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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended July 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission file number 0-6673
PACIFIC SECURITY COMPANIES
(Exact name of registrant as specified in its charter)
Washington 91-0669906
------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
N. 10 Post Street
525 Peyton Building
Spokane, Washington 99201
------------------------------ -------------------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (509) 624-0183
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange on which
Title of each class registered
------------------------------ -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value shares
---------------------------------
(Title of class)
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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. X
---
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: There is no regular, established
market for trading in the Company's common stock. Therefore, the
aggregate market value of the voting stock held by nonaffiliates of
the registrant is not determinable.
On July 31, 1995, the registrant had outstanding 1,958,067 shares of
common stock, no par value ($3 stated value) and 10,400 shares of
Class A preferred stock, $100 par value.
Documents incorporated by reference: none.
Number of pages in this document is 57.
PACIFIC SECURITY COMPANIES
FORM 10-K ANNUAL REPORT
Table of Contents
____________
Page
PART I
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
PART III
Item 10. Directors and Executive Officers of the Registrant 44
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners
and Management 47
Item 13. Certain Relationships and Related Transactions 48
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 49
PART I
Item 1. BUSINESS
(a) Pacific Security Companies was merged into Security Savesco, Inc.
as of May 31, 1985. The name of Security Savesco, Inc. the
surviving corporation, was changed to Pacific Security Companies
as of the date of the merger.
Prior to the merger, both corporations were engaged principally
in real estate contract financing and owning, leasing and selling
real properties. The merged corporation has continued these
activities. Total assets of the registrant at July 31, 1995 and
1994 were $35,351,486 and $34,842,679, respectively, and real
estate contracts represent approximately 38% and 41% of the
respective asset totals. Many of the contracts have fixed
contractual interest rates from 5.25% to 14.25% and there is no
provision for changing these rates to current market rates.
However, for real estate contracts purchased by the Company, most
contracts have been purchased at a discount from the contract
balance which increases the effective yield. Newer contracts
bear interest rates based on current market conditions.
Recently, the Company began originating contracts that provided
for variable interest rates that fluctuate with the prime rate.
At July 31, 1995, approximately $665,000 of real estate contracts
provide for variable interest rates. Beginning in fiscal 1994,
the Company began curtailing its contract acquisitions and
presently primarily originates contracts to facilitate the sale
of real estate held for sale or development. The total amount
invested in real estate contracts and mortgages of $13,457,896 as
of July 31, 1995 is $1,000,062 less than at the end of the prior
year. The percentage of contracts which were delinquent over 90
days was 0.8% as of July 31, 1995 and 2.0% as of July 31, 1994.
Management continues to emphasize enforcement of the Company's
credit and collection policies.
In fiscal 1995, the Company continued to emphasize the
development of its rental properties and commenced new projects
primarily to improve the occupancy of its commercial buildings.
Correspondingly, the acquisition of additional real estate
contracts were minimal, other than for Company financed sales of
its real estate.
In fiscal 1995, the Company began construction of Birdies Golf
Center (Birdies). The golf center features a 56-tee driving
range, a fully-lighted, contoured fairway with 5 target greens, a
high-quality pro shop, teaching studios and an 8,000-square-foot
putting green. Birdies will serve as a practice and teaching
center for all levels of golfers and will additionally sell golf
clubs and related golfing supplies. Birdies has been constructed
on land held for development by the Company since 1990. The
Company completed construction of the Birdies facility and
commenced operations of the facility in September 1995. As of
July 31, 1995, approximately $1.3 million had been incurred for
the construction of Birdies.
1
Additionally, in fiscal 1995, the Company began developing
certain land for residential development. The Company started
construction of roads and bringing utilities to the project. The
project, known as Tanglewood Ranch Park Estates (Tanglewood),
when completed, will offer 21 ten-acre parcels suitable for home
construction.
Investments in rental properties totalled $15,647,591 and
$15,742,637 as of July 31, 1995 and 1994, respectively. The
decrease is primarily the net result of increased additional
costs offset by depreciation and the sale of certain rental
properties in 1995. Other real property held for sale totalled
$3,205,951 and $2,931,796 as of July 31, 1995 and 1994,
respectively. These properties will be liquidated and/or
developed at such time as market conditions warrant, and in the
judgment of management when the Company can maximize its return.
The Company will continue to invest in and hold real property on
a long-term basis. These properties may ultimately be sold on an
installment basis for tax purposes in order to minimize and defer
related income taxes and to conserve funds for additional
investment purposes. These plans may be modified as the result
of future changes to the Internal Revenue Code.
With the Company's continued emphasis on the development and
leasing of commercial real estate and multi-family housing,
rental income has increased from $2,635,215 in fiscal 1993 to
$2,832,139 in fiscal 1995. During the same period, interest
income, including the amortization of discounts on real estate
contracts, has declined from 39% of total income in fiscal 1993
to 30% of total income in fiscal 1995. The Company expects to
continue its emphasis on the development and leasing of
commercial real estate in fiscal 1996 along with the operation of
Birdies and marketing of the Tanglewood parcels. The Company has
contractual commitments for capital expenditures in fiscal 1996
relating to the development of Birdie's amounting to
approximately $560,000 at July 31, 1995. Additionally, the
Company expects to incur approximately $150,000 of development
costs associated with Tanglewood in fiscal 1996. There are no
commitments other than the remaining remodeling costs associated
with improvements for commercial buildings. The Company's fiscal
1996 capital expenditures may increase if demand for the rental
of Company properties continues or if the Company decides to
further develop any of its properties held for sale. A
description of the Company's significant properties is included
in Item 2 - Properties.
The Company's business is concentrated in financing real estate
contracts, developing real estate for sale or lease and the
operation of Birdies. The Company is in competition with
financial institutions who invest in real estate collateralized
contracts and commercial property owners located primarily in or
near Spokane, Washington. As of July 31, 1995, the Company
employed a total of 26 people, 11 of whom are in its office at N.
10 Post Street in Spokane, Washington.
2
Item 2. PROPERTIES
As of July 31, 1995, the Company owns the following properties. Some
of the properties are subject to real estate contracts or mortgages
that are collateralized by the property.
Properties Located in Spokane County, Washington:
------------------------------------------------
July 31, 1995
----------------------------------------
Rental/ Net Mortgage
Date Development Carrying or Contract
Acquired Description of Property Status Value Obligation
-------- ----------------------------------------- ------------- ---------- -----------
Commercial:
----------
1979 The Peyton Building at N. 10 Post Street Substantially $3,262,276 $ 1,010,163
contains approximately 85,000 square feet Leased
of rentable space. Substantial improve-
ments have been made to the building
since its acquisition. Remodeling of
this office building continues as new
occupancy warrants. The Company's offices
are located in this building.
1979 The Hutton Building at S. 10 Washington Substantially $3,425,125 $ 169,892
contains approximately 56,000 square feet Leased
of rentable space. Substantial improve-
ments have been made to the building
since its acquisition. Remodeling of
this building continues as new occupancy
warrants. The Company also acquired two
other buildings and 25,000 square feet
for parking near this building.
1987 Retail office building located at Leased $ 205,719 $ 154,491
E. 11128 Sprague Avenue. The property
is occupied by four tenants.
3
Properties Located in Spokane County, Washington, Continued:
-----------------------------------------------------------
July 31, 1995
----------------------------------------
Rental/ Net Mortgage
Date Development Carrying or Contract
Acquired Description of Property Status Value Obligation
-------- ----------------------------------------- ------------- ---------- -----------
Commercial, Continued:
---------------------
1982 The Walker/McGough Building is an Vacant $ 477,423
approximately 15,000-square-foot office
building.
1984 Bank Branch Building at W. 102 Indiana Leased $ 467,391
Avenue is under a long-term lease.
Various The Valley Mini-Storage complex which Substantially $1,131,241 $ 391,623
includes 560 storage units. Rented
1992 The Pier One Building is a commercial Leased $3,643,334 $ 1,654,524
building. During fiscal 1993 and 1994,
substantial remodeling was completed.
The building has two major tenants, who
occupy over 60% of the space, and
several other smaller tenants for the
remaining space.
1992 The Cellular One Building is a commercial Leased $ 835,550
building constructed by the Company on
the north river bank in Spokane.
1976 A fast food restaurant building in Leased $ 27,010
Cheney, Washington.
4
Properties Located in Spokane County, Washington, Continued:
-----------------------------------------------------------
July 31, 1995
----------------------------------------
Rental/ Net Mortgage
Date Development Carrying or Contract
Acquired Description of Property Status Value Obligation
-------- ----------------------------------------- ------------- ---------- -----------
Commercial, Continued:
---------------------
1990 The Nevada-Holland property consists of Under $2,199,384
40 acres of raw land in a location where development
there has been substantial commercial and
residential development. The Company has
used 14 acres of the property for the
Birdies development.
1991 Tanglewood Ranch Park Estates in south Under $1,143,243
Spokane County was acquired through a development
judicial foreclosure. The area consisted
of approximately 330 acres of undeveloped
land. In fiscal 1995, the Company com-
menced the development of this property
which, when completed, will result in 21
fully-developed residential lots.
1990 The north river bank in Spokane consists Undeveloped $ 601,797
of parcels of undeveloped commercial real
estate.
Multi-Family Housing:
--------------------
1979 The East Valley Terrace Apartments Fully $ 391,038 $ 447,144
is a 48-unit apartment complex. The Occupied
apartment complex is a Department of
Housing and Urban Development (HUD)
project.
5
Properties Located in Spokane County, Washington, Continued:
-----------------------------------------------------------
July 31, 1995
----------------------------------------
Rental/ Net Mortgage
Date Development Carrying or Contract
Acquired Description of Property Status Value Obligation
-------- ----------------------------------------- ------------- ---------- -----------
Multi-Family Housing, Continued:
-------------------------------
1969 The Aqua View Apartments is a 129-unit Fully $ 582,469 $ 452,826
apartment complex. The complex is an Occupied
FHA 221(d)3 project occupied by elderly
persons and receives rent subsidies from
HUD.
1991 The City View Apartments is a 21-unit Fully $ 428,420
apartment complex. Occupied
Projects Located Outside Spokane County, Washington:
---------------------------------------------------
1976 Retail store in Coeur d'Alene, Idaho Leased $ 108,226 $ 47,511
containing 17,000 square feet. The
building is currently leased through
1996.
1993 Approximately six acres in Auburn, Being $ 216,083
Washington zoned for multi-family housing Marketed
were acquired through a foreclosure.
Additionally, the Company has other less significant investments in
real estate located primarily in the state of Washington.
6
Item 3. LEGAL PROCEEDINGS
As of July 31, 1995, it is the opinion of management that there is no
pending litigation that would have a materially adverse effect on the
financial condition or operations of the registrant.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the
fourth quarter of fiscal 1995.
7
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Principal Market.
There is no established market for trading in the Company's
common stock. Periodically, the Company will purchase and retire
its common stock, but does not solicit such transactions.
(b) Stock Price and Dividend Information.
There is no market information relative to the common stock price
of the Company's stock as it is not actively traded. A dividend
of $0.075 per common share totaling $150,786, declared as payable
to stockholders of record as of July 31, 1989, was paid
August 15, 1989. A dividend of $0.10 per common share or
$200,211, declared as payable to stockholders of record as of
July 31, 1990, was paid August 15, 1990. No dividends were
declared in any of the years since 1990.
(c) Approximate Number of Holders of Common Stock.
Common no par value -- 1,195 record holders.
(d) There is only one class of common stock. Any dividend which may
be declared would be payable at the same rate on each share of
common stock. At July 31, 1995, the Company also has issued
10,400 shares of Class A preferred stock owned by five holders.
These shares receive cumulative dividends of 6% when declared by
the Board of Directors. During the fiscal year ended July 31,
1995, dividends totaling $62,400 were declared and accrued on
these shares. The dividend was paid on August 2, 1995. These
preferred shares require redemption by the Company at par value
($1,040,000) in 2004.
8
Item 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
Company's audited consolidated financial statements, and should be
read in conjunction with the consolidated financial statements and
notes thereto.
Years Ended July 31,
-------------------------------------------------------------------
Statement of Operations Data: 1995 1994 1993 1992 1991
----------------------------- ----------- ----------- ----------- ----------- -----------
Rental income $ 2,832,139 $ 2,653,958 $ 2,635,215 $ 2,477,709 $ 2,202,809
Interest income 1,375,420 1,476,881 1,714,348 2,091,652 2,370,708
Gains on sales of real estate 584,657 186,109 233,766 271,313 255,766
Interest expense 1,681,213 1,682,355 1,894,691 2,142,103 2,535,479
Cumulative effect of change
in accounting principle -- (61,894) -- -- --
Net income (loss) 159,310 71,558 140,412 (255,072) 7,702
Net income (loss) applicable
to common shareholders 44,910 71,558 140,412 (255,072) 7,702
Net income (loss) per common
share:
Income before cumulative
effect of change in
accounting principle .02 .07 .07 (.13) .00
Cumulative effect of
change in accounting
principle -- (.03) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) per common
share .02 .04 .07 (.13) .00
=========== =========== =========== =========== ===========
Cash dividends per common share -- -- -- -- --
Average number of common shares
outstanding 1,960,746 1,977,889 1,986,911 1,996,143 2,000,427
9
Years Ended July 31,
-------------------------------------------------------------------
Balance Sheet Data
(at year end): 1995 1994 1993 1992 1991
---------------------------- ----------- ----------- ----------- ----------- -----------
Contracts, mortgages and
finance notes receivable,
net $13,457,896 $14,457,958 $14,930,791 $19,815,303 $21,317,137
Total assets 35,351,486 34,842,679 35,898,448 37,601,731 39,877,153
Notes and contracts payable 13,107,725 13,679,068 14,951,242 16,100,784 18,113,784
Debentures 9,179,484 8,567,231 8,763,867 9,906,777 9,630,831
Stockholders' equity 9,544,017 9,563,355 9,521,032 9,389,970 9,580,465
10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company engages in investing in real estate collateralized
contracts and real estate that is either held for sale or developed
and leased or sold as its primary activities. Additionally, in fiscal
1995, the Company developed Birdies, a golf center, that began
operations in fiscal 1996. During the past two years, the Company has
been emphasizing the development and lease of its commercial office
building projects as demand for the available space in these projects
has increased. Virtually all of the Company's development of these
commercial office building projects has involved extensive remodeling
efforts in connection with preparation of previously unoccupied space
for a new tenant and structural changes as required by current
building codes. As a result of the Company's emphasis, operating
lease income has become an increasingly larger portion of total
Company income.
The Company invests in real estate collateralized contracts and real
property primarily within the state of Washington, with a concen-
tration in Spokane County. The Company has concentrated its efforts
primarily on the development and sale of existing real estate projects
to maximize the return from those investments. The Company has
curtailed its contract acquisitions and now primarily originates real
estate contracts to facilitate the sale of its property held for sale
or development.
The Company finances its investments in real estate and contracts
primarily through the sale of fixed rate debentures with terms ranging
from one to ten years, real estate notes or mortgages, and a
collateralized line-of-credit arrangement with a local bank. The
Company intends to continue using these funding sources in the future.
OPERATIONS
For the years ended July 31, 1995, 1994 and 1993, the Company's net
income was approximately $159,000, $72,000 and $140,000, respectively.
Due to dividends and the accretion of the discount on the issuance of
preferred stock, net income applicable to common shareholders was
approximately $45,000 in fiscal 1995.
INCOME
Rental real estate activities have increased as more available space
in existing projects has been let and rental rates have been
increased. Total rental income has increased in each of fiscal 1995,
1994 and 1993 to approximately $2,832,000, $2,654,000 and $2,635,000,
respectively. The Company anticipates this trend will continue as
additional space is leased and rental rates increase. During the last
three fiscal years, the expenses associated with rental operations
have increased to approximately $2.4 million in fiscal 1995 but had
previously remained relatively constant at approximately $2.2 million
per year. However, the rental activities of the Company have
continued to contribute more significantly to its profitability.
11
The sum of interest income and amortization of discounts on acquired
real estate contracts has continued to decline from approximately
$1,898,000 and $1,610,000 in fiscal 1993 and 1994, respectively, to
approximately $1,458,000 in fiscal 1995. This decline corresponds
directly with the decline in the Company's investment in real estate
contracts. The Company has curtailed its real estate contract
acquisition activities to concentrate its efforts in renovating and
leasing commercial office buildings and developing real estate.
Collections on real estate contracts have significantly exceeded new
acquisitions in each of the last three fiscal years. These funds were
used to remodel and develop existing real estate projects and repay
outstanding obligations.
Gains on the sale of real estate were approximately $585,000, $186,000
and $234,000 in fiscal 1995, 1994 and 1993, respectively. The Company
anticipates that it will continue to recognize gains both on the sale
of real estate acquired through foreclosure and real estate acquired
for resale.
EXPENSES
The expenses associated with rental operations have increased to
approximately $2.4 million in fiscal 1995 from approximately $2.2
million for each of the fiscal years 1993 and 1994. As new tenants
are added to the major office building projects, the Company
anticipates increased depreciation and interest expense and other
costs associated with the major remodeling projects. However, the
resultant increase in rental income is anticipated to more than offset
the expected increases in related costs.
Interest expense, exclusive of interest on rental properties, net of
amounts capitalized, was approximately $1,263,000, $1,363,000 and
$1,512,000 in fiscal 1995, 1994, and 1993, respectively. The decline
in interest costs over the three-year period has been primarily as a
result of a decrease in outstanding borrowings.
Salaries and commissions and general and administrative costs have
increased modestly in absolute dollar amounts for each of the last
three fiscal years. With the completion of the Birdies operation in
early fiscal 1996, the Company anticipates an increase in the number
of employees and related salaries and other administration costs.
The Company's effective income tax rate as a percentage of income
before federal income tax was 35% in fiscal 1995. Effective August 1,
1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The
cumulative effect of adopting this standard was a charge to operations
of $61,894 in fiscal 1994.
12
FINANCIAL CONDITION AND LIQUIDITY
At July 31, 1995, the Company had total stockholders' equity of
approximately $9,544,000 and a total liabilities to equity ratio of
2.64 to 1, which increased slightly from 2.59 to 1 a year before. In
fiscal 1995, the Company's primary sources of funds were approximately
$1,100,000 from operations, $293,000 from the sale of real estate,
$2,544,000 in real estate contract collections, $1,107,000 from the
sale of debentures and $1.9 million from mortgage and notes payable.
The primary uses of funds were approximately $3,147,000 used for the
acquisition and improvements of real estate projects, $344,000 in net
repayments on the line of credit and approximately $3,114,000 in
repayment of outstanding long-term debt. As a holder of monetary
assets and liabilities, the Company's performance may be significantly
affected by changes in interest rates. These changes are somewhat
mitigated or delayed to the extent that much of the Company's
investment in real estate contracts, and established real estate
leases have fixed returns, as do the Company's debentures.
Additionally, the Company will be affected by changes in the real
estate market in Washington.
Subsequent to July 31, 1995, the Company obtained financing
collateralized by the City View Apartments. The loan was for $567,000
and is to be repaid in monthly installments through 2005. In addition
to these loan proceeds, the Company anticipates that sales of
debentures and the availability of funds under its $8,000,000 line of
credit arrangement, of which only approximately $6,679,000 was
outstanding at July 31, 1995, will be sufficient to fund its short-
and intermediate-term needs to retire maturing debentures and mortgage
obligations and continue development of its real estate projects as
demand warrants.
13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Index to Consolidated Financial Statements
Page
----
Report of independent accountants 15
Financial statements:
Consolidated balance sheets 16
Consolidated statements of income 19
Consolidated statements of stockholders' equity 21
Consolidated statements of cash flows 22
Notes to consolidated financial statements 25
14
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Pacific Security Companies
Spokane, Washington
We have audited the accompanying consolidated balance sheets of
Pacific Security Companies and subsidiaries as of July 31, 1995 and
1994, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
July 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Pacific Security Companies and subsidiaries as of July 31, 1995 and
1994, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended July 31, 1995,
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal
1994.
/s/COOPERS & LYBRAND L.L.P.
Spokane, Washington
October 5, 1995
15
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets
July 31, 1995 and 1994
ASSETS 1995 1994
----------- -----------
Cash and cash equivalents:
Unrestricted $ 575,351 $ 511,861
Restricted (Note 2) 188,510 362,239
----------- -----------
763,861 874,100
----------- -----------
Receivables:
Contracts, mortgages and finance notes
receivable, net (Notes 3, 7, 8, 11
and 12):
Related parties 1,092,875 1,093,593
Unrelated 12,365,021 13,364,365
----------- -----------
13,457,896 14,457,958
Accrued interest 108,796 125,047
Other 48,232 63,854
----------- -----------
13,614,924 14,646,859
----------- -----------
Investment in rental properties (Notes 4
and 7) 15,647,591 15,742,637
----------- -----------
Other investments:
Property held for sale and development 3,205,951 2,931,796
Property under development (Note 5) 1,341,798
Marketable securities (Note 6) 96,379 127,704
Restricted investments (Note 2) 270,650 50,448
Other, at cost 49,768 76,933
----------- -----------
4,964,546 3,186,881
----------- -----------
Other assets:
Vehicles and equipment, less accumulated
depreciation of $197,217 and $179,026 25,497 41,531
Prepaid expenses 335,067 350,671
----------- -----------
360,564 392,202
----------- -----------
Total assets $35,351,486 $34,842,679
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
16
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
July 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- -----------
Liabilities:
Note payable to bank (Note 7) $ 6,679,398 $ 7,023,541
----------- -----------
Installment contracts, mortgage notes
and notes payable (Notes 8 and 12):
Related parties 215,795 7,819
Unrelated 6,212,532 6,647,708
----------- -----------
6,428,327 6,655,527
----------- -----------
Debenture bonds (Note 9) 9,179,484 8,567,231
----------- -----------
Accrued expenses and other liabilities:
Related parties (Note 12) 264,864 303,094
Unrelated 1,269,985 756,742
----------- -----------
1,534,849 1,059,836
----------- -----------
Federal income taxes (Note 10):
Currently payable 16,849 28,203
Deferred 1,396,562 1,424,986
----------- -----------
1,413,411 1,453,189
----------- -----------
Total liabilities 25,235,469 24,759,324
----------- -----------
Commitments and contingencies (Notes 5
and 9)
Redeemable Class A preferred stock, $100
par value; $100 redeemable value;
authorized 20,000 shares; issued and
outstanding, 10,400 shares (Note 11) 1,040,000 1,040,000
Less: Net discount on issuance of
preferred stock (468,000) (520,000)
----------- -----------
572,000 520,000
----------- -----------
(Continued)
17
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
July 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY,
CONTINUED 1995 1994
----------- -----------
Stockholders' equity (Note 12):
Common stock authorized 2,500,000 no par
value shares, $3 stated value; issued
and outstanding, 1,958,067 and
1,965,595 shares $ 5,874,202 $ 5,896,786
Additional paid-in capital 1,747,027 1,760,261
Retained earnings 1,928,409 1,883,499
Unrealized gain (loss) on marketable
securities, net of deferred income
taxes of $2,895 and $0 (Note 6) (5,621) 22,809
----------- -----------
Total stockholders' equity 9,544,017 9,563,355
----------- -----------
Total liabilities and stockholders'
equity $35,351,486 $34,842,679
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
18
Pacific Security Companies and Subsidiaries
Consolidated Statements of Income
for the years ended July 31, 1995, 1994 and 1993
1995 1994 1993
---------- ---------- ----------
Income:
Rental (Notes 4 and 7) $2,832,139 $2,653,958 $2,635,215
Interest (Note 12) 1,375,420 1,476,881 1,714,348
Gain on sale of securities 4,445 25,119
Service fees and options 3,600 980 6,750
Amortization of discounts on
real estate contracts 82,783 132,662 183,290
Gain on sales of real estate 584,657 186,109 233,766
Other, net (25,565) 114,052 23,417
---------- ---------- ----------
4,853,034 4,569,087 4,821,905
---------- ---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 699,264 677,687 598,156
Interest 418,688 319,011 382,721
Other 1,332,205 1,197,641 1,230,132
---------- ---------- ----------
2,450,157 2,194,339 2,211,009
Interest, net of amount capital-
ized (Notes 1 and 12) 1,262,525 1,363,344 1,511,970
Salaries and commissions 565,245 504,627 493,759
General and administrative 311,557 294,242 369,542
Depreciation 18,190 19,843 21,231
Uncollectible accounts 117 821 5,982
---------- ---------- ----------
4,607,791 4,377,216 4,613,493
Income before federal income tax
provision and cumulative effect
of change in accounting
principle 245,243 191,871 208,412
Federal income tax provision
(Note 10) 85,933 58,419 68,000
---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 159,310 133,452 140,412
Cumulative effect of change in
accounting principle (Note 1) (61,894)
---------- ---------- ----------
(Continued)
19
Pacific Security Companies and Subsidiaries
Consolidated Statements of Income, Continued
for the years ended July 31, 1995, 1994 and 1993
1995 1994 1993
---------- ---------- ----------
Net income $ 159,310 71,558 140,412
Less: Preferred stock dividends (62,400)
Accretion of discount on
preferred stock (52,000)
---------- ---------- ----------
Net income applicable to common
shareholders $ 44,910 $ 71,558 $ 140,412
========== ========== ==========
Net income (loss) per common
share:
Income before cumulative
effect of change in
accountIng principle $ .02 $ .07 $ .07
Cumulative effect of change
in accounting principle (.03)
---------- ---------- ----------
Net income per common share $ .02 $ .04 $ .07
========== ========== ==========
Weighted average common shares
outstanding 1,960,746 1,977,889 1,986,911
========== ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
20
Pacific Security Companies and Subsidiaries
Consolidated Statements of Stockholders' Equity
for the years ended July 31, 1995, 1994 and 1993
Unrealized
Additional Gain(Loss)
Common Paid-In Retained onMarketable
Stock Capital Earnings Securities Total
---------- ---------- ---------- ------------- ----------
Balances, July 31, 1992 $5,969,713 $1,748,728 $1,671,529 $9,389,970
Net income 140,412 140,412
Unrealized appreciation on
marketable securities (Note 6) $ 5,259 5,259
Purchase and retirement of common
stock (8,803 shares) (26,410) 11,801 (14,609)
---------- ---------- ---------- ---------- ----------
Balances, July 31, 1993 5,943,303 1,760,529 1,811,941 5,259 9,521,032
Net income 71,558 71,558
Unrealized appreciation on
marketable securities (Note 6) 17,550 17,550
Purchase and retirement of common
stock (15,506 shares) (46,517) (268) (46,785)
---------- ---------- ---------- ---------- ----------
Balances, July 31, 1994 5,896,786 1,760,261 1,883,499 22,809 9,563,355
Net income 159,310 159,310
Unrealized depreciation on
marketable securities (Note 6) (28,430) (28,430)
Purchase and retirement of common
stock (7,528 shares) (22,584) (13,234) (35,818)
Cash dividend declared on preferred
stock (62,400) (62,400)
Accretion of discount on preferred
stock (Note 11) (52,000) (52,000)
---------- ---------- ---------- ---------- ----------
Balances, July 31, 1995 $5,874,202 $1,747,027 $1,928,409 $ (5,621) $9,544,017
========== ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
21
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended July 31, 1995, 1994 and 1993
1995 1994 1993
----------- ----------- -----------
Cash flows from operating
activities:
Cash received from rentals $ 2,861,797 $ 2,741,139 $ 2,624,110
Interest received 1,390,814 1,480,230 1,762,144
Cash paid to suppliers and
employees (1,832,994) (2,295,699) (1,420,191)
Interest paid, net of amounts
capitalized (1,184,699) (1,263,433) (1,941,303)
Income taxes paid (97,500) (30,000) (166,564)
----------- ----------- -----------
Net cash provided by
operating activities 1,137,418 632,237 858,196
----------- ----------- -----------
Cash flows from investing
activities:
Proceeds from sales of real
estate 293,138 707,730 559,765
Proceeds from sales of market-
able securities and other
investments 2,300 51,236 189,745
Collections on contracts,
mortgages and finance notes
receivable 2,543,914 3,572,465 4,714,698
Investment in contracts,
mortgages and finance
notes receivable (242,399) (90,550) (1,550,476)
Additions to rental properties,
property held for sale,
property under development,
vehicles and equipment (3,146,582) (3,348,611) (2,294,636)
Increase in restricted invest-
ments and cash equivalents (46,473) (19,634) (90,160)
Other (2,121) 5,661
----------- ----------- -----------
Net cash provided by (used
in) investing activities (598,223) 872,636 1,534,597
----------- ----------- -----------
Cash flows from financing
activities:
Net (repayments) borrowings
under line-of-credit
agreement (344,143) 929,681 423,123
Net proceeds from installment
contracts, mortgage notes
and notes payable 1,911,000 550,471
(Continued)
22
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows, Continued
for the years ended July 31, 1995, 1994 and 1993
1995 1994 1993
----------- ----------- -----------
Cash flows from financing activities,
continued:
Payments on installment con-
tracts, mortgage notes and
notes payable $(2,138,200) $(2,067,091) $(1,881,786)
Proceeds from sales of debenture
bonds 1,107,171 1,140,201 393,167
Redemption of debenture bonds (975,715) (1,823,291) (2,092,719)
Proceeds from sale of preferred
stock 520,000
Purchase and retirement of common
stock (35,818) (46,785) (14,609)
----------- ----------- -----------
Net cash used in financing
activities (475,705) (1,347,285) (2,622,353)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 63,490 157,588 (229,560)
Cash and cash equivalents, beginning
of year 511,861 354,273 583,833
----------- ----------- -----------
Cash and cash equivalents, end of
year $ 575,351 $ 511,861 $ 354,273
=========== =========== ===========
Reconciliation of net income to net
cash provided by operating
activities:
Net income $ 159,310 $ 71,558 $ 140,412
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 717,454 697,530 619,387
Deferred income tax
provision (benefit) (28,424) (63,340) 108,432
Cumulative effect of change
in accounting for income
taxes 61,894
Deferred financing income
realized (82,783) (132,662) (183,290)
(Continued)
The accompanying notes are an integral part of the consolidated
financial statements.
23
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows, Continued
for the years ended July 31, 1995, 1994 and 1993
1995 1994 1993
---------- ---------- ----------
Reconciliation of net income to net cash
provided by operating activities,
continued:
Interest accrued on debenture
bonds $ 480,797 $ 486,454 $ 577,900
Gain on sales of marketable
securities (4,445) (25,119)
Gain on sales of real estate (584,657) (186,109) (233,766)
Loss on other investment 24,865
Uncollectible accounts 117 821 5,982
Change in assets and
liabilities:
Accrued interest receivable 16,251 1,364 47,796
Prepaid expenses 15,604 (216,548)
Accrued expenses 412,613 (176,039) (8,519)
Income taxes payable (11,354) 91,759 (206,590)
Other, net 17,625 15,571
---------- ---------- ----------
Net cash provided by
operating activities $1,137,418 $ 632,237 $ 858,196
========== ========== ==========
Supplemental schedule of noncash
investing and financing activities:
Additions to investment in rental
properties and properties held
for sale through contract fore-
closures $ 6,060 $ 23,225 $2,429,054
Mortgages and contracts payable
financing related to investments
in properties 134,764
Utility assessment on rental
property 238,621
Company financed sale of property 1,160,400 2,899,647 531,458
Accretion of discount on preferred
stock 52,000
The accompanying notes are an integral part of the consolidated financial
statements.
24
Pacific Security Companies and Subsidiaries
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Pacific Security Companies (the Company) is incorporated under
the laws of the state of Washington. The Company is engaged in
the business of owning, selling and leasing real properties and
in contract and loan financing, collateralized by real estate.
Most of the Company's business activity is concentrated within
the state of Washington.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Aqua View
Apartments, Inc., Henry George & Sons Co., Inc., Cooper-George
Company and Park Manor, Inc. All significant intercompany
accounts and transactions have been eliminated. The assets of
Park Manor, Inc. were sold in August 1993. During the year
ended June 30, 1993, Park Manor, Inc. had the following rental
income and net loss:
Rental income $173,283
Net loss (28,184)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Receipts on sales of real estate investments are accounted
for as customer deposits until the principal payments
received on the sales contracts exceed the minimum
guidelines for gain recognition as established by Statement
of Financial Accounting Standards No. 66, "Accounting for
Sales of Real Estate" (see Note 4). Losses arising from
sales of real estate are recognized immediately upon sale.
Losses on investments in rental properties and properties
held for sale or development are recognized if the
anticipated undiscounted cash flows from operation or
disposition are estimated to be less than the carrying
value of the related asset.
b. Contracts, mortgages and finance notes receivable are
stated at unpaid principal balance, plus accrued interest,
less acquisition discounts and an allowance for estimated
uncollectible amounts, as necessary. No allowance has been
provided for doubtful accounts at July 31, 1995 and 1994
because management either expects to collect the
receivables in the ordinary course of business or recover
25
Notes to Financial Statements, Continued
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
amounts through foreclosures and subsequent resale of the
collateral. The value of the underlying collateral for notes
and contracts receivable is estimated to be greater than the
related notes and contracts. Interest continues to be accrued
on non-performing receivables until such amount is not expected
to be recovered.
In May 1993, Statement of Financial Accounting Standards
No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment
of a Loan" was issued. SFAS No. 114 requires that certain
impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or the fair value of the collateral. The Company
adopted this new standard August 1, 1995. The adoption of SFAS
No. 114 did not have a material effect on the consolidated
financial statements.
c. Rental properties, including buildings and furniture,
vehicles and office equipment are recorded at cost.
Expenditures for maintenance and repairs are charged to
operations as incurred. Renewals and betterments are
capitalized. Depreciation is provided on the straight-line
method over estimated useful lives as summarized below:
Years
-----
Rental properties:
Buildings 15-40
Furniture 5-10
Office equipment and furnishings 5-10
Vehicles 4-5
Upon sale or retirement of depreciable properties, the
related cost and accumulated depreciation are removed from
the accounts and any resultant gain or loss is reflected in
operations.
d. The Company records foreclosed assets held for sale at the
lower of (a) fair value minus estimated costs to sell, or
(b) cost in accordance with Statement of Position 92-3 (SOP
92-3), "Accounting for Foreclosed Assets."
26
Notes to Financial Statements, Continued
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
e. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109), effective August 1, 1993.
The cumulative effect of adopting SFAS No. 109 in fiscal
1994 was a charge to operations of $61,894. SFAS No. 109
requires a company to recognize deferred tax assets and
liabilities for the expected future income tax consequences
of events that have been recognized in a company's
financial statements. Under this method, deferred tax
liabilities and assets are determined based on the
temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. During the
fiscal year ended July 31, 1993, the Company accounted for
income taxes as required by Statement of Financial
Accounting Standards No. 96.
f. The Company amortizes discounts on purchased contracts
using the level-yield method over the expected term of the
contracts.
g. For purposes of the consolidated statements of cash flows,
the Company considers all highly liquid debt instruments
purchased with a remaining maturity of three months or less
to be cash equivalents.
h. All costs associated with self-constructed assets
(including interest and real estate taxes) incurred during
the construction period are capitalized. Interest costs of
approximately $204,000, $152,000 and $90,000 were
capitalized in fiscal 1995, 1994 and 1993, respectively.
i. The Company accounts for its investments in certain
marketable debt and equity securities in accordance with
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115). The Company's investments are
considered to be "available for sale" as defined in SFAS
No. 115, and therefore are carried at market value.
Unrealized gains and losses are excluded from operations
and reported as a separate component of stockholders'
equity, net of related income taxes, until realized. Prior
to the adoption of SFAS No. 115 on July 31, 1993,
marketable securities were valued at the lower of cost or
market. The cost of investments sold was by specific
identification.
27
Notes to Financial Statements, Continued
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
j. The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and
cash equivalents and contracts, mortgages and finance notes
receivable.
As of July 31, 1995 and 1994, the Company has various cash
and investment accounts totalling approximately $564,000
and $512,000, respectively, with one financial institution.
These accounts are insured by the Federal Deposit Insurance
Corporation up to $100,000.
The Company's contracts, mortgages and finance notes
receivable are primarily from borrowers in Washington State
and are collateralized principally by real estate in
Washington. Additionally, the Company had five individual
loans of approximately $3,670,000, $1,819,000, $1,378,000,
$654,000 and $609,000 outstanding at July 31, 1995.
k. Net income per common share is based on net income after
deducting preferred stock dividends divided by the weighted
average number of shares of common stock outstanding during
each year.
RECLASSIFICATIONS
Certain consolidated financial statement amounts have been
reclassified to conform with the 1995 presentation. These
reclassifications had no effect on retained earnings or net
income as previously reported.
28
Notes to Financial Statements, Continued
2. RESTRICTED CASH EQUIVALENTS AND INVESTMENTS:
At July 31, 1995 and 1994, the Company holds cash equivalents and
investments which are restricted for the following purposes:
1995 1994
--------------------- ---------------------
U.S. U.S.
Cash Treasury Cash Treasury
Equivalents Notes Equivalents Notes
----------- -------- ----------- --------
Tenant security deposits $ 31,126 $ 27,783
Mortgage reserves 31,337 31,405
Apartment complex
replacement reserve
required by the
Department of Housing
and Urban Development
(HUD) 117,377 $127,847 208,812
Apartment complex
residual receipts as
required by HUD 8,670 142,803 94,239 $ 50,448
-------- -------- -------- --------
$188,510 $270,650 $362,239 $ 50,448
======== ======== ======== ========
The U.S. Treasury note held in the replacement reserve bears
interest at 6% and matures October 15, 1999. The two U.S.
Treasury notes held in the residual receipts fund earn interest
at 5.125% and 6% and mature November 15, 1995 and October 15,
1999, respectively. The U.S. Treasury note outstanding at
July 31, 1994 bears interest at 5.25% and matures November 15,
1995.
29
Notes to Financial Statements, Continued
3. CONTRACTS, MORTGAGES AND FINANCE NOTES RECEIVABLE:
At July 31, 1995 and 1994, the aging of amounts due on contracts,
mortgages and finance notes receivable was as follows:
1995 1994
----------- -----------
Current $13,578,288 $14,365,029
31 to 60 days 133,575 220,946
60 to 90 days 21,345 28,353
Over 90 days 108,998 303,322
----------- -----------
13,842,206 14,917,650
Less unearned acquisition discounts 384,310 459,692
----------- -----------
$13,457,896 $14,457,958
=========== ===========
Substantially all of these receivables are collateralized by
land, commercial buildings and single and multi-family
residences. Interest rates on most loans are fixed and range
from 5.25% to 14.25% at July 31, 1995 and 5.25% to 15.25% at
July 31, 1994. Approximately $665,000 and $1,160,000 of loans
outstanding at July 31, 1995 and 1994, respectively, have
variable interest rates.
4. INVESTMENTS IN RENTAL PROPERTIES:
Following is a summary of investments in rental properties at
July 31, 1995 and 1994:
1995 1994
----------- -----------
Land $ 3,063,976 $ 3,063,976
Building and improvements 17,984,196 17,717,462
Furniture and equipment 902,665 753,847
----------- -----------
21,950,837 21,535,285
Less accumulated depreciation (6,303,246) (5,792,648)
----------- -----------
$15,647,591 $15,742,637
=========== ===========
30
Notes to Financial Statements, Continued
4. INVESTMENTS IN RENTAL PROPERTIES, CONTINUED:
The Company leases office space in certain of the above buildings
under operating leases. Most of the lease agreements contain
renewal options and escalation provisions associated with
inflation over the term of the lease. The following is a
schedule by years of minimum future rentals on noncancellable
operating leases as of July 31, 1995:
Year Ending July 31, Amount
-------------------- ----------
1996 $1,155,878
1997 984,856
1998 839,259
1999 658,198
2000 442,385
Thereafter 861,158
----------
Total minimum future rentals $4,941,734
==========
At July 31, 1995 and 1994, the sale of certain rental property
and land were subject to sales contracts, but had not met the
criterion to be recorded as a sale. Therefore, the deposit
method of accounting for these sales was applied, resulting in
$303,000 and $365,000 being classified as investments in rental
properties at July 31, 1995 and 1994, respectively. At July 31,
1995 and 1994, the Company had deferred gains of approximately
$74,000 and $83,000, respectively, associated with these sales
which will be recognized when the criterion for a sale is
ultimately met.
5. PROPERTY UNDER DEVELOPMENT:
During the year ended July 31, 1995, the Company began
construction of Birdies Golf Center (Birdies). The golf center
features a 56-tee driving range, a fully-lighted, contoured
fairway with 5 target greens, a high-quality pro shop, teaching
studios and an 8,000 square foot putting green. Birdies is being
constructed on land owned by the Company since 1990. The Company
has outstanding commitments to complete the construction of the
facility with contractors and suppliers totaling approximately
$560,000 at July 31, 1995. The facility was completed and the
Company commenced operations in September 1995.
31
Notes to Financial Statements, Continued
6. MARKETABLE SECURITIES:
A summary of investments in marketable securities at July 31,
1995 and 1994 is as follows:
1995 1994
---------------------------------- ----------------------------------
Unrealized Market/ Unrealized Market/
Appreciation Carrying Appreciation Carrying
Cost (Depreciation) Value Cost (Depreciation) Value
-------- -------------- -------- -------- -------------- --------
Marketable equity
securities $ 45,495 $ (8,516) $ 36,979 $ 45,495 $ 22,809 $ 68,304
Debt securities 59,400 59,400 59,400 59,400
-------- -------- -------- -------- -------- --------
Totals $104,895 $ (8,516) $ 96,379 $104,895 $ 22,809 $127,704
======== ======== ======== ======== ======== ========
At July 31, 1995, the debt securities are contractually due in
1997; however, actual maturities may differ from these
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
32
Notes to Financial Statements, Continued
7. NOTE PAYABLE TO BANK:
Note payable to bank represents borrowings outstanding under the
Company's $8,000,000 short-term, line-of-credit agreement with
U.S. Bank of Washington. Amounts drawn under the line bear
interest at the bank's prime rate plus seven-eights of one
percent. The interest rate was 9.625% and 8.125% (based on a
prime rate of 8.75% and 7.25%) at July 31, 1995 and 1994,
respectively. The agreement is subject to renewal on December 5,
1995. The Company's majority stockholder provides a guarantee of
up to $1.2 million on outstanding borrowings under the line-of-
credit agreement. The following assets were pledged as
collateral for the note at July 31, 1995 and 1994:
1995 1994
---------- ----------
Finance notes and real estate
contracts receivable $5,425,401 $4,938,577
Assignment of future rents 2,447,550 3,902,989
Equity in contracts with underlying
obligations 172,343 137,143
---------- ----------
$8,045,294 $8,978,709
========== ==========
8. CONTRACTS AND NOTES PAYABLE:
Real estate contracts and mortgage notes are payable in varying
amounts with interest rates ranging from 6.0% to 10.5%. Monthly
debt service payments, including interest, were approximately
$126,000 at July 31, 1995.
Scheduled future maturities of contracts and notes payable are as
follows:
Year Ending July 31, Amount
-------------------- ----------
1996 $1,029,767
1997 1,055,886
1998 520,048
1999 460,632
2000 502,826
Thereafter 2,859,168
----------
Total $6,428,327
==========
33
Notes to Financial Statements, Continued
8. CONTRACTS AND NOTES PAYABLE, CONTINUED:
The following assets at carrying value were pledged as collateral
for contracts and notes payable at July 31, 1995 and 1994:
1995 1994
----------- -----------
Contracts receivable $ 4,265,720 $ 4,801,860
Rental properties 7,185,140 9,658,063
----------- -----------
$11,450,860 $14,459,923
=========== ===========
In August 1995, the Company obtained a note payable with a
principal amount of $567,000 bearing interest at 9.125% and
maturing on July 14, 2005. This note is collateralized by an
investment in rental property with a carrying value of
approximately $450,000.
9. DEBENTURE BONDS:
The Company has issued unsecured investment bonds to residents of
the state of Washington under the Securities Act of Washington.
The proceeds have been used in making funds available for loans
and the development, improvement and acquisition of commercial
real property.
The outstanding bonds have original maturities ranging from one
to ten years and the interest rates vary depending upon the
maturity. Estimated future contractual maturities of outstanding
debenture bonds as of July 31, 1995 are as follows:
Maturing During Fiscal
Year Ending July 31, Amount
---------------------- -----------
1996 $2,403,505
1997 1,438,552
1998 1,141,584
1999 667,411
2000 557,808
Thereafter 2,970,624
----------
Total $9,179,484
==========
34
Notes to Financial Statements, Continued
9. DEBENTURE BONDS, CONTINUED:
Outstanding bonds by interest rate categories were as follows at
July 31, 1995 and 1994:
Bond Interest Rate 1995 1994
------------------ ---------- ----------
5 % $ 386,838
5 1/2 $ 5,780 30,766
6 687,390 1,030,030
6 1/4 5,500 16,505
6 1/2 630,495 247,931
6 3/4 86,699 131,376
7 913,242 729,710
7 1/4 207,041 315,524
7 1/2 1,445,477 1,095,621
7 3/4 127,750 197,316
8 665,625 212,301
8 1/4 216,767 499,869
8 1/2 1,229,508 963,413
8 3/4 397,467 367,286
9 1,019,189 605,437
9 1/4 226,478 29,380
9 1/2 1,291,456 1,686,605
10 10,802 9,786
10 1/2 8,353 7,531
11 4,465 4,006
---------- ----------
$9,179,484 $8,567,231
========== ==========
The weighted average interest rate for outstanding debentures at
July 31, 1995 and 1994 was 7.999% and 7.846%, respectively.
The Securities Act of Washington contains specific statutory and
regulatory requirements concerning companies selling debentures
in the state of Washington. These regulations require
maintenance of minimum net worth and liquidity levels, define
debenture terms and maturity limitations, describe financial
reporting requirements and prohibit certain activities by
controlling persons of the issuer of debentures. Failure to
comply with these requirements may jeopardize a company's ability
to issue debentures.
In January 1995, the Company received a permit to offer
additional debentures for sale under the Securities Act of
Washington. The permit is subject to the following conditions:
35
Notes to Financial Statements, Continued
9. DEBENTURE BONDS, CONTINUED:
(a) Outstanding debentures may not exceed $9,988,910 at any time
during the period.
(b) Normal quarterly reports will be supplemented with the
following information:
- Copies of the Company's Form 10-Q.
- Calculations of the ratio of earnings to fixed charges.
- Schedules showing the real estate sold, proceeds received
and use of the proceeds during the quarter.
- Schedules showing the amounts of debentures sold to new
investors, old debentures retired and renewals.
- A discussion of the efforts which have been made during
the quarter to transfer a receivable from Washington
Capital, Inc. (WCI), a related party (see Note 12), to an
unaffiliated entity.
The permit expires in November 1995. However, the Company's
continued ability to sell additional debentures is dependent upon
its compliance with the preceding conditions.
10. INCOME TAXES:
The components of the income tax provision (benefit) are as
follows:
1995 1994 1993
-------- -------- --------
Current $114,357 $121,759 $(40,432)
Deferred (28,424) (63,340) 108,432
-------- -------- --------
$ 85,933 $ 58,419 $ 68,000
======== ======== ========
36
Notes to Financial Statements, Continued
10. INCOME TAXES, CONTINUED:
The components of the net deferred tax liability at July 31, 1995
and 1994 were as follows:
Assets Liabilities Total
----------- ----------- -----------
1995:
-----
Depreciation $ (260,218) $ (260,218)
Installment gains (1,225,788) (1,225,788)
Unrealized gains or
losses on market-
able securities $ 71,474 71,474
Accrued liabilities 39,735 39,735
Other (21,765) (21,765)
----------- ----------- -----------
$ 111,209 $(1,507,771) $(1,396,562)
=========== =========== ===========
1994:
-----
Depreciation $ (284,860) $ (284,860)
Installment gains (1,214,457) (1,214,457)
Unrealized gains or
losses on market-
able securities $ 68,579 68,579
Accrued liabilities 16,942 16,942
Other (11,190) (11,190)
----------- ----------- -----------
$ 85,521 $(1,510,507) $(1,424,986)
=========== =========== ===========
11. REDEEMABLE PREFERRED STOCK:
During the year ended July 31, 1994, the Company issued 10,400
shares of Class A Preferred Stock to certain of its common
shareholders or officers. The stock was issued at a 50% discount
from par value.
Annual dividends of 6% are cumulative. The Company has the right
to redeem any shares after three years from the date of issuance.
However, all shares are required to be redeemed by the Company
ten years after issuance at the par value plus accrued dividends
to date of redemption. Dividends of $62,400 were declared on the
preferred stock during the year ended July 31, 1995 and were paid
on August 2, 1995. No dividends were declared or paid in the
year ended July 31, 1994.
37
Notes to Financial Statements, Continued
11. REDEEMABLE PREFERRED STOCK, CONTINUED:
Due to the mandatory ten-year redemption, the discount on the
issuance of the preferred stock is being accreted using the
interest method over the redemption period. This accretion is
recorded as an increase in the carrying value of the preferred
stock and as a charge against retained earnings. The accretion
of this discount was $52,000 for the year ended July 31, 1995.
Each share of Class A Preferred Stock is entitled to one vote on
each matter voted on at a stockholders' meeting. The preferred
stockholders have liquidation rights equal to the par value plus
accumulated and unpaid dividends.
At July 31, 1995, $800,000 face value of preferred stock has been
pledged as collateral for a contract receivable from WCI (see
Note 12).
12. RELATED-PARTY TRANSACTIONS:
CONTRACTS AND NOTES RECEIVABLE
Certain shareholders, who are children of Wayne E. Guthrie (a
major stockholder of the Company), are indebted to the Company
on contracts or notes which arose from prior years'
transactions. Two notes totaling $27,985 are receivable from
John W. Guthrie at July 31, 1995 and 1994. These notes are
collateralized by real estate and 32,844 shares of the
Company's common stock. Also, a $278,206 note is receivable
from Robert Guthrie at July 31, 1995 and 1994 (see deferred
compensation agreement paragraph). The Company originated a
$132,600 note from Ralph Guthrie (brother of Wayne E. Guthrie)
during the year ended July 31, 1995. This note is secured by
real estate. The outstanding balance on this note at July 31,
1995 is $132,600.
EDGEWOOD APARTMENT COMPLEX
During 1990 through 1992, the Company increased the amount of
an original $220,000 loan made during 1986 to three
officers/shareholders (John Guthrie, Robert Guthrie and Linda
Guthrie Welden) by $960,162, $184,631 and $139,309,
respectively, through additional loans and adding unpaid
accrued interest through June 30 of each year. The adjusted
loan balance as of July 31, 1992 was $2,097,117. The
additional funds were used to pay net operating expenses, debt
service including the payoff of underlying debt obligations,
and certain rehabilitation costs of an apartment complex which
collateralized the loan. The loan was secured by their equity
in the Edgewood apartment complex and bore interest at a
commercial bank's prime rate plus 4% adjusted annually.
38
Notes to Financial Statements, Continued
12. RELATED-PARTY TRANSACTIONS, CONTINUED:
EDGEWOOD APARTMENT COMPLEX, CONTINUED
Foreclosure action on the loan secured by the apartment complex
described above resulted in a trustee's sale being scheduled
July 27, 1990. However, the foreclosure sale was stayed that
day by the personal bankruptcy filing of John Guthrie, a
stockholder and former officer, one of the three owners of the
property. A trustee's sale was completed on June 18, 1993.
The Company sold this property in August 1993 and recognized a
small gain.
HERITAGE VILLAGE APARTMENT COMPLEX
On February 1, 1974, Wayne E. Guthrie and his wife, Constance
Guthrie, purchased the Heritage Village apartment complex
located in King County, Washington for $2,100,000 from Pacific
National Capital Company (which subsequently merged into
Pacific Security Companies). The purchase was partially
seller-financed by a real estate contract bearing interest at
8% in an original amount of $2,060,000. This contract was
assigned to WCI in 1990 (see below). The balance owed was
$654,084 and $787,402 on July 31, 1995 and 1994, respectively.
The taxable gain on this sale was $932,348.
On August 1, 1976, Wayne E. Guthrie and Constance Guthrie sold
the Heritage Village apartment complex for $2,650,000 to
Security Savesco, Inc., which subsequently merged with Pacific
Security Companies in 1985 and had its name changed to Pacific
Security Companies. The sale was partially seller-financed by
a real estate contract bearing interest at 8% in an original
amount of $2,590,000. The balance owed on this contract was
repaid in full during the year ended July 31, 1994.
On November 29, 1979, Security Savesco, Inc. (renamed Pacific
Security Companies in the 1985 merger) sold the Heritage
Village apartment complex for $6,000,000 to a non-related
party. The sale was partially seller-financed by a real estate
contract bearing interest at 9% in an original amount of
$5,200,000. The balance owed on this contract was $3,669,771
and $3,926,790 on July 31, 1995 and 1994, respectively. The
taxable gain on this sale was $2,732,811.
WASHINGTON CAPITAL, INC. (WCI)
In July 1990, certain contracts receivable from Company
officers, directors and shareholders were assigned by the
Company to WCI, a corporation whose sole stockholder was Wayne
E. Guthrie. In December 1991, Mr. Guthrie transferred his
ownership interest in WCI to his brother, who is now the sole
stockholder in WCI. Generally accepted accounting principles
include members of the immediate families of principal owners
or management as related parties.
39
Notes to Financial Statements, Continued
12. RELATED-PARTY TRANSACTIONS, CONTINUED:
WASHINGTON CAPITAL, INC. (WCI), CONTINUED
The assignment of the contracts receivable from officers/
directors/stockholders of the Company was made at no gain or
loss as WCI executed installment notes payable to the Company
for the same principal amount and interest rates as the
contracts assigned to WCI. In 1993, one of the contracts was
paid in full. At July 31, 1995 and 1994, the only significant
assets and liabilities of WCI were the contract receivable from
the officer/stockholder of the Company and the installment
contract payable to the Company.
In July 1994, Wayne E. Guthrie and/or WCI pledged $800,000 face
value of the Company's Class A Preferred Stock (see Note 11) to
guarantee performance and full payment of any account that he
or WCI may owe to the Company.
In the event the Company elects to redeem this preferred stock
at any time prior to 2002, the proceeds shall be applied to the
debt. Also, any dividends included therewith shall be applied
to accrued interest paid on the debt.
If the debt is not paid in full prior to July 5, 2002, the
Company shall become the owner of the preferred stock, and the
liquidation shall be at the Company's sole discretion with the
proceeds being applied to the debt along with accrued dividends
that may be declared.
The contract receivable by the Company from WCI had balances
outstanding of $654,084 and $787,402 at July 31, 1995 and 1994,
respectively. This contract is repayable in $15,000 monthly
installments and bears interest at 8% per annum.
The Securities Act of Washington prohibits a debenture
company's officers, directors or controlling persons from
directly or indirectly borrowing funds from a debenture company
or from indirectly or directly owning real property upon which
the debenture company holds a mortgage, deed of trust or
property contract. The Securities Division takes the position
that the holding of these receivables, whether by the Company
or WCI, violates this provision of the Securities Act. The
Company has agreed to work with WCI to move these receivables
to a party which may legally hold them subject to such
restrictions (see Notes 9 and 11).
40
Notes to Financial Statements, Continued
12. RELATED-PARTY TRANSACTIONS, CONTINUED:
INSTALLMENT CONTRACTS, MORTGAGE NOTES AND NOTES PAYABLE
At July 31, 1995 and 1994, the following related-party notes
payable were outstanding:
Interest Monthly
1995 1994 Rate Payment
-------- -------- -------- --------
Wayne E. Guthrie $209,369 6.75% $ 2,000
John Guthrie 6,426 $ 7,819 6.00% 219
-------- --------
$215,795 $ 7,819
======== ========
DEBENTURE BONDS
Included in debenture bonds at July 31, 1995 and 1994 is
approximately $83,000 and $104,000 payable to related parties.
These bonds bear interest at the prevailing market rate on the
date of purchase.
ACCRUED EXPENSES AND OTHER LIABILITIES
Included in accrued expenses and other liabilities at July 31,
1995 and 1994 are $175,919 and $263,616, respectively, payable
to Wayne E. Guthrie. Additionally, $69,735 and $33,726 was
payable to Constance Guthrie at July 31, 1995 and 1994,
respectively. Interest at 9.25% accrues on these advances.
Advances to other shareholders, who are children of Wayne E.
Guthrie, included in other liabilities amounted to $19,210 and
$5,751 at July 31, 1995 and 1994, respectively. These advances
bear interest at 9.0%
INTEREST INCOME AND EXPENSE
The approximate amount of related-party interest income and
expense included in the accompanying consolidated statements of
income for each of the three years ended July 31, 1995 follows:
1995 1994 1993
-------- -------- --------
Interest income $100,000 $111,000 $349,000
Interest expense 34,000 70,000 72,000
41
Notes to Financial Statements, Continued
12. RELATED-PARTY TRANSACTIONS, CONTINUED:
DEFERRED COMPENSION AGREEMENT
During October 1991, the Company entered into a deferred
compensation agreement with its former president, Robert W.
Guthrie. In accordance with the terms of the agreement, Mr.
Guthrie was paid monthly compensation of $7,124 through
March 31, 1993.
The agreement also called for Robert W. Guthrie to be paid a
commission of $150,000 upon the sale or lease of certain real
estate for personal services he rendered on behalf of the
Company related to the acquisition and development of the
property. As of July 31, 1995, a commission of $145,000 had
been paid pursuant to the agreement.
Additionally, the agreement provides that the Company will
provide Robert W. Guthrie with a line-of-credit loan of up to
$278,206 secured by Mr. Guthrie's pledge of his 158,975 shares
of the Company's common stock. The line of credit bears
interest at a commercial bank's prime rate plus 4%. At July
31, 1995, the interest rate on the loan was 12.75%. The line
of credit requires monthly interest payments only for the first
five-year period, then monthly interest and principal payments
of an amount necessary to amortize the loan over the next five-
year period. As of July 31, 1995, $278,206 had been loaned to
Robert W. Guthrie pursuant to the agreement.
42
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On June 10, 1993, LeMaster & Daniels withdrew as the registrant's
auditors. There were no disagreements on accounting issues or
financial statement disclosure during the fiscal year ended July 31,
1992 or any interim period after July 31, 1992. Subsequently, the
registrant engaged Coopers & Lybrand L.L.P. as independent
accountants.
43
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following information as of July 31, 1995 is provided with respect
to each director and executive officer of the Company:
Year First Term as
Elected as Director
Name Age Director Expires in Position (date elected to position)
--------------------- --- ---------- ---------- -----------------------------------
Wayne E. Guthrie 75 1970 1996 Chairman of the Board and Chief
Executive Officer (January 17,1970); Director
Kevin M. Guthrie 40 1980 1997 Vice President (May 2, 1985);
Director
David Guthrie 31 1987 1997 Vice President (September 1, 1989);
Director
Donald J. Migliuri 48 1992 1995 Secretary/Treasurer (May 29, 1990);
Director
Raymond J. Fisher 72 1970 1996 Director
Constance M. Guthrie 61 1981 1996 Director
Robert N. Codd 65 1994 1997 Director
FAMILY RELATIONSHIPS
Kevin M. Guthrie and David Guthrie are the sons of Wayne E. Guthrie.
Constance M. Guthrie is the wife of Wayne E. Guthrie.
44
BUSINESS EXPERIENCE
Wayne E. Guthrie, Chairman of the Board of Pacific Security Companies.
Mr. Guthrie is also Chairman of the Board of Aqua View Apartments,
Inc. and a director of Henry George & Sons Co., Inc., all Washington
corporations and subsidiaries of the registrant. Mr. Guthrie has over
40 years of experience in areas of construction, financing of real
estate and personal property, and real estate investments.
Kevin M. Guthrie, Vice President of Pacific Security Companies since
1985. Mr. Guthrie has served as property manager for the Company
since 1976. Mr. Guthrie is also an officer and director of Aqua View
Apartments, Inc.
David Guthrie, Vice President of Pacific Security Companies since
1989. Mr. Guthrie was formerly a stockbroker with Merrill Lynch in
Spokane, Washington. Mr. Guthrie is also an officer and director of
Aqua View Apartments, Inc.
Donald J. Migliuri, Treasurer of Pacific Security Companies since
1990. Mr. Migliuri was a Certified Public Accountant and has served
as an accounting officer with various diversified financial services
companies for over 10 years.
Constance M. Guthrie. Mrs. Guthrie is a housewife and has not been
employed outside the home during the past eight years.
Raymond J. Fisher. Mr. Fisher, now retired, was Secretary of Pacific
Security Companies. He was a Certified Public Accountant and was
employed by the Company and its predecessor companies for 41 years.
Robert N. Codd. Mr. Codd is employed by Pacific Security Companies in
its leasing and real estate activities. He was employed by the
Company from 1970 to 1979 and was rehired in November 1992. Prior to
being rehired, he was a commercial realtor and property manager.
45
Item 11. EXECUTIVE COMPENSATION
REMUNERATION OF DIRECTORS AND OFFICERS
The following table lists, on an accrual basis, for each of the three
years ended July 31, 1995, the remuneration paid by the Company to any
officers or directors in excess of $100,000 and to all officers and
directors as a group who were officers or directors of the Company at
any time during the year ended July 31, 1995:
Name of
Individual Capacities Annual Compensation
or Number of in Which Fiscal -------------------
Persons in Group Served Year Salary Bonus
---------------------- --------------------------- ------- -------- --------
Wayne E. Guthrie Chairman of the Board and 1995 $113,000
Chief Executive Officer 1994 100,000
1993 130,000
Officers and Directors
as a group (five) 1995 370,972
The Company has no qualified or nonqualified stock option plans as of
July 31, 1995.
46
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning parties,
excluding management, who are known by the Company to directly
own more than 5% of any class of the Company's voting shares on
July 31, 1995:
Amount and
Nature of
Title Name and Address Beneficial Percent
of Class of Beneficial Owner Ownership of Class
------------ ------------------------ ---------- --------
Common stock Linda Guthrie Welden
Bothell, WA 158,975 8.12%
Common stock Julie Guthrie Hable
San Francisco, CA 177,485 9.06
Common stock Robert Guthrie
Spokane, WA 158,975 8.12
Common stock John W. Guthrie
Olympia, WA 137,348 7.01
------- -----
Totals 632,783 32.31%
======= =====
(b) Security Ownership of Management
The following table sets forth as of July 31, 1995 information
concerning the direct ownership of each class of equity
securities by all directors and all directors and officers of the
Company as a group:
Amount and
Nature of
Title Name and Address Beneficial Percent
of Class of Beneficial Owner Ownership of Class
------------ ------------------------ ---------- --------
Common stock Wayne E. Guthrie 720,384 36.79%
Common stock Kevin Guthrie 203,365 10.39
Common stock David Guthrie 203,365 10.39
Common stock All directors and
officers as a group 1,131,842 57.80
(Continued)
47
Amount and
Nature of
Title Name and Address Beneficial Percent
of Class of Beneficial Owner Ownership of Class
--------------- ----------------------- ---------- --------
Preferred stock Wayne E. Guthrie 8,000 76.9%
Preferred stock Wayne E. or
Constance Guthrie 2,000 19.1
Preferred stock Kevin Guthrie 100 1.0
Preferred stock David Guthrie 100 1.0
Preferred stock Don Migliuri 200 2.0
------ -----
Preferred stock All directors and
officers as a group 10,400 100.0%
====== =====
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Company officers, directors and stockholders and
other related parties are summarized in Notes 11 and 12 to the
consolidated financial statements included herein.
48
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page
----
(a) 1. Financial Statements - See index under Item 8 14
(a) 2. Financial Statement Schedules:
Report of independent accountants 50
Schedule XI - Real estate and accumulated depreciation 51
Schedule XII - Mortgage loans on real estate 55
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the financial statements or
notes thereto.
(a) 3. Exhibits:
There are no exhibits included in this filing.
(b) Reports on Form 8-K during the last quarter:
None
49
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Shareholders
Pacific Security Companies
Spokane, Washington
Our report on the consolidated financial statements of Pacific
Security Companies and subsidiaries is included on page 15 of this
Form 10-K. In connection with our audits of such consolidated
financial statements, we have also audited the related financial
statement schedules listed under Item 14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information
required to be included therein.
/s/COOPERS & LYBRAND L.L.P.
Spokane, Washington
October 5, 1995
50
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
SCHEDULE XI
Real Estate and Accumulated Depreciation
July 31, 1995
Life on
Which
Cost Amount Depreciation
Capitalized at Which in Latest
Subsequent Carried Income
Initial to Revaluation at Close Accumulated Date Statement is
Description Encumbrance Cost Acquisition Reserve of Period Depreciation Acquired is Computed
----------------------- ----------- ----------- ----------- ----------- ----------- ------------ -------- ------------
Residential and commer-
cial properties:
Rental buildings and
improvements:
Spokane, Washington
-------------------
N. 10 Post Street
(Peyton Bldg.) $ 1,010,163 $ 2,209,343 $ 2,236,285 $ 4,445,628 $ 1,183,352 1979 25-40 years
S. 10 Washington
(Hutton Bldg.) 169,892 1,498,769 3,192,359 4,691,128 1,266,003 1979 25-40 years
E. 11128 Sprague
Avenue 154,491 216,000 22,632 238,632 32,913 1987 25 years
East Valley
Terrace Apart-
ments 447,144 896,953 55,866 952,819 561,781 1979 25 years
Walker/McGough
Building 850,709 12,997 863,706 386,283 1982 25 years
Mini-warehouse
complex 391,623 1,640,004 514,357 $ (507,703) 1,646,658 515,417 Various Various
Aqua View Apart-
ments 452,826 1,385,074 238,773 1,623,847 1,041,378 1969 40 years
W. 102 Indiana 663,031 663,031 195,640 1984 30 years
(Continued)
51
SCHEDULE XI, Continued
Real Estate and Accumulated Depreciation, Continued
July 31, 1995
Life on
Which
Cost Amount Depreciation
Capitalized at Which in Latest
Subsequent Carried Income
Initial to Revaluation at Close Accumulated Date Statement is
Description Encumbrance Cost Acquisition Reserve of Period Depreciation Acquired is Computed
----------------------- ----------- ----------- ----------- ----------- ----------- ------------ -------- ------------
Residential and commer-
cial properties:
Rental buildings and
improvements:
Spokane, Washington,
Continued
-------------------
City View Apart-
ments $ 440,028 $ 57,893 $ 497,921 $ 69,501 1991 25 years
Pier One Building $ 1,654,524 1,194,017 2,737,306 3,931,323 287,989 1992 25-40 years
Cellular One
Building 950,373 (2,811) 947,562 112,012 1992 25 years
Cheney, Washington
-------------------
Cheney Bruchi's 100,000 2,076 102,076 75,066 1976 25 years
Coeur d'Alene, Idaho
--------------------
Yellowfront Build-
ing 47,511 281,723 281,723 173,497 1976 25 years
(Continued)
52
SCHEDULE XI, Continued
Real Estate and Accumulated Depreciation, Continued
July 31, 1995
Life on
Which
Cost Amount Depreciation
Capitalized at Which in Latest
Subsequent Carried Income
Initial to Revaluation at Close Accumulated Date Statement is
Description Encumbrance Cost Acquisition Reserve of Period Depreciation Acquired is Computed
----------------------- ----------- ----------- ----------- ----------- ----------- ------------ -------- ------------
Furniture related to
above $ 540,237 $ 185,537 $ 725,774 $ 402,414 Various Various
Held for resale:*
E. 330 Astor 128,197 128,197 1987
Alberta Apartments 167,193 167,193 1988
E. 44th Street
Condominium 43,622 43,622 1981
----------- ----------- ----------- ----------- ----------- -----------
$ 4,328,174 $13,205,273 $ 9,253,270 $ 507,703 $21,950,837 $ 6,303,246
=========== =========== =========== =========== =========== ===========
*Buildings sold, but not meeting criteria for recognition of gain for
financial statement reporting purposes.
53
SCHEDULE XI, Continued
Real Estate and Accumulated Depreciation
July 31, 1995
____________
Real estate:
Balance at beginning of period $21,535,285
Additions during period:
Purchases and capitalized costs 1,222,024
Deductions during period:
Cost of real estate sold (806,472)
-----------
Balance at close of period $21,950,837
===========
Accumulated depreciation:
Balance at beginning of period $ 5,792,648
Depreciation for the year 696,587
Charges to accumulated depreciation related to
real estate investments sold, net of other
adjustments (185,989)
-----------
Balance at close of period $ 6,303,246
===========
54
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
SCHEDULE XII
Mortgage Loans on Real Estate
July 31, 1995
Principal
Amount of
Loans
Subject to
Face Carrying Delinquent
Interest Maturity Periodic Payment Amount of Amount of Principal
Description Rate Date Terms Prior Liens Mortgages Mortgages or Interest
---------------------------- -------- -------- ------------------ ----------- ----------- ----------- -----------
Real estate contract on
apartment building (Heritage $50,000 per month,
Village) 9% 2004 including interest $ 3,669,771 $ 3,669,771
Real estate contract on
apartment complex (Edgewood $16,973 per month,
Apartments) 9% 2023 including interest 1,819,212 1,819,212
Real estate contract on
apartment complex (Cooper $21,794 per month,
George) 9% 2002 including interest 1,377,608 1,377,608
Other mortgage contracts and
notes receivable, none of
which individually exceed 3%
of the total carrying value
of mortgages Various Various Various 6,973,612 6,591,305
----------- -----------
$13,842,206 $13,457,896
=========== ===========
(Continued)
55
SCHEDULE XII, Continued
Mortgage Loans on Real Estate, Continued
July 31, 1995
Principal
Amount of
Loans
Subject to
Face Carrying Delinquent
Interest Maturity Periodic Payment Amount of Amount of Principal
Description Rate Date Terms Prior Liens Mortgages Mortgages or Interest
---------------------------- -------- -------- ------------------ ----------- ----------- ----------- -----------
Balance at beginning of period $14,457,959
Additions during period:
New mortgage loans $ 1,477,501
Contracts purchased at a
discount (10,373)
Contract discounts realized 82,783
-----------
1,549,911
-----------
16,007,870
Deductions during period:
Collections of principal
and contract payoffs 2,543,914
Repossession and forfeitures 6,060
-----------
2,549,974
-----------
Balance at end of period $13,457,896
===========
56
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Pacific Security Companies has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PACIFIC SECURITY COMPANIES
(Registrant)
Dated: October 26, 1995 By: /s/ Wayne E. Guthrie
--------------------- --------------------------------
Wayne E. Guthrie
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, which
include the Chief Executive Officer, the Chief Financial Officer, and
the Board of Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ Wayne E. Guthrie Chief Executive Officer October 26, 1995
------------------------ and Director ------------------
Wayne E. Guthrie
/s/ Donald J. Migliuri Secretary-Treasurer October 26, 1995
------------------------ Chief Financial Officer ------------------
Donald J. Migliuri
/s/ Kevin M. Guthrie Vice-President and October 26, 1995
------------------------ Director ------------------
Kevin M. Guthrie
/s/ David L. Guthrie Vice-President and October 26, 1995
------------------------ Director ------------------
David L. Guthrie
/s/ Constance M. Guthrie Director October 26, 1995
------------------------ ------------------
Constance M. Guthrie
/s/ Raymond J. Fisher Director October 26, 1995
------------------------ ------------------
Raymond J. Fisher
/s/ Robert N. Codd Director October 26, 1995
------------------------ ------------------
Robert N. Codd
57