equity ratio of
2.28 to 1, which improved from 2.45 to 1 at July 31, 1996. During the
quarter, the Company's primary sources of funds were approximately
$453,000 from sales of real estate and $800,000 in real estate
contract collections. The primary uses of funds were approximately
$270,000 for property improvements and approximately $1,002,000 for
net debt reduction. The Company anticipates that cash flows 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 $4,332,445 was outstanding at October 31, 1996, 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 improve
property held for sale and development, including Birdies Golf Center.
Results of Operations
The Company's net income for the quarter ended October 31, 1996 was
approximately $423,000 compared with net income of approximately
$82,000 for the quarter ended October 31, 1995. The increase was
primarily attributable to an increase of $565,000 in gain on sale of
real estate in 1996 from 1995.
Rental income increased by $20,000 (2.9%) to approximately $707,000 in
the quarter ended October 31, 1996 from approximately $687,000 in
1995. This primarily resulted from rental rate increases and improved
occupancy in commercial buildings.
Rental property expenses were $14,149 (2.3%) lower in 1996 than for
the comparable three months in 1995. This resulted from decreased
interest expense of $7,286 (6.7%), operating expense of $6,237 (1.9%)
and a reduction in depreciation of $626 (.4%).
Interest income and amortized discount was $96,104 (27.6%) less for
the three months ended October 31, 1996 compared with the similar
period in 1995 as the average outstanding balance in contracts and
notes receivable declined during the period until company-financed
sales of real estate occurred at the end of the quarter.
Interest expense, exclusive of interest on debt associated with rental
properties, net of amounts capitalized, was $52,871 (16.6%) less in
1996 than in 1995 primarily due to a decrease in the amount of
interest-bearing debt.
<PAGE>
Part II. Other Information
Items 1, 2, 3, 4 and 5 -- Not applicable.
Item 6 -- Exhibit 27 - Financial Data Schedule
SIGNATURE
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
---------------------------------
Wayne E. Guthrie
President/Chief Executive Officer
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-30-1996
<CASH> 163
<SECURITIES> 78
<RECEIVABLES> 11161
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 213
<DEPRECIATION> 185
<TOTAL-ASSETS> 32466
<CURRENT-LIABILITIES> 0
<BONDS> 9643
5687
637
<COMMON> 0
<OTHER-SE> 4026
<TOTAL-LIABILITY-AND-EQUITY> 32467
<SALES> 1848
<TOTAL-REVENUES> 1848
<CGS> 621
<TOTAL-COSTS> 621
<OTHER-EXPENSES> 309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 652
<INCOME-TAX> 229
<INCOME-CONTINUING> 423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
