AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 21, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PRICE/COSTCO, INC.
(Exact name of registrant as specified in its charter)
999 LAKE DRIVE
ISSAQUAH, WASHINGTON 98027
(206) 313-8100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RICHARD J. OLIN
VICE PRESIDENT
PRICE/COSTCO, INC.
999 LAKE DRIVE
ISSAQUAH, WASHINGTON 98027
(206) 313-8100
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: FROM TIME TO
TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1996)
$300,000,000
PRICECOSTCO, INC.
% SENIOR NOTES DUE 2001
% SENIOR NOTES DUE 2016
Interest on the % Senior Notes due March , 2001 (the "Senior Notes due
2001") and on the % Senior Notes due March , 2016 (the "Senior Notes due
2016" and, together with the Senior Notes due 2001, the "Notes") is payable
semi-annually on March and September of each year, commencing September ,
1996. The Notes may not be redeemed at the option of the Company at any time
prior to maturity. The Senior Notes due 2016 may be redeemed, in whole or in
part, at the option of the Holders thereof on March , 2003, at a redemption
price equal to 100% of the aggregate principal amount to be redeemed, together
with accrued and unpaid interest. See "Description of the Notes -- Redemption at
the Option of Holders of Senior Notes due 2016." The Notes do not provide for
any sinking fund. The Notes are unsecured obligations of the Company and will
rank equally with all unsecured and unsubordinated indebtedness of the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
(1) PLUS ACCRUED INTEREST, IF ANY, FROM THE DATE OF ISSUANCE.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(3) BEFORE DEDUCTING ESTIMATED EXPENSES OF $ PAYABLE BY THE COMPANY.
The Notes offered by this Prospectus Supplement are offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by them and subject to various prior conditions, including the right to reject
any order in whole or in part. It is expected that delivery of the Notes will be
made in New York, New York on or about March , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
BA SECURITIES, INC.
CIBC WOOD GUNDY SECURITIES CORP.
NATIONSBANC CAPITAL MARKETS, INC.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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RECENT DEVELOPMENTS
For the twelve weeks ended February 18, 1996, net sales were $4.6 billion,
an increase of 9 percent from $4.2 billion in the same twelve-week period of the
prior fiscal year. On a comparable warehouse basis (sales from warehouses open
at least one year), sales during the second quarter increased 5 percent over the
same period in the prior year.
For the twenty-four weeks ended February 18, 1996, net sales were $8.9
billion, an increase of 9 percent from $8.2 billion in the same twenty-four-week
period of the prior fiscal year. On a comparable warehouse basis, sales during
this twenty-four week period increased 4 percent over the same period in the
prior year.
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be $297.0
million. Substantially all of such net proceeds will be used to redeem the
outstanding 6 3/4% convertible subordinated debentures due March 1, 2001 issued
by The Price Company, a wholly owned subsidiary of the Company. The aggregate
redemption price of and accrued interest on all such debentures is approximately
$ , as of , 1996. The remaining net proceeds will be used for
general corporate purposes.
S-2
CAPITALIZATION
The following table sets forth the short-term borrowings and capitalization
of the Company as of November 26, 1995, and adjusted to give effect to the
issuance of the Notes and the anticipated application of the estimated net
proceeds thereof as set forth in "Use of Proceeds" as though it occurred on
November 26, 1995.
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(1) The Company had outstanding short-term borrowings of approximately $235.6
million at February 18, 1996.
(2) The early extinguishment of the 6 3/4% convertible subordinated debentures
will result in an after tax extraordinary loss of approximately $4.4 million
resulting from payment of the redemption premium, the unamortized portion of
the issuance costs on the debentures to be redeemed and the costs of this
transaction.
S-3
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE AND OPERATING DATA)
The selected consolidated financial information of the Company presented in
the table below for each of the last five fiscal years and the balance sheet
data as of the end of each such year has been derived from audited consolidated
financial statements included in the documents incorporated by reference in the
accompanying Prospectus. The selected consolidated financial information of the
Company presented in the table below for the 12 weeks ended November 20, 1994
and November 26, 1995 is unaudited; however, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the results for such periods, have been included. The
results of operations for the 12 weeks ended November 26, 1995 may not be
indicative of results of operations to be expected for the full year. The table
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended September 3, 1995 and the Quarterly Report on Form 10-Q for the fiscal
quarter ended November 26, 1995 incorporated by reference herein. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
(FOOTNOTES ON NEXT PAGE)
S-4
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(1) The Company reports its financial position and results of operations
utilizing a 52 or 53 week fiscal year which ends on the Sunday nearest
August 31. Fiscal 1995 was a 53-week year; all other fiscal years presented
were 52 weeks.
(2) Gross profit is comprised of net sales less merchandise costs.
(3) Operating expenses include selling, general and administrative expenses,
preopening expenses and provision for estimated warehouse closing costs.
(4) Other income (expense) includes interest expense, interest income and other
income or expense.
(5) Includes provision for merger and restructuring expenses of $120,000
pre-tax ($80,000 or $.36 per share, after tax) related to the merger of The
Price Company and Costco Wholesale Corporation in October 1993. If such
provision for merger and restructuring expenses were excluded, income from
continuing operations for fiscal 1994 would have been $190,898 or $.87 per
share.
(6) In the fourth quarter of fiscal 1994, the Company reported its non-club
real estate segment as a discontinued operation. All of the assets of the
non-club real estate segment, along with certain other assets, were
included in the spin-off of Price Enterprises. In connection with the
decision to discontinue the non-club real estate operations, the Company
recorded primarily non-cash charges of $80,500 pre-tax ($47,500 after tax
or $.22 per share) related to a change in calculating estimated losses for
assets which are considered to be economically impaired and of $182,500
($15,250 of which related to expenses of the transaction) for estimated
loss on disposal of Price Enterprises. In the second quarter of fiscal
1995, an additional non-cash charge of $83,363 for the loss on disposal of
Price Enterprises was recorded to reflect the consummation of the spin-off
transaction. The additional charge on the spin-off of Price Enterprises
reflected the difference between the $15.25 per share estimated trading
price of Price Enterprises Common Stock (used to calculate the estimated
loss in the fourth quarter of fiscal 1994) and the average closing sales
price of Price Enterprises Common Stock during the 20-trading days
commencing on the sixth trading day following the closing of the spin-off
on December 20, 1994 (which was approximately $12.16 per share) multiplied
by the 27 million shares which were exchanged or sold during the second
quarter of fiscal 1995.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings (defined as income from continuing operations before provision for
income taxes) plus fixed charges (excluding capitalized interest) by fixed
charges. Fixed charges consist of interest, debt amortization expense, the
estimated interest component of property rentals and capitalized interest.
(8) If the $120,000 pre-tax provision for merger and restructuring expenses were
excluded, the ratio of earnings to fixed charges for fiscal 1994 would have
been 4.7.
(9) The difference between the pro forma and actual calculation of the ratio of
earnings to fixed charges is less than 10% of the actual ratio of earnings
to fixed charges for both fiscal year 1995 and the 12-week period ended
November 26, 1995. As such, the pro forma ratio of earnings to fixed charges
is not presented for fiscal year 1995 and the 12-week period ended November
26, 1995.
(10) Calculated based on sales from warehouses open at least one year.
(11) Long-term debt includes convertible subordinated debt and other long-term
debt, net of current portion.
(12) PriceCostco did not pay any dividends on its common stock during the
periods presented.
(13) Adjusted to give effect to the issuance and sale of the Notes and the
anticipated application of the estimated net proceeds therefrom as though
they occurred on November 26, 1995.
S-5
DESCRIPTION OF THE NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY (REFERRED TO IN THE ACCOMPANYING PROSPECTUS AS THE "DEBT SECURITIES")
SUPPLEMENTS AND, TO THE EXTENT INCONSISTENT THEREWITH, REPLACES, INSOFAR AS SUCH
DESCRIPTION RELATES TO THE NOTES, THE DESCRIPTION OF THE DEBT SECURITIES SET
FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE.
The Notes are to be issued under an Indenture, to be dated as of March ,
1996 (the "Indenture"), between the Company and American Bank National
Association, as Trustee (the "Trustee"), a form of which is filed as an exhibit
to the Registration Statement. The following summaries of certain provisions of
the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Capitalized terms
not otherwise defined herein or in the Indenture shall have the meanings given
to them in the Prospectus.
GENERAL
The Notes will be senior unsecured obligations of the Company. The Senior
Notes due 2001 will be limited to aggregate principal amount and will
mature on March , 2001. The Senior Notes due 2016 will be limited to
aggregate principal amount and will mature on March , 2016. The
Notes will bear interest at the rate per annum shown on the front cover of this
Prospectus Supplement from the date of issuance of the Notes or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semiannually on March and September of each year, commencing on
September , 1996, to the persons in whose names the Notes are registered at
the close of business on the preceding and , as the case
may be. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
The Notes are obligations exclusively of the Company. Because the operations
of the Company are currently conducted substantially through subsidiaries, the
cash flow of the Company and the consequent ability to service its debt,
including the Notes, are dependent upon the earnings of such subsidiaries and
the distribution of those earnings to the Company, or upon loans or other
payments of funds by such subsidiaries to the Company. The subsidiaries are
separate and distinct legal entities and have no obligation, contingent or
otherwise, to pay any amounts due with respect to the Notes or to make funds
available therefor, whether by dividends, loans or other payments. In addition,
the payment of dividends and certain loans and advances to the Company by such
subsidiaries may be subject to certain statutory or contractual restrictions,
are contingent upon the earnings of such subsidiaries, and are subject to
various business considerations.
The Notes will be effectively subordinated to all liabilities, including
trade payables and capitalized lease obligations, of the Company's subsidiaries.
As of , 1996, as adjusted to give effect to the redemption of
subsidiary indebtedness from the proceeds of this offering, the Company's
subsidiaries had approximately $ billion of debt outstanding, including
guarantees of indebtedness of the Company. Any right of the Company to receive
assets of any such subsidiaries upon the latter's liquidation or reorganization
(and the consequent right of the holders of the Notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interests in the assets of such subsidiary and
any liabilities of such subsidiary senior to that held by the Company.
Principal of and interest on the Notes are payable, and the Notes may be
presented for transfer and exchange, either at the office or agency of the
Company maintained for such purposes in New York, New York or St. Paul,
Minnesota, provided that payment of interest may, at the option of the Company,
be made by check mailed to the registered address of the person entitled
thereto. Initially, the office or agency in New York, New York, shall be the
office of the Trustee maintained for such purpose. Notes will be issued in
registered form without coupons in denominations of $1,000 and any multiple of
$1,000. No service charge will be made for any transfer or exchange of Notes,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
S-6
REDEMPTION AT THE OPTION OF THE COMPANY
The Notes may not be redeemed at the option of the Company at any time prior
to maturity.
REDEMPTION AT THE OPTION OF HOLDERS OF SENIOR NOTES DUE 2016
On March , 2003, or if such date is not a business day, then the next
succeeding business day (the "Redemption Date"), each Holder of Senior Notes due
2016 will have the right (the "Redemption Right") to require the Company to
redeem all or a part, equal to $1,000 or an integral multiple thereof, of such
Holder's Senior Notes due 2016 at a redemption price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon to
the Redemption Date.
In order for a Holder of any Senior Notes due 2016 to exercise the
Redemption Right, the Company must receive at the office of its paying agent in
New York, New York or St. Paul, Minnesota during the period beginning on January
, 2003 and ending at 5:00 p.m., local time, on February , 2003, or if such
date is not a business day, then the next succeeding business day, the Senior
Notes due 2016 to be redeemed with the form entitled "Option to Require
Redemption on March , 2003" on the reverse of the Senior Notes due 2016 duly
completed. Any such notice received by the Company during the aforementioned
period shall be irrevocable. Holders whose Senior Notes due 2016 are being
redeemed only in part will be issued new Senior Notes due 2016 equal in
principal amount to the unredeemed portion of the Senior Notes due 2016
surrendered, which unredeemed portion must be equal to $1,000 in principal
amount or an integral multiple thereof. Unless the Company defaults in the
payment of principal or accrued interest on the Senior Notes due 2016 to be
redeemed on the Redemption Date, interest on such Senior Notes due 2016 will
cease to accrue on the Redemption Date. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any Senior Notes due
2016 for redemption will be determined by the Company, whose determination will
be final and binding.
On the Redemption Date, the Company will, to the extent lawful, deposit with
its paying agent an amount sufficient to redeem all Senior Notes due 2016 or
portions thereof being redeemed (together with accrued interest). Failure by the
Company to redeem the Senior Notes due 2016 when required as described in the
preceding paragraph will result in an Event of Default under the Indenture.
Holders of Senior Notes due 2001 do not have the right at any time prior to
maturity to require the Company to redeem all or any part of the Senior Notes
due 2001.
The Company may not elect to have its obligations, either with respect to
payment of the indebtedness, including, without limitation, upon redemption at
the option of the Holders, or with respect to the covenants that are described
in the Indenture or in the Senior Notes due 2016, discharged or released with
respect to the Senior Notes due 2016 prior to the Redemption Date.
S-7
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), among the Company and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), J.P. Morgan Securities Inc., BA Securities,
Inc., CIBC Wood Gundy Securities Corp., and NationsBanc Capital Markets, Inc.
(together, the "Underwriters"), the Underwriters have severally agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriters at the public offering price set forth on the cover page of this
Prospectus Supplement less the underwriting discounts and commissions, the
Notes. The respective principal amounts of the Notes that each Underwriter has
agreed to purchase is set forth opposite its name below:
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to the approval of certain legal matters by their counsel
and to certain other conditions precedent. The Underwriting Agreement also
provides that the Company will indemnify the Underwriters and certain persons
controlling the Underwriters against certain liabilities and expenses, including
under the Securities Act, or will contribute to payments the Underwriters are
required to make in respect thereof. The nature of the Underwriters' obligations
under the Underwriting Agreement is such that they are committed to purchase all
of the Notes if any of the Notes are purchased by them.
The Underwriters have advised the Company that they propose to offer the
Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of . % of the principal amount. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of . % of the principal amount of the Notes to certain other dealers. After
the initial public offering, the public offering price, concession and
reallowance may be changed by the Underwriters.
Certain of the Underwriters have performed investment banking services, and
affiliates of certain of the Underwriters have performed, and continue to
perform, commercial banking services, for the Company for which they received or
receive customary compensation. Hamilton E. James, a Managing Director of DLJ,
is a director of the Company.
There is currently no public market for the Notes. The Company has no
present plan to list any of the Notes on a national securities exchange or to
seek the admission thereof for trading in the National Association of Securities
Dealers Automated Quotation System. The Underwriters have advised the Company
that they currently intend to make a market in the Notes, but they are not
obligated to do so and may discontinue any such market making at any time
without notice. Accordingly, there can be no assurance as to the liquidity of,
or that an active trading market will develop for, the Notes.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Foster
Pepper & Shefelman, Seattle, Washington. As of , 1996, members of
Foster Pepper & Shefelman owned an aggregate of shares of the Company's
Common Stock. The validity of the Notes will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California. Foster Pepper
&
S-8
Shefelman may rely on the opinion of Skadden, Arps, Slate, Meagher & Flom as to
matters of New York law. Skadden, Arps, Slate, Meagher & Flom has from time to
time represented the Company on unrelated matters.
EXPERTS
The consolidated financial statements and schedules of the Company for each
of the last three fiscal years, incorporated herein by reference, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto. In those reports, that firm states that with
respect to The Price Company for fiscal year 1993, its opinion is based on the
report of other independent auditors, namely Ernst & Young LLP. The consolidated
financial statements referred to above have been incorporated herein by
reference in reliance upon the reports of said firms and upon the authority of
those firms as experts in accounting and auditing.
With respect to the unaudited financial information of the Company for the
fiscal quarter ended November 26, 1995, incorporated herein by reference, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
thereon and incorporated by reference herein, states that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, Arthur Andersen LLP is not subject to the liability provisions of
Section 11 of the Securities Act for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of this
Prospectus prepared or certified by Arthur Andersen LLP within the meaning of
Sections 7 or 11 of the Securities Act.
S-9
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 21, 1996
PROSPECTUS
MARCH , 1996
$500,000,000
PRICECOSTCO, INC.
DEBT SECURITIES
PriceCostco, Inc. (the "Company" or "PriceCostco") may offer from time to
time, in one or more series, debentures, notes or other unsecured obligations
(the "Debt Securities") of the Company. The aggregate initial offering price of
the Debt Securities offered by the Company hereby will not exceed $500,000,000.
The Debt Securities will be offered at prices and on terms to be determined at
the time such Securities are offered for sale. The Debt Securities will be
unsecured and will rank prior to all subordinated indebtedness of the Company.
When a particular series of Debt Securities is offered, a prospectus
supplement ("Prospectus Supplement") together with this Prospectus will be
delivered setting forth the terms of such Debt Securities, including, where
applicable, the specific designation, aggregate principal amount, denomination,
maturity, rate or rates of any interest, any index to be used for determining
the amount of any payment of principal or interest, any interest payment dates,
whether the Debt Securities are issuable in the form of one or more Global
Securities ("Global Securities"), any redemption provisions, whether the Debt
Securities are subject to defeasance, any listing on a securities exchange or
quotation on the Nasdaq National Market ("The Nasdaq Stock Market"), the initial
public offering price, methods of distribution and any other specific terms in
connection with the offering and sale of such Debt Securities.
The Company may sell Debt Securities to or through underwriters, through
dealers or agents, or directly to other purchasers. If any underwriters, dealers
or agents are involved in the sale of Debt Securities in respect of which this
Prospectus is being delivered, the names of such underwriters, dealers or
agents, the amount proposed to be purchased by them, and any compensation to
such underwriters, dealers or agents will be set forth in the applicable
Prospectus Supplement. The net proceeds to the Company will also be set forth in
the applicable Prospectus Supplement. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549 and at the Commission's regional offices at
7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549. This Prospectus
does not contain all information set forth in the Registration Statement and the
exhibits thereto which the Company has filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), and to which
reference is hereby made.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended September
3, 1995, and the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 26, 1995 filed by the Company with the Commission, are hereby
incorporated in this Prospectus by reference.
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to termination of the offering of the Debt Securities
offered hereby shall be deemed to be incorporated by reference herein and to be
a part hereof from the date of the filing of such reports and documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a Prospectus is delivered, upon written or oral request of such person, a
copy of any document incorporated herein by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests should be directed to Richard J. Olin, Vice
President, PriceCostco, Inc., 999 Lake Drive, Issaquah, Washington 98027,
telephone number (206) 313-8100.
THE COMPANY
The Company operates, principally through subsidiaries, a chain of cash and
carry membership warehouses under the names "Costco Wholesale" and "Price Club".
The Company's business is based on the concept that offering members very low
prices on a limited selection of nationally branded and selected private label
products in a wide range of merchandise categories will produce rapid inventory
turnover and high sales volumes. This rapid inventory turnover, when combined
with operating efficiencies achieved by volume purchasing, efficient
distribution and reduced handling of merchandise in no-frills, self-service
warehouse facilities, enables the Company to operate profitably at significantly
lower gross margins than traditional wholesalers, discount retailers and
supermarkets.
The Company buys virtually all of its merchandise directly from
manufacturers for shipment either directly to the Company's selling warehouses
or to a consolidation point where various shipments are combined so as to
minimize freight and handling costs. As a result, the Company eliminates many of
the costs associated with multiple step distribution channels, which include
purchasing from distributors as opposed to manufacturers, use of central
receiving, storing and distributing warehouses and storage of merchandise in
locations off the sales floor. By providing this more cost effective means of
distributing goods, the Company meets the needs of business customers who
otherwise
2
would pay a premium for small purchases and for the distribution services of
traditional wholesalers, and who cannot otherwise obtain the full range of their
product requirements from any single source. In addition, these business members
will often combine personal shopping with their business purchases. The
Company's merchandise selection is designed to appeal to both the business and
consumer requirements of its members by offering a wide range of nationally
branded and selected private label products, often in case, carton or
multiple-pack quantities, at low prices.
As of February 18, 1996, the Company operated 250 warehouses in 21 states
(193 locations), nine Canadian provinces (52 locations), and the United Kingdom
(five locations, through a 60% owned subsidiary). In addition, the Company
operated 13 warehouses in Mexico through a joint venture in which the Company
has a 50% interest. A Price Club warehouse operated by a licensee opened in
October 1994 in Seoul, Korea.
The Company is incorporated in the State of Delaware. The Company's offices
are located at 999 Lake Drive, Issaquah, Washington 98027, telephone (206)
313-8100.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the net
proceeds from the sale of the Debt Securities by the Company are intended to be
used for general corporate purposes, which may include working capital,
acquisitions, refinancings of indebtedness and payment of securities upon their
maturity or redemption.
The Company expects that it will, from time to time, engage in additional
financings in character and amount to be determined as the need arises.
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
The consolidated ratio of earnings to fixed charges has been computed by
dividing earnings (defined as income from continuing operations before provision
for income taxes) plus fixed charges (excluding capitalized interest) by fixed
charges. Fixed charges consist of interest, debt amortization expense, the
estimated interest component of property rentals and capitalized interest. The
following table sets forth the ratio of earnings to fixed charges of the Company
for the periods indicated:
------------------------
(1) The Company reports its financial position and results of operations
utilizing a 52 or 53 week fiscal year which ends on the Sunday nearest
August 31. Fiscal 1995 was a 53-week year; all other fiscal years presented
were 52 weeks.
(2) If the $120,000 pre-tax provision for merger and restructuring expenses were
excluded, the ratio of earnings to fixed charges for fiscal 1994 would have
been 4.7.
DESCRIPTION OF DEBT SECURITIES
The Company may offer under this Prospectus Debt Securities which will
represent senior unsecured general obligations of the Company and which in all
cases will rank prior to all subordinated indebtedness of the Company and pari
passu with all other indebtedness of the Company. The Debt Securities are to be
issued under an indenture (the "Indenture") between the Company and American
Bank National Association, as Trustee ("Trustee"), dated , 1996,
substantially in the form filed as an exhibit to the Registration Statement.
The following summary of certain provisions of the Debt Securities and the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of
3
the Indenture, including the definitions therein of certain terms. "Principal"
when used herein includes, when appropriate, the premium, if any, on the Debt
Securities. Provisions of the Indenture referred to herein are incorporated by
reference in their entirety.
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities of any series to which any
Prospectus Supplement may relate. The particular terms and provisions of the
series of Debt Securities offered by any Prospectus Supplement, and the extent
to which such general terms and provisions described below may apply thereto,
will be described in the Prospectus Supplement relating to such series of Debt
Securities.
GENERAL
The Debt Securities offered hereby will be limited to an aggregate initial
offering price not to exceed $500,000,000. The Indenture does not limit the
amount of Debt Securities that may be issued thereunder, and additional Debt
Securities may be issued thereunder up to the aggregate principal amount as
authorized from time to time by, or pursuant to, a resolution of the Board of
Directors of the Company. Each series of Debt Securities will constitute senior
unsecured indebtedness of the Company.
Reference is made to the Prospectus Supplement for the following terms of
the particular series of Debt Securities being offered thereby: (i) the title of
the Debt Securities of the series; (ii) any limit upon the aggregate principal
amount of the Debt Securities of the series; (iii) the date or dates on which
the principal of the Debt Securities of the series is payable; (iv) the rate or
rates (or manner of calculation thereof) at which the Debt Securities of the
series will bear interest, if any, the date or dates from which any such
interest will accrue and on which such interest will be payable, and the record
date for the interest payable on any interest payment date; (v) the place or
places where the principal of and interest on the Debt Securities of the series
will be payable; (vi) any optional or mandatory redemption, prepayment or
sinking fund provision; (vii) if in other than denominations of $1,000 and any
integral multiple thereof, the denominations in which Debt Securities of the
series shall be issuable; (viii) if other than the principal amount thereof, the
portion of the principal amount of Debt Securities of the series which will be
payable upon declaration of the acceleration of the maturity thereof; (ix)
whether any such Debt Securities are to be issuable initially in temporary
global form and whether any such Debt Securities are to be issuable in permanent
global form with or without coupons and, if so, whether beneficial owners of
interests in any such permanent global Debt Security may exchange such interests
for Debt Securities of like tenor of any authorized form and denomination and
the circumstances under which any such exchange may occur; (x) whether and under
what circumstances the Company will pay additional amounts on the Debt
Securities of the series held by a person who is not a U.S. person in respect of
taxes or similar charges withheld or deducted and, if so, whether the Company
will have the option to redeem such Debt Securities rather than pay such
additional amounts; (xi) any index used to determine the amount of payments of
principal of and interest on the Debt Securities of the series; (xii) any
additions to, modifications of or deletions from the terms of the Debt
Securities with respect to Events of Default or covenants set forth in the
applicable Indenture; (xiii) any changes to permit the Debt Securities to be
issued in bearer form and, if in bearer form, the denominations thereof and the
terms and conditions relating thereto; (xiv) whether the Debt Securities are
subject to defeasance; (xv) the appointment of a paying agent; and (xvi) any
additional provisions or other special terms not inconsistent with the
provisions of the Indenture including any terms that may be required by or
advisable under federal laws or regulations or advisable in connection with the
marketing of Debt Securities of such series.
REGISTRATION, DENOMINATIONS AND TRANSFER
Debt Securities of any series will be issued as registered Debt Securities,
without coupons or in the form of one or more Global Securities, as specified in
the terms of the series. Unless otherwise indicated in the Prospectus
Supplement, Debt Securities will be issued in denominations of U.S. $1,000 and
integral multiples thereof.
4
Registration of transfer of registered Debt Securities may be requested upon
surrender thereof at an agency of the Company maintained for such purpose
("Registrar") and upon fulfillment of all other requirements of such Registrar.
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal and interest on registered Debt Securities (other than a Global
Security) will be made at the office or agency of the Company maintained for
such purposes in New York, New York or St. Paul, Minnesota, provided that
payment of any interest may, at the option of the Company, be made (i) by check
mailed to the address of the payee entitled thereto or (ii) by wire transfer to
an account maintained by such payee. The Company initially appoints the Trustee
as its agent for such purposes. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of any installment of interest on registered Debt
Securities will be made to the person in whose name such registered Debt
Security is registered at the close of business on the record date for such
interest payment.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities, which will be deposited with a Depositary
(the "Depositary") or its nominee identified in the applicable Prospectus
Supplement. In such a case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Global Security or Securities. Unless and until it is exchanged in whole
or in part for Debt Securities in registered form, a Global Security may not be
registered for transfer or exchange except as a whole by the Depositary for such
Global Security to a nominee of such Depositary and except in such circumstances
as may be described in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Global Security will be
described in the applicable Prospectus Supplement. The Company expects that the
following provisions will apply to depositary arrangements.
Unless otherwise specified in an applicable Prospectus Supplement, Debt
Securities that are to be represented by a Global Security to be deposited with
or on behalf of a Depositary will be represented by a Global Security registered
in the name of such Depositary or its nominee. Upon the issuance of a Global
Security and the deposit of such Global Security with or on behalf of the
Depositary for such Global Security, the Depositary of such Global Security will
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Debt Securities represented by such Global Security to
the accounts of institutions that have accounts with such Depositary or its
nominee ("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities, or by the Company if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in a Global Security will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests in a
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary (with respect to
participants' interests) or its nominee for such Global Security or by
participants or persons that hold through participants. The laws of some
jurisdictions require that certain purchasers of Debt Securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in a Global Security.
So long as the Depositary for a Global Security in registered form, or its
nominee, is the registered owner of such Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Global Security for all purposes under
the Indenture. Except as set forth below or in the Prospectus Supplement, owners
of beneficial interests in such Global Securities will not be entitled to have
Debt Securities of the series represented by such Global Securities registered
in their names, will not receive or be entitled to receive physical delivery of
Debt Securities of such series in definitive form and will not be considered the
owners or holders thereof under the Indenture.
5
Principal of and interest on a Global Security will be payable in the manner
described in the applicable Prospectus Supplement.
If a Depositary for Debt Securities notifies the Company that it is
unwilling or unable to continue as Depositary for such Global Security or if at
any time such Depositary ceases to be a clearing agency registered under the
Exchange Act, and a successor Depositary is not appointed by the Company within
90 days, the Company will issue Debt Securities in definitive registered form in
exchange for the Global Security representing such Debt Securities. In addition,
the Company may at any time and in its sole discretion determine not to have any
Debt Securities in registered form represented by one or more Global Securities
and, in such event, will issue Debt Securities in definitive registered form in
exchange for all Global Securities representing such Debt Securities. Further,
if an Event of Default, or an event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default, under the Indenture occurs
and is continuing with respect to the Debt Securities of a series, or if the
Company so specifies with respect to the Debt Securities of a series, the
Depositary may exchange a Global Security representing Debt Securities of such
series for Debt Securities of such series in definitive registered form. In any
such instance, an owner of a beneficial interest in a Global Security will be
entitled to physical delivery in definitive form of Debt Securities of the
series represented by such Global Security equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
ABSENCE OF RESTRICTIVE COVENANTS
The Company is not restricted by the Indenture from paying dividends or from
incurring additional indebtedness or, except as described below, from creating
liens on its assets. The Indenture does not require the maintenance of any
financial ratios or specified levels of net worth or liquidity.
CERTAIN DEFINITIONS
"Attributable Debt" with respect to any sale leaseback transaction that is
subject to the restrictions described under "Certain Covenants -- Limitation on
Sale and Leaseback Transactions" below means the lesser of (i) the total net
amount of rent required to be paid during the remaining base term of the related
lease or until the earliest date on which the lessee may terminate such lease
upon payment of a penalty or a lump-sum termination payment (in which case the
total net rent shall include such penalty or termination payment), discounted at
the interest rate borne by the Debt Securities, computed semi-annually, or (ii)
the sale price of the property so leased multiplied by a fraction the numerator
of which is the remaining base term of the related lease (expressed in months)
and the denominator of which is the base term of such lease (expressed in
months).
"Consolidated Net Tangible Assets" means the aggregate amount of assets
(less applicable reserves) after deducting therefrom (i) all current liabilities
and (ii) all goodwill, tradenames, trademarks, patents, unamortized debt
discount and expense (to the extent included in said aggregate amount of assets)
and other intangible assets, all as set forth on the most recent consolidated
balance sheet of the Company and its consolidated Subsidiaries and computed in
accordance with generally accepted accounting principles.
"Principal Property" means any right, title or interest (including leasehold
interests under capital leases) of the Company or any Subsidiary in, to or under
real property or improvements to real property, which right, title or interest
has a book value equal to or greater than 0.5% of the Consolidated Net Tangible
Assets of the Company and its consolidated Subsidiaries.
"Restricted Subsidiary" means any Subsidiary that owns or is lessee of one
or more Principal Properties.
"Secured Debt" means indebtedness for money borrowed which is secured by a
Lien on property of the Company or any Restricted Subsidiary, excluding certain
guarantees arising in the ordinary course of business.
6
CERTAIN COVENANTS
LIMITATION ON LIENS
The Indenture provides that, except as described below under "Exempted
Indebtedness," the Company will not, nor will it permit any Restricted
Subsidiary to, create, assume or suffer to exist any mortgage, security
interest, pledge or lien ("Lien") of or upon any Principal Property or any
shares of capital stock or evidences of indebtedness for borrowed money issued
by any Restricted Subsidiary and owned by the Company or any Restricted
Subsidiary, unless the Debt Securities are directly secured equally and ratably
by (or, at the option of the Company, prior to) such Lien with any and all other
indebtedness or obligations thereby secured, so long as such indebtedness or
obligations shall be so secured. This restriction does not apply to: (i) Liens
that exist on the date of the Indenture; (ii) Liens on property or shares of
capital stock or evidences of indebtedness of any corporation existing at the
time such corporation becomes a Subsidiary; (iii) Liens in favor of the Company
or any Subsidiary; (iv) Liens in favor of governmental bodies to secure
progress, advance or other payments pursuant to contract or law or indebtedness
incurred to finance all or part of construction of, or improvements to, property
subject to such Liens; (v) Liens (a) on property, shares of capital stock or
evidences of indebtedness for borrowed money existing at the time of acquisition
thereof (including acquisition through merger or consolidation), and
construction and improvement Liens that are entered into within one year from
the date of such construction or improvement, provided that in the case of
construction or improvement the Lien does not apply to any property theretofore
owned by the Company or any Restricted Subsidiary except substantially
unimproved real property on which the property so constructed or the improvement
is located and (b) for the acquisition of any Principal Property which Liens are
created within 180 days after the completion of such acquisition to secure or
provide for the payment of the purchase price of the Principal Property
acquired, provided that any such Liens do not extend to any other property of
the Company or any of its Restricted Subsidiaries (whether or not such property
is then owned or thereafter acquired); (vi) mechanics', landlords' and similar
Liens arising in the ordinary course of business in respect of obligations not
due or being contested in good faith; (vii) Liens for taxes, assessments, or
governmental charges or levies that are not delinquent or are being contested in
good faith; (viii) Liens arising from any legal proceedings that are being
contested in good faith; (ix) any Liens that (a) are incidental to the ordinary
conduct of its business or the ownership of its properties and assets, including
Liens incurred in connection with workmen's compensation, unemployment insurance
or other forms of governmental insurance or benefits, or to secure performance
of tenders, statutory obligations, leases and contracts, (b) were not incurred
in connection with the borrowing of money or the obtaining of advances or
credit, and (c) do not in the aggregate materially detract from the value of the
property of the Company or any Restricted Subsidiary or materially impair the
use thereof in the operation of its business; (x) Liens securing industrial
development, road, traffic improvement, sewer, utility, or pollution control
bonds; and (xi) Liens for the sole purpose of extending, renewing or replacing
in whole or in part any of the foregoing.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that, except as described below under "Exempted
Indebtedness," the Company will not, nor will it permit any Restricted
Subsidiary to, enter into any sale and leaseback transactions (except for
transactions involving temporary leases for a term of three years or less) of
any Principal Property unless either: (i) the Company or such Restricted
Subsidiary would be entitled, pursuant to the covenant described under
"Limitations on Liens" above, to incur a Lien on the Principal Property to be
leased without equally and ratably securing the Debt Securities or (ii) the
proceeds of such sale are at least equal to the fair value of the Principal
Property sold and the Company will apply an amount equal to the net proceeds of
such sale to (a) the retirement of Secured Debt of the Company or a Restricted
Subsidiary or (b) the acquisition, construction or improvement of a Principal
Property, in the case of either clause (a) or (b), within 180 days of the
effective date of any such sale and leaseback transaction.
7
EXEMPTED INDEBTEDNESS
The Indenture provides that, notwithstanding the limitations on Liens and
sale and leaseback transactions described above, the Company or any Restricted
Subsidiary may create, assume or suffer to exist Liens or enter into sale and
leaseback transactions not otherwise permitted by the Indenture provided that at
the time of such event, and after giving effect thereto, the sum of outstanding
indebtedness for borrowed money incurred after the date of the Indenture and
secured by such Liens plus the Attributable Debt in respect of such sale and
leaseback transactions entered into after the date of the Indenture does not
exceed 15% of the Consolidated Net Tangible Assets of the Company and its
Restricted Subsidiaries.
LIMITATION ON MERGERS AND CONSOLIDATIONS
The Indenture provides that the Company will not merge, consolidate or
convey, transfer or lease its properties and assets substantially as an entirety
and the Company will not permit any Person to be consolidated with or merge into
the Company unless, among other things: (i) the successor Person is the Company
or other corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia that expressly assumes the
Company's obligations on the Debt Securities and under the Indenture, (ii)
immediately after giving effect to such transaction on a pro forma basis no
Default or Event of Default shall exist or shall occur and (iii) if, as a result
of any such consolidation or merger or such conveyance, transfer or lease, any
Principal Property of the Company would become subject to a Lien that would not
be permitted by the Indenture, the Company or such successor Person takes such
steps as are necessary effectively to directly secure the Debt Securities
equally and ratably with (or, at the option of the Company, prior to) all
indebtedness secured thereby.
MODIFICATION AND WAIVER
Modification and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of each series affected thereby;
provided, however, that no such modification or amendment may, among other
things, without the consent of the Holder of each Outstanding Debt Security
affected thereby: (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Outstanding Debt Security; (b) reduce the
principal amount of, or interest on, any Outstanding Debt Security; (c) change
the place or currency of payment of principal or interest on any Outstanding
Debt Security; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any Outstanding Debt Security; (e) reduce the
percentage in principal amount of Outstanding Debt Securities of any series, the
consent of the Holders of which is required for modification or amendment of the
Indenture, for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults; (f) alter or impair the right of any Holder to
convert the Debt Securities of any series that provides for conversion; or (g)
change the redemption provisions of the Indenture or a series of Debt Securities
in a manner adverse to the Holders.
The Company may obtain a waiver of compliance with certain restrictive
covenants with respect to the Debt Securities of a series if the Holders of a
majority in principal amount of the Outstanding Debt Securities of each series
affected thereby. The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series may on behalf of the Holders of
all Debt Securities of that series waive any past default under the Indenture
with respect to that series of Debt Securities, except a default in the payment
of the principal of, or any interest on, any Debt Security of that series or in
respect of a covenant or provision that under the Indenture cannot be modified
or amended without the consent of the Holder of each Outstanding Debt Security
of that series affected.
EVENTS OF DEFAULT
The Indenture provides that the following constitute Events of Default: (i)
default for 30 days in the payment of any interest when due; (ii) default in the
payment of principal when due; (iii) default in the performance of any other
covenant in the Indenture for 60 days after written notice; (iv) a failure to
pay when due, or a default resulting in the acceleration of maturity, of any
other indebtedness for
8
borrowed money of the Company or any Subsidiary provided the principal amount of
any such indebtedness together with the principal amount of any other such
indebtedness that is presently in payment default or the maturity of which has
been so accelerated, aggregates $10 million or more, without such acceleration
having been rescinded, stayed or annulled, or such indebtedness having been
discharged or, in the case of indebtedness contested in good faith by the
Company, a bond, letter of credit, escrow deposit or other cash equivalent in an
amount sufficient to discharge such indebtedness having been set aside, within
60 days after written notice of default is given to the Company; and (v) certain
events of bankruptcy, insolvency or reorganization. The Company is required to
furnish the Trustee annually with a statement as to the fulfillment by the
Company of its obligations under the Indenture. The Indenture provides that the
Trustee may withhold notice to the Holders of the Debt Securities of any default
(except in payment of principal or interest on the Debt Securities) if it
considers it in the interest of the Holders to do so.
If an Event of Default with respect to Outstanding Debt Securities of any
series occurs and is continuing, then and in every such case the Trustee or the
Holders of not less than 25 percent in principal amount of the Outstanding Debt
Securities of that series may declare the principal amount to be due and payable
immediately, by notice in writing to the Company (and to the Trustee if given by
the Holders), and upon any such declaration such principal will become
immediately due and payable. However, at any time after a declaration of
acceleration with respect to Debt Securities of any series has been made, but
before a judgment or decree based on such acceleration has been obtained, the
Holders of a majority in principal amount of Outstanding Debt Securities of that
series may, subject to certain conditions, rescind and annul such acceleration
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee is
under no obligation to exercise any of its rights or powers under the Indenture
at the request, order or direction of any of the Holders, unless such Holders
have offered to the Trustee reasonable security or indemnity. Subject to such
provisions for the security or indemnification of the Trustee, the Holders of a
majority in principal amount of the outstanding Debt Securities of any series
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
powers conferred on the Trustee with respect to the Debt Securities of that
series.
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder has previously given to the Trustee written
notice of a continuing Event of Default with respect to Debt Securities of that
series and unless also the Holders of at least 25 percent in principal amount of
the Outstanding Debt Securities of that series have made written request, and
offered reasonable security or indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee has not received from the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series a
direction inconsistent with such request, and the Trustee has failed to
institute such proceeding within 60 days. However, the Holder of any Debt
Security will have an absolute right to receive payment of the principal of and
any interest on such Debt Security on or after the due dates expressed in such
Debt Security and to institute a proceeding for the enforcement of any such
payment.
SATISFACTION, DISCHARGE, AND DEFEASANCE PRIOR TO MATURITY OR REDEMPTION
Under the Indenture, the Company may, at its option, elect to have its
obligations discharged with respect to the outstanding Debt Securities of any
defeasible series ("Defeasance"). Defeasance means that the Company will be
deemed to have paid and discharged the entire indebtedness represented, and the
Indenture will cease to be of further effect as to all outstanding Debt
Securities of such series except as to (i) rights of holders to receive payments
in respect of the principal of and interest on the Debt Securities of such
series when such payments are due from the trust assets described below; (ii)
the Company's obligations with respect to the Debt Securities of such series
concerning issuing temporary Debt Securities, registration of Debt Securities,
mutilated, destroyed, lost or stolen Debt Securities, and the maintenance of an
office or agency for payment of the Debt Securities; (iii) the
9
rights, powers, trusts, duties, and immunities of the Trustee, and the Company's
obligations in connection therewith; and (iv) the Defeasance provisions of the
Indenture. The Company may cause Defeasance to occur at any time. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to the covenants that are described in the
Indenture with respect to the outstanding Debt Securities of any defeasible
series ("Covenant Defeasance") and thereafter any omission to comply with such
obligations will not constitute an Event of Default with respect to the Debt
Securities of such series. In the event Covenant Defeasance occurs, certain
events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Debt Securities of such series.
In order to exercise either Defeasance or Covenant Defeasance with respect
to any defeasible series, (i) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the holders of the Debt Securities of such
series, at or before maturity or redemption of the Debt Securities of such
series, money and/or Government Obligations in such amounts and maturing at such
times such that the proceeds of such obligations to be received upon the
respective maturities and interest payment dates of such obligations will
provide funds sufficient, without reinvestment, in the opinion of a nationally
recognized firm of independent public accountants, to pay when due the principal
of (and premium, if any) and each installment of principal of (and premium, if
any) and interest on such series of Debt Securities at the stated maturity of
such principal or installment of principal or interest, as the case may be, and
the Holders of Debt Securities must have a valid, perfected, exclusive security
interest in such trust; (ii) no Event of Default or event that, with notice or
lapse of time, would become an Event of Default at the date of the deposit will
have occurred and be continuing to exist, or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (iii) such Defeasance or Covenant
Defeasance must not cause any Debt Securities of such series then listed on any
nationally recognized securities exchange to be delisted; (iv) such Defeasance
or Covenant Defeasance must not result in a breach of, or constitute a default
under, any instrument by which the Company or any of its Subsidiaries is bound;
(v) such Defeasance or Covenant Defeasance must not cause the Trustee for the
Securities of such series to have conflicting interest for purposes of the Trust
Indenture Act with respect to any securities of the Company; (vi) such
Defeasance or Covenant Defeasance must not cause the trust to be an investment
company as defined under the Investment Company Act of 1940; (vii) the Company
must have delivered to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
the Debt Securities over any other creditors of the Company or with the intent
of defeating, hindering, delaying or defrauding any other creditors of the
Company or others; and (viii) the Company must have delivered to the Trustee an
Officers' Certificate to the effect that all conditions precedent, if any,
provided for in the Indenture relating to Defeasance or Covenant Defeasance have
been complied with. In addition, the Company will be required to deliver to the
Trustee an Opinion of Counsel (i) in connection with a proposed Defeasance,
stating that (a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling, or (b) since the date of the Indenture
there has been a change in the applicable Federal income tax law, in either case
to the effect that Holders of the Debt Securities of such series will not
recognize income, gain or loss for Federal income tax purposes as a result of
such Defeasance and will be subject to Federal income tax in the same amounts
and in the same manner and at the same times as would have been the case if such
Defeasance had not occurred and (ii) in connection with a proposed Covenant
Defeasance, to the effect that Holders of the Debt Securities of such series
will not recognize income, gain or loss for Federal income tax purposes as a
result of such Covenant Defeasance and will be subject to Federal income tax in
the same amounts and in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred.
10
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the Securities being offered hereby: (i) directly to
purchasers, (ii) through agents, (iii) through dealers, (iv) through
underwriters, or (v) through a combination of any such methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions either (i) at a fixed price or prices, which may be
changed, (ii) at market prices prevailing at the time of sale, (iii) at prices
related to such prevailing market prices, or (iv) at negotiated prices.
Offers to purchase Securities may be solicited directly by the Company or by
agents designated by the Company from time to time. Any such agent, which may be
deemed to be an underwriter as that term is defined in the Securities Act of
1933, as amended (the "Securities Act"), involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company to such agent will be set forth in the
Prospectus Supplement relating to the offering of such Securities. Unless
otherwise indicated in the applicable Prospectus Supplement, any such agent will
be acting on a best efforts basis for the period of its appointment.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer, which may be deemed to be an underwriter as
that term is defined in the Securities Act, may then resell such Securities to
the public at varying prices to be determined by such dealer at the time of
resale.
If an underwriter or underwriters are utilized in the sale, the Company will
execute an underwriting agreement with such underwriters at the time of sale to
them and the names of the underwriters will be set forth in the applicable
Prospectus Supplement, which will be used by the underwriters to make resales of
the Securities in respect of which this Prospectus is delivered to the public.
The obligations of underwriters to purchase securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of the securities of a series if any are purchased.
Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with the Company, to indemnification against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments that they may be required to make in
respect thereof. Underwriters, dealers and agents may engage in transactions
with, or perform services for, the Company in the ordinary course of business.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in a Prospectus Supplement, the Company will authorize
underwriters, dealers or other persons acting as agents of the Company to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date or
dates. Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will not be subject to any conditions except that (a)
the purchase of the Securities will not at the time of delivery be prohibited
under the laws of the jurisdiction to which such purchaser is subject, and (b)
if the Securities are also being sold to such underwriters, the Company must
have sold to such underwriters the total principal amount of such Securities
less the principal amount thereof covered by such delayed delivery and payment
arrangements. The underwriters, dealers and such other persons will not have any
responsibility in respect of the validity or performance of such contracts.
11
EXPERTS
The consolidated financial statements and schedules of the Company for each
of the last three fiscal years, incorporated herein by reference, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto. In those reports, that firm states that with
respect to The Price Company for fiscal year 1993, its opinion is based on the
report of other independent auditors, namely Ernst & Young LLP. The consolidated
financial statements referred to above have been incorporated herein by
reference in reliance upon the reports of said firms and upon the authority of
those firms as experts in accounting and auditing.
With respect to the unaudited financial information of the Company for the
fiscal quarter ended November 26, 1995, incorporated herein by reference, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate report
thereon and incorporated by reference herein, states that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on that information should
be restricted in light of the limited nature of the review procedures applied.
In addition, Arthur Andersen LLP is not subject to the liability provisions of
Section 11 of the Securities Act for their report on the unaudited interim
financial information because that report is not a "report" or a "part" of this
Prospectus prepared or certified by Arthur Andersen LLP within the meaning of
Sections 7 or 11 of the Securities Act.
12
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PRICECOSTCO, INC.
% SENIOR NOTES
DUE MARCH , 2001
% SENIOR NOTES
DUE MARCH , 2016
--------------
PROSPECTUS SUPPLEMENT
, 1996
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DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
BA SECURITIES, INC.
CIBC WOOD GUNDY SECURITIES CORP.
NATIONSBANC CAPITAL MARKETS, INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (not including underwriting commissions and fees) of issuance
and distribution of the securities are estimated to be:
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation of the Company (the "Certificate
of Incorporation") and the Amended and Restated Bylaws of the Company (the
"Bylaws") provide for indemnification of present and former directors and
officers of the Company, The Price Company ("Price") and Costco Wholesale
Corporation ("Costco") and persons serving as directors, officers, employees or
agents of another corporation or entity at the request of the Company, Price or
Costco (each, an "Indemnified Party"), each to the fullest extent permitted by
the Delaware General Corporation Law (the "DGCL"). Section 145 of the DGCL
allows indemnification of specified persons by Delaware corporations, and
describes requirements and limitations on such powers of indemnification. The
Company has included in the Certificate of Incorporation and the Bylaws
provisions which require the Company to indemnify an Indemnified Party if the
standard of conduct and other requirements set forth therein and by the DGCL are
met.
Indemnified Parties are specifically indemnified in the Certificate of
Incorporation and the Bylaws (the "Indemnification Provisions") from expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with an action, suit or proceeding (i) by reason of the fact that
he or she is or was a director or officer of the Company, Price or Costco or
served as a director, officer, employee or agent at the request of the Company,
Price or Costco or (ii) by or in right of the Company, Price or Costco, provided
that indemnification is permitted only with judicial approval if the Indemnified
Party is adjudged to be liable to the Company. Such Indemnified Party must have
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the subject corporation and, with respect
to any criminal action or proceeding, must have had no reasonable cause to
believe his or her conduct was unlawful. Any indemnification must be authorized
based on a determination that the indemnification is proper as the applicable
standard of conduct has been met by the Indemnified Party. Such determination
will be made by a majority vote of a quorum of the Board consisting of directors
not a party to the suit, action or proceeding, by a written opinion of
independent legal counsel or by the stockholders. In the event that a
determination is made that a director or officer is not entitled to
indemnification under the Indemnification Provisions, the Indemnification
Provisions provide that the Indemnified Party may seek a judicial determination
of his or her rights to indemnification. The Indemnification Provisions further
provide that the Indemnified Party is entitled to indemnification for and
advancement of, all expenses (including attorneys' fees) incurred in any
proceeding seeking to collect from the Company an indemnity claim or advancement
of expenses under the Indemnification Provision whether or not such Indemnified
Party is successful.
II-1
The Company will pay expenses incurred by a director or officer of the
Company, or a former director or officer of Price or Costco, in advance of the
final disposition of an action, suit or proceeding, if he or she undertakes to
repay amounts advanced if it is ultimately determined that he or she is not
entitled to be indemnified by the Company. The Indemnification Provision is
expressly not exclusive of any other rights of indemnification or advancement of
expenses pursuant to the Bylaws or any agreement, vote of the stockholders or
disinterested directors or pursuant to judicial direction.
The Company is authorized to purchase insurance on behalf of an Indemnified
Party for liabilities incurred, whether or not the Company would have the power
or obligation to indemnify him or her pursuant to the Certificate of
Incorporation or the DGCL. The Company has obtained such insurance.
The Company has entered into indemnification agreements with all of its
directors providing for the foregoing.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
*To be filed by incorporation by reference to the Company's Current Report on
Form 8-K to be filed subsequent to the effectiveness of this Registration
Statement.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
Provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
II-2
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Issaquah, State of Washington, on the 21st day of
February, 1996
PRICE/COSTCO, INC.
By: /s/ JAMES D. SINEGAL
-----------------------------------
Its: PRESIDENT, CHIEF EXECUTIVE
OFFICER
AND DIRECTOR
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes
Jeffrey H. Brotman, James D. Sinegal, Richard A. Galanti or Richard J. Olin, or
any of them, as attorneys-in-fact with full power of substitution, to execute in
the name and on behalf of each person, individually and in each capacity stated
below, and to file, any and all amendments to this Registration Statement,
including any and all post-effective amendments.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on February 21, 1996.
II-4
II-5
INDEX TO EXHIBITS