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, 1997
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
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(Exact name of registrant as specified in its charter)
Washington 91-0669906
-------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identifi-
incorporation or organization) cation 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
Part I. Financial Information
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets
April 30, July 31,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 8,212 $ 462,471
Restricted 72,350 154,346
----------- -----------
80,562 616,817
----------- -----------
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 828,010 845,672
Unrelated 10,569,884 9,647,272
----------- -----------
11,397,894 10,492,944
Accrued interest 86,108 90,111
Other 14,529 72,542
----------- -----------
11,498,531 10,655,597
----------- -----------
Investment in Birdie's Golf Center (Note 2) 2,145,800 2,124,230
----------- -----------
Investment in rental properties 12,898,182 15,150,040
----------- -----------
Other investments:
Property held for sale and development 3,853,229 3,797,395
Marketable securities 79,971 75,880
Restricted investments 277,885 221,840
Other, at cost 14,284 20,931
----------- -----------
4,225,369 4,116,046
----------- -----------
Other assets:
Vehicles and equipment, less
accumulated depreciation of
$189,288 and $205,251 27,724 30,983
Prepaid expenses 208,826 283,042
Golf center inventories 47,149 83,352
----------- -----------
283,699 397,377
----------- -----------
Total assets $31,132,143 $33,060,107
=========== ===========
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
Arpil 30, July 31,
1997 1996
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 4,546,242 $ 4,448,010
----------- -----------
Installment contracts, mortgage
notes payable and notes payable:
Related parties 195,020 204,136
Unrelated 4,721,292 6,403,773
----------- -----------
4,916,312 6,607,909
----------- -----------
Debenture bonds 9,780,326 9,718,260
----------- -----------
Accrued expenses and other
liabilities:
Related parties 245,857 165,438
Unrelated parties 131,281 786,166
----------- -----------
377,138 951,604
----------- -----------
Federal income taxes:
Currently payable (141,303) 244,944
Deferred 1,069,347 1,068,375
----------- -----------
928,044 1,313,319
----------- -----------
Total liabilities 20,548,062 23,039,102
----------- -----------
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 (377,000) (416,000)
----------- -----------
663,000 624,000
----------- -----------
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
April 30, July 31,
1997 1996
----------- ------------
(Unaudited)
Stockholders' equity:
Class A common stock authorized
2,500,000 no par value shares,
$3 stated value; issued and
outstanding 1,892,360 and
1,918,085 shares $ 5,677,079 $ 5,754,256
Class B common stock authorized
30,000 no par value shares,
none issued
Additional paid-in capital 1,842,302 1,805,000
Retained earnings 2,415,339 1,853,275
Unrealized loss on marketable
securities, net of deferred
income taxes (13,639) (15,526)
----------- -----------
Total stockholders' equity 9,921,081 9,397,005
----------- -----------
Total liabilities and
stockholders' equity $31,132,143 $33,060,107
=========== ===========
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For Three Months
Ended April 30,
----------------------
1997 1996
---------- ----------
Income:
Rental $ 544,389 $ 705,207
Interest (related parties, $21,422
and $21,404, respectively) 262,761 256,523
Amortization of discounts on
real estate contracts 13,437 15,391
Gain on sale of real estate 25,639 87,115
Golf center sales (including lessons
of $1,040 and $11,453) 106,631 112,861
Other 16,107 70,858
---------- ----------
968,964 1,247,955
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 151,118 181,505
Interest 85,791 105,058
Other 261,587 347,065
---------- ----------
498,496 633,628
Interest (related parties, $6,840
and $7,737, respectively),
net of amount capitalized 290,468 292,371
Salaries and commissions 147,681 168,201
General and administrative 160,016 96,516
Depreciation 25,366 23,240
Cost of golf merchandise sales 25,127 13,657
---------- ----------
1,142,154 1,227,613
---------- ----------
Income (loss) before federal income tax (178,190) 20,342
Federal income tax provision (benefit) (56,042) 16,285
---------- ----------
Net income (loss) (122,148) 4,057
Less accretion of discount on
preferred stock 13,000 13,000
---------- ----------
Net income (loss) applicable to common
shareholders $ (135,148) $ (8,943)
========== ==========
Net income (loss) per common share $ (.07) $ (.01)
========== ==========
Weighted average common shares
outstanding 1,892,398 1,919,007
========== ==========
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Nine Months
Ended April 30,
----------------------
1997 1996
---------- ----------
Income:
Rental $1,853,203 $2,089,698
Interest (related parties, $60,263
and $68,610, respectively) 756,223 892,990
Amortization of discounts on
real estate contracts 29,453 113,350
Gain on sale of real estate 883,861 486,868
Golf center sales (including lessons
of $12,510 and $17,398) 216,510 188,712
Other 36,535 82,770
---------- ----------
3,775,785 3,854,388
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 486,758 539,969
Interest 279,696 316,038
Other 845,874 1,018,791
---------- ----------
1,612,328 1,874,798
Interest (related parties, $25,747
and $30,224, respectively),
net of amount capitalized 856,672 950,240
Salaries and commissions 474,004 477,527
General and administrative 430,981 300,796
Depreciation 73,825 58,899
Cost of golf merchandise sales 69,073 31,146
Uncollectible accounts 2,788
---------- ----------
3,519,671 3,693,406
---------- ----------
Income before federal income tax 256,114 160,982
Federal income tax provision 101,633 59,560
---------- ----------
Net income 154,481 101,422
Less accretion of discount on
preferred stock (39,000) (39,000)
---------- ----------
Net income applicable to common
shareholders $ 115,481 $ 62,422
========== ==========
Net income per common share $ .06 $ .03
========== ==========
Weighted average common shares
outstanding 1,905,222 1,938,204
========== ==========
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For Nine Months
Ended April 30,
----------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Cash received from rentals and golf
center sales $2,155,317 $2,384,407
Interest received 759,313 911,050
Cash paid to suppliers and employees (1,364,813) (2,278,240)
Interest paid, net of amounts
capitalized (1,133,838) (894,856)
Income taxes paid (549,000) (112,500)
---------- ----------
Net cash used in operating activities (133,021) 9,861
---------- ----------
Cash flows from investing activities:
Proceeds of sales of real estate 2,032,648 259,833
Collections on contracts, mortgages
and finance notes receivable 1,810,853 3,569,144
Investment in contracts, mortgages
and finance notes receivable (1,279,291) (25,968)
Additions to rental properties,
property held for sale, property
under development, vehicles and
equipment (938,152) (2,050,655)
Increase in restricted investments
and cash equivalents 24,740 72,103
Other 5,416 17,689
---------- ----------
Net cash provided by investing
activities 1,656,214 1,842,146
---------- ----------
Cash flows from financing activities:
Net repayments under line-of-credit
agreement 98,231 (2,852,294)
Net proceeds from installment contracts,
mortgage notes and notes payable 1,226,853
Payments on installment contracts,
mortgage notes and notes payable (1,691,597) (806,631)
Proceeds from sales of debenture bonds 377,813 793,973
Redemption of debenture bonds (722,025) (705,415)
Purchase and retirement of
common stock (39,875) (61,576)
---------- ----------
Net cash used in financing activities (1,977,453) (2,405,090)
---------- ----------
Net decrease in cash and cash
equivalents (454,260) (553,083)
Cash and cash equivalents, beginning
of period 462,471 575,351
---------- ----------
Cash and cash equivalents, end of
period $ 8,211 $ 22,268
========== ==========
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
For Nine Months
Ended April 30,
----------------------
1997 1996
---------- ----------
Reconciliation of net income to net
cash used in operating activities:
Net income $ 154,481 $ 101,422
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 560,583 598,536
Deferred financing income realized (29,454) (127,687)
Interest accrued on debenture
bonds 406,279 395,677
Gain on sales of real estate (883,861) (486,869)
Uncollectible accounts 2,788
Change in assets and liabilities:
Accrued interest receivable 4,002 23,926
Prepaid expenses 74,215 66,228
Inventories 36,203 (56,456)
Accrued expenses (66,116) (456,328)
Income taxes payable (447,367) 302,060
Deferred taxes payable (355,000)
Other, net 55,226 4,352
---------- ----------
Net cash used in operating
activities $ (133,021) $ 9,861
========== ==========
Supplemental schedule of noncash investing
and financing activities:
Mortgages and contracts payable
financing related to investments
in properties $ $1,270,858
Company financed sale of property 1,379,495 1,025,648
Accretion of discount on preferred stock 39,000 39,000
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 nine months ended April 30, 1997 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 studios. 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 nine months ended April 30, 1997 is as
follows:
Birdies Rental and
Golf Receivable
Center Operations Total
----------- ----------- ----------
Revenue $ 216,510 $ 3,559,275 $ 3,775,785
Earnings (loss) from
operations (159,954) 416,068 256,114
Identifiable assets, net 2,214,029 28,918,114 31,132,143
Depreciation and amorti-
zation 67,006 493,577 560,583
Capital expenditures 84,058 854,094 938,152
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
---------------------------------
At April 30, 1997, the Company had total stockholders' equity of
approximately $9,921,000 and a total liabilities to equity ratio of
2.07 to 1, which improved from 2.45 to 1 at July 31, 1996. During the
first nine months of the fiscal year, the Company's primary sources of
funds were approximately $2,037,000 from sales of real estate and
$1,811,000 in real estate contract collections. The primary uses of
funds, were approximately $938,000 for property improvements and
approximately $1,938,000 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
$4,546,242 was outstanding at April 30, 1997, 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 loss for the quarter ended April 30, 1997 was
approximately $122,000 compared with a net loss of approximately
$4,000 for the quarter ended April 30, 1996. The loss was primarily
attributable to a decrease in gain on sales of real estate and lower
rental income.
Rental income decreased by $160,818 (22.8%) to approximately $544,000
in the quarter ended April 30, 1997 from approximately $705,000 in
1996. Rental income declined due to the sale of rental properties
during the current year.
Rental property expenses were $135,132 (21.3%) lower in fiscal 1997
than for the comparable three months in 1996. This primarily resulted
from reduced interest expense of $19,267 (18.3%) depreciation of
$30,387 (16.7%) and other operating expenses of $85,478 (24.6%).
Interest income and amortized discount was $4,284 (1.6%) more for the
three months ended April 30, 1997 compared with the similar period in
1996, primarily due to the increase in contracts receivable from
company-financed sales of rental properties.
Interest expense, exclusive of interest on debt associated with rental
properties, decreased by $1,903 (.7%) in fiscal 1997 compared with
fiscal 1996. This was primarily caused by a reduction in the amount
of interest-bearing debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Results of Operations (Nine Months)
----------------------------------
The Company's net income for the nine months ended April 30, 1997 was
approximately $154,000 compared with net income of approximately
$101,000 for the nine months ended April 30, 1996. The increase was
primarily attributable to an increase of approximately $397,000 in
gain on sale of real estate in 1997 from 1996, which more than offset
decreases in rental income and interest income.
Rental income decreased by $236,495 (11.3%) to approximately
$1,853,000 in the nine months ended April 30, 1997 from approximately
$2,090,000 in 1996. This primarily resulted from reduced rents due to
the sale of rental properties which more than offset rental rate
increases and improved occupancy in commercial buildings.
Rental property expenses were $262,470 (14.0%) lower in 1997 than for
the comparable nine months in 1996. This resulted from decreased
interest expense of $36,342 (11.4%), operating expense of $172,917
(16.8%) and a reduction in depreciation of $53,211 (9.8%).
Interest income and amortized discount was $220,664 (21.9%) less for
the nine months ended April 30, 1997 compared with the similar period
in 1996 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, net of amounts capitalized, was $93,568 (9.8%) less in
1997 than in 1996 primarily due to a decrease in the amount of
interest-bearing debt.
Part II. Other Information
Items 1, 2, 3, 4 and 5 -- 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/ David L. Guthrie
---------------------------------
David L. Guthrie
Vice President
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/
Treasurer