<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 33-59403
PROSPECTUS
MAY 31, 1995
$300,000,000
[PRICE/COSTCO LOGO]
7 1/8% SENIOR NOTES DUE 2005
Interest on the Notes is payable June 15 and December 15 of each year,
commencing December 15, 1995. The Notes are not redeemable at any time prior to
maturity. The Notes are unsecured obligations of the Company and will rank
equally with all unsecured and unsubordinated indebtedness of the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.............................. 99.75% .625% 99.125%
Total................................. $299,250,000 $1,875,000 $297,375,000
</TABLE>
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $300,000 payable by the Company.
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by them and subject to various prior
conditions, including the right to reject any order in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York on or
about June 7, 1995.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
BA SECURITIES, INC.
<PAGE> 2
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
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PAGE
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Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 3
The Company........................... 4
The Offering.......................... 4
Selected Financial and Operating
Data................................ 5
Recent Developments................... 7
Use of Proceeds....................... 7
Capitalization........................ 7
Description of the Notes.............. 8
Underwriting.......................... 13
Legal Matters......................... 13
Experts............................... 14
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
AVAILABLE INFORMATION
Price/Costco, Inc. (the "Company" or "PriceCostco") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 and
at the Commission's regional offices at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office at Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549. This Prospectus does not contain all information set forth in the
Registration Statement and the exhibits thereto which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), and to which reference is hereby made.
2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended August
28, 1994, the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended November 20, 1994 and February 12, 1995, and the Company's Current Report
on Form 8-K dated December 21, 1994, filed by the Company with the Commission,
are hereby incorporated in this Prospectus by reference.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to termination of the offering of the Notes hereunder shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such reports and documents.
The Company hereby undertakes to provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of the Indenture (as hereinafter defined) or any document incorporated
herein by reference (other than exhibits to such documents). Requests should be
directed to Donald E. Burdick, Vice President, Price/Costco, Inc., 999 Lake
Drive, Issaquah, Washington 98027, telephone number (206) 313-8100.
------------------------
The Company will furnish each holder of the Notes annual reports containing
audited financial statements, quarterly reports containing unaudited financial
information and such other reports as may be required by applicable law.
3
<PAGE> 4
THE COMPANY
PriceCostco operates, principally through subsidiaries, a chain of cash and
carry membership warehouses under the names "Price Club" and "Costco Wholesale".
The Company's business is based on the concept that offering members very low
prices on a limited selection of nationally branded and selected private label
products in a wide range of merchandise categories will produce rapid inventory
turnover and high sales volumes. This rapid inventory turnover, when combined
with operating efficiencies achieved by volume purchasing, efficient
distribution and reduced handling of merchandise in no-frills, self-service
warehouse facilities, enables the Company to operate profitably at significantly
lower gross margins than traditional wholesalers, discount retailers and
supermarkets.
The Company buys virtually all of its merchandise directly from
manufacturers for shipment either directly to the Company's selling warehouses
or to a consolidation point where various shipments are combined so as to
minimize freight and handling costs. As a result, the Company eliminates many of
the costs associated with multiple step distribution channels, which include
purchasing from distributors as opposed to manufacturers, use of central
receiving, storing and distributing warehouses and storage of merchandise in
locations off the sales floor. By providing this more cost effective means of
distributing goods, the Company meets the needs of business customers who
otherwise would pay a premium for small purchases and for the distribution
services of traditional wholesalers, and who cannot otherwise obtain the full
range of their product requirements from any single source. In addition, these
business members will often combine personal shopping with their business
purchases. The Company's merchandise selection is designed to appeal to both the
business and consumer requirements of its members by offering a wide range of
nationally branded and selected private label products, often in case, carton or
multiple-pack quantities, at low prices.
As of May 7, 1995, the Company operated 233 warehouses located in 21 states
(187 locations), seven Canadian provinces (44 locations), and the United Kingdom
(two locations, through a 60% owned subsidiary). In addition, the Company
operated 13 warehouses in Mexico through a joint venture in which the Company
has a 50% interest. A Price Club operated by Shinsegae Department Stores opened
in October 1994 in Seoul, Korea under a license agreement.
On December 21, 1994, the Company consummated a transaction in which Price
Enterprises, Inc. ("Price Enterprises"), a newly formed Delaware company, was
spun off from the Company and became a separate, publicly-traded company. The
business and assets of Price Enterprises are comprised of PriceCostco's former
non-club commercial real estate operations, together with certain other assets.
The Company is incorporated in the State of Delaware. The Company's offices
are located at 999 Lake Drive, Issaquah, Washington 98027, telephone (206)
313-8100.
THE OFFERING
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Securities Offered................. $300,000,000 principal amount of 7 1/8% Senior Notes due
June 15, 2005 (the "Notes"), with interest payable
semiannually on June 15 and December 15, commencing
December 15, 1995.
Redemption......................... The Notes will not be redeemable prior to maturity.
Ranking............................ The Notes will rank senior in priority to all
subordinated indebtedness of the Company and will be
pari passu with other senior unsecured indebtedness of
the Company, but will be effectively subordinated to
indebtedness of its subsidiaries. At May 7, 1995, the
Company's subsidiaries had approximately $1.2 billion of
debt outstanding, including guaranties of indebtedness
of the Company. The Indenture contains limitations on
the Company's and certain subsidiaries' ability to
create liens securing indebtedness and to enter into
certain sale-leaseback transactions.
Use of Proceeds.................... The net proceeds from the sale of the Notes will be used
to repay existing indebtedness incurred under the
Company's $500.0 million commercial paper program.
</TABLE>
4
<PAGE> 5
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AND OPERATING DATA)
The selected consolidated financial information of the Company presented in
the table below for each of the five fiscal years ended August 28, 1994 and the
balance sheet data as of the end of each year has been derived from audited
consolidated financial statements included in the documents incorporated by
reference in this Prospectus. The selected consolidated financial information of
the Company presented in the table below for the 24 weeks ended February 13,
1994 and February 12, 1995 is unaudited; however, in the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for such periods have been included. The
results of operations for the 24 weeks ended February 12, 1995 may not be
indicative of results of operations to be expected for the full year. The table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended August 28, 1994 and the Quarterly Reports on Form 10-Q for the fiscal
quarters ended November 20, 1994 and February 12, 1995 incorporated by reference
herein. See "Incorporation of Certain Documents by Reference."
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24 WEEKS ENDED
----------------------------
FISCAL YEARS(1) FEBRUARY
--------------------------------------------------------------------- 13, FEBRUARY 12,
1990 1991 1992 1993 1994 1994 1995
------------ ------------ ----------- ----------- ----------- ---------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............... $9,346,099 $11,813,509 $13,820,380 $15,154,685 $16,160,911 $7,619,214 $ 8,173,878
Gross profit(2)......... 827,148 1,057,686 1,254,917 1,403,532 1,498,020 706,870 774,640
Membership fees and
other................. 185,144 228,742 276,998 309,129 319,732 159,575 163,367
Operating expenses(3)... 737,137 952,259 1,156,493 1,347,832 1,457,613 674,883 719,051
Operating income........ 275,155 334,169 375,422 364,829 360,139 191,562 218,956
Other income
(expense)(4).......... 470 7,872 (6,567) (28,366) (36,584) (17,383) (26,242)
Provision for merger and
restructuring
expenses(5)........... -- -- -- -- (120,000) (120,000) --
Income from continuing
operations............ $ 167,726 $ 207,293 $ 223,022 $ 202,843 $ 110,898 $ 22,771 $ 113,298
Discontinued
operations(6)
Income (loss), net of
tax................. 6,854 11,566 19,385 20,404 (40,766) 6,513 --
Loss on disposal...... -- -- -- -- (182,500) -- (83,363)
Net income (loss)....... $ 174,580 $ 218,859 $ 242,407 $ 223,247 $ (112,368) $ 29,284 $ 29,935
Income (loss) per common
and common equivalent
share (fully diluted)
Continuing
operations.......... $ .79 $ .93 $ .98 $ .92 $ .51(5) $ .10(5) $ .52
Discontinued
operations
Income (loss) net of
tax............... .03 .05 .08 .08 (.19) .03 --
Loss on disposal.... -- -- -- -- (.83) -- (.36)
---------- ----------- ----------- ----------- ----------- ---------- ---------
Net income (loss)..... $ .82 $ .98 $ 1.06 $ 1.00 $ (.51) $ .13 $ .16
========== =========== =========== =========== =========== ========== =========
Ratio of earnings to
fixed charges(7)...... 8.1 8.0 6.6 5.2 3.3(9) 2.5(9) 5.8
Pro forma ratio of
earnings to fixed
charges(8)............ -- -- -- -- 2.7(10) -- 5.1
Operating Data
Warehouses open at end
of period............. 119 140 170 200 221 215 231
Comparable warehouse
sales increase
(decrease)(11)........ 7% 10 % 6% (3)% (3)% (3)% 0%
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 12, 1995
SEPTEMBER 2, SEPTEMBER 1, AUGUST 30, AUGUST 29, AUGUST 28, ----------------------------
1990 1991 1992 1993 1994 ACTUAL AS ADJUSTED(15)
------------ ------------ ----------- ----------- ----------- ---------- ---------------
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Balance Sheet Data
Working capital
(deficit)............. $ 14,342 $ 304,703 $ 281,592 $ 127,312 $ (113,009) $ (128,036) $ 168,964
Total assets............ 2,029,931 2,986,094 3,576,543 3,930,799 4,235,659 4,120,788 4,120,788
Long-term debt(12)...... 199,506 500,440 813,976 812,576 795,492 794,004 1,094,004
Stockholders'
equity(13)............ 988,458 1,429,703 1,593,943 1,796,728 1,684,960 1,410,808(14) 1,410,808
</TABLE>
(FOOTNOTES ON NEXT PAGE)
5
<PAGE> 6
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(1) The Company reports its financial position and results of operations
utilizing a 52 or 53 week fiscal year which ends on the Sunday nearest
August 31. All fiscal years presented were 52 weeks.
(2) Gross profit is comprised of net sales less merchandise costs.
(3) Operating expenses include selling, general and administrative expenses,
preopening expenses and provision for estimated warehouse closing costs.
(4) Other income (expense) includes interest expense, interest income and other
income.
(5) Includes provision for merger and restructuring expenses of $120,000
pre-tax ($80,000 or $.36 per share, after tax) related to the merger of The
Price Company and Costco Wholesale Corporation in October 1993. If such
provision for merger and restructuring expenses were excluded, income from
continuing operations for fiscal 1994 and for the twenty-four weeks ended
February 13, 1994 would have been $190,898 or $.87 per share and $102,771
or $.46 per share, respectively.
(6) In the fourth quarter of fiscal 1994, the Company reported its non-club
real estate segment as a discontinued operation. All of the assets of the
non-club real estate segment along with certain other assets were included
in the spin-off of Price Enterprises. In connection with the decision to
discontinue the non-club real estate operations, the Company recorded
primarily non-cash charges of $80,500 pre-tax ($47,500 after tax or $.22
per share) related to a change in calculating estimated losses for assets
which are considered to be economically impaired and of $182,500 ($15,250
of which related to expenses of the transaction) for estimated loss on
disposal of Price Enterprises. In the second quarter of fiscal 1995, an
additional non-cash charge of $83,363 for the loss on disposal of Price
Enterprises was recorded to reflect the consummation of the spin-off
transaction. The additional charge on the spin-off of Price Enterprises
reflects the difference between the $15.25 per share estimated trading
price of Price Enterprises Common Stock (used to calculate the estimated
loss in the fourth quarter of fiscal 1994) and the average closing sales
price of Price Enterprises Common Stock during the 20-trading days
commencing on the sixth trading day following the closing of the spin-off
on December 20, 1995 (which was approximately $12.16 per share) multiplied
by the 27 million shares which were exchanged or sold during the second
quarter of fiscal 1995.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings (defined as income from continuing operations before provision for
income taxes) plus fixed charges (excluding capitalized interest) by fixed
charges. Fixed charges consist of interest, debt amortization expense, the
estimated interest component of property rentals and capitalized interest.
(8) The pro forma ratio of earnings to fixed charges gives effect to the
issuance of the Notes and the application of the net proceeds therefrom to
the repayment of existing short-term borrowings under the Company's
$500,000 commercial paper program and other line of credit facilities. For
purposes of this calculation, interest expense on the Notes of
approximately $22,200 for fiscal 1994 and approximately $10,200 for the
twenty-four weeks ended February 12, 1995 has been added to fixed charges
based on an assumed 7.4% interest rate. Actual interest expense incurred
under short-term borrowing facilities was approximately $2,400 for fiscal
1994 and approximately $5,000 for the twenty-four weeks ended February 12,
1995 was eliminated from fixed charges. The average short-term borrowings
outstanding and average short-term interest rate was $60,513 and 4.1% in
fiscal 1994 and $198,404 and 5.9% for the twenty-four weeks ended February
12, 1995. The pro forma ratio of earnings to fixed charges does not include
any adjustments to reflect interest earnings on the proceeds from the Notes
in excess of the Company's average short-term borrowings during fiscal 1994
or for the twenty-four weeks ended February 12, 1995. For each 0.5% change
in the assumed interest rate on the Notes, the pro forma ratio of earnings
to fixed charges will change by approximately 0.04 for fiscal 1994 and
approximately 0.08 for the twenty-four weeks ended February 12, 1995.
(9) If the $120,000 pre-tax provision for merger and restructuring expenses
were excluded, the ratio of earnings to fixed charges for fiscal 1994 and
the twenty-four weeks ended February 13, 1994 would have been 4.7 and 6.0,
respectively.
(10) If the $120,000 pre-tax provision for merger and restructuring expenses
were excluded, the pro forma ratio of earnings to fixed charges for fiscal
1994 would have been 3.8.
(11) Calculated based on sales from warehouses open at least one year.
(12) Long-term debt includes convertible subordinated debt and other long-term
debt, net of current portion.
(13) PriceCostco did not pay any dividends on its common stock during the
periods presented.
(14) In the second quarter of fiscal 1995, the Company exchanged approximately
23.2 million shares of Price Enterprises Common Stock for an equal number
of shares of PriceCostco Common Stock. This exchange transaction resulted
in a $282,462 reduction of stockholders' equity related to the retirement
of these shares of PriceCostco Common Stock.
(15) Adjusted to give effect to the issuance and sale of the Notes and the
anticipated application of the estimated net proceeds therefrom as though
they occurred on February 12, 1995.
6
<PAGE> 7
RECENT DEVELOPMENTS
For the twelve weeks ended May 7, 1995, net sales were $3.8 billion, an
increase of 8 percent from $3.5 billion in the same twelve-week period of the
prior fiscal year. On a comparable warehouse basis (sales from warehouses open
at least one year), sales during the third quarter increased one percent over
the same period in the prior year.
For the thirty-six weeks ended May 7, 1995, net sales were $12.0 billion,
an increase of 7 percent from $11.2 billion in the same thirty-six week period
of the prior fiscal year. On a comparable warehouse basis, sales during this
thirty-six week period increased one percent over the same period in the prior
year.
USE OF PROCEEDS
The net proceeds from the sale of the Notes (estimated at $297.0 million
after payment of underwriting discounts and commissions and expenses of the
offering) will be used to repay existing indebtedness incurred under the
Company's $500.0 million commercial paper program. Such indebtedness was
incurred for general corporate purposes, including the funding of the Company's
ongoing expansion and warehouse remodeling activities. The Company anticipates
that it will borrow additional amounts under its commercial paper program for
similar purposes. The amount of short-term borrowings, which fluctuates on a
daily basis, averaged $368.6 million during the four weeks ended May 7, 1995 at
an average interest rate (excluding amortization of deferred loan fees) of
approximately 6.2%.
CAPITALIZATION
The following table sets forth the short-term borrowings and capitalization
of the Company as of February 12, 1995, and adjusted to give effect to the
issuance of the Notes and the anticipated application of the estimated net
proceeds thereof as set forth in "Use of Proceeds" as though they occurred on
February 12, 1995.
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<CAPTION>
FEBRUARY 12, 1995
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
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Short-term borrowings............................................... $ 330,333(1) $ 33,333
========= =========
Long-term debt
7 1/8% Senior Notes due 2005........................................ -- 300,000
5 3/4% Convertible Subordinated Debentures due 2002................. 300,000 300,000
6 3/4% Convertible Subordinated Debentures due 2001................. 285,079 285,079
5 1/2% Convertible Subordinated Debentures due 2012................. 179,338 179,338
Other long-term debt and capital lease obligations, net of current
portion........................................................... 29,587 29,587
---------- -----------
Total long-term debt...................................... $ 794,004 $ 1,094,004
Stockholders' equity
Preferred stock, 100,000,000 shares authorized; none
outstanding.................................................... -- --
Common stock, 900,000,000 shares authorized; 194,806,000
outstanding.................................................... 1,948 1,948
Additional paid-in capital........................................ 300,812 300,812
Accumulated foreign currency translation adjustment............... (65,101) (65,101)
Retained earnings................................................. 1,173,149 1,173,149
---------- -----------
Total stockholder's equity........................................ 1,410,808 1,410,808
---------- -----------
Total capitalization...................................... $2,204,812 $ 2,504,812
========= =========
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(1) The Company had outstanding short-term borrowings of approximately $412,000
at May 7, 1995.
7
<PAGE> 8
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture, to be dated as of June 7,
1995 (the "Indenture"), between the Company and American Bank National
Association, as Trustee (the "Trustee"), a form of which is filed as an exhibit
to the Registration Statement. The following summaries of certain provisions of
the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms.
GENERAL
The Notes will be senior unsecured obligations of the Company, will be
limited to $300,000,000 aggregate principal amount and will mature on June 15,
2005. The Notes will bear interest at the rate per annum shown on the front
cover of this Prospectus from the date of issuance of the Notes or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semiannually on June 15 and December 15 of each year, commencing on
December 15, 1995, to the persons in whose names the Notes are registered at the
close of business on the preceding June 1 and December 1, as the case may be.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Notes are obligations exclusively of the Company. Because the
operations of the Company are currently conducted substantially through
subsidiaries, the cash flow of the Company and the consequent ability to service
its debt, including the Notes, are dependent upon the earnings of such
subsidiaries and the distribution of those earnings to the Company, or upon
loans or other payments of funds by such subsidiaries to the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due with respect to the Notes or to
make funds available therefor, whether by dividends, loans or other payments. In
addition, the payment of dividends and certain loans and advances to the Company
by such subsidiaries may be subject to certain statutory or contractual
restrictions, are contingent upon the earnings of such subsidiaries, and are
subject to various business considerations.
The Notes will be effectively subordinated to all liabilities, including
trade payables and capitalized lease obligations, of the Company's subsidiaries.
As of May 7, 1995, the Company's subsidiaries had approximately $1.2 billion of
debt outstanding, including guarantees of indebtedness of the Company. Any right
of the Company to receive assets of any such subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of that subsidiary's creditors, except to the extent that the Company is
itself recognized as a creditor of such subsidiary, in which case the claims of
the Company would still be subordinate to any security interests in the assets
of such subsidiary and any liabilities of such subsidiary senior to that held by
the Company.
Principal of and interest on the Notes are payable, and the Notes may be
presented for transfer and exchange, either at the office or agency of the
Company maintained for such purposes in New York, New York or St. Paul,
Minnesota, provided that payment of interest may, at the option of the Company,
be made by check mailed to the registered address of the person entitled
thereto. Initially, the office or agency in New York, New York, shall be the
office of the Trustee maintained for such purpose. Notes will be issued in
registered form without coupons in denominations of $1,000 and any multiple of
$1,000. No service charge will be made for any transfer or exchange of Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
REDEMPTION OF NOTES
The Notes are not subject to redemption at any time prior to maturity,
whether at the option of the Company or otherwise.
8
<PAGE> 9
CERTAIN DEFINITIONS
"Attributable Debt" with respect to any sale leaseback transaction that is
subject to the restrictions described under "Certain Covenants -- Limitation on
Sale and Leaseback Transactions" below means the lesser of (i) the total net
amount of rent required to be paid during the remaining base term of the related
lease or until the earliest date on which the lessee may terminate such lease
upon payment of a penalty or a lump-sum termination payment (in which case the
total net rent shall include such penalty or termination payment), discounted at
the interest rate borne by the Notes, computed semi-annually, or (ii) the sale
price of the property so leased multiplied by a fraction the numerator of which
is the remaining base term of the related lease (expressed in months) and the
denominator of which is the base term of such lease (expressed in months).
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(less applicable reserves) after deducting therefrom (i) all current liabilities
and (ii) all goodwill, tradenames, trademarks, patents, unamortized debt
discount and expense (to the extent included in said aggregate amount of assets)
and other intangible assets, all as set forth on the most recent consolidated
balance sheet of the Company and its consolidated Subsidiaries and computed in
accordance with generally accepted accounting principles.
"Principal Property" means any right, title or interest (including
leasehold interests under capital leases) of the Company or any Subsidiary in,
to or under real property or improvements to real property, which right, title
or interest has a book value equal to or greater than 0.5% of the Consolidated
Net Tangible Assets of the Company and its consolidated Subsidiaries.
"Restricted Subsidiary" means any Subsidiary that owns or is lessee of one
or more Principal Properties.
"Secured Debt" means indebtedness for money borrowed which is secured by a
Lien on property of the Company or any Restricted Subsidiary, excluding certain
guarantees arising in the ordinary course of business.
CERTAIN COVENANTS
Limitation on Liens
The Indenture provides that, except as described below under "Exempted
Indebtedness," the Company will not, nor will it permit any Restricted
Subsidiary to, create, assume or suffer to exist any mortgage, security
interest, pledge or lien ("Lien") of or upon any Principal Property or any
shares of capital stock or evidences of indebtedness for borrowed money issued
by any Restricted Subsidiary and owned by the Company or any Restricted
Subsidiary, unless the Notes are directly secured equally and ratably by (or, at
the option of the Company, prior to) such Lien with any and all other
indebtedness or obligations thereby secured, so long as such indebtedness or
obligations shall be so secured. This restriction does not apply to: (i) Liens
that exist on the date of the Indenture; (ii) Liens on property or shares of
capital stock or evidences of indebtedness of any corporation existing at the
time such corporation becomes a Subsidiary; (iii) Liens in favor of the Company
or any Subsidiary; (iv) Liens in favor of governmental bodies to secure
progress, advance or other payments pursuant to contract or law or indebtedness
incurred to finance all or part of construction of, or improvements to, property
subject to such Liens; (v) Liens (a) on property, shares of capital stock or
evidences of indebtedness for borrowed money existing at the time of acquisition
thereof (including acquisition through merger or consolidation), and
construction and improvement Liens that are entered into within one year from
the date of such construction or improvement, provided that in the case of
construction or improvement the Lien does not apply to any property theretofore
owned by the Company or any Restricted Subsidiary except substantially
unimproved real property on which the property so constructed or the improvement
is located and (b) for the acquisition of any Principal Property which Liens are
created within 180 days after the completion of such acquisition to secure or
provide for the payment of the purchase price of the Principal Property
acquired, provided that any such Liens do not extend to any other property of
the Company or any of its Restricted Subsidiaries (whether or not such property
is then owned or thereafter acquired); (vi) mechanics', landlords' and similar
Liens arising in the ordinary course of business in respect of obligations not
due or being contested in good faith; (vii) Liens for taxes, assessments, or
governmental charges or levies
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<PAGE> 10
that are not delinquent or are being contested in good faith; (viii) Liens
arising from any legal proceedings that are being contested in good faith; (ix)
any Liens that (a) are incidental to the ordinary conduct of its business or the
ownership of its properties and assets, including Liens incurred in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts, (b) were not incurred in connection
with the borrowing of money or the obtaining of advances or credit, and (c) do
not in the aggregate materially detract from the value of the property of the
Company or any Restricted Subsidiary or materially impair the use thereof in the
operation of its business; (x) Liens securing industrial development, road,
traffic improvement, sewer, utility, or pollution control bonds; and (xi) Liens
for the sole purpose of extending, renewing or replacing in whole or in part any
of the foregoing.
Limitation on Sale and Leaseback Transactions
The Indenture provides that, except as described below under "Exempted
Indebtedness," the Company will not, nor will it permit any Restricted
Subsidiary to, enter into any sale and leaseback transactions (except for
transactions involving temporary leases for a term of three years or less) of
any Principal Property unless either: (i) the Company or such Restricted
Subsidiary would be entitled, pursuant to the covenant described under
"Limitations on Liens" above, to incur a Lien on the Principal Property to be
leased without equally and ratably securing the Notes or (ii) the proceeds of
such sale are at least equal to the fair value of the Principal Property sold
and the Company will apply an amount equal to the net proceeds of such sale to
(a) the retirement of Secured Debt of the Company or a Restricted Subsidiary or
(b) the acquisition, construction or improvement of a Principal Property, in the
case of either clause (a) or (b) within 180 days of the effective date of any
such sale and leaseback transaction.
Exempted Indebtedness
The Indenture provides that, notwithstanding the limitations on Liens and
sale and leaseback transactions described above, the Company or any Restricted
Subsidiary may create, assume or suffer to exist Liens or enter into sale and
leaseback transactions not otherwise permitted by the Indenture provided that at
the time of such event, and after giving effect thereto, the sum of outstanding
indebtedness for borrowed money incurred after the date of the Indenture and
secured by such Liens plus the Attributable Debt in respect of such sale and
leaseback transactions entered into after the date of the Indenture does not
exceed 15% of the Consolidated Net Tangible Assets of the Company and its
Restricted Subsidiaries.
Limitation on Mergers and Consolidations
The Indenture provides that the Company will not merge, consolidate or
convey, transfer or lease its properties and assets substantially as an entirety
and the Company will not permit any Person to be consolidated with or merge into
the Company unless, among other things: (i) the successor Person is the Company
or other corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia that expressly assumes the
Company's obligations on the Notes and under the Indenture, (ii) immediately
after giving effect to such transaction on a pro forma basis no Default or Event
of Default shall exist or shall occur and (iii) if, as a result of any such
consolidation or merger or such conveyance, transfer or lease, any Principal
Property of the Company would become subject to a Lien that would not be
permitted by the Indenture, the Company or such successor Person takes such
steps as are necessary effectively to directly secure the Notes equally and
ratably with (or, at the option of the Company, prior to) all indebtedness
secured thereby.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture as being: default in
payment of any principal on the Notes when due; default for 30 days in payment
of any interest on the Notes; default for 60 days after written notice in the
observance or performance of any other covenant or agreement in the Notes or the
Indenture; certain events of bankruptcy, insolvency or reorganization; or
default under any bond, debenture, note or other evidence of indebtedness for
borrowed money of the Company or under any agreement under which such
10
<PAGE> 11
indebtedness is issued, which default shall involve the failure to pay principal
of, or interest on, indebtedness for borrowed money in excess of $10,000,000 at
the stated maturity thereof or shall have resulted in indebtedness for borrowed
money in excess of $10,000,000 being accelerated and such acceleration has not
been rescinded, stayed or annulled, such indebtedness has not been discharged,
or in the case of indebtedness contested in good faith by the Company an amount
sufficient to discharge such indebtedness has not been set aside, within 60 days
after the Company has received notice thereof from the Trustee or from the
holders of at least 25% in aggregate principal amount of the Notes.
The holders of at least a majority in aggregate principal amount of the
outstanding Notes may waive any past default and its consequences except for
payment defaults or defaults in respect of provisions that cannot be modified or
amended without the consent of the holders of each outstanding Note affected. If
an Event of Default shall occur and be continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the outstanding Notes
may accelerate the maturity of all Notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instigated by a holder of
a Note for the enforcement of payment of the principal of or interest on such
Note on or after the respective due dates expressed in such Note.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Notes at the time outstanding, to modify the Indenture
or the rights of the holders of the Notes, except that no such modification
shall, among other things, (i) change the final maturity of any Note, or reduce
the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof, or change the currency in which the Notes are payable,
or impair or affect the right of any holder of a Note to institute suit for the
payment thereof, without the consent of the holder of each Note or Notes
affected thereby, or (ii) reduce the aforesaid percentage of Notes, the consent
of the holders of which is required for any such modification, without the
consent of the holders of all of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option, elect to have its obligations discharged
with respect to the outstanding Notes ("Legal Defeasance"). Such Legal
Defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented, and the Indenture shall cease to be of
further effect as to all outstanding Notes except as to (i) rights of holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due from the trust assets described below;
(ii) the Company's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen
Notes, and the maintenance of an office or agency for payment of the Notes;
(iii) the rights, powers, trust, duties, and immunities of the Trustee, and the
Company's obligations in connection therewith; and (iv) the Legal Defeasance
provisions of the Indenture. The Company may cause Legal Defeasance to occur at
any time. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes. In the event Covenant Defeasance occurs,
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<PAGE> 12
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, U.S. Legal Tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of and interest on the Notes on the stated date for payment thereof,
and the holders of Notes must have a valid, perfected, exclusive security
interest in such trust; (ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (a) the Company has
received from, or there has been published by the Internal Revenue Service, a
ruling or (b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the holders of the Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, the Indenture or any other material agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the Notes over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an Officers' Certificate stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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<PAGE> 13
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), J.P. Morgan Securities Inc. and BA Securities,
Inc. (together, the "Underwriters"), the Underwriters have severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, at the public offering price set forth on the cover page of this
Prospectus less the underwriting discounts and commissions, the Notes. The
respective principal amounts of the Notes that each Underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
--------------------------------------------------------------------- ----------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.................. $210,000,000
J.P. Morgan Securities Inc........................................... 60,000,000
BA Securities, Inc................................................... 30,000,000
----------------
Total...................................................... $300,000,000
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters thereunder are subject to the approval of certain legal matters by
their counsel and to certain other conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters and
certain persons controlling the Underwriters against certain liabilities and
expenses, including under the Securities Act, or will contribute to payments the
Underwriters are required to make in respect thereof. The nature of the
Underwriters' obligations under the Underwriting Agreement is such that they are
committed to purchase all of the Notes if any of the Notes are purchased by
them.
The Underwriters have advised the Company that they propose to offer the
Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of .40% of the principal amount. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of .25% of the
principal amount of the Notes to certain other dealers. After the initial public
offering, the public offering price, concession and reallowance may be changed
by the Underwriters.
Each of the Underwriters has performed investment banking services, and
affiliates of certain of the Underwriters have performed, and continue to
perform, commercial banking services, for the Company in the past for which they
received customary compensation. Hamilton E. James, a Managing Director of DLJ,
is a director of the Company.
There is currently no public market for the Notes. The Company has no
present plan to list any of the Notes on a national securities exchange or to
seek the admission thereof for trading in the National Association of Securities
Dealers Automated Quotation System. The Underwriters have advised the Company
that they currently intend to make a market in the Notes, but they are not
obligated to do so and may discontinue any such market making at any time
without notice. Accordingly, there can be no assurance as to the liquidity of,
or that an active trading market will develop for, the Notes.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Foster Pepper & Shefelman, Seattle, Washington. Certain legal matters
for the Underwriters will be passed upon by Skadden, Arps, Slate, Meagher &
Flom, Los Angeles, California. Foster Pepper & Shefelman may rely on the opinion
of Skadden Arps as to matters of New York law. Members of Foster Pepper &
Shefelman own 6,667 shares of the Company's Common Stock. Skadden, Arps, Slate,
Meagher & Flom has from time to time represented the Company on unrelated
matters.
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<PAGE> 14
EXPERTS
The consolidated financial statements and schedules of the Company for the
three fiscal years ended August 28, 1994, incorporated herein by reference, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto. In those reports, that firm
states that with respect to The Price Company for fiscal years 1993 and 1992,
its opinion is based on the reports of other independent auditors, namely Ernst
& Young LLP. The consolidated financial statements referred to above have been
incorporated herein by reference in reliance upon the reports of said firms and
upon the authority of those firms as experts in accounting and auditing.
With respect to the unaudited financial information of the Company for the
fiscal quarters ended November 20, 1994 and February 12, 1995, incorporated
herein by reference, Arthur Andersen LLP has applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports thereon and incorporated by reference herein,
state that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
that information should be restricted in light of the limited nature of the
review procedures applied. In addition, Arthur Andersen LLP is not subject to
the liability provisions of Section 11 of the Securities Act for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of this Prospectus prepared or certified by Arthur Andersen
LLP within the meaning of Sections 7 or 11 of the Securities Act.
14
