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, 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>
Part I. Financial Information
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, July 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 22,268 $ 575,351
Restricted 164,764 188,510
----------- -----------
187,032 763,861
----------- -----------
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 952,637 1,092,875
Unrelated 10,248,225 12,365,021
----------- -----------
11,200,862 13,457,896
Accrued interest 84,870 108,796
Other 43,881 48,232
----------- -----------
11,329,613 13,614,924
----------- -----------
Investment in Birdie's Golf Center
(Note 2) 2,124,611 --
----------- -----------
Investment in rental properties 15,123,986 15,647,591
----------- -----------
Other investments:
Property held for sale and development 3,451,143 3,205,951
Property under development -- 1,341,798
Marketable securities 105,090 96,379
Restricted investments 221,520 270,650
Other, at cost 83,387 49,768
----------- -----------
3,861,140 4,964,546
----------- -----------
Other assets:
Vehicles and equipment, less
accumulated depreciation of
$205,251 and $189,628 30,562 25,497
Prepaid expenses 265,116 335,067
----------- -----------
295,678 360,564
----------- -----------
Total assets $32,922,060 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
April 30, July 31,
1995 1995
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 3,827,104 $ 6,679,398
----------- -----------
Installment contracts, mortgage
notes payable and notes payable:
Related parties 207,264 215,795
Unrelated 6,641,283 6,212,532
----------- -----------
6,848,547 6,428,327
----------- -----------
Debenture bonds 9,663,718 9,179,484
----------- -----------
Accrued expenses and other
liabilities:
Related parties 307,861 264,864
Unrelated parties 754,962 1,269,985
----------- -----------
1,062,823 1,534,849
----------- -----------
Federal income taxes:
Currently payable 318,909 16,849
Deferred 1,041,562 1,396,562
----------- -----------
1,360,471 1,413,411
----------- -----------
Total liabilities 22,762,663 25,235,469
----------- -----------
Commitments and contingencies
Redeemable Class A preferred stock,
$100 par value; $100 redeemable value;
authorized 20,000 shares; issued and
outstanding 10,400 shares 1,040,000 1,040,000
Less: Net discount on issuance of
preferred stock (429,000) (468,000)
----------- -----------
611,000 572,000
----------- -----------
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
April 30, July 31,
1996 1995
----------- ------------
(Unaudited)
Stockholders' equity:
Class A common stock authorized
2,500,000 no par value shares,
$3 stated value; issued and
outstanding 1,918,341 and
1,956,067 shares $ 5,755,024 $ 5,874,202
Class B common stock authorized
30,000 no par value shares,
none issued -- --
Additional paid-in capital 1,804,629 1,747,027
Retained earnings 1,990,802 1,928,409
Unrealized loss on marketable
securities, net of deferred
income taxes (2,058) (5,621)
----------- -----------
Total stockholders' equity 9,548,397 9,544,017
----------- -----------
Total liabilities and
stockholders' equity $32,922,060 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For Three Months
Ended April 30,
----------------------
1996 1995
---------- ----------
Income:
Rental $ 705,207 $ 711,887
Interest (related parties, $21,404
and $30,799, respectively) 256,523 337,700
Amortization of discounts on
real estate contracts 15,391 18,611
Gain on sale of real estate 87,115 9,275
Other 170,062 (22,695)
---------- ----------
1,234,298 1,054,778
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 181,505 174,518
Interest 105,058 125,932
Other 347,065 313,599
---------- ----------
633,628 614,049
Interest (related parties, $7,737
and $5,239, respectively),
net of amount capitalized 292,371 283,054
Salaries and commissions 168,201 187,937
General and administrative 96,516 58,056
Depreciation 23,240 4,463
---------- ----------
1,213,956 1,147,559
---------- ----------
Income (loss) before federal income tax 20,342 (92,781)
Federal income tax provision (benefit) 16,285 (28,370)
---------- ----------
Net income (loss) 4,057 (64,411)
Less accretion of discount on
preferred stock 13,000 --
---------- ----------
Net loss applicable to common
shareholders $ (8,943) $ (64,411)
========== ==========
Net loss per common share $ (.01) $ (.03)
========== ==========
Weighted average common shares
outstanding 1,919,007 1,957,156
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Nine Months
Ended April 30,
----------------------
1996 1995
---------- ----------
Income:
Rental $2,089,698 $2,131,421
Interest (related parties, $68,610
and $92,185, respectively) 892,990 1,043,503
Service fees and options -- 2,600
Amortization of discounts on
real estate contracts 113,350 70,318
Gain on sale of real estate 486,868 412,429
Other 240,336 (8,841)
---------- ----------
3,823,242 3,651,430
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 539,969 523,965
Interest 316,038 370,157
Other 1,018,791 928,631
---------- ----------
1,874,798 1,822,753
Interest (related parties, $30,224
and $22,343, respectively),
net of amount capitalized 950,240 897,680
Salaries and commissions 477,527 479,632
General and administrative 300,796 241,587
Depreciation 58,899 15,065
---------- ----------
3,662,260 3,456,637
---------- ----------
Income before federal income tax 160,982 194,793
Federal income tax provision 59,560 69,781
---------- ----------
Net income 101,422 125,012
Less accretion of discount on
preferred stock (39,000) --
---------- ----------
Net income applicable to common
shareholders $ 62,422 $ 125,012
========== ==========
Net income per common share $ .03 $ .06
========== ==========
Weighted average common shares
outstanding 1,938,204 1,961,376
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For Nine Months
Ended April 30,
----------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Cash received from rentals and other
income $2,384,407 $2,202,455
Interest received 911,050 1,056,567
Cash paid to suppliers and employees (2,278,240) (1,801,323)
Interest paid, net of amounts
capitalized (894,856) (913,519)
Income taxes paid (112,500) (127,500)
---------- ----------
Net cash provided by operating
activities 9,861 416,680
---------- ----------
Cash flows from investing activities:
Proceeds of sales of real estate 259,833 264,257
Collections on contracts, mortgages
and finance notes receivable 3,569,144 2,132,942
Investment in contracts, mortgages
and finance notes receivable (25,968) (242,264)
Additions to rental properties,
property held for sale, property
under development, vehicles and
equipment (2,050,655) (1,396,413)
Increase in restricted investments
and cash equivalents 72,103 (46,794)
Other 17,689 --
---------- ----------
Net cash provided by investing
activities 1,842,146 711,728
---------- ----------
Cash flows from financing activities:
Net repayments under line-of-credit
agreement (2,852,294) (1,842,708)
Net proceeds from installment contracts,
mortgage notes and notes payable 1,226,853 1,700,000
Payments on installment contracts,
mortgage notes and notes payable (806,631) (1,320,620)
Proceeds from sales of debenture bonds 793,973 813,115
Redemption of debenture bonds (705,415) (932,958)
Purchase and retirement of
common stock (61,576) (35,000)
---------- ----------
Net cash used in financing activities (2,405,090) (1,618,171)
---------- ----------
Net decrease in cash and cash equivalents (553,083) (489,763)
Cash and cash equivalents, beginning
of period 575,351 511,863
---------- ----------
Cash and cash equivalents, end of
period $ 22,268 $ 22,100
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
For Nine Months
Ended April 30,
----------------------
1996 1995
---------- ----------
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 101,422 $ 125,012
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 598,536 539,044
Deferred financing income realized (127,687) (73,045)
Interest accrued on debenture
bonds 395,677 355,030
Gain on sales of real estate (486,869) (412,429)
Change in assets and liabilities:
Accrued interest receivable 23,926 13,375
Prepaid expenses 66,228 60,446
Accrued expenses (456,328) (178,769)
Income taxes payable 302,060 (57,719)
Deferred taxes payable (355,000) --
Other, net (52,104) 45,735
---------- ----------
Net cash provided by operating
activities $ 9,861 $ 416,680
========== ==========
Supplemental schedule of noncash investing
and financing activities:
Additions to investment in rental
properties and properties held
for sale through contract
foreclosures $ -- $ 6,060
Mortgages and contracts payable
financing related to investments
in properties 1,270,858
Company financed sale of property 1,025,648 639,400
Accretion of discount on preferred stock 39,000 --
<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, 1995, filed with the Securities and Exchange
Commission.
The results of operations for the nine months ended April 30, 1996 and
1995 are not necessarily indicative of the results to be expected for
the full year.
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
Note 2. Other Operations
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 studios. The financial position and
results of operations of Birdies are included in the consolidated
financial statements. The results of operations related to Birdies
for the nine months ended April 30, 1996 are as follows:
Income:
Sales $171,315
Cost of sales (31,146)
--------
140,169
Other income 17,397
--------
Total revenue 157,566
--------
Expenses:
Depreciation 50,865
Salaries and commission 104,545
Professional 664
General and other insurance 9,267
Repairs and maintenance 10,209
Utilities 7,672
Advertising and promotions 25,437
Telephone 2,344
Travel and entertainment 6,765
Payroll taxes 13,691
Sales and business tax 1,199
Administrative 16,377
--------
Total operating expenses 249,035
--------
Net loss $(91,469)
========
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
- ---------------------------------
At April 30, 1996, the Company had total stockholders' equity of
approximately $9,548,000 and a total liabilities to equity ratio of
2.38 to 1, which improved from 2.64 to 1 at July 31, 1995. During the
first nine months of the fiscal year, the Company's primary sources of
funds were approximately $260,000 from sales of real estate and
$3,569,000 in real estate contract collections. The primary uses of
funds were approximately $2,051,000 for property improvements and
approximately $2,343,000 in net repayment of interest-bearing debt.
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
$3,827,000 was outstanding at April 30, 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 develop land held
for sale and development.
Results of Operations (Three Months)
- ------------------------------------
The Company's net income for the quarter ended April 30, 1996 was
approximately $4,000 prior to accretion of $13,000 in discount on
preferred stock compared with a net loss of approximately $64,000 for
the quarter ended April 30, 1995. The gain was primarily attributable
to an increase in gain on sales of real estate and other income which
more than offset expenses associated with the operation of Birdies.
Rental income decreased by $6,680 (0.9%) to $705,207 in the quarter
ended April 30, 1996 from $711,887 in 1995. Rental income declined
due to the sale of two rental properties in the prior year.
Rental property expenses were $19,579 (3.2%) higher in fiscal 1996
than for the comparable three months in 1995. This primarily resulted
from reduced interest expense of $20,874 (16.6%) primarily due to the
payoff of the mortgage loan on the Hutton Building, which was more
than offset by an increase in depreciation of $6,987 (4.0%) and other
operating expenses of $33,466 (10.8%).
Interest income and amortized discount was $84,397 (23.7%) less for
the three months ended April 30, 1996 compared with the similar period
in 1995 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, increased by $9,317 in fiscal 1996 compared with fiscal
1995. This was primarily caused by an increase in rate on interest-
bearing debt.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Results of Operations (Nine Months), Continued
- -----------------------------------------------
The Company's net income for the nine months ended April 30, 1996 was
approximately $101,000 prior to accretion of $39,000 in discount on
preferred stock compared with net income of approximately $125,000 for
the nine months ended January 31, 1995. In addition to losses from
the newly-opened Birdies, the decrease was due to the decrease in
rental income and a decline in interest income and amortized discount
on real estate contracts in fiscal 1996 compared with fiscal 1995.
Rental income decreased by $41,723 (2.0%) to $2,089,698 in the nine
months ended April 30, 1996 from $2,131,421 in fiscal 1995. This
primarily resulted from reduced rental income due to the sale of two
rental properties in the prior year.
Rental property expenses were $52,045 (2.9%) higher in fiscal 1996
than for fiscal 1995. This resulted from increased depreciation of
$16,004 (3.1%) and other operating expenses of $90,160 (9.7%) which
more than offset a decrease in interest expense of $54,119 (14.6%).
Interest income and amortized discount was $107,481 (9.6%) less for
the nine months ended April 30, 1996 compared with the similar period
in 1995 as the average balance in contracts and notes receivable
declined during the period.
Interest expense, exclusive of interest on debt associated with rental
properties, increased by $52,560 (5.9%) in fiscal 1996 compared with
fiscal 1995. This was primarily caused by an increase in rate on
interest-bearing debt.
Salaries and commissions decreased by $2,150 (0.4%) in fiscal 1996
compared with fiscal 1995 primarily because a reduction in pay for the
Company president more than offset increases due to new personnel at
Birdies.
General and administrative expenses increased by $59,289 (24.5%) in
fiscal 1996 compared with fiscal 1995, primarily because of the new
Birdies operation.
Depreciation expense increased by $43,834 (291.0%) primarily because
of the new Birdies expense of $50,865 which more than offset
reductions elsewhere.
Federal income tax provision decreased by $10,221 (14.6%) in fiscal
1996 compared with fiscal 1995 due to the decrease in taxable income.
<PAGE>
Part II. Other Information
Items 1, 2, 3, 4 and 5 are omitted from this report as they are
inapplicable.
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
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<OTHER-SE> 3793
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