<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 August 31, 1995
[ ] 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 0-20449
________________________________
PRICE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0628740
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4649 MORENA BOULEVARD, SAN DIEGO, CALIFORNIA 92117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 619-581-4530
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.0001 Par Value
________________________________
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 or 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]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of November 20, 1995 was $183,690,901, based on the last reported
sale of $15.25 per share on November 20, 1995.
The number of shares outstanding of the registrant's common stock as of
November 20, 1995 was 23,234,866.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 16, 1996 are incorporated by reference into
Part III of this Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRICE ENTERPRISES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
TABLE OF CONTENTS
-----------------
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . 12
Item 3. LegalPoceedings. . . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . 19
Item 6. Selected Financial Data. . . . . . . . . . . . . . 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 20
Item 8. Financial Statements and Supplementary Data. . . . 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 48
PART III
Item 10. Directors and Executive Officers of the Registrant 49
Item 11. Executive Compensation . . . . . . . . . . . . . . 49
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . 49
Item 13. Certain Relationships and Related Transactions . . 49
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 50
<PAGE>
PART I
ITEM 1 -- BUSINESS
FORMATION OF THE COMPANY AND SUBSEQUENT TRANSACTIONS
Price Enterprises, Inc. ("Price Enterprises", "PEI" or "the Company"), a
Delaware corporation, was formed in July 1994. The Company began operations
effective August 29, 1994 as a wholly owned subsidiary of Price/Costco, Inc.
("PriceCostco") with specific assets received from PriceCostco pursuant to the
Amended and Restated Agreement of Transfer and Plan of Exchange (Exchange
Agreement). PriceCostco offered to exchange 27 million shares of PEI common
stock for an equal number of shares of PriceCostco common stock from PriceCostco
stockholders on a voluntary basis pursuant to the Offering Circular/Prospectus
dated November 21, 1994, as amended on December 7, 1994. Approximately 23.2
million shares were exchanged between PriceCostco and certain of its
stockholders, and PEI became a separate publicly traded company on December 21,
1994.
Transferred to PEI were substantially all of the real estate assets which
historically formed the non-club real estate business segment of PriceCostco;
four existing Price Club warehouses which are adjacent to certain transferred
properties, and which have been leased back to PriceCostco effective August 29,
1994; a 51% interest in Price Quest, Inc. ("Price Quest") and a 51% interest in
Price Global Trading, Inc. ("Price Global Trading" or "PGT") with PriceCostco
retaining the remaining 49% interests; notes receivable from various
municipalities and agencies ("City Notes") and a secured note receivable from
the owner and operator of a hotel and convention center in San Diego, California
("Atlas Note"); and a 51% interest in Mexico Clubs, LLC ("Mexico Clubs") which
prior to April 20, 1995, held a 50% interest in Price Club de Mexico and
affiliates ("Price Club Mexico"), a joint venture that develops, owns and
operates Price Clubs in Mexico.
For purposes of governing certain of the ongoing relationships between PEI and
PriceCostco, the companies entered into certain Operating Agreements,
Stockholders' Agreements, and an Advance Agreement. PEI and PriceCostco are
parties to Stockholders' Agreements which set forth certain rights and
obligations with respect to their investments in Price Quest and PGT. Each
Stockholders' Agreement provides for an adjustment to the parties' respective
percentage ownership interests in the event that a party fails to fund a PRO
RATA capital call by the relevant subsidiary's Board of Directors. Each
Stockholders' Agreement sets forth, among other things: (i) transfer
restrictions if either PEI or PriceCostco offers to transfer, sell, assign or
otherwise dispose of its interest in the corporation; (ii) certain preemptive
rights; and (iii) certain registration rights for PriceCostco. PriceCostco is
entitled to appoint one director to the Board of Directors of Price Quest or
PGT, as the case may be, so long as it owns at least 20% of the outstanding
stock of such corporation.
PriceCostco and Price Quest are parties to an Operating Agreement pursuant to
which PriceCostco provides for a five-year period, among other things, space in
certain PriceCostco warehouse clubs to Price Quest for its electronic shopping
kiosks and travel and automobile advertising/referral programs, as well as
staffing, cashiering, buying support and other information to Price Quest, in
exchange for a fee based on sales. Price Quest also is obligated to make annual
purchases of at least $3 million in each of fiscal 1995 and 1996 of
advertisements in PriceCostco's membership publications. The Operating
Agreement also contains certain confidentiality and competitive restrictions
between the parties.
3
<PAGE>
PriceCostco and PGT are parties to an Operating Agreement pursuant to which
PriceCostco is obligated to provide certain buying support, merchandising
services, training and other information to PGT for a period of five years for
PGT's use in certain specified geographical areas, including Central America,
Australia, New Zealand, Guam, Saipan and certain Caribbean islands. The
Operating Agreement also contains certain confidentiality and competitive
restrictions between the parties.
In accordance with terms of the Exchange Agreement, on February 6, 1995, PEI
purchased from PriceCostco approximately 3.8 million shares of its common stock
which had not previously been exchanged, for PEI's $45.9 million ($12.16 per
share) promissory note due December 1996, which was collateralized by the
related shares of PEI common stock.
On April 20, 1995, PEI sold its interest in Mexico Clubs, LLC ("Mexico Clubs")
to PriceCostco. PriceCostco purchased PEI's interest in Mexico Clubs by making a
$30.5 million reduction to the outstanding balance of the promissory note. In
addition, Price Club Mexico paid PEI $4.0 million concurrent with the closing of
the transaction with PriceCostco. The sale of the interest in Price Club Mexico
resulted in a $2.1 million after-tax loss.
OVERVIEW OF THE COMPANY'S BUSINESS
The principal business of the Company is to acquire, develop, operate, manage,
lease and sell real property. As of August 31, 1995, the Company owned 74 real
estate assets which have an aggregate net book value of approximately $430
million. Such properties encompass 757 acres of land and approximately 6
million square feet of gross leasable building space. Most of the real estate
assets are commercial rental properties leased to major retail tenants such as
Price Club, The Sports Authority, The Home Depot, and PetsMart.
The Company's business strategy is to retain those properties that have high-
quality, long-term tenants and that are, or will soon be, fully developed.
Properties which do not meet the Company's investment objectives are expected to
be sold over the next 2-3 years. During fiscal 1995, five properties were sold
for combined gross proceeds of $15.2 million. Approximately $100 million of
additional properties have been identified as properties held for sale, and they
have been separately classified in the financial statements.
Proceeds from the property sales may be used to complete real estate development
projects and to pay off the Company's long-term debt which approximated $15.4
million (the amount outstanding on PEI's note to PriceCostco, discussed above)
at the end of fiscal 1995. Other possible capital uses include additional real
estate acquisition and development, as well as funding of the Company's
investments in merchandising businesses and venture capital opportunities.
The Company also owns certain other real estate-related assets. As of August
31, 1995, the carrying value of certain notes issued in connection with loans to
municipalities and agencies (City Notes) was approximately $30.8 million. The
City Notes carry interest rates which range from 7% to 10%. Repayment of each
City Note is generally based on that municipality's allocation of sales tax
revenues generated by retail businesses located on a particular property
associated with such City Note. Under terms of most City Notes, the unpaid
balance is forgiven at its maturity date. If actions taken by PriceCostco, such
as closure or relocation of a particular
4
<PAGE>
Price Club, would entitle the governmental agency to withhold payment, PEI would
be entitled to cause PriceCostco to purchase such City Note at an amount equal
to 72% of the June 5, 1994 book balance, less any subsequent principal
repayments, plus all accrued and unpaid interest from June 5, 1994.
The Company holds certain other notes receivable, including the Atlas Note, with
a carrying value of approximately $45.8 million as of August 31, 1995. The
Atlas Note is collateralized by a hotel and convention center and its terms were
restructured in April 1995 to provide for interest at 10% during a five year
term.
Although most of the Company's net assets, net earnings and cash flows are
generated by its real estate activities, PEI's other businesses possess separate
and distinct business strategies. Price Quest, 51%-owned by PEI, is focused on
providing PriceCostco members with a wide range of products and services through
an interactive electronic interface, while leveraging emerging multi-media
technologies to provide goods, services and information to consumers in a cost-
efficient manner. At the same time, Price Quest desires to develop a customer
base which extends beyond the PriceCostco membership group. In summary, Price
Quest's objectives are to maximize the opportunities afforded by the PriceCostco
affinity relationship with its members, while it expands its merchandising and
technology know-how to new distribution channels including interactive shopping
through on-line services, the Internet and cable television technologies. As of
fiscal 1995 year-end, Price Quest kiosks were operating in 37 PriceCostco
locations. In November 1995, Price Quest launched on-line shopping programs
operating under the trademark Price OnLine. Price Quest has filed an
application to register the mark PRICE ONLINE, in the U. S. Patent and Trademark
Office, however, because of objections by one or more third parties (including
PriceCostco) there can be no assurance that Price Quest will obtain a federal
registration or that Price Quest has proprietary rights to the mark.
Recently, in response to a formal request for cash advances from Price Quest
stockholders, PEI was informed that PriceCostco did not choose to contribute
funds to Price Quest. The cash requirement for the business was provided by PEI
in the form of an interest bearing stockholder loan. Price Quest expects
operating losses to continue throughout fiscal 1996. Management continues to
closely monitor Price Quest's activities and evaluate recent and potential
changes to its business activities and its relationship with PriceCostco so as
to minimize the impact of Price Quest losses on PEI's financial results.
Price Global Trading, 51%-owned by PEI, has an exclusive right through August
1999 to conduct club businesses in Central America, most of the Caribbean, the
Northern Mariana Islands, Australia and New Zealand, with certain trademark
rights to the names Price Club, PriceCostco and Price Club Costco in these
markets. PriceCostco has also agreed to provide certain purchasing and
technological support for this effort and to refrain from conducting club
businesses in the aforementioned geographical areas. As of fiscal 1995 year-
end, one PriceCostco location was operating in Saipan under a license
arrangement between PGT and its licensee in Saipan, and another location was
opened by this licensee in Guam in November 1995. On September 27, 1995, PGT
announced that it had entered into a joint venture with a Panamanian company to
open PriceCostco locations in Panama. PGT owns 51% of the venture, and the
first location is expected to open in calendar 1996. Merchandising
opportunities in other Central American countries continue to be explored by
PGT.
5
<PAGE>
Recently, in response to a formal request for cash advances from PGT
stockholders, PEI was informed that PriceCostco did not choose to contribute
funds to PGT. The cash requirement for the business was provided by PEI in the
form of an interest-bearing stockholder loan. PGT expects to generate operating
losses in fiscal 1996, and management continues to closely monitor and evaluate
PGT's activities.
Price Ventures, Inc. ("Price Ventures"), a wholly owned subsidiary of PEI, is
primarily focused on developing additional international merchandising
businesses in other global markets. Business structures are expected to
include licensing arrangements, as well as possible joint venture
investments. On July 19, 1995, Price Ventures announced that it had entered
into a business arrangement with an Indonesian distribution company to
develop merchandising facilities of up to 70,000 square feet typically in
more urbanized markets. Such businesses are expected to operate under the
"PriceSmart" trademark name. Price Ventures has filed applications to
register the mark PRICESMART in the U.S. Patent and Trademark Office, and in
certain foreign countries, however, because of objections by one or more
third parties (including PriceCostco) there can be no assurance that Price
Ventures will obtain such registrations or that Price Ventures has
proprietary rights to the mark. The first location is expected to open in
calendar 1996. Merchandising opportunities in other Pacific Rim countries
continue to be explored by Price Ventures.
While PEI has only just recently begun to fund its first venture capital
investment, representing a total commitment of approximately $1.0 million, the
opportunity to participate as a value-added stockholder for newly established
ventures appears to have merit given the Company's level of retail and real
estate expertise. Additional investments in venture capital opportunities may
be explored in fiscal 1996.
COMPETITION
The Company competes with a wide variety of corporate and individual real estate
developers and real estate investment trusts (REIT's) which have investment
objectives similar to those of PEI and which may have greater financial
resources, larger staffs or longer operating histories than PEI.
The Company competes for tenants in its retail shopping centers. The Company's
competitive advantages are primarily based on significant customer traffic
generated by its national and regional tenants, competitive lease terms, and
relatively high occupancy rates. The closing or relocation of any anchor tenant
could have a material adverse effect on the operation of a shopping center.
The Company's merchandising operations also face competition unique to their
businesses. Price Quest competes directly or indirectly with most merchandising
businesses, other discount retailers (including PriceCostco warehouse clubs),
catalogue and other direct marketing sales, on-line shopping, televised home
shopping, travel agency services, other affinity buying services and similar
interactive kiosks that are or may be operated by other retailers. Price
Enterprises believes that, as further advances in computer technology are made
and as more interactive computer-based services become available to consumers in
the home and retail environments, competitive pressures on Price Quest will
intensify. Price Global competes with exporters, wholesalers and trading
companies in various international markets. Price Global's joint
6
<PAGE>
ventures and licensees and Price Ventures' licensees compete, or will compete
with traditional retail stores and wholesalers.
SIGNIFICANT TENANTS
The four largest tenants account for approximately 22% of total gross leasable
area and approximately 40% of the Company's total annual minimum rent revenues.
Certain information with respect to these tenants is set forth in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Percent of Annual Percent of
Number Area Under GLA Under Minimum Total Annual
of Leases Lease (sq. ft) Lease Rent Minimum Rent
-------------- -------------- -------------- -------------- --------------
Tenant
- ------
<S> <C> <C> <C> <C> <C>
Price Club 4 612,675 10.1% $8,042.8 19.9%
The Sports Authority 7 297,844 4.9% 3,463.4 8.5%
The Home Depot 2 214,173 3.5% 2,550.7 6.3%
PetsMart 8 204,274 3.4% 2,017.8 5.0%
-------------- -------------- -------------- -------------- --------------
21 1,328,966 21.9% $16,074.7 39.7%
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
</TABLE>
While none of the Company's four largest tenants have experienced any recent
significant financial hardships, it is not uncommon for economic conditions,
market surpluses of retail space and competitive pressures to negatively impact
financial results of retail operators. Recently, Bradlees and Caldor filed for
protection under Chapter XI provisions of the federal bankruptcy law. The
Company has two leases with Bradlees and one lease with Caldor which aggregate
5.5% of the Company's gross leaseable area and approximately 6.3% of annualized
minimum rents as of August 31, 1995. In addition, the current retailing
environment suggests that other operators, some of which have leases with the
Company, may experience financial difficulties in the coming months or years.
Generally, the bankruptcy or insolvency of a major tenant or a number of smaller
tenants may have an adverse impact on the performance of the Company's
properties. Under bankruptcy law, a tenant has the option of assuming
(continuing) or rejecting (terminating) any unexpired lease. If the tenant
assumes its lease, the tenant must cure all defaults under the lease and provide
the lessor with adequate assurance of its future performance under the lease.
If the tenant rejects the lease, the lessor's claim for breach of lease would,
absent collateral securing the claim, be treated as a general unsecured claim.
The amount of the claim would be limited to the amount owed for unpaid pre-
petition lease payments unrelated to the rejection, plus the greater of one
years' lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments). Ultimate
collection of any general unsecured claims is significantly related to the
debtor's financial condition and asset strength, results of secured creditor
settlements and ratification of proposed transactions by the bankruptcy court.
7
- -<PAGE>
ENVIRONMENTAL MATTERS
The Company's ownership of real properties could subject it to certain
environmental liabilities. As discussed below, certain of the Company's
properties have known environmental liabilities, and certain other properties
are located in areas of current or former industrial activity, where
environmental contamination may have occurred. The Company has agreed to
indemnify PriceCostco against and hold PriceCostco harmless from all
environmental liabilities that relate to or arise out of the real properties
which were transferred to the Company by PriceCostco.
Under various Federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate releases or threatened releases of
hazardous or toxic substances or petroleum products located at such property,
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and remediation costs incurred by such parties in
connection with the contamination. Under certain of these laws, liability may
be imposed without regard to whether the owner knew of or caused the presence of
the contaminants. These costs may be substantial, and the presence of such
substances, or the failure to remediate properly the contamination on such
property, may adversely affect the owner's ability to sell or lease such
property or to borrow money using such property as collateral. Certain Federal
and state laws require the removal or encapsulation of asbestos-containing
material in poor condition in the event of remodeling or renovation. Other
Federal, state and local laws have been enacted to protect sensitive
environmental resources, including threatened and endangered species and
wetlands. Such laws may restrict the development and diminish the value of
property which is inhabited by an endangered or threatened species, is
designated as critical habitat for an endangered or threatened species or is
characterized as wetlands.
PriceCostco engaged environmental consultants to conduct Phase I assessments
(involving investigation without soil sampling or groundwater analysis) at each
of the properties which PriceCostco transferred to the Company. The Company is
unaware of any environmental liability or compliance with applicable
environmental laws or regulations arising out of its properties that the Company
believes would have a material adverse effect on its business, assets or results
of operations. Nevertheless, there can be no assurance that the Company's
knowledge is complete with regard to, or that the Phase I assessments have
identified, all material environmental liabilities. Set forth below are
summaries of certain environmental matters relating to certain of the Company's
properties.
AZUSA. The Azusa site is a 17.4 acre site located in Azusa, California. The
Price Company ("Price"), a subsidiary of PriceCostco, purchased the Azusa site
in 1983 from Huffy Corporation ("Huffy"). Huffy operated a bicycle
manufacturing facility on the Azusa site from 1959 until 1982. After purchasing
the Azusa site, Price converted the bicycle manufacturing facility into a Price
Club warehouse and tire center.
8
<PAGE>
The Azusa site currently is located within the Baldwin Park Operable Unit
("BPOU") of the San Gabriel Valley Area 2 federal CERCLA site. The BPOU
addresses a large area of groundwater contamination in the San Gabriel Valley.
Volatile organic compounds ("VOCs"), including trichloroethylene and
perchloroethylene, are present in the groundwater throughout a several mile long
area, extending beneath the cities of Azusa, Irwindale, and Baldwin Park,
California. Price received a general notice of potential liability letter from
the United States Environmental Protection Agency (the "EPA") for the BPOU dated
August 4, 1993, and is one of approximately 110 potentially responsible parties
("PRPs"), representing 20-25 contaminated parcels, to have received such notice
for the BPOU. While it was operated by Huffy, the Huffy site contained a
degreasing facility that allegedly released VOCs into the soil.
In March 1994, the EPA published a Record of Decision ("ROD") which documents
the selection of remedial alternatives for the BPOU. The EPA estimates that its
preferred remedy, as outlined in the ROD, will cost between $100 and $130
million. The San Gabriel Basin Water Quality Authority ("SGBWQA") has proposed
an alternative remedy for the BPOU, which will cost an estimated $25 to $30
million. A group of PRPs, including Price and Huffy, the SGBWQA and the EPA
currently are negotiating the final remedy for the BPOU. Price Enterprises
lacks sufficient information regarding the activity of other PRPs to form an
estimate of the equitable share of total costs that could be allocated to its
Azusa site.
To date, Price and Huffy have spent approximately $250,000 in investigation and
monitoring costs. Approximately $225,000 of those costs were shared equally by
Price and Huffy under an informal cost sharing agreement. Under their current
cost sharing agreement, however, Huffy is paying 85% of site-related costs
(except for certain limited costs associated with quarterly water monitoring and
monthly water level gauging).
Also, on January 11, 1995, the EPA wrote Price a "no intended action" letter,
stating "[t]his letter is to inform you that USEPA DOES NOT plan to ask you or
your company to participate in the clean-up of the regional groundwater
contamination." Since receiving the "no intended action" letter, Price has been
in negotiation with EPA to enter into consent decree, which, if successfully
negotiated and approved by a court of competent jurisdiction, would provide
Price with contribution protection under CERCLA with respect to the current ROD
for the BPOU.
To the extent that there is any liability associated with the Azusa site, the
Company believes such liability should be attributed to Huffy. The Company (as
successor to Price) and Huffy have not negotiated a final allocation of costs as
between themselves. There can be no assurance that Huffy will contribute to any
further costs. Based upon a number of factors, including the EPA "no intended
action" letter, the current status of negotiations regarding the alternative
remedy, the cost of the final remedy, and the Company's allocated equitable
share of that cost as between it, Huffy and/or other PRPs, the Company's
liability associated with the Azusa site would not have a material adverse
effect on the financial condition and results of operations of the Company.
9
<PAGE>
PHOENIX (FRY'S). The Phoenix (Fry's) site is a 37.1 acre site located in
Phoenix, Arizona. The Phoenix (Fry's) site is located within the West Van Buren
Study Area (the "WVBSA"). VOCs and petroleum hydrocarbons are present in
groundwater in the WVBSA. To date, the Company (as successor to Price) has not
been identified as a PRP for the WVBSA and is unaware of any releases or
threatened releases of hazardous substances, including VOCs and petroleum
hydrocarbons, resulting from operations at the Phoenix (Fry's) site. On March
8, 1995, the Company sold the Phoenix (Fry's) site. Nevertheless, the Company's
prior ownership of the Phoenix (Fry's) site creates the potential of liability
for remediation costs associated with groundwater beneath the site. PriceCostco
has agreed to indemnify and hold the Company harmless in respect of one-half of
all environmental liabilities relating to the Phoenix (Fry's) site. The Company
lacks sufficient information about the activity of the WVBSA PRPs to form an
estimate of the equitable share of total liability, if any, that could be
allocated to the Company for its previous ownership of this site.
Although designated by Arizona law as a "study area," the WVBSA is not a federal
CERCLA site and is not listed on the National Priorities List ("NPL").
Immediately to the east of the WVBSA, however, is the East Washington Study Area
(the "EWSA"), which is listed on the NPL. VOCs are also present in groundwater
in the EWSA. If the contamination plumes from the WVBSA and the EWSA merge, the
possibility exists that the two study areas will be merged into one federal
CERCLA site.
MEADOWLANDS. The Meadowlands site is an unimproved, 12.9 acre site located in
Meadowlands, New Jersey. A prior owner used this site as a debris disposal area.
Elevated levels of heavy metals (including a small area contaminated with
polychlorinated byphenyls) and petroleum hydrocarbons are present in soil at the
Meadowlands site. The Company, however, has not been notified by any
governmental authority and is not otherwise aware, of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
petroleum products in connection with the Meadowlands site. The Company sold
the Meadowlands site on August 11, 1995. Nevertheless, the Company's previous
ownership of the Meadowlands site creates the potential of liability for
remediation costs associated with groundwater beneath the site.
PENTAGON CITY. The Pentagon City site is a 16.8 acre site in Arlington,
Virginia. Elevated levels of heavy metals are present in groundwater beneath
the Pentagon City site. Also, petroleum hydrocarbons are present in soil at the
site. By letters dated January 31, 1995, and March 22, 1994, the Virginia
Department of Environmental Quality is requiring no further action at the site
with regard to the heavy metals and petroleum hydrocarbon contamination,
respectively. The Company has not been notified by any governmental authority,
and is not otherwise aware, of any other material noncompliance, liability or
claim relating to hazardous or toxic substances or petroleum products in
connection with the Pentagon City site. Nevertheless, the Company's ownership
of the Pentagon City site creates the potential of liability for remediation
costs associated with groundwater beneath, and soils at, the site.
10
<PAGE>
COLTON. The Colton site is a 25.5 acre site in Colton, California. The Colton
site is inhabited by a species of sand fly which the United States Fish and
Wildlife Service ("USF&WS") is considering designating as either endangered or
threatened. Also, the Colton site is located within a geographic area currently
being considered by the USF&WS for designation as critical habitat for the sand
fly. If the sand fly ultimately is designated as threatened or endangered
and/or the Colton site is designated as critical habitat for the sand fly, the
Company's ability to develop the Colton site in the future may be restricted,
and the value of the site may be materially adversely affected.
SIGNAL HILL. The Signal Hill site is a 15.0 acre site in Signal Hill,
California. This site, and the adjoining properties, historically have been
used for oil and gas extraction activities, and the site currently has several
active and abandoned oil and gas production and injection wells. Prior to
development in the early 1990s, the prior owner excavated and treated over
100,000 cubic yards of petroleum hydrocarbon contaminated soil. However, in
1992, certain areas of the site were known to be still contaminated with
petroleum hydrocarbons and certain solvents in varying concentrations. The City
of Signal Hill Redevelopment Agency has indemnified the prior owner for
environmental expenses incurred with respect to such site through 1996. This
indemnity has been transferred to the Company.
OTHER PROPERTIES. Two properties (New Britain and Silver City) contain or have
contained petroleum hydrocarbons and/or VOCs in the soil and groundwater. The
Company is continuing to remediate the soil and groundwater at these properties
under supervision of local authorities. The Company estimates that the total
cost of this remediation is not expected to exceed $500,000 in the aggregate
over the next three years.
INTELLECTUAL PROPERTY RIGHTS
It is the Company's policy to obtain appropriate proprietary rights protection
for trademarks and significant new technology acquired or developed by the
Company. In addition, the Company relies on copyright and trade secret laws to
protect its proprietary rights. The Company attempts to protect its trade
secrets and other proprietary information through agreements with employees,
consultants and suppliers, and other similar measures. There can be no
assurance, however, that the Company will be successful in protecting its
proprietary rights. While management believes that the Company's trademarks,
copyrights and other proprietary know-how have significant value, changing
technology and the competitive market place make the Company's future success
dependent principally upon its employees' technical competence and creative
skills for continuing innovation.
EMPLOYEES
The Company employs approximately 229 employees and provides centralized and
comprehensive employee benefit programs for all eligible employees. Most
employees are leased to subsidiaries of PEI and associated costs are charged to
the entity for which the employees provide their services. The employee count
is generally distributed as follows: approximately 118 employees in the Price
Quest activities, 77 in the international merchandising businesses, 15 in real
estate activities, 6 handling central office duties, and 11 in PEI corporate
activities.
11
<PAGE>
SEASONALITY
The Company's real estate operations are not generally subject to seasonal
fluctuations. The merchandising businesses are subject to traditional retail
sales trends associated with the calendar year-end holiday season.
CORPORATE HEADQUARTERS
The Company maintains its headquarters in San Diego, California adjacent to the
Morena Boulevard Price Club facility and it believes that its current facilities
meet its expected requirements over the next 12 months.
ITEM 2 -- PROPERTIES
OVERVIEW
Pursuant to the Exchange Agreement, the 79 real estate properties that were to
be transferred to PEI included 18 fully developed and leased properties, 35
properties in various stages of construction and development and 26 unimproved
properties. During fiscal 1995, five of the properties were deemed to be not
transferable to PEI, and the parties agreed to a substitution of properties. As
of November 1995, all of the properties scheduled for transfer from PriceCostco
had been conveyed to PEI. Most of the properties are commercial retail assets
leased to national and regional retail tenants under long-term triple net
leases. Substantially all properties are held in fee title; however, four
properties are held pursuant to terms of lease agreements.
A significant aspect of the Company's general business strategy with respect to
existing properties is to retain those properties that have high-quality, long-
term tenants and that are, or will soon be, fully developed, and to sell the
remaining properties. During fiscal 1995, the Company performed a strategic
evaluation of the properties and increased marketing efforts to sell or lease
those assets which did not meet management's investment objectives.
As of August 31, 1995, the Company owned 74 real estate properties with an
aggregate net book value of $430 million of which $100 million has been
classified, for financial reporting purposes, as being held for sale. There are
26 assets classified as investment properties, and the value of these
investments is highly concentrated. Of the $330 million of investment property,
the seven largest completed properties have a carrying value of $229.3 million,
which includes 2.1 million square feet of leasable space on 166 acres operating
at a 91% occupancy level that generates annual minimum rent of $24.4 million,
based on leases existing as of August 31, 1995. The remaining investment
properties include $45.5 million of other income-producing properties and $55.3
million of properties undergoing some level of development efforts.
12
<PAGE>
A total of 48 properties are classified as being held for sale because the
Company currently does not view these assets as long-term hold properties.
Their aggregate net book value of $100 million reflects 2.6 million square feet
of leasable space located on a total of 432 acres of land, with leases for
annual minimum rents of $6.1 million as of August 31, 1995. Current occupancy
is 46%, and many properties are generating operating losses such that pre-tax
cash flow from these assets was only approximately $2 million in fiscal 1995.
PROPERTY TABLES
Classification of assets between the investment category and the held for sale
category may change in response to management's recurring evaluation of the
properties. The table set forth below describes certain of the Company's
properties which represent the Company's portfolio of investment properties as
of August 31, 1995:
13
<PAGE>
INVESTMENT PROPERTIES
<TABLE>
<CAPTION>
Leases in Effect as of August 31, 1995
-----------------------------------------------------------------
Number Gross Net Book Annual % OF
of Land Leasable Percent Value Minimum G.L.A. LEASE
Tenants Acreage Area (sq ft) Leased 8/31/95 Rent PRINCIPAL TENANTS (SQ FT) EXPIRES
------- ------- ------------ ------- --------- ------- ----------------- ------- -------
(000's) ($000's) ($000's)
SIGNIFICANT PROPERTIES
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Westbury, NY 8 30.4 398.6 100% $67,752 $7,124 PRICE CLUB 37% 2009
KMART 28% 2013
MARSHALLS 11% 2009
THE SPORTS AUTHORITY 11% 2013
BORDERS BOOKS 8% 2019
Pentagon City, VA 9 16.8 336.4 100% 61,597 6,336 PRICE CLUB 50% 2009
MARSHALLS 12% 2010
BEST BUY 11% 2010
LINENS & THINGS 10% 2010
BORDERS BOOKS 10% 2010
Wayne, NJ 4 19.2 433.8 61% 36,334 3,755 PRICE CLUB 34% 2009
(includes 170,000 sq. ft. THE SPORTS AUTHORITY 10% 2012
of vacant storage space) TODAY'S MAN 8% 2002
NOBODY BEATS THE WIZ 6% 2018
Seekonk, MA 10 43.1 208.9 100% 18,917 2,037 BRADLEES 51% 2014
THE SPORTS AUTHORITY 20% 2013
CIRCUIT CITY 16% 2014
San Diego, CA 4 28.8 429.1 100% 15,344 1,302 PRICE CLUB 34% 2009
ARA DISTRIBUTION 27% 1997
ROSE CANYON STORAGE 20% 1997
Signal Hill, CA 12 15.0 154.6 98% 15,408 2,189 THE HOME DEPOT 67% 2014
PETSMART 17% 2009
Fountain Valley, CA 15 12.6 119.2 87% 13,901 1,685 THE SPORTS AUTHORITY 36% 2013
PETSMART 22% 2008
SOUPLANTATION 7% 2010
------- ------- ---------- ----- -------- -------
Subtotal......... 62 165.9 2,080.6 91% 229,253 24,428
ADDITIONAL PROPERTIES: PRINCIPAL TENANTS
- ---------------------- ---------------------------------
Glen Burnie, MD 11 18.7 130.6 100% 9,867 1,472 THE SPORTS AUTHORITY, PETSMART,
COMPUTER CITY
Northridge, CA 3 4.4 30.0 100% 7,429 784 BARNES & NOBLE, FRESH CHOICE
Carmel Mtn. Ranch, CA 7 5.9 35.0 100% 6,652 881 CLAIM JUMPER, MCMILLAN REALTY,
ISLANDS
Inglewood, CA 1 8.1 119.9 100% 4,306 847 HOME BASE
S. Sacramento, CA 2 5.7 50.4 100% 4,238 457 PETSMART, OFFICE DEPOT
N.W. Tucson, AZ 9 7.7 38.1 98% 3,217 326 PETSMART
Hampton, VA 2 3.5 45.6 100% 2,748 424 THE SPORTS AUTHORITY, COMMERCE BANK
Smithtown, NY 1 5.9 55.6 100% 2,128 455 LEVITZ FURNITURE
Redwood City, CA 2 6.4 50.0 100% 2,095 379 ORCHARD SUPPLY
S. W. Denver, CO 1 3.1 26.4 100% 1,305 216 PETSMART
S.E. San Diego, CA 2 1.8 8.9 100% 786 133 NAVY FEDERAL C.U., BURGER KING
Aurora, CO 1 .8 7.3 100% 707 146 RED ROBIN
------- ------- ---------- ----- -------- -------
Subtotal ........... 42 72.0 597.8 100% 45,478 6,520
PROPERTIES UNDER DEVELOPMENT
- ----------------------------
Bensalem, PA 11 29.3 300.0 82% 20,353 2,208 THE HOME DEPOT, AMC THEATRES, ACME
Dallas, TX 0 14.6 153.9 0% 15,725 0 NONE
Azusa, CA 4 17.4 127.2 37% 6,892 399 PRICECOSTCO BUSINESS DELIVERY
Bakersfield, CA 4 15.7 152.0 17% 6,229 292 FAMILY FITNESS, TACO BELL
San Juan Capistrano, CA 6 7.3 74.2 77% 4,623 546 PETSMART, STAPLES, BURGER KING
Carlsbad, CA 0 1.7 0.0 0% 967 0 NONE
Rancho del Rey, CA 0 1.0 0.0 0% 500 0 NONE
------- ------- ---------- ----- -------- -------
Subtotal........ 25 87.0 807.3 47% 55,289 3,445
------- ------- ---------- ----- -------- -------
Total............ 129 324.9 3,485.7 82% $330,020 $34,393
------- ------- ---------- ----- ------- -------
------- ------- ---------- ----- -------- -------
</TABLE>
14
<PAGE>
As noted previously, the classification of properties as being held for sale may
change from time to time. The table set forth below describes certain of the
Company's properties held for sale as of August 31, 1995, for which a $5
million write-down was taken in fiscal 1995 and a $49 million write-down was
taken in fiscal 1994:
PROPERTIES HELD FOR SALE
<TABLE>
<CAPTION>
Leases in Effect as of August 31, 1995
-------------------------------------------------------------------------
Net
Gross Book Annual
Land Leasable Percent Value Minimum
Acreage Area (sq ft) Leased 8/31/95 Rent
--------- ------------- ---------- --------- -----------
(000's) ($000's) ($000's)
PROPERTIES WITH BUILDINGS
- -------------------------
<S> <C> <C> <C> <C> <C>
Richmond, CA 24.0 399.1 71% $10,753 $1,227
Houston, TX 25.2 191.4 12% 9,666 110
Maple Shade, NJ (leased land) 18.3 172.5 89% 6,663 1,423
Worcester, MA 11.4 115.0 100% 6,055 690
Cheektowaga, NY 16.1 115.4 100% 5,677 733
Sacramento, CA 13.6 139.7 12% 5,365 149
New Britain, CT 17.8 112.4 100% 3,440 480
Riverside, CA 9.5 106.5 16% 3,414 51
Palm Harbor, FL 12.7 113.7 0% 3,210 --
San Diego, CA (Convoy Ct.) 5.8 96.0 0% 3,178 --
Marlow Heights, MD 13.3 113.7 22% 2,908 84
Colton/Rialto, CA 25.5 125.8 100% 2,547 225
Santee, CA 9.2 106.0 34% 2,154 276
Chesterfield, VA 13.7 5.2 100% 2,037 55
Hayward, CA 5.6 155.4 0% 1,727 --
Sunnyvale, CA 1.6 7.8 100% 1,551 160
W. Palm Beach, FL 6.9 105.4 0% 1,515 --
Mesa, AZ 2.7 24.2 100% 1,223 182
North Highlands, CA 0.8 3.5 100% 794 93
Riverside, CA (Franklin St.) 4.9 18.8 100% 433 135
Silver City, NM 7.0 30.0 0% -- --
Milwaukee, WI (leased) 8.8 115.0 100% -- --
San Jose, CA (leased) 7.9 105.6 0% -- --
Tacoma, WA (leased) 7.3 105.1 0% -- --
--------- ------------- ---------- --------- -----------
Subtotal................... 269.6 2,583.2 46% 74,310 6,073
UNIMPROVED LAND
- ---------------
Schaumburg, IL 22.5 -- -- 5,750 --
Fresno, CA 15.0 -- -- 3,680 --
Ranch Cordova, CA 9.5 -- -- 1,900 --
Fremont, CA 11.3 -- -- 1,670 --
San Jose, CA 4.6 -- -- 1,600 --
Gaithersburg, MD 5.2 -- -- 1,503 --
Sterling, VA 9.6 -- -- 1,428 --
Chula Vista, CA 13.0 -- -- 1,339 --
Other (16 properties) 72.0 -- -- 6,855 --
--------- ------------- ---------- --------- ----------
Subtotal................... 162.7 -- -- 25,725 --
--------- ------------- ---------- --------- ----------
Total...................... 432.3 2,583.2 46% $100,035 $6,073
--------- ------------- ---------- --------- -----------
--------- ------------- ---------- --------- -----------
</TABLE>
15
<PAGE>
PENDING REAL ESTATE TRANSACTIONS
The Company is currently under contract to sell 10 properties that are expected
to generate approximately $31.5 million in aggregate gross proceeds and are
expected to be sold during fiscal 1996. Given the nature of these activities,
there can be no assurance that these potential sales will be completed by their
expected dates or that such proceeds will be fully realized.
The Company is in various stages of lease negotiations with 14 prospective
tenants for leasable space which are expected to generate approximately $4.8
million of additional annualized minimum rental income once the lease payments
begin. Given the nature of these activities, there can be no assurance that
these potential leases will ultimately be consummated. The development costs
necessary to provide appropriate facilities for these potential leases is
estimated to be approximately $12.9 million as of August 31, 1995.
ITEM 3 -- LEGAL PROCEEDINGS
On December 19, 1994 and January 4, 1995 complaints were filed in the United
States District Court, Western District of Washington (entitled SNYDER V
PRICE/COSTCO, INC. ET. AL., Case #C94-1874 and BALSAM V PRICE/COSTCO, INC. ET.
AL., Case #C95-0009, respectively) against defendants including the Company and
certain of its directors. The two suits have been consolidated for all
purposes. In November 1995, a Second Amended Complaint was filed. The
Complaint alleges violation of certain laws and asserts certain related claims,
arising from the exchange offer transaction. The Company believes that the
suit is without merit and will vigorously defend against the suit. The Company
does not believe that the ultimate outcome of such litigation will have a
material adverse effect on the Company's financial position or results of
operations.
The Company is a party to other routine litigation incident to its business and
to which its property is subject. The Company's management does not believe
that the ultimate resolution of any of these matters will have a material
adverse impact on the financial position of the Company. For a discussion of
certain proceedings relating to environmental matters at certain of the
Company's properties, see "Business - Environmental Matters" in Item 1 of this
annual report.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1995. The Company's Annual Meeting of Stockholders is
scheduled for 10:00 a.m. on January 16, 1996, at the San Diego Hilton Beach
and Tennis Resort in San Diego, California. Matters to be voted on will be
included in the Company's proxy statement to be filed with the Securities and
Exchange Commission and distributed to stockholders prior to the meeting.
16
<PAGE>
ITEM 4A -- EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, positions, and ages of the executive officers of
Price Enterprises and other key officers of its subsidiaries:
Name Position With Company Age
---------------------- -------------------------------- ---------
Robert E.Price Chairman of the Board, President 53
and Chief Executive Officer
Daniel T. Carter Executive Vice President, Chief 39
Financial Officer and Secretary
Robert M. Gans Executive Vice President, 46
General Counsel
William J. Hamilton Executive Vice President 38
Joseph J. Tebo President of Price Ventures 59
Steven A. Velazquez President of Price Quest 40
Theodore Wallace Chief Executive Officer of Price 47
Ventures
Robert E. Price has been Chairman of the Board, President and Chief Executive
Officer of Price Enterprises since July 1994. Mr. Price also serves as President
and Chief Executive Officer of Price Real Estate and Price Global Trading, and
as the Chief Executive Officer of Price Quest. From October 1993 to July 1994,
Mr. Price was Chairman of the Board of PriceCostco. Mr. Price also serves as a
director of Price Real Estate, Price Global Trading, Price Quest and Price
Ventures. From 1976 to October 1993, he was Chief Executive Officer and a
director of The Price Company (TPC). Mr. Price served as Chairman of the Board
of TPC from January 1989 to October 1993, and as its President from 1976 until
December 1990.
Daniel T. Carter has been Executive Vice President, Chief Financial Officer and
Secretary of Price Enterprises since July 1994. From October 1993 to July 1994,
Mr. Carter was Senior Vice President of PriceCostco overseeing financial duties
for certain international and San Diego-based businesses. He joined TPC as the
Financial Planning and Audit Manager in June 1986 and became its Vice President
of Finance in October 1987. Prior to joining TPC, Mr. Carter held financial
management roles with several diverse companies, as well as having worked for
three years with the accounting firm of Ernst & Young.
Robert M. Gans has been Executive Vice President, General Counsel for Price
Enterprises since October 1994. Mr. Gans actively practiced law in private
practice since 1975, and from 1988 until October 1994, was the senior member of
the law firm of Gans, Blackmar & Stevens, A.P.C., of San Diego, California.
William J. Hamilton has been Executive Vice President of Price Enterprises since
August 1995, and he also serves as Executive Vice President of Price Quest.
From November 1994 to August 1995, he was Vice President of PEI. From October
1993 to November 1994, Mr. Hamilton was Vice President of PriceCostco. Mr.
Hamilton became Vice President of TPC in July 1992, and has overseen various
businesses for the companies. He joined TPC in February 1989, and prior to
joining TPC, Mr. Hamilton was a District Sales Manager for Guardian Photo.
17
<PAGE>
Joseph J. Tebo has been the President of Price Ventures since November 1994.
From May 1994 to November 1994, Mr. Tebo was President of the Tebo Group, an
international retail consulting firm. From January 1990 to April 1994 Mr. Tebo
was President and Chief Executive Officer of AM/PM International, a wholly owned
subsidiary of Atlantic Richfield Company (ARCO), which has developed licensing
and joint venture arrangements for AM/PM convenience stores in 10 countries
throughout the Pacific Rim and the Americas. Mr. Tebo spent more than 30 years
in the Atlantic Richfield domestic and international sales and marketing
organizations, and was instrumental in developing the AM/PM Mini-Mart concept
and the PayPoint electronic payment system.
Steven A. Velazquez has been Executive Vice President of PEI since November
1994, and he also serves as President of Price Quest. From October 1993 to
November 1994, Mr. Velazquez was Executive Vice President of PriceCostco
overseeing the development of the Quest Business. He joined TPC as a buyer in
July 1981, became Vice President in February 1989, and became Executive Vice
President of merchandising in April 1990. Prior to joining TPC, Mr. Velazquez
was a buyer for Safeway Stores, San Diego Division.
Theodore Wallace has been an Executive Vice President of Price Enterprises since
November 1994 and serves as Chief Executive Officer of Price Ventures. From
October 1993 to November 1994, Mr. Wallace was Executive Vice President of
PriceCostco overseeing international expansion into the Pacific Rim and other
markets. Mr. Wallace became an Executive Vice President of TPC in 1984 and,
from 1988 until Fall 1992, he was Chief Operating Officer (East Coast) of TPC.
He was a director of TPC from October 1988 to October 1993. He joined TPC as a
warehouse manager in September 1977 and was its Vice President of Operations
from 1983 to 1988.
18
<PAGE>
PART II
ITEM 5 -- MARKET FOR REGISTRANT COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK PRICES
The Company's Common Stock was first publicly traded on December 21, 1994, as
quoted on The Nasdaq Stock Market's National Market under the symbol "PREN."
The table set forth below provides the high and low sales prices of the Common
Stock for the period indicated, as reported by The Nasdaq Stock Market's
National Market:
<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Calendar Quarter --- 1994
Fourth Quarter (beginning 12/21/94) 14 1/2 12 3/4
Calendar Quarter --- 1995
First Quarter 13 3/4 10 1/2
Second Quarter 14 11 1/2
Third Quarter 16 13 1/2
Fourth Quarter (through 11/20/95) 16 14 1/4
</TABLE>
On November 20, 1995, the last reported sales price per share of the Common
Stock was $15.25, and the Company had approximately 1000 stockholders of
record.
DIVIDEND POLICY
Price Enterprises does not pay regular quarterly or annual dividends. During
fiscal 1995, the Company declared and paid a special $0.075 per share cash
dividend to offset certain adverse tax consequences which would otherwise occur.
The Company presently intends to retain future earnings to finance the growth
and development of its business segments; therefore, it does not currently
anticipate paying regular cash dividends.
Any future determination relating to dividend policies will be made at the
discretion of the Company's Board of Directors. Such determinations will depend
on a number of factors, including the future earnings, capital requirements,
financial condition and prospects for PEI, possible loan or financing covenant
restrictions, and such other factors as the Board may deem relevant.
ITEM 6 -- SELECTED FINANCIAL DATA
The following selected data should be read in conjunction with the Company's
consolidated financial statements elsewhere in this Form 10-K and "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
19
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEARS
($000's, except per share data)
---------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Income Statement Data
Real estate revenues $51,897 $30,094 $25,793 $30,672 $28,280
Gain (loss) on sale of real estate (181) 5,474 21,540 15,078 6,149
Merchandise sales 66,573 53,015 28,671 8,212 --
Real estate expenses 28,575 17,623 13,310 13,855 14,889
Merchandise cost of sales
and operating expenses 85,752 57,997 30,882 9,102 --
General and administrative 3,066 1,600 1,500 1,300 1,000
Provision for asset impairments 5,000 90,227 -- -- --
Operating income (loss) (3,548) (78,642) 30,517 29,910 18,745
Interest and other 9,283 8,896 4,649 2,961 2,835
Income (loss) before tax provision 5,735 (69,746) 35,166 32,871 21,580
Net income (loss) 546 (41,479) 20,551 19,361 12,904
Net income (loss) per share .02 (1.54) .76 .72 .48
Cash dividend per share .08 -- -- -- --
As of August 31
($000's, except per share data)
---------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------
Selected Balance Sheet Data
Real estate assets, net 334,754 447,387 387,475 337,258 364,118
Property held for sale 100,035 -- -- -- --
Total assets 567,321 650,553 499,867 454,063 429,420
Long-term debt 15,425 -- -- -- --
Investment by PriceCostco and
stockholders' equity 532,085 578,788 454,357 429,672 412,585
Book value per share 22.90 21.44 16.83 15.91 15.28
</TABLE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis compares the results of operations
for each of the three fiscal years ended August 31, 1995, and it should be read
in conjunction with the consolidated financial statements and the accompanying
notes included elsewhere in this report. The Company invests in real estate and
related assets, in addition to certain merchandising businesses which include
Price Quest, Price Global Trading and Price Ventures activities. Where
appropriate, the financial results for these two business segments are discussed
separately. In those instances where changes are attributed to more than one
factor, the factors are presented in descending order of importance. All dollar
amounts are in thousands, except per share data.
20
<PAGE>
REAL ESTATE RENTAL OPERATIONS
<TABLE>
<CAPTION>
Revenue Percent Operating Percent
Amount Change Income Change Change
------- ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Fiscal 1995 $51,897 72% $23,322 $10,851 87%
Fiscal 1994 30,094 17% 12,471 (12) 0%
Fiscal 1993 25,793 --- 12,483 --- ---
</TABLE>
Operating income is defined as rental revenue, including common area
expense reimbursements, less the related real estate expenses, including all
unreimbursable expenses associated with unimproved land and certain developed
properties with vacant space. In addition, operating income reflects
depreciation expense and earnings from real estate partnerships, but it does not
reflect the property write-downs taken during fiscal 1995 and 1994 for asset
impairments or gain (loss) on sale of real estate.
During fiscal 1995, the increase in revenue and operating income was due
primarily to the inclusion of the four Price Club properties whose leases began
on August 29, 1994, and the inclusion of additional leases at properties located
in Pentagon City (VA), Westbury (NY), Seekonk (MA), Bensalem (PA), Worcester
(MA) and Maple Shade (NJ). These increases were somewhat offset by a decline
due to revenue reductions at Sacramento (CA) and Phoenix (AZ) properties, as
well as the impact of absorbing a full year of expenses in fiscal 1995 for
properties that were transferred to the Company in late fiscal 1994. These
transfers included the former Price Club in Dallas (TX) and former Costco
locations in Florida and Northern California.
During fiscal 1994, the increase in revenue was due to inclusion of
additional leases at properties located in Signal Hill (CA), Seekonk (MA),
Bensalem (PA), Carmel Mountain (CA), Fountain Valley (CA), Northridge (CA),
Wayne (NJ) and Westbury (NY). These increases were somewhat offset by declines
in revenues due to the sale of the three shopping centers (White Marsh (MD),
Copaigue (NY) and Fairfax (VA)) and a 49.6% interest in five other centers at
the end of fiscal 1993, as well as the sale of the Santa Ana (CA) leased
facility earlier in fiscal 1993.
21
<PAGE>
ADJUSTED FUNDS FROM OPERATIONS
<TABLE>
<CAPTION>
Less Add Adjusted
Operating Straight-line Depreciation Funds From Percent
Income Rentals Expense Operations Change
--------- ------------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Fiscal 1995 $23,322 ($3,332) $10,245 $30,235 62%
Fiscal 1994 12,471 (872) 7,102 18,701 10%
Fiscal 1993 12,483 (1089) 5,662 17,056 ---
</TABLE>
Real estate industry analysts generally consider funds from operations
(FFO) to be a measure of performance for real estate oriented companies. As
defined by the National Association for Real Estate Investment Trusts (NAREIT),
it is the pre-tax net income determined in accordance with GAAP, excluding gains
(losses) from sales of property, after adding back depreciation and amortization
expense. Due to the significance of straight-line rent accruals, which
represent non-cash revenues associated with fixed future minimum rent increases,
the Company has adjusted the NAREIT definition to eliminate straight-line rents
when computing its adjusted FFO.
Adjusted FFO does not represent cash flows from operations as defined by
generally accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating performance
or to cash flows as a measure of liquidity.
For fiscal 1995 and 1994, the growth in adjusted FFO reflects many of the
factors mentioned in the operating income discussion above.
GAIN (LOSS) ON SALE OF REAL ESTATE
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- --------- ---------
<S> <C> <C> <C>
Fiscal 1995 $ (181) $ (5,655) -103%
Fiscal 1994 5,474 (16,066) -75%
Fiscal 1993 21,540 --- ---
</TABLE>
During fiscal 1995, the loss on sale of properties related primarily to the
sale of the Phoenix (AZ) distribution center. During fiscal 1994, gains
recognized on the sale of properties located in Glendale (AZ), San Antonio (TX),
and Tempe (AZ), were somewhat offset by a loss on the sale of undeveloped land
in Austin (TX).
During fiscal 1993, sales prices of properties sold to The Price REIT
totaled $104 million for which $21.5 million of gains were recognized. These
properties included three shopping centers, a 49.6% interest in five other
shopping centers, and a single-tenant property located in Santa Ana (CA).
22
<PAGE>
MERCHANDISING OPERATIONS
<TABLE>
<CAPTION>
Sales Percent Gross Percent Percent of
Amount Change Margin Change Sales
-------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1995 $66,573 26% $3,817 7% 5.73%
Fiscal 1994 53,015 85% 3,566 148% 6.73%
Fiscal 1993 28,671 --- 1,438 --- 5.02%
</TABLE>
Merchandise sales include the Price Quest and international trading
businesses. Gross margin is defined as merchandise sales less the related
merchandise costs.
During fiscal 1995, the increase in sales was due primarily to a 40%
increase in Price Quest sales and an 11% increase in international trading
activities. The Price Quest kiosk program recorded sales of $27.2 million
during fiscal 1995, as compared to $19.5 million during fiscal 1994. The number
of PriceCostco locations with the kiosk program increased from 27 at the
beginning of fiscal 1995 to 37 at year-end.
Despite the overall revenue gains during fiscal 1995, both Price Quest and
the international trading businesses reported flat or negative year-to-year
sales comparisons during the fourth quarter of fiscal 1995. Due to the continued
loss of sales from certain international trading customers in Hong Kong and
Mexico, and lower sales of display samples at Price Quest's Kiosk locations, a
continuation of these unfavorable sales trends may continue into fiscal 1996.
Gross margins during fiscal 1995 would have benefited from a shift in sales
from the traditionally lower margin international trading business to the
relatively higher margins obtained with the Price Quest business; however, $0.9
million of inventory related reserves were recorded by Price Quest during the
fourth quarter of fiscal 1995 that related to merchandise returns and salvage
reserves.
MERCHANDISING OPERATING EXPENSES
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- --------
<S> <C> <C> <C>
Fiscal 1995 $22,996 $14,448 169%
Fiscal 1994 8,548 4,899 134%
Fiscal 1993 3,649 --- ---
</TABLE>
During fiscal 1995, the increase in operating expenses was due to $4.5
million of contractual obligations for Price Quest's marketing and warehouse
rent with PriceCostco, higher operating and depreciation expenses associated
with the expansion of the Price Quest businesses, $2.3 million of write-downs
for expected losses on disposals of fixtures and equipment, as well as
approximately $4.0 million of increased expenses associated with the
international merchandising activities. Sale of PEI's interest in Price Club
Mexico during April 1995 sharply reduced reimbursements of U.S.-based overhead
expenses.
During fiscal 1994, the increase in operating expenses was due to increased
expenses of Price Quest as a result of kiosk program expansion during late
fiscal 1993 and fiscal 1994.
23
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ---------
<S> <C> <C> <C>
Fiscal 1995 $3,066 $1,466 92%
Fiscal 1994 1,600 100 7%
Fiscal 1993 1,500 --- ---
</TABLE>
During fiscal 1995, the increase in expenses reflects the impact of the
Company's continued growth and incremental expenses associated with becoming a
separate publicly traded company and $0.25 million of contractual obligations to
PriceCostco for administrative services. In fiscal 1994 and 1993, PriceCostco
provided services to the Company and charged general and administrative expenses
to PEI by specific identification or by allocations based on total assets or
total revenues.
INTEREST INCOME (NET)
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ---------
<S> <C> <C> <C>
Fiscal 1995 $6,084 $1,287 27%
Fiscal 1994 4,797 1,923 67%
Fiscal 1993 2,874 --- ---
</TABLE>
In fiscal 1995, the increase in net interest income was due to increased
income from various notes receivable, offset by interest expense incurred on the
note payable to PriceCostco and borrowings against the two unsecured line of
credit facilities during the year.
In fiscal 1994, the increase in net interest income was directly related to
income from the Atlas Note, which was acquired in October 1993, for which no
income had been recorded in fiscal 1993.
24
<PAGE>
OTHER INCOME (NET)
<TABLE>
<CAPTION>
Minority
Price Interest Total
Club and Other Other Percent
Mexico Income Income Change Change
-------- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Fiscal 1995 $(3,805) $7,004 $3,199 $ (900) -22%
Fiscal 1994 1,948 2,151 4,099 2,324 131%
Fiscal 1993 832 943 1,775 --- ---
</TABLE>
Price Club Mexico amounts represent the Company's equity in earnings
(losses) of the joint venture, after taking into account PriceCostco's 49%
minority interest in Mexico Clubs. The allocation of Price Quest and Price
Global Trading losses to PriceCostco's minority interest is included with other
income.
During fiscal 1995, the decrease in other income was due to the $2.65
million pre-tax loss on the sale of the Company's interest in Mexico Clubs, as
well as operating losses reported by the Price Club Mexico venture during the
first half of fiscal 1995. The impact of these losses was offset, in part, by
having PriceCostco's minority interest absorb 49% of increased losses of Price
Quest and Price Global Trading.
During fiscal 1994, the increase in other income was primarily due to
growth in earnings from the Price Club Mexico investment, as well as the impact
of having PriceCostco's minority interest absorb 49% of increased losses of
Price Quest.
PROVISION FOR ASSET IMPAIRMENTS
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ---------
<S> <C> <C> <C>
Fiscal 1995 $ 5,000 $(85,227) -94%
Fiscal 1994 90,227 90,227 ---
Fiscal 1993 0 --- ---
</TABLE>
In fiscal 1995, a non-cash charge of $5.0 million was taken to write-down
the carrying value of real estate properties which are being held for sale and
which are expected to generate net sales proceeds below their current book
values. On an aggregate basis, this adjustment represented less than a 5%
write-down to the carrying value of all properties held for sale as of August
31, 1995.
25
<PAGE>
PROVISION FOR ASSET IMPAIRMENTS (CONTINUED)
In fiscal 1994, a non-cash charge of $90.2 million was taken that generally
related to a change in calculating the estimated losses for assets which were
considered to be economically impaired. A write-down was taken to reduce an
asset's carrying value if its estimated fair value, based on the risk-adjusted
discounted cash flow approach, was lower than its book value. Approximately
$74.7 million related to real estate properties and $15.5 million related to
write-downs of the City Notes.
PROVISION (BENEFIT) FOR INCOME TAXES
<TABLE>
<CAPTION>
Percent
Amount Change Change
-------- -------- ---------
<S> <C> <C> <C>
Fiscal 1995 $ 5,189 $ 33,456 118%
Fiscal 1994 (28,267) (42,882) -293%
Fiscal 1993 14,615 --- ---
</TABLE>
During fiscal 1995, the income tax provision was negatively impacted by the
non-deductible losses from Price Quest, Price Global Trading, and the Price Club
Mexico joint venture. In addition, the $2.65 million loss on sale of the Mexico
Clubs interest provided just $0.5 million of tax benefits.
In fiscal 1994, the income tax benefit was the net current tax expense of
$8.2 million and deferred tax benefits of $36.5 million. The deferred tax
benefit relates primarily to the provision for asset impairments which is not
currently deductible.
LIQUIDITY AND CAPITAL RESOURCES
While the Company is well positioned to finance its business activities through
a variety of sources, it expects to satisfy short-term liquidity requirements
through net cash provided by real estate operations and through borrowings under
the unsecured revolving line of credit facility. Approximately $100 million of
the Company's real estate assets are being held for sale, and the cash flow that
may ultimately be generated by sales of these properties represents a major
source of additional capital resources. To the extent that investment
opportunities exceed available cash flow from these sources, the Company's
unleveraged balance sheet should enable it to access significant amounts of
capital through bank credit facilities and/or securitized debt offerings, or the
Company may choose to seek additional funds through future public equity
offerings.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has a revolving credit facility with a commercial bank for up to $25
million in unsecured advances through June 29, 1997. Advances bear interest, at
the Company's option, at either LIBOR plus 0.40% or the bank's Base Rate, as
defined. The agreement requires that the Company not sell or pledge certain
property with a net book value of $180 million as of August 31, 1995, that the
Company maintain certain net worth and debt-to-equity ratios, and that a
facility fee of 0.15% of the commitment amount be paid annually. As of August
31, 1995, the outstanding balance on the credit facility was $1.0 million and
the weighted average interest rate charged during fiscal 1995 was 6.34% on such
borrowings.
Pursuant to the Advance Agreement between PEI and PriceCostco, PriceCostco
agreed to provide an unsecured revolving credit facility for up to a maximum
principal amount of $85 million (subject to reduction for proceeds of certain
real property sales) as interim financing to satisfy any cash requirements
through June 21, 1995. This facility has expired and all borrowings and related
interest have been fully repaid. During fiscal 1995, the weighted average
interest rate was 6.30% on such borrowings.
Consistent with historical trends, operating income from real estate activities
increases as properties are developed and declines as properties are sold. The
Company's liquidity is primarily affected by the timing and magnitude of rental
property acquisition, development and disposition.
During fiscal 1996, the Company anticipates investing approximately $20 million
in commercial real estate development on owned property (a portion of which
represents commitments under executed construction contracts), approximately $25
million for real estate acquisitions, approximately $3 million in capital
contributions to Price Global Trading, approximately $3 million for investment
in Price Quest and approximately $5 million for new business investments by
Price Ventures and PEI. In addition to cash from operations, the Company
expects to generate gross proceeds of approximately $48 million from expected
sales of real estate. Actual capital expenditures for fiscal 1996 may vary from
estimated amounts depending on business conditions and on whether PriceCostco
chooses to fund its share of capital requests from Price Quest and Price Global
Trading.
INFLATION
Because a substantial number of the Company's leases contain provisions for rent
increases based on changes in various consumer price indices, based on fixed
rate increases, or based on percentage rent if tenant sales exceed certain base
amounts, inflation is not expected to have a significant material impact on
future net income or cash flow from developed and operating properties. In
addition, substantially all leases are "triple net", whereby specific operating
expenses and property taxes are passed through to the tenant. For undeveloped
or under-developed properties, inflation could increase the Company's cost of
carrying and developing the properties; however, inflation would likely increase
the future sales value of the properties.
27
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PRICE ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
August 31,
--------------------------------
1995 1994
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ --- $ 1,644
Accounts receivable, net 5,776 20,873
Merchandise inventories 7,385 7,895
Prepaid expenses 1,499 551
----------- ---------
Total current assets 14,660 30,963
REAL ESTATE ASSETS
Land and land improvements 179,794 258,545
Building and improvements 168,808 206,374
Fixtures and equipment 7,928 4,375
Construction in progress 6,457 11,421
----------- ---------
362,987 480,715
Less accumulated depreciation (28,233) (33,328)
----------- ---------
334,754 447,387
OTHER ASSETS
Property held for sale, net 100,035 ---
City notes receivable 30,835 32,023
Atlas and other notes receivable 45,790 41,000
Deferred income taxes 29,315 23,282
Deferred rents and leasing costs, net 11,932 8,672
Investment in Price Club Mexico joint venture --- 67,226
----------- ---------
217,907 172,203
----------- ---------
TOTAL ASSETS $567,321 $650,553
----------- ---------
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,592 $16,689
Accrued expenses 4,569 3,623
Payable to PriceCostco, net 1,617 6,797
Other current liabilities 6,095 4,015
----------- ---------
Total current liabilities 14,873 31,124
NOTE PAYABLE TO PRICECOSTCO 15,425 ---
MINORITY INTEREST OF PRICECOSTCO 4,938 40,641
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value,
60,000,000 shares authorized, 23,234,075 and
27,000,000 shares issued and outstanding 2 3
Additional paid-in capital 548,705 580,468
Retained earnings (deficit) (1,197) ---
Accumulated foreign currency translation --- (1,683)
Treasury stock (15,425) ---
----------- ---------
Total stockholders' equity 532,085 578,788
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $567,321 $650,553
----------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
28
<PAGE>
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended August 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Real estate $ 51,897 $ 30,094 $ 25,793
Gain (loss) on sale of real estate, net (181) 5,474 21,540
Merchandise sales 66,573 53,015 28,671
Other revenues 556 222 205
-------- -------- --------
Total revenues 118,845 88,805 76,209
OPERATING EXPENSES
Real estate:
Operating, maintenance and administrative 9,794 5,713 4,596
Property taxes 8,536 4,808 3,052
Depreciation and amortization 10,245 7,102 5,662
Merchandising:
Cost of sales 62,756 49,449 27,233
Operating expenses 22,996 8,548 3,649
General and administrative 3,066 1,600 1,500
Provision for asset impairments 5,000 90,227 ---
-------- -------- --------
Total operating expenses 122,393 167,447 45,692
-------- -------- --------
Operating income (loss) (3,548) (78,642) 30,517
INTEREST AND OTHER
Interest income, net 6,084 4,797 2,874
Earnings (loss) of Price Club Mexico joint venture (4,988) 3,359 1,357
Minority interest 8,187 740 418
-------- -------- --------
Total interest and other 9,283 8,896 4,649
-------- -------- --------
Income (loss) before provision (benefit) for income taxes 5,735 (69,746) 35,166
Provision (benefit) for income taxes 5,189 (28,267) 14,615
-------- -------- --------
NET INCOME (LOSS) $ 546 $(41,479) $20,551
-------- -------- --------
-------- -------- --------
NET INCOME (LOSS) PER SHARE $.02 $(1.54) $.76
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE>
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Foreign Retained
Common Stock Paid-In Currency Earnings
-----------------------
Shares Amount Capital Translation (Deficit) Total
-------- -------- --------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment by PriceCostco at
August 31, 1992 27,000 $3 $429,669 --- --- $429,672
Net income --- --- 20,551 --- --- 20,551
Net investment by PriceCostco --- --- 4,134 --- --- 4,134
-------- -------- -------- -------- -------- --------
Investment by PriceCostco at
August 31, 1993 27,000 3 454,354 --- --- 454,357
Net income (loss) --- --- (41,479) --- --- (41,479)
Net investment by PriceCostco --- --- 167,593 --- --- 167,593
Foreign currency translation
adjustment --- --- --- (1,683) --- (1,683)
-------- -------- -------- -------- -------- --------
Investment by PriceCostco at
August 31, 1994 27,000 3 580,468 (1,683) --- 578,788
Net income --- --- --- --- 546 546
Adjustment to investment by
PriceCostco --- --- (1,389) --- --- (1,389)
Stock options exercised including
income tax benefits 10 --- 126 --- --- 126
Shares repurchased (3,776) (1) (45,925) --- --- (45,926)
Foreign currency translation
adjustment --- --- --- 1,683 --- 1,683
Cash dividend, $.075 per share --- --- --- --- (1,743) (1,743)
-------- -------- -------- -------- -------- --------
BALANCE AT AUGUST 31, 1995 23,234 $2 $533,280 --- $(1,197) $532,085
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
30
<PAGE>
PRICE ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 546 $ (41,479) $ 20,551
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 13,432 7,693 5,919
Loss (gain) on sale of real estate assets 1,430 (5,474) (21,540)
Provision for asset impairments 5,000 90,227 ---
Equity in losses (earnings) of joint venture 2,338 (4,188) (5,006)
Deferred income taxes (2,466) (36,459) 10
Loss on sale of Price Club Mexico joint venture 2,650 --- ---
Minority interest of PriceCostco (8,187) --- ---
Change in accounts receivable and other assets (30,086) (8,773) (9,208)
Change in accounts payable and other liabilities 23,974 10,740 9,553
Deferred rents and leasing costs (4,068) (3,738) (481)
Unearned rent and security deposits 1,176 353 (60)
Other --- 213 (958)
--------- --------- --------
Net cash flows provided by (used in) operating activities 5,739 9,115 (1,220)
INVESTING ACTIVITIES
Additions to real estate assets (24,771) (44,628) (63,054)
Proceeds from sale of real estate assets 12,836 39,878 99,311
Proceeds from real estate joint ventures --- 12,029 39,786
Proceeds from Price Club Mexico joint venture 4,000 --- ---
Investment in Price Club Mexico joint venture (3,883) (39,795) (20,291)
Additions to notes receivable (2,949) (41,000) (1,908)
Payments of notes receivable 4,947 1,902 1,725
--------- --------- --------
Net cash flows provided by (used in) investing activities (9,820) (71,614) 55,569
FINANCING ACTIVITIES
Net investment by (return to) PriceCostco --- 38,660 (66,423)
PriceCostco equity contribuions to subsidiaries 12,495 23,828 11,699
PriceCostco line of credit advances 6,439 --- ---
PriceCostco line of credit repayments (13,236) --- ---
Proceeds from exercise of stock options including tax benefit 126 --- ---
Dividends paid (1,743) --- ---
Decrease in equity resulting from cash not transferred in
spin off transaction (1,644) --- ---
--------- --------- --------
Net cash flows provided by (used in) financing activities 2,437 62,488 (54,724)
--------- --------- --------
Net decrease in cash (1,644) (11) (375)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,644 1,655 2,030
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 0 $ 1,644 $ 1,655
--------- --------- --------
--------- --------- --------
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Income taxes $8,140 $8,192 $14,605
Interest expense paid to PriceCostco 1,261 --- ---
Treasury stock acquired for note payable 45,925 --- ---
SEE ACCOMPANYING NOTES.
</TABLE>
31
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF THE COMPANY
Price Enterprises, Inc. (PEI or the Company), a Delaware corporation, was
formed in July 1994. The Company began operations effective August 29, 1994 as
a wholly owned subsidiary of Price/Costco, Inc. (PriceCostco) with specific
assets received from PriceCostco pursuant to the Amended and Restated Agreement
of Transfer and Plan of Exchange (Exchange Agreement). PriceCostco offered to
exchange 27 million shares of PEI common stock for an equal number of shares of
PriceCostco common stock from PriceCostco stockholders on a voluntary basis,
pursuant to the Offering Circular/Prospectus dated November 21, 1994, as amended
on December 7, 1994. Approximately 23.2 million shares were exchanged between
PriceCostco and certain of its stockholders, and PEI became a separate publicly-
traded company on December 21, 1994.
The following assets were transferred to PEI:
* Substantially all of the real estate assets which historically
formed the non-club real estate business segment of PriceCostco.
* Four existing Price Club warehouses which are adjacent to certain
properties included above and which have been leased back to
PriceCostco effective August 29, 1994.
* A 51% interest in Price Quest, Inc. (Price Quest) and a 51% interest
in Price Global Trading, Inc. (Price Global Trading or PGT).
PriceCostco retained the remaining 49% interest in both companies.
* Notes receivable from various municipalities and agencies (City Notes)
and a secured note receivable from a company which owns and operates a
hotel and convention center in San Diego, California (Atlas Note).
* A 51% interest in Mexico Clubs, LLC (Mexico Clubs) which prior to
April 20, 1995, held a 50% interest in Price Club de Mexico and
affiliates (Price Club Mexico), a joint venture that develops, owns
and operates Price Clubs in Mexico.
For purposes of governing certain of the ongoing relationships between PEI and
PriceCostco, the companies entered into certain Operating Agreements,
Stockholders' Agreements, and an Advance Agreement. PEI and PriceCostco are
parties to Stockholders' Agreements which set forth certain rights and
obligations with respect to their investments in Price Quest and PGT. Each
Stockholders' Agreement provides for an adjustment to the parties' respective
percentage ownership interests in the event that a party fails to fund a PRO
RATA capital call by the
32
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FORMATION OF THE COMPANY (CONTINUED)
relevant subsidiary's Board of Directors. Each Stockholders' Agreement sets
forth, among other things: (i) transfer restrictions if either PEI or
PriceCostco offers to transfer, sell, assign or otherwise dispose of its
interest in the corporation; (ii) certain preemptive rights; and (iii) certain
registration rights for PriceCostco. PriceCostco is entitled to appoint one
director to the Board of Directors of Price Quest or PGT, as the case may be, so
long as it owns at least 20% of the outstanding stock of such corporation.
PriceCostco and Price Quest are parties to an Operating Agreement pursuant to
which PriceCostco provides for a five-year period, among other things, space in
certain PriceCostco warehouse clubs to Price Quest for its electronic shopping
kiosks and travel and automobile advertising/referral programs, as well as
staffing, cashiering, buying support and other information to Price Quest, in
exchange for a fee based on sales. Warehouse rent for the PriceCostco kiosk
program is subject to a minimum annual rent requirement of $1.5 million for each
of fiscal 1995 and 1996. Price Quest also is obligated to make annual purchases
of at least $3 million in each of fiscal 1995 and 1996 of advertisements in
PriceCostco's membership publications. The Operating Agreement also contains
certain confidentiality and competitive restrictions between the parties.
PriceCostco and PGT are parties to an Operating Agreement pursuant to which
PriceCostco is obligated to provide certain buying support, merchandising
services, training and other information to PGT for a period of five years for
PGT's use in certain specified geographical areas, including Central America,
Australia, New Zealand, Guam, Saipan and certain Caribbean islands. The
Operating Agreement also contains certain confidentiality and competitive
restrictions between the parties.
In accordance with terms of the Exchange Agreement, on February 6, 1995, PEI
purchased from PriceCostco approximately 3.8 million shares of its common stock
which had not previously been exchanged for $45.9 million ($12.16 per share) in
return for a promissory note due December 1996, which was collateralized by the
related shares of PEI common stock.
On April 20, 1995, PEI sold its interest in Mexico Clubs, LLC ("Mexico Clubs")
to PriceCostco. PriceCostco purchased PEI's interest in Mexico Clubs by making
a $30.5 million reduction to the outstanding balance of the promissory note. In
addition, Price Club Mexico paid PEI $4.0 million concurrent with the closing of
the transaction with PriceCostco. As a result of the partial debt repayment,
approximately 2.5 million shares of common stock were released from the
collateral arrangement and were retired. Approximately 1.3 million shares will
continue to be classified as treasury stock until the associated debt is repaid
and the underlying shares have been retired.
33
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all majority owned subsidiaries; whereas, the Company's investment in less than
majority owned businesses are accounted for on the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
<TABLE>
<CAPTION>
Ownership Basis of Presentation
--------- ---------------------
<S> <C> <C>
Price Real Estate, Inc. 100% Consolidated
Price Ventures, Inc. 100% Consolidated
Ventures Services, Inc. 100% Consolidated
Old MC, Inc. 100% Consolidated
Price Quest, Inc. 51% Consolidated
Price Global Trading, Inc. 51% Consolidated
Mexico Clubs, LLC 51% Consolidated (Sold in fiscal 1995)
Price Club Mexico 50% Equity Method (Sold in fiscal 1995)
Price Plazas 49.6% Equity Method (Sold in fiscal 1993)
</TABLE>
BUSINESS SEGMENTS AND FISCAL YEAR
The Company has investments in two business segments: (1) real estate
operations, and (2) certain merchandising businesses. The Company's real estate
business reports on a fiscal year which ends on August 31; whereas, the
merchandising businesses report on a 52/53 week fiscal year which ends on the
Sunday nearest August 31. For ease of presentation, all fiscal years in this
report are referred to as having ended on August 31.
With respect to the real estate segment, each fiscal quarter includes three
calendar months of operating results; however, the merchandising segment's
fiscal quarters are as follows: first quarter -- 16 weeks, second quarter -- 12
weeks, third quarter -- 12 weeks, fourth quarter -- 12 or 13 weeks, depending
upon whether the fiscal year has 52 or 53 weeks. Fiscal 1995 included 53 weeks
while all other years presented in the financial statements reflect only 52
weeks.
34
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are recorded at PriceCostco's and PEI's historical costs as
adjusted for recognition of impairment losses. As more fully explained in "Note
2 -- Provision for Asset Impairments," historical costs for real estate and
related assets were reduced by $90.2 million in fiscal 1994 and $5 million in
fiscal 1995. Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments are capitalized and depreciated over their
estimated useful lives. Property held for sale is stated net of accumulated
depreciation of $14.2 million at August 31, 1995. Depreciation of real estate
assets is computed on a straight-line basis over their estimated useful lives,
as follows:
Land improvements 15-25 years
Building and improvements 10-25 years
Tenant improvements Term of lease
Fixtures and equipment 5 years
Certain Price Quest MIS assets 3 years
REAL ESTATE RENTAL REVENUE RECOGNITION
Rental revenues include: (1) minimum annual rentals, adjusted for the straight-
line method for recognition of fixed future increases; (2) additional rentals,
based on common area maintenance expenses and certain other expenses, which are
accrued in the period in which the related expense is incurred; and (3)
percentage rents which are accrued on the basis of reported tenant sales.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash and cash equivalents.
MERCHANDISE INVENTORIES
Merchandise inventories, which include merchandise for resale and Price Quest
display samples, are valued at the lower of cost (first-in, first-out) or
market.
DEFERRED LEASING COSTS AND CAPITALIZED INTEREST
Costs incurred in connection with leasing space to tenants are deferred and
amortized on the straight-line method over the lives of the related leases.
Interest incurred directly by PEI, or indirectly by PriceCostco, during the
construction period is capitalized and depreciated over the lives of the
constructed assets. Total interest incurred was $1,261,000, $1,486,000 and
$4,060,000 for 1995, 1994, and 1993, respectively; and $556,000, $1,486,000 and
$4,060,000 of such interest, respectively, was capitalized and is included in
the property accounts.
35
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ASSET IMPAIRMENTS
The Company regularly evaluates the estimated fair value of its assets and
records appropriate provisions for asset impairments. In fiscal 1994, the
Company changed its accounting estimates for impairment losses to adopt a risk-
adjusted discounted cashflow approach to estimating asset fair values. The
various notes receivable are evaluated in accordance with Statement of financial
Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of
a Loan." Beginning with fiscal 1996, SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
will be adopted and applied to real estate assets. Adoption of this new
standard is not expected to result in any significant impact on fiscal 1996
opening balances.
FOREIGN CURRENCY TRANSLATION
The accumulated foreign currency translation related to the Company's investment
in Price Club Mexico and was determined by application of the current rate
method. Resulting translation adjustments were made directly to a separate
component of stockholders' equity.
AUTHORIZED STOCK
The Company's authorized stock consists of 60 million shares of $0.0001 par
value common stock and 10 million shares of $0.0001 par value preferred stock.
No preferred stock has been issued. At August 31, 1995, 1,268,264 shares of
common stock were issued and held as treasury stock.
INCOME TAXES
Income taxes have been provided for in accordance with SFAS No. 109, "Accounting
for Income Taxes." That standard requires companies to account for deferred
taxes using the asset and liability method. Accordingly, deferred income taxes
are provided to reflect temporary differences between financial and tax
reporting, including: asset write-downs of real estate and related assets,
deferred gains on sales of real estate, accelerated tax depreciation methods,
and accruals for straight-line rents.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of shares
outstanding of 24,864,000 in fiscal 1995. For fiscal 1994 and 1993, the Company
has assumed that 27 million shares were outstanding for each year.
36
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been reflected in the financial statements in
order to conform with the fiscal 1995 presentation. Stockholders' equity has
been restated to reflect common stock at par value and the remaining equity as
additional paid-in capital, effective at the beginning of fiscal 1994. In
addition, in accordance with the Exchange Agreement, PriceCostco retained net
current assets of PEI and its subsidiaries as of the beginning of fiscal 1995.
The value of these retained assets, net of an adjustment to the carryover
deferred income tax amount, is reflected as an adjustment of $1.4 million to
additional paid-in capital as of the beginning of fiscal 1995.
NOTE 2 -- PROVISIONS FOR ASSET IMPAIRMENTS
In fiscal 1994, the provision for asset impairments of $90.2 million pre-tax was
generally related to a change in calculating estimated losses for assets which
were considered to be economically impaired. These non-cash write-downs were
taken based on the estimated fair value of assets received from PriceCostco as
determined by appraisals and/or a risk-adjusted discounted cash flow approach.
The fair value of the City Notes was determined using a discounted cash flow
approach based on each note's stated interest rate. For each asset, a write-
down was taken to reduce the asset's carrying value if its estimated fair value
was lower than its book value. Approximately $74.7 million of the write-downs
related to real property assets and approximately $15.5 million related to the
City Notes.
In fiscal 1995, a non-cash provision of $5 million was taken to write-down the
carrying value of real estate properties which are being held for sale and which
are expected to generate net sales proceeds below their current book values.
NOTE 3 -- REAL ESTATE PROPERTIES AND PROPERTY SALES
The Company's real estate properties are generally leased under noncancelable
leases with remaining terms ranging from one to 24 years. Real estate revenues
include the following rental income (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rent $39,987 $23,305 $17,943
Straight-line accrual of future rent 3,332 872 1,089
Additional rent -- CAM and taxes 8,499 5,063 3,092
Percentage rent 79 25 20
---------- ---------- ----------
Real estate rental revenues............. $51,897 $29,265 $22,144
---------- ---------- ----------
</TABLE>
Real estate revenues also include earnings from real estate joint ventures of
$0.8 million in fiscal 1994 and $3.6 million in fiscal 1993.
37
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- REAL ESTATE PROPERTIES AND PROPERTY SALES (CONTINUED)
As of August 31, 1995, future minimum rental income due under the terms of
noncancelable operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
<C> <C>
1996 $ 39,910
1997 39,209
1998 38,907
1999 39,039
2000 38,853
Thereafter 409,532
</TABLE>
During each of the last three years, the Company sold the following significant
real estate properties and recognized related gains or losses on dispositions,
as follows (in thousands):
<TABLE>
<CAPTION>
Buyer of Sales Pre-tax
Date Property Price Gain (Loss)
---------- --------------- --------- --------------
<S> <C> <C> <C> <C>
FISCAL 1995
Fry's Distribution Center 3/8/95 Unrelated Party $9,598 ($181)
PHOENIX, ARIZONA
Undeveloped Land 3/27/95 Unrelated Party 4,440 (6)
FAIRFAX, VIRGINIA
FISCAL 1994
Shopping Center 10/1/93 The Price REIT 21,700 4,211
GLENDALE, ARIZONA
50% of Shopping Center 4/15/94 The Price REIT 11,400 935
TEMPE, ARIZONA
Undeveloped Land 4/29/94 Unrelated Party 5,600 (879)
AUSTIN, TEXAS
Undeveloped Land 6/16/94 Unrelated Party 10,200 1,358
SAN ANTONIO, TEXAS
FISCAL 1993
Former Price Club site 12/18/92 The Price REIT 14,350 6,710
SANTA ANA, CALIFORNIA
3 Centers & J.V. Interest 8/12/93 The Price REIT 89,825 14,830
WHITE MARSH, MARYLAND
COPAIGUE, NEW YORK
FAIRFAX, VIRGINIA
49.6% INTEREST IN PRICE PLAZAS:
- CHULA VISTA, CA
- PHOENIX, AZ
- ALHAMBRA, CA
- NORTH HAVEN, CT
- CARMICHAEL, CA
</TABLE>
38
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- NOTES RECEIVABLE
The City Notes include amounts loaned to municipalities and agencies to
facilitate real property acquisition and improvements and carry interest rates
which range from 7% to 10%. Repayment of the majority of these notes is
generally based on that municipality's allocation of sales tax revenues
generated by retail businesses located on a particular property associated with
such City Note. City Note repayments are calculated in accordance with specific
revenue sharing agreements; and, under the terms of most City Notes, the unpaid
balance of the note is forgiven at its maturity date.
The City Notes are recorded at PriceCostco's and PEI's historical cost as
adjusted for recognition of impairment losses. As more fully explained in "Note
2 -- Provision for Asset Impairments," historical costs for the City Notes were
reduced by $15.5 million in fiscal 1994 after taking into account a discounted
cash flow approach to their valuation.
The Company holds the Atlas Note, which is collateralized by a hotel and
convention center located in San Diego, California. On April 3, 1995, the debt
obligation was restructured and key provisions included: required repayment of
all outstanding indebtedness within five years, accrual of interest at 10% per
annum, payment of interest at LIBOR plus 2.5% per annum (not to exceed 8.0%
through December 1, 1996), payment of certain minimum annual amounts, and
payment to PEI of any cash balances in excess of $1.0 million at the end of each
fiscal year.
As part of the restructuring, PEI agreed to fund up to $4.1 million to Atlas to
retire an existing mortgage held by a lender with a first priority security
interest in the hotel and convention center and to fund certain capital
expenditures. As of August 31, 1995, approximately $2.9 million of such amounts
had been advanced and $1.2 million was expected to be required in the future. As
a result of certain provisions of the restructuring, PEI received approximately
a $2.1 million principal payment prior to the April 3, 1995 restructuring date.
NOTE 5 -- UNSECURED LINES OF CREDIT
The Company has a revolving credit facility with a commercial bank for up to $25
million in unsecured advances through June 29, 1997. Advances bear interest, at
the Company's option, at either LIBOR plus 0.40%, or the bank's Base Rate, as
defined. The agreement requires that the Company not sell or pledge certain
property with a net book value of $180 million as of August 31, 1995, that the
Company maintain certain net worth and debt-to-equity ratios, and that a
facility fee of 0.15% of the commitment amount be paid annually. As of August
31, 1995, the outstanding balance on the credit facility was $1.0 million, and
was included in other current liabilities. The weighted average interest rate
charged during fiscal 1995 was 6.34% on such borrowings.
39
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- UNSECURED LINES OF CREDIT (CONTINUED)
Pursuant to the terms of the Exchange Agreement, PriceCostco agreed to provide
an unsecured revolving credit facility for up to a maximum principal amount of
$85 million (subject to reduction for proceeds of certain real property sales)
as interim financing to satisfy any cash requirements through June 21, 1995. As
of August 31, 1995, this facility had expired and all borrowings and related
interest had been fully repaid. During fiscal 1995, the weighted average
interest rate was 6.30% on such borrowings.
NOTE 6 -- RELATED PARTY TRANSACTIONS
Prior to fiscal 1995, PriceCostco historically provided general and
administrative services to PEI. Amounts allocated to PEI for fiscal 1993 and
1994 were $1.5 million and $1.6 million, respectively, and these amounts have
been included as general and administrative expenses in the accompanying
financial statements. The costs incurred by PriceCostco during fiscal 1993 and
1994 were charged to PEI by specific identification or allocated based on total
assets or sales revenues. These cost allocations fairly represented, in
management's opinion, PEI's general and administrative expenses during these
prior fiscal years.
In 1995, PEI incurred $4.5 million of operating expenses for marketing and
warehouse rent to PriceCostco. Included in real estate revenues in fiscal 1995
is $8.0 million of rental income from PriceCostco.
Joseph Kornwasser, a former director of PriceCostco until July 28, 1994 and an
officer and Director of The Price REIT (See Note 3), is a general partner and
has a two-thirds ownership interest in Kornwasser and Friedman Shopping Center
Properties (K&F). As of August 28, 1994, K&F was a partner with PriceCostco in
two partnerships. The assets, liabilities, equity and results of operations of
these partnerships have been included in these financial statements through
fiscal 1994. As of August 28, 1994, PriceCostco had also entered into a
Development Agreement with K&F for the development of four additional
properties. Both partnership agreements and the Development Agreement provided
for a preferred return to PriceCostco on a varying scale from 9% to 10% on its
invested capital. After the preferred returns, plus PriceCostco's invested
capital, are distributed to PriceCostco, operating cash flows are distributed
75% to PriceCostco and 25% to K&F. Effective August 28, 1994, Price Enterprises
purchased the K&F partnership interests and terminated the Development Agreement
for $2.5 million.
NOTE 7 -- SALE OF INTEREST IN MEXICO CLUBS
On April 20, 1995, the Company completed the sale of its interest in Mexico
Clubs in return for combined proceeds of $34.5 million. PriceCostco purchased
PEI's interest in Mexico Clubs by making a $30.5 million reduction to the
outstanding balance of the $45.9 million note receivable from PEI. The note
related to the 3.8 million common stock share repurchase on February 6, 1995.
In addition, Price Club Mexico paid $4.0 million concurrent with the closing of
the transaction with PriceCostco. The sale of the interest in Price Club Mexico
resulted in a 2.6 million loss ($2.1 million after-tax) which is included in
earnings (loss) of Price Club Mexico joint venture.
40
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- PROFIT SHARING AND 401(K) PLAN
Substantially all of the employees of the Company are participants in a defined
contribution profit sharing and 401(k) plan. Profit sharing contributions, if
any, are based on a discretionary amount determined by the Board of Directors
and are allocated to each participant based on the relative compensation of the
participant, subject to certain limitations, to the compensation of all
participants. The 401(k) contributions are limited to a 50% match of each
participant's contributions up to $500 for each calendar year. In fiscal 1995,
contributions to the plan were $616,000.
NOTE 9 -- STOCK OPTION PLANS
In 1995 the Company established an Employee Stock Option and Stock Grant Plan
and a Director Stock Option Plan under which 1,500,000 shares and 150,000
shares, respectively, have been reserved for issuance. Options have been
granted to certain employees and directors at prices equal to the market price
on the date of grant. Options generally vest over a five year period and expire
after six years. The following table summarizes the stock option transactions
for fiscal 1995 for the employee plan:
<TABLE>
<CAPTION>
Stock Range of Exercise
Options Price Per Share
--------- ------------------
<S> <C> <C>
Outstanding at August 31, 1994 0 --- ---
Granted 1,088,900 $11.25 - $12.44
Exercised (10,047) $11.25 - $11.25
Cancelled (116,745) $11.25 - $12.44
---------
Outstanding at August 31, 1995 962,108 $11.25 - $12.44
---------
---------
</TABLE>
As of August 31, 1995, options to purchase 608 shares were exercisable under the
employee plan, and 1,489,953 shares of common stock were reserved for future
issuance in connection with this plan. Options for 90,000 shares of PEI common
stock were issued to certain non-employee directors of the Company during fiscal
1995 at prices ranging from $12.00 to $14.00 per share that were equal to the
market price on the date of grant. As of August 31, 1995, no options were
exercisable under the director plan, and there were 150,000 shares of common
stock reserved for future issuance in connection with this plan.
Certain employees of PEI continue to participate in various PriceCostco stock
option plans. Pursuant to terms of the Exchange Agreement, these employees will
generally be allowed to continue to hold those vested, but unexercised,
PriceCostco stock options as of January 1, 1995, under terms and conditions set
forth in the related PriceCostco stock option agreements. As of August 31,
1995, stock options for 564,227 shares of PriceCostco common stock were
exercisable by PEI employees at prices ranging from $13.15 to $27.23.
41
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- BUSINESS SEGMENTS
The Company has investments in two business segments: (1) real estate
operations, and (2) certain merchandising businesses. The real estate segment
consists primarily of investment properties, properties held for sale, the Atlas
Note and the City Notes. Merchandising activities include Price Quest, Price
Global Trading and Price Ventures, and Mexico Clubs through the date that PEI
sold its interest to PriceCostco.
Many of the real estate properties are being held for sale and produce little,
if any, return on investment. With respect to the merchandising segment,
elimination of the Price Club Mexico activities by PEI was significant in that
the Company had historically recovered from Price Club Mexico all of its U.S.-
based overhead expenses while also recognizing its share of the joint venture's
operating profits. In fiscal 1995, however, the Company recorded losses from
the Mexico operations through March 1995, a loss was recognized when its
interest was sold to PriceCostco, and the Company was not able to fully recover
its overhead costs thereafter. The Company's segment information is as follows
for the years ended August 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Real estate $ 51,716 $35,790 $47,538
Merchandising 67,129 53,015 28,671
---------- ---------- ----------
Total revenues $118,845 $88,805 $76,209
---------- ---------- ----------
---------- ---------- ----------
Income (loss) before income taxes:
Real estate $24,701 ($67,263) $37,102
Merchandising, net of minority interest (15,481) (883) (436)
General and administrative, interest and other expenses (3,485) (1,600) (1,500)
---------- ---------- ----------
Total income (loss) before income taxes $ 5,735 ($69,746) $35,166
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Real estate $551,838 $550,086 $454,261
Merchandising 15,483 100,467 45,606
---------- ---------- ----------
Total identifiable assets $567,321 $650,553 $499,867
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
Real estate $ 10,245 $ 7,102 $ 5,662
Merchandising 3,187 591 257
---------- ---------- ----------
Total depreciation and amortization $ 13,432 $ 7,693 $ 5,919
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Real estate $ 18,529 $ 41,717 $ 61,539
Merchandising 6,242 2,911 1,515
---------- ---------- ----------
Total capital expenditures $ 24,771 $ 44,628 $ 63,054
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
42
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Current:
Federal $ 7,236 $ 7,066 $11,274
State 1,418 1,126 3,331
----------- ----------- ------------
8,654 8,192 14,605
Deferred:
Federal (3,513) (31,168) 70
State 48 (5,291) (60)
----------- ----------- ------------
(3,465) (36,459) 10
----------- ----------- ------------
Total provision (benefit) $5,189 $(28,267) $14,615
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
A reconciliation between the federal statutory rate and the effective tax rate
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- ------------ -----------
<S> <C> <C> <C>
Federal taxes (benefit) at the statutory rate $ 2,007 $(24,411) $12,203
State taxes, net of federal benefit 690 (4,220) 2,145
Tax losses of 51%-owned subsidiaries 1,538 --- ---
Price Club Mexico operations 893 --- ---
All other, net 61 364 267
--------- ------------ -----------
Total provision (benefit) $5,189 $(28,267) $14,615
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
The significant components of deferred income taxes are attributable to the
following temporary differences (in thousands):
<TABLE>
<CAPTION>
August 31, August 31,
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Real estate properties 21,178 14,957
City notes receivable 11,546 11,398
Net operating losses 4,654 ---
International revenues and expenses 836 ---
Inventory and equipment reserves 715 ---
All other, net 849 346
----------- -----------
39,778 26,701
Deferred tax liabilities:
Deferred rental income ($2,977) ($1,722)
Deferred state income tax (1,824) (1,697)
All other, net (8) 0
----------- -----------
(4,809) (3,419)
Valuation allowance (4,654) ---
----------- -----------
Net deferred tax assets $30,315 $23,282
----------- -----------
----------- -----------
</TABLE>
43
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INCOME TAXES (CONTINUED)
A short-term deferred tax asset of $1.0 million in 1995 is included in current
assets. At August 31, 1995 Price Global Trading and Price Quest had combined
net operating loss (NOL) carryforwards of approximately $9.8 million for federal
income tax purposes which may be applied against future taxable income. A
valuation allowance was established for the potential tax benefit of these NOL
carryforwards as the certainty of their ultimate utilization is not sufficient
to allow for deferred tax assets to be recorded. These NOL carryforwards will
expire in 2009 unless previously utilized.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Price Enterprises has four leases on former warehouse club properties with
remaining terms ranging from one to 24 years. Aggregate rental expense for
fiscal 1995 and 1994 was $2.4 million and $0.3 million, respectively. Future
minimum payments during the next five fiscal years and thereafter under these
noncancelable leases at August 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 2,436
1997 1,858
1998 1,663
1999 1,552
2000 1,219
Thereafter 14,045
-----------
Total minimum payments $22,773
-----------
-----------
</TABLE>
Included in other current liabilities are amounts which represent future minimum
lease payments in excess of expected future sublease receipts of $2.6 million
and $4.0 million for fiscal 1995 and 1994, respectively. As of August 31, 1995,
total future sublease revenues are $30.8 million, and such amounts are included
in the future minimum rental income amounts in Note 3 of these financial
statements.
A Complaint was filed against several defendants including the Company and
certain of its directors. The Complaint alleges violation of certain laws and
asserts certain related claims, arising from the exchange offer transaction.
The Company believes that the suit is without merit and will vigorously defend
against the suit. The Company does not believe that the ultimate outcome of
such litigation will have a material adverse effect on the Company's financial
position or results of operations.
44
<PAGE>
PRICE ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------- ---------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Fiscal 1994
Revenues $27,606 $21,454 $17,669 $22,076
Operating expenses 21,952 20,129 16,493 108,873
Operating Income (loss) 5,654 1,325 1,176 (86,797)
Net income (loss) 4,535 2,432 1,603 (50,049)
Net income (loss) per share .17 .09 .06 (1.85)
Fiscal 1995
Revenues $42,085 $27,300 $24,803 $24,657
Operating expenses 40,659 26,108 23,876 31,750
Operating Income (loss) 1,426 1,192 927 (7,093)
Net income (loss) 2,676 (376) 622 (2,376)
Net income (loss) per share .10 (.01) .03 (.10)
</TABLE>
45
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Price Enterprises, Inc.
We have audited the accompanying consolidated balance sheet of Price
Enterprises, Inc. as of August 31, 1995 and the related consolidated statements
of income, stockholders' equity and cash flows for the fiscal years ended August
31, 1995 and August 31, 1993. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Price
Enterprises, Inc. as of August 31, 1995 and the consolidated results of its
operations and its cash flows for the fiscal years ended August 31, 1995 and
August 31, 1993 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Diego, California
October 10, 1995
46
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To Price Enterprises, Inc.:
We have audited the accompanying balance sheet of Price Enterprises, Inc.
as of August 31, 1994, and the related statements of income, stockholders'
equity and cash flows for the year ended August 31, 1994. These financial
statements are the responsibility of Price Enterprises, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Price Enterprises, Inc. as
of August 31, 1994, and the results of its operations and its cash flows for the
year ended August 31, 1994 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
November 14, 1994
47
<PAGE>
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
48
<PAGE>
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the Registrant, see
Item 4A -- "Executive Officers of the Registrant" at the end of Part I of this
report. The information required by this Item concerning the Directors and
nominees for Director of the Company is incorporated herein by reference to
Price Enterprises' Proxy Statement for its Annual Meeting of Stockholders, to be
held on January 16, 1996, to be filed with the Commission pursuant to Regulation
14A.
ITEM 11 -- EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to Price
Enterprises' Proxy Statement for its Annual Meeting of Stockholders, to be held
on January 16, 1996, to be filed with the Commission pursuant to Regulation 14A.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to Price
Enterprises' Proxy Statement for its Annual Meeting of Stockholders, to be held
on January 16, 1996, to be filed with the Commission pursuant to Regulation 14A.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to Price
Enterprises' Proxy Statement for its Annual Meeting of Stockholders, to be held
on January 16, 1996, to be filed with the Commission pursuant to Regulation 14A.
49
<PAGE>
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
PAGE
(1) (A) Report of Independent Auditors 46
Report of Independent Public Accountants 47
(B) Financial Statements
(i) Consolidated Balance Sheets as of
August 31, 1995 and 1994 28
(ii) Consolidated Statements of Income for the
years ended August 31, 1995, 1994 and 1993 29
(iii) Consolidated Statements of Stockholders'
Equity for the years ended August 31, 1995,
1994 and 1993 30
(iv) Consolidated Statements of Cash Flows for
the years ended August 31, 1995, 1994 and 1993 31
(v) Notes to Consolidated Financial Statements 32
(2) Financial Statement Schedules: PAGE
Schedule III - Real Estate and Accumulated Depreciation 51
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule or because the information required is included in the
consolidated financial statements and notes hereto.
(3) For a list of Exhibits filed with this annual report, refer to the
Exhibit index on page 55.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this annual report.
(c) Exhibits: For a list of Exhibits filed with this annual report, refer to
the Exhibit index on page 55.
50
<PAGE>
PRICE ENTERPRISES, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
August 31, 1995
(amounts in thousands)
<TABLE>
<CAPTION>
Initial Costs Costs
----------------------------- Capitalized
Land and Building and Subsequent
Location Description Improvements Improvements to Acquisition
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Westbury, NY Shopping Center $ 41,784 $ 0 $ 28,321
Pentagon City, VA Shopping Center 24,742 14,473 24,061
Wayne, NJ Shopping Center 19,760 6,912 12,075
Morena/San Diego, CA Warehouse/Office Bldg. 5,244 7,990 10,325
Bensalem, PA Shopping Center 8,649 4,382 8,438
Seekonk, MA Shopping Center 7,636 0 12,495
Dallas, TX Retail Building 10,662 0 6,055
Signal Hill, CA Shopping Center 5,872 0 10,176
Fountain Valley, CA Shopping Center 4,551 0 10,330
Glen Burnie, MD Shopping Center 1,795 0 8,920
Northridge, CA Shopping Center 4,029 0 3,556
Azusa, CA Warehouse/Rest. Pads 4,248 896 2,080
Bakersfield, CA Shopping Center 1,957 2,484 2,738
Carmel Mtn. Ranch, CA Shopping Center 3,464 0 3,430
Inglewood, CA Warehouse Building 1,438 0 3,697
San Juan Capistrano, CA Shopping Center 3,150 0 1,933
S. Sacramento, CA Shopping Center 1,437 0 2,801
N.W. Tucson, AZ Shopping Center 1,073 0 2,482
Hampton, VA Shopping Center 1,132 0 1,826
Smithtown, NY Retail Building 721 0 2,022
Redwood City, CA Retail Building 1,860 0 235
S. W. Denver, CO Retail Building 607 847 10
S.E. San Diego, CA Restaurant/Bank 217 0 788
Carlsbad, CA Land 1,096 0 (96)
Aurora, CO Restaurant 105 0 648
Rancho del Rey, CA Land 915 0 (415)
- -------------------------------------------------------------------------------------------------------
Total Investment Properties 158,144 37,984 158,931
- -------------------------------------------------------------------------------------------------------
Richmond, CA Warehouse Building 5,540 5,600 1,541
Houston, TX Retail Building 10,089 0 129
Maple Shade, NJ Shopping Center Leased 0 7,912
Sacramento, CA Shopping Center 1,719 5,636 259
Cheektowaga, NY Retail Building 2,503 0 4,132
Worcester, MA Retail Building 5,154 0 1,223
Schaumburg, IL Land 6,221 0 (471)
Riverside, CA Warehouse Building 3,301 0 648
Gross amount at which carried
at close of period
---------------------------------------
Land and Building and Accumulated
Location Improvements Improvements Total (1) Depreciation
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Westbury, NY $ 46,587 $ 23,518 $ 70,105 $ (2,353)
Pentagon City, VA 25,751 37,525 63,276 (1,679)
Wayne, NJ 22,200 16,547 38,747 (2,413)
Morena/San Diego, CA 5,709 17,850 23,559 (8,215)
Bensalem, PA 8,521 12,948 21,469 (1,116)
Seekonk, MA 10,088 10,043 20,131 (1,214)
Dallas, TX 11,957 4,760 16,717 (992)
Signal Hill, CA 8,285 7,763 16,048 (640)
Fountain Valley, CA 6,569 8,312 14,881 (980)
Glen Burnie, MD 3,812 6,903 10,715 (848)
Northridge, CA 5,075 2,510 7,585 (156)
Azusa, CA 4,191 3,033 7,224 (332)
Bakersfield, CA 2,648 4,531 7,179 (950)
Carmel Mtn. Ranch, CA 3,742 3,152 6,894 (242)
Inglewood, CA 1,653 3,482 5,135 (829)
San Juan Capistrano, CA 2,506 2,577 5,083 (460)
S. Sacramento, CA 1,437 2,801 4,238 0
N.W. Tucson, AZ 1,788 1,767 3,555 (338)
Hampton, VA 1,436 1,522 2,958 (210)
Smithtown, NY 1,231 1,512 2,743 (615)
Redwood City, CA 2,095 0 2,095 0
S. W. Denver, CO 617 847 1,464 (159)
S.E. San Diego, CA 283 722 1,005 (219)
Carlsbad, CA 1,000 0 1,000 (33)
Aurora, CO 112 641 753 (46)
Rancho del Rey, CA 500 0 500 0
- -------------------------------------------------------------------------------------------
Total Investment Properties 179,793 175,266 355,059 (25,039)
- -------------------------------------------------------------------------------------------
Richmond, CA 4,830 7,851 12,681 (1,928)
Houston, TX 6,979 3,239 10,218 (552)
Maple Shade, NJ 0 7,912 7,912 (1,249)
Sacramento, CA 1,382 6,232 7,614 (2,249)
Cheektowaga, NY 3,656 2,979 6,635 (2) (958)
Worcester, MA 2,835 3,542 6,377 (322)
Schaumburg, IL 5,750 0 5,750 0
Riverside, CA 1,874 2,075 3,949 (535)
Depreciable Life
-------------------------------
Date of Date of Land Building
Location Construction Acquisition Improvements Building Improvements
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Westbury, NY 1992-93 1992 25 25 10
Pentagon City, VA 1993-94 1993 25 25 10
Wayne, NJ 1991-93 1991 25 25 10
Morena/San Diego, CA - 1981 25 25 10
Bensalem, PA 1992,1994-95 1991 25 25 10
Seekonk, MA 1991-94 1991 25 25 10
Dallas, TX 1991-92 1991 25 25 10
Signal Hill, CA 1992-93 1991 25 25 10
Fountain Valley, CA 1990-93 1989 25 25 10
Glen Burnie, MD 1990-92 1985 25 25 10
Northridge, CA 1993-94 1988 25 25 10
Azusa, CA 1983 1983 25 25 10
Bakersfield, CA - 1990 25 25 10
Carmel Mtn. Ranch, CA 1992-93 1991 25 25 10
Inglewood, CA 1989 1984 25 25 10
San Juan Capistrano, CA 1988-89,94-95 1987 25 25 10
S. Sacramento, CA 1994-95 1993 25 25 10
N.W. Tucson, AZ 1989-91 1988 25 25 10
Hampton, VA 1992 1987 25 25 10
Smithtown, NY 1988-89 1985 25 25 10
Redwood City, CA - 1982 - - -
S. W. Denver, CO - 1990 25 25 10
S.E. San Diego, CA 1989-90 1989 25 25 10
Carlsbad, CA - 1989 - - -
Aurora, CO 1993 1990 25 25 10
Rancho del Rey, CA - 1993 - - -
- ----------------------------------------------------------------------------------------
Total Investment Properties
- ----------------------------------------------------------------------------------------
Richmond, CA - 1986 25 25 10
Houston, TX 1991 1991 25 25 10
Maple Shade, NJ 1989-91 1989 25 25 10
Sacramento, CA - 1987 25 25 10
Cheektowaga, NY 1989-90 1989 25 25 10
Worcester, MA 1992 1992 35 35 10
Schaumburg, IL - 1992 - - -
Riverside, CA 1986 1986 35 35 10
51
<PAGE>
Costs
Initial Costs Capitalized
-----------------------------
Land and Building and Subsequent
Location Description Improvements Improvements to Acquisition
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colton/Rialto, CA Retail Building 2,002 926 843
New Britain, CT Warehouse Building 3,640 0 100
Palm Harbor, FL Warehouse Building 3,503 0 207
Marlow Heights, MD Warehouse Building 3,192 0 509
Fresno, CA Land 3,866 0 (186)
San Diego, CA (Convoy Ct.) Office 1,107 2,071 0
Hayward, CA Warehouse Building 989 2,783 (692)
Santee, CA Warehouse Building 643 2,249 (292)
Chesterfield, VA Land 2,751 0 (699)
Rancho Cordova, CA Land 2,382 0 (482)
Sunnyvale, CA Restaurant 1,005 0 751
Fremont, CA Land 4,133 0 (2,463)
San Jose, CA Land 1,950 0 (350)
W. Palm Beach, FL Warehouse Building 925 1,175 (550)
Gaithersburg, MD Land 3,000 0 (1,497)
Sterling, VA Land 2,021 0 (593)
Mesa, AZ Retail Building 175 0 1,213
Chula Vista, CA Land 3,104 0 (1,765)
East Mesa, AZ Land 2,086 0 (1,105)
San Jose, CA Warehouse Building Leased 0 942
Concord, CA Land 1,735 0 (810)
North Highlands, CA Restaurant 374 0 546
Santa Clarita, CA Land 1,115 0 (215)
Riverside, CA (Franklin St.) Warehouse Building 78 493 28
Coachella Valley, CA Land 500 0 0
North Highlands, CA (pad) Land 500 0 0
Fountain Valley, CA Land 475 0 0
Rancho Cucamonga, CA Land 805 0 (400)
N.W. Tucson, AZ (pad) Land 400 0 0
Westminster, CO Land 305 0 0
Carlsbad, CA (pad) Land 300 0 0
Rohnert Park, CA Land 300 0 0
White Marsh, MD Land 585 115 (498)
S. W. Denver, CO (pad) Land 200 0 0
Norfolk, VA Land 494 0 (294)
Mesa, AZ (pad) Land 150 0 0
Tacoma, WA Warehouse Building Leased 0 139
Aurora, CO (pad) Land 90 0 22
Milwaukee, WI Retail Building Leased 0 41
Silver City, MN Warehouse Building 33 114 (147)
- -------------------------------------------------------------------------------------------------------
Total Properties Held for Sale 85,440 21,162 7,676
--------------------------------------------------
Total Properties $243,584 $59,146 $166,607
--------------------------------------------------
--------------------------------------------------
Gross amount at which carried
at close of period
---------------------------------------
Land and Building and Accumulated
Location Improvements Improvements Total (1) Depreciation
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Colton/Rialto, CA 1,978 1,793 3,771 (2) (1,224)
New Britain, CT 2,522 1,218 3,740 (300)
Palm Harbor, FL 1,892 1,818 3,710 (2) (500)
Marlow Heights, MD 1,395 2,306 3,701 (793)
Fresno, CA 3,680 0 3,680 0
San Diego, CA (Convoy Ct.) 1,107 2,071 3,178 0
Hayward, CA 533 2,547 3,080 (2) (1,353)
Santee, CA 527 2,073 2,600 (446)
Chesterfield, VA 2,068 (16) 2,052 (15)
Rancho Cordova, CA 1,900 0 1,900 0
Sunnyvale, CA 1,315 441 1,756 (205)
Fremont, CA 1,670 0 1,670 (2) 0
San Jose, CA 1,600 0 1,600 (2) 0
W. Palm Beach, FL 683 867 1,550 (2) (35)
Gaithersburg, MD 1,500 3 1,503 (2) 0
Sterling, VA 1,400 28 1,428 (2) 0
Mesa, AZ 175 1,213 1,388 (165)
Chula Vista, CA 1,284 55 1,339 0
East Mesa, AZ 981 0 981 0
San Jose, CA 0 942 942 (942)
Concord, CA 925 0 925 (2) 0
North Highlands, CA 374 546 920 (126)
Santa Clarita, CA 900 0 900 0
Riverside, CA (Franklin St.) 78 521 599 (166)
Coachella Valley, CA 500 0 500 0
North Highlands, CA (pad) 500 0 500 0
Fountain Valley, CA 475 0 475 0
Rancho Cucamonga, CA 405 0 405 (2) 0
N.W. Tucson, AZ (pad) 400 0 400 0
Westminster, CO 305 0 305 0
Carlsbad, CA (pad) 300 0 300 0
Rohnert Park, CA 300 0 300 0
White Marsh, MD 85 117 202 (2) 0
S. W. Denver, CO (pad) 200 0 200 0
Norfolk, VA 200 0 200 0
Mesa, AZ (pad) 150 0 150 0
Tacoma, WA 0 139 139 (139)
Aurora, CO (pad) 112 0 112 0
Milwaukee, WI 0 41 41 (41)
Silver City, MN 0 0 0 0
- -------------------------------------------------------------------------------------------
Total Properties Held for Sale 61,725 52,553 114,278 (14,243)
--------------------------------------------------------
Total Properties $241,518 $227,819 $469,337 $(39,282)
--------------------------------------------------------
Depreciable Life
-----------------------------------
Date of Date of Land Building
Location Construction Acquisition Improvements Building Improvements
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Colton/Rialto, CA - 1981 15 15 10
New Britain, CT 1991 1991 25 25 10
Palm Harbor, FL 1986 1986 35 35 10
Marlow Heights, MD 1987 1986 25 25 10
Fresno, CA - 1992 - - -
San Diego, CA (Convoy Ct.) - 1995 25 25 10
Hayward, CA - 1983 25 25 10
Santee, CA 1979 1988 25 25 10
Chesterfield, VA - 1990 25 25 10
Rancho Cordova, CA - 1989 - - -
Sunnyvale, CA 1988 1986 25 25 10
Fremont, CA - 1991 - - -
San Jose, CA - 1986 - - -
W. Palm Beach, FL - 1994 25 25 10
Gaithersburg, MD - 1989 - - -
Sterling, VA - 1990 - - -
Mesa, AZ 1993 1979 25 25 10
Chula Vista, CA - 1985 25 25 10
East Mesa, AZ - 1988 - - -
San Jose, CA - 1986 - - -
Concord, CA - 1988 - - -
North Highlands, CA 1988 1986 25 25 10
Santa Clarita, CA - 1991 - - -
Riverside, CA (Franklin St.) - 1988 25 25 10
Coachella Valley, CA - 1990 - - -
North Highlands, CA (pad) - 1986 - - -
Fountain Valley, CA - 1989 25 25 10
Rancho Cucamonga, CA - 1992 - - -
N.W. Tucson, AZ (pad) - 1988 25 25 10
Westminster, CO - 1990 - - -
Carlsbad, CA (pad) - 1989 - - -
Rohnert Park, CA - 1991 - - -
White Marsh, MD - 1986 25 25 10
S. W. Denver, CO (pad) - 1990 25 25 10
Norfolk, VA - 1984 - - -
Mesa, AZ (pad) - 1979 - - -
Tacoma, WA - 1979 - - -
Aurora, CO (pad) - 1990 25 25 10
Milwaukee, WI - 1986 - - -
Silver City, MN - 1988 15 15 10
Total Properties Held for
Sale
Total Properties
</TABLE>
(1) The aggregate cost for Federal income tax purposes is $529,157.
(2) These properties held for sale were written-down $5 million in aggregate
during fiscal 1995 to the net sales proceeds expected upon sale.
52
<PAGE>
PRICE ENTERPRISES, INC.
SCHEDULE III (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year
------------------------------
Reconcilliation to Reported Amounts 1995 1994 1993
- ----------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT
Balance at beginning of year............................. $476,340 $415,236 $355,424
Additions during the year:
Transfers from PriceCostco............................. 2,100 139,097 82,773
Purchases.............................................. 18,329 42,367 61,485
Deductions during the year:
Cost of properties sold................................ (22,432) (43,510) (84,446)
Asset Impairment Loss.................................... (5,000) (76,850) --
-------- -------- --------
Balance before FF&E...................................... $469,337 $476,340 $415,236
FF&E................................................... $ 7,928 $ 4,375 $ 2,114
-------- -------- --------
Balance at end of year................................... $477,265 $480,715 $417,350
-------- -------- --------
-------- -------- --------
ACCUMULATED DEPRECIATION
Balance at beginning of year............................. $ 32,332 $ 29,473 $ 18,625
Depreciation expense..................................... 9,813 6,752 5,603
Accumulated depreciation of properties sold.............. (2,863) (9,106) (6,675)
Transfers from PriceCostco............................... -- 11,351 11,920
Asset Impairment Loss.................................... -- (6,138) --
-------- -------- --------
Balance before FF&E...................................... $ 39,282 $ 32,332 $ 29,473
Accumulated depreciation of FF&E....................... $ 3,194 $ 996 $ 402
-------- -------- --------
Balance at end of year................................... $ 42,476 $ 33,328 $ 29,875
-------- -------- --------
-------- -------- --------
</TABLE>
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned there unto duly authorized.
PRICE ENTERPRISES, INC.
DATED: November 22, 1995 By: /s/ Robert E. Price
-------------------------- ------------------------------------
Robert E. Price
President and
Chief Executive Officer
DATED: November 22, 1995 By: /s/ Daniel T. Carter
-------------------------- ------------------------------------
Daniel T. Carter
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Robert E. Price November 22, 1995
- ------------------------------------------------ -------------------
ROBERT E. PRICE, Chairman of the Board of Date
Directors, Chief Executive Officer and President
/s/ Paul A. Peterson November 30, 1995
- ------------------------------------------------ -------------------
PAUL A. PETERSON, Vice Chairman of the Date
Board of Directors
/s/ Nancy Y. Bekavac November 27, 1995
- ------------------------------------------------ -------------------
NANCY Y. BEKAVAC, Director Date
/s/ Murray L. Galinson November 27, 1995
- ------------------------------------------------ -------------------
MURRAY L. GALINSON, Director Date
/s/ Katherine L. Hensley November 27, 1995
- ------------------------------------------------ -------------------
KATHERINE L. HENSLEY, Director Date
/s/ Leon C. Janks November 27, 1995
- ------------------------------------------------ -------------------
LEON C. JANKS, Director Date
/s/ James D. Sinegal November 30, 1995
- ------------------------------------------------ -------------------
JAMES D. SINEGAL, Director Date
54
<PAGE>
EXHIBIT INDEX
EXHIBITS DESCRIPTION
PAGE -----------
- --------
2.1 Amended and Restated Agreement of Transfer and Plan of Exchange, dated
as of November 14, 1994, by and between Price/Costco, Inc. and Price
Enterprises, Inc. (incorporated herein by reference to Exhibit 2.1 to
Registration Statementon Form 10 of Price Enterprises, Inc. filed with
the Commission on December 13, 1994 (File No.0-20449))................
3.1 Certificate of Incorporation of Price Enterprises, Inc. (incorporated
herein by reference to Exhibit 3.1 to the Registration Statement on
Form S-4 of Price Enterprises, Inc. filed with the Commission on
September 15, 1994 (File No. 33-55481))...............................
3.1(a) Certificate of Amendment to Certificate of Incorporation of Price
Enterprises, Inc. (incorporated herein by reference to Exhibit 3.1(a)
to Post-Effective Amendment No.1 to the Registration Statement on
Form S-4 of Price Enterprises, Inc. filed with the Commission on
December 2, 1994 (File No. 33-55481)).................................
3.2 Form of Restated Certificate of Incorporation of Price Enterprises,
Inc. (incorporated herein by reference to Exhibit 3.2 to Registration
Statement on Form 10 of Price Enterprises, Inc. filed with the
Commission on December 13, 1994 (File No. 0-20449))...................
3.3 Bylaws of Price Enterprises, Inc. (incorporated herein by reference to
Exhibit 3.3 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on September 15, 1994
(File No. 33-55481))..................................................
3.4 Form of Amended and Restated Bylaws of Price Enterprises, Inc.
(incorporated herein by reference to Exhibit 3.4 to Registration
Statement on Form 10 of Price Enterprises, Inc. filed with the
Commission on December 13, 1994 (File No. 0-20449))...................
4.1 Form of Price Enterprises, Inc. Stock Certificate (incorporated herein
by reference to Exhibit 4.1 to Amendment No. 2 to the Registration
Statement on Form S-4 of Price Enterprises, Inc. filed with the
Commission on November 17, 1994 (File No. 33-55481))..................
4.2 The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
(the "Stock Plan" ) (incorporated herein by reference to Exhibit 10.23
to Registration Statement on Form 10 of Price Enterprises, Inc. filed
with the Commission on December 13, 1994 (File No. 0-20449))..........
4.3 Form of Incentive Stock Option Agreement under the Stock Plan
(incorporated herein by reference to Exhibit 4.2 of the Registration
Statement on Form S-8 of Price Enterprises, Inc. filed with the
Commission on July 13, 1995 (File No. 33-60999))......................
4.4 Form of Non-Qualified Stock Option Agreement under the Stock Plan
(incorporated herein by reference to Exhibit 4.3 of the Registration
Statement on Form S-8 of Price Enterprises, Inc. filed with the
Commission on July 13, 1995 (File No. 33-60999))......................
55
<PAGE>
4.5 The Price Enterprises Directors' 1995 Stock Option Plan (the
"Directors' Plan") (incorporated herein by reference to Exhibit 10.24
to Registration Statement on Form 10 of Price Enterprises, Inc. filed
with the Commission on December 13, 1994 (File No. 0-20449))..........
4.6 Form of Non-Qualified Stock Option Agreement under the Directors' Plan
(incorporated herein by reference to Exhibit 4.5 of the Registration
Statement on Form S-8 of Price Enterprises, Inc. filed with the
Commission on July 13, 1995 (File No. 33-60999))......................
10.1 Form of Revolving Credit Agreement between Price Enterprises, Inc and
First Interstate Bank of California dated as of May 17, 1995
(incorporated herein by reference to Exhibit 10.1 of the Quarterly
Report on Form 10-Q for the period ending June 4, 1995, filed with the
Commission on July 18, 1995)..........................................
10.2 Operating Agreement, dated as of August 28, 1994, by and among Price
Global Trading, Inc., Price Enterprises, Inc., Price/Costco, Inc. and
The Price Company (incorporated herein by reference to Exhibit 10.7 to
Amendment No. 1 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on November 3, 1994 (File
No. 33-55481))........................................................
10.3 Operating Agreement, dated as of August 28, 1994, by and among Price
Quest, Inc., Price Enterprises, Inc., Price/Costco, Inc. and The Price
Company (incorporated herein by reference to Exhibit 10.6 to Amendment
No. 1 to the Registration Statement on Form S-4 of Price Enterprises,
Inc. filed with the Commission on November 3, 1994 (File No.
33-55481))............................................................
10.4 Stockholders Agreement, dated as of August 28, 1994, by and among
Price Global Trading, Inc., The Price Company, Price/Costco, Inc. and
Price Enterprises, Inc. (incorporated herein by reference to Exhibit
10.8 to Amendment No. 1 to the Registration Statement on Form S-4 of
Price Enterprises, Inc. filed with the Commission on November 3, 1994
(File No. 33-55481))..................................................
10.5 Stockholders Agreement, dated as of August 28, 1994, by and among
Price Quest, Inc., The Price Company, Price/Costco, Inc. and Price
Enterprises, Inc. (incorporated herein by reference to Exhibit 10.9 to
Amendment No. 1 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on November 3, 1994 (File
No. 33-55481))........................................................
10.6 License Agreement, dated as of August 28, 1994, by and among
Price/Costco, Inc., The Price Company, Price Quest, Inc. and Price
Enterprises, Inc. (incorporated herein by reference to Exhibit 10.11
to Amendment No. 1 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on November 3, 1994 (File
No. 33-55481))........................................................
56
<PAGE>
10.7 License Agreement, dated as of August 28, 1994, by and among
Price/Costco, Inc., The Price Company, Price Global Trading, Inc.
and Price Enterprises, Inc. (incorporated herein by reference to
Exhibit 10.12 to Amendment No. 1 to the Registration Statement on
Form S-4 of Price Enterprises, Inc. filed with the Commission on
November 3, 1994 (File No. 33-55481)).................................
10.8 Form of lease between Price Enterprises, Inc. and The Price
Company with respect to the Price Club at Pentagon Centre,
Arlington County, Virginia (incorporated herein by reference to
Exhibit 10.1 to Amendment No. 2 to the Registration Statement on
Form S-4 of Price Enterprises, Inc. filed with the Commission on
November 17, 1994 (File No. 33-55481))................................
10.9 Form of lease between Price Enterprises, Inc. and The Price
Company with respect to the Price Club at 4605 Morena Boulevard,
San Diego, California (incorporated herein by reference to Exhibit
10.18 to Amendment No. 2 to the Registration Statement on Form S-4
of Price Enterprises, Inc. filed with the Commission on November 17,
1994 (File No. 33-55481)).............................................
10.10 Form of lease between Price Enterprises, Inc. and The Price
Company with respect to the Price Club at Wayne, New Jersey
(incorporated herein by reference to Exhibit 10.19 to Amendment
No. 2 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on November 17, 1994
(File No. 33-55481))..................................................
10.11 Form of lease between Price Enterprises, Inc. and The Price
Company with respect to the Price Club at Westbury, New York
(incorporated herein by reference to Exhibit 10.20 to Amendment
No. 2 to the Registration Statement on Form S-4 of Price
Enterprises, Inc. filed with the Commission on November 17, 1994
(File No. 33-55481))..................................................
10.12 Employment Agreement, dated as of October 25, 1994, by and
between Price Enterprises, Inc. and Steve Velazquez (incorporated
herein by reference to Exhibit 10.13 to Amendment No. 2 to the
Registration Statement on Form S-4 of Price Enterprises, Inc.
filed with the Commission on November 17, 1994 (File No. 33-55481))...
10.13 Employment Agreement, dated as of September 20, 1994, by and
between Price Enterprises, Inc. and Robert M. Gans (incorporated
herein by reference to Exhibit 10.14 to Amendment No. 1 to the
Registration Statement on Form S-4 of Price Enterprises, Inc.
filed with the Commission on November 3, 1994 (File No. 33-55481))....
10.14 Employment Agreement, dated as of October 24, 1994, by and
between Price Enterprises, Inc. and Joseph J. Tebo (incorporated
herein by reference to Exhibit 10.15 to Amendment No. 2 to the
Registration Statement on Form S-4 of Price Enterprises, Inc.
filed with the Commission on November 17, 1994 (File No. 33-55481))...
57
<PAGE>
10.15 Form of Indemnity Agreement (incorporated herein by reference
to Exhibit 10.17 to Amendment No. 2 to the Registration Statement
on Form S-4 of Price Enterprises, Inc. filed with the Commission
on November 17, 1994 (File No. 33-55481)).............................
10.16 Form of Amended and Restated Loan Agreement between Atlas
Hotels, Inc. and Price Enterprises, Inc. dated as of March 31, 1995
(incorporated herein by reference to Exhibit 10.2 of Price
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the period
ending, June 4, 1995, filed with the Commission on July 18, 1995).....
10.17 Form of Amended and Restated Promissory Note Secured by Deed
of Trust dated March 31, 1995 made by Atlas Hotels, Inc. in favor
of Price Enterprises, Inc. (incorporated herein by reference to
Exhibit 10.3 of Price Enterprises, Inc.'s Quarterly Report on Form
10-Q for the period ending June 4, 1995, filed with the Commission
on July 18, 1995).....................................................
10.18 Form of Amended and Restated Deed of Trust with Assignment of
Leases and Rents and Fixture Filing made as of March 31, 1995 by
and among Atlas Hotels, Inc., Chicago Title Company and Price
Enterprises, Inc. (incorporated herein by reference to Exhibit
10.4 of Price Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the period ending June 4, 1995, filed with the Commission on
July 18,1995).........................................................
10.19 Form of Amended and Restated Security Agreement made as of
March 31, 1995 by Atlas Hotels, Inc. in favor of Price
Enterprises, Inc. (incorporated herein by reference to Exhibit
10.5 of Price Enterprises, Inc.'s Quarterly Report on Form 10-Q
for the period ending June 4, 1995, filed with the Commission on
July 18, 1995.).......................................................
10.20 Form of Capital Reserve Agreement made as of March 31, 1995
by and between Atlas Hotels, Inc. and Price Enterprises, Inc.
(incorporated herein by reference to Exhibit 10.6 of Price
Enterprises, Inc.'s Quarterly Report on Form 10-Q for the period
ending June 4, 1995, filed with the Commission on July 18, 1995)......
21.1 List of Subsidiaries of Price Enterprises, Inc........................
23.1 Consent of Arthur Andersen LLP .......................................
23.2 Consent of Ernst & Young LLP .........................................
27.1 Financial Data Schedule ..............................................
58
<PAGE>
EXHIBIT 21.1
PRICE ENTERPRISES, INC. SUBSIDIARIES
AS OF SEPTEMBER 3, 1995
PRICE VENTURES, INC., a Delaware corporation, wholly-owned by Price Enterprises,
Inc.
PRICE REAL ESTATE, INC., a Delaware corporation, wholly-owned by Price
Enterprises, Inc.
OLD MC, INC., a Delaware corporation, wholly-owned by Price Enterprises, Inc.
PRICE GLOBAL TRADING, INC., a Delaware corporation, 51% owned by Price
Enterprises, Inc.
PRICE QUEST, INC., a Delaware corporation, 51% owned by Price Enterprises, Inc.
VENTURES SERVICES, INC., a Delaware corporation, wholly-owned by Price Ventures,
Inc.
59
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report as of and for the year ended August 31, 1994 included in this Form 10-K,
into the Price Enterprises, Inc.'s previously filed Registration Statement File
No. 33-60999 (S-8 Registration).
ARTHUR ANDERSEN LLP
Seattle, Washington
November 29, 1995
60
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-60999) pertaining to the Stock Plan of Price Enterprises, Inc. of our
report dated October 10, 1995, with respect to the consolidated financial
statements and schedule of Price Enterprises, Inc. included in the Annual Report
(Form 10-K) for the years ended August 31, 1995 and August 31, 1993.
ERNST & YOUNG LLP
San Diego, California
November 29, 1995
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-03-1995
<PERIOD-START> AUG-29-1994
<PERIOD-END> SEP-03-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 82,401
<ALLOWANCES> 0
<INVENTORY> 7,385
<CURRENT-ASSETS> 14,660
<PP&E> 362,987
<DEPRECIATION> 28,233
<TOTAL-ASSETS> 567,321
<CURRENT-LIABILITIES> 14,873
<BONDS> 0
<COMMON> 2
0
0
<OTHER-SE> 532,083
<TOTAL-LIABILITY-AND-EQUITY> 567,321
<SALES> 66,573
<TOTAL-REVENUES> 118,845
<CGS> 62,756
<TOTAL-COSTS> 122,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 739
<INCOME-PRETAX> 5,735
<INCOME-TAX> 5,189
<INCOME-CONTINUING> 546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 546
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
