1
As filed with the Securities and Exchange Commission on October 8, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 22, 1997
Commission File Number: 1-11954
VORNADO REALTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 22-1657560
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
PARK 80 WEST, PLAZA II, SADDLE BROOK, NEW JERSEY 07663
(Address of principal executive offices) (Zip Code)
(201) 587-1000
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
-1-
2
Items 1-4 Not Applicable.
Item 5. Other Events.
CHARLES E. SMITH:
On September 22, 1997, Vornado Realty Trust entered into an
agreement to acquire a 15% limited partnership interest in Charles
E. Smith Commercial Realty, L.P. for $60 million. Charles E. Smith
Commercial Realty, L.P. is being formed to own interests in and
manage approximately 7.2 million square feet of office properties
in Crystal City, Alexandria, Virginia, a suburb of Washington,
D.C., and to manage an additional 14 million square feet of office
and other commercial properties in the Washington, D.C. area. The
Crystal City properties in which Charles E. Smith Commercial
Realty, L.P. will own an interest, are now owned by other various
Charles E. Smith affiliates. The closing, which is expected to
occur at the end of October, is subject to receipt of consents
from various parties and other conditions.
HOTEL PENNSYLVANIA:
On September 25, 1997, Vornado Realty Trust acquired a 40%
interest in the Hotel Pennsylvania, which is located on Seventh
Avenue in New York City opposite Madison Square Garden. The
property was acquired in a joint venture with Hotel Properties
Limited and Planet Hollywood International, Inc. The venture
intends to create a sports-themed hotel and entertainment complex.
Under the joint venture agreement, Hotel Properties Limited and
Planet Hollywood International, Inc. will have 40% and 20%
interests, respectively. The joint venture acquired the hotel for
approximately $159 million, of which $120 million is newly-issued
5 year financing. The Hotel Pennsylvania contains approximately
800,000 square feet of hotel space with 1,700 rooms and 400,000
square feet of retail and office space. Vornado will manage the
site's retail and office space, and Hotel Properties will manage
the hotel.
COLD STORAGE:
On September 26, 1997, Vornado Realty Trust entered into
merger agreements pursuant to which its newly formed preferred
stock affiliates ("Preferred Stock Affiliates") will acquire
Americold Corporation ("Americold") and URS Logistics, Inc.
("URS") (collectively "Cold Storage"). The consideration for the
Americold transaction is approximately $582 million, including
$111 million in cash and $471 million in indebtedness. The
consideration for the URS transaction is approximately $367
million, including $178 million in cash and $189 million in
indebtedness.
-2-
3
The Preferred Stock Affiliates entered into an agreement with
Crescent Real Estate Equities Limited Partnership ("Crescent") to
make these acquisitions pursuant to which the Preferred Stock
Affiliates would hold a 60% interest in the investment and
Crescent a 40% interest.
Affiliates of Kelso & Company, Inc., which have a controlling
interest in both Americold and URS, have granted consents or
irrevocable proxies with respect to both transactions. Each
transaction is not conditioned on the closing of the other, and
both are expected to close in the fourth quarter of 1997.
The forgoing is qualified in its entirety by reference to
Exhibits 99.3 through 99.6.
The Charles E. Smith, Hotel Pennsylvania and Cold Storage
transactions were arrived at through arm's-length negotiations
and were consummated through a subsidiary of Vornado Realty L.P..
Vornado Realty Trust owns 90.4% of Vornado Realty L.P. and is the
sole general partner.
STOCK SPLIT:
On October 7, 1997, Vornado Realty Trust announced a
two-for-one stock split by declaring a dividend of one common
share for each share issued and outstanding as of the close of
business on October 15, 1997. As a result of the stock split,
Vornado's outstanding shares will increase from approximately
26.56 million shares to 53.12 million shares. The additional
shares will be issued October 20, 1997.
Item 6. Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) - (b) There are filed herewith (a) the historical financial
statements of Americold, URS, Montehiedra Town Center
("Montehiedra") and the Riese Properties ("Riese") commencing on
page 7 and (b) the Condensed Consolidated Pro Forma Balance Sheet
of Vornado Realty Trust as of June 30, 1997 and the Condensed
Consolidated Pro Forma Statement of Income of Vornado Realty Trust
for the six months ended June 30, 1997 and the year ended December
31, 1996, commencing on page 68, prepared to give Pro Forma effect
to the proposed acquisition of Americold and URS, completed
acquisitions of Montehiedra and Riese and investments in Charles
E. Smith Commercial Realty L.P. and the Hotel Pennsylvania. The
Pro Forma data also includes certain previously reported
acquisitions which were included in Form 8-K's previously filed
with the Securities and Exchange Commission in 1997.
(c) Exhibits.
Exhibit No. Exhibit
----------- -------
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Deloitte & Touche LLP
-3-
4
Exhibit No. Exhibit
----------- -------
99.1 Press Release, dated September 22, 1997, of Vornado
Realty Trust, announcing the acquisition of a 15%
limited partnership interest in Charles E. Smith
Commercial Realty, L.P.
99.2 Press Release, dated September 25, 1997, of Vornado
Realty Trust, announcing the acquisition of a 40%
interest in Hotel Pennsylvania.
99.3 Press Release, dated September 29, 1997, of Vornado
Realty Trust, announcing the acquisition of Americold
Corporation and URS Logistics, Inc. and the formation
of a partnership with Crescent Real Estate Equities
Company.
99.4 Agreement and Plan of Merger, dated as of September
26, 1997 among Vornado Realty Trust, Atlanta Parent,
Inc., Atlanta Storage Acquisition Co. and URS
Logistics, Inc.
99.5 Agreement and Plan of Merger, dated as of September
26, 1997 among Vornado Realty Trust, Portland Parent,
Inc., Portland Storage Acquisition Co. and Americold
Corporation.
99.6 Agreement dated September 28, 1997 between Atlanta
Parent Incorporated, Portland Parent Incorporated
and Crescent Real Estate Equities Limited
Partnership.
Item 8. Not Applicable.
-4-
5
Page
7(a) Financial statements Reference
---------
Americold Corporation
Independent Auditors' Report..........................................7
Consolidated Balance Sheets as of the
last day of February 1996 and 1997...................................8
Consolidated Statements of Operations
for the years ended on the last day of
February 1995, 1996 and 1997........................................10
Consolidated Statements of Common Stockholders' Deficit for
the years ended on the last day of February 1995, 1996 and
1997............................................................... 11
Consolidated Statements of Cash Flows for the
years ended on the last day of
February 1995, 1996 and 1997................................... 12
Notes to Consolidated Financial Statements as of
the last day of February 1996 and 1997............................. 14
Consolidated Balance Sheet as of the last day
of August 1997................................................. 35
Consolidated Statements of Operations for the
six months ended on the last day of
August 1996 and 1997........................................... 36
Consolidated Statements of Cash Flows, for the
six months ended on the last day of
August 1996 and 1997........................................... 37
Notes to Consolidated Financial Statements as
of the last day of August 1996 and 1997........................ 38
URS Logistics, Inc. and Subsidiary
Independent Auditor's Report....................................... 42
Consolidated Balance Sheets as of
December 31, 1996 and 1995..................................... 43
Consolidated Statements of Operations for the
Years ended December 31, 1996, 1995
and 1994....................................................... 44
Consolidated Statements of Stockholders' Equity
for the Years ended December 31, 1996, 1995
and 1994....................................................... 45
Consolidated Statements of Cash Flows for the
Years ended December 31, 1996, 1995 and 1994................... 46
Notes to Consolidated Financial Statements as
of and for the Years ended December 31, 1996
and 1995....................................................... 48
-5-
6
Page
Reference
---------
Consolidated Balance Sheet as of June 30, 1997..................... 55
Consolidated Statements of Operations for the
six months ended June 30, 1997 and 1996....................... 57
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996....................... 58
Notes to Consolidated Financial Statements
as of and for the six months ended
June 30, 1997 and 1996........................................ 59
Montehiedra Town Center
Independent Auditors' Report....................................... 60
Statements of Revenue and Certain Expenses for
the Year ended December 31, 1996 and the
three months ended March 31, 1997 and 1996.................... 61
Notes to Statements of Revenue and Certain Expenses................ 62
Riese Properties
Independent Auditors' Report....................................... 64
Statement of Revenues and Certain Expenses
for the Year ended April 30, 1997 and
the six months ended April 30, 1997 and 1996.................. 65
Notes to Statements of Revenues and Certain Expenses............... 66
(b) Pro Forma financial information
Condensed Consolidated Pro Forma Balance
Sheet as at June 30, 1997........................................ 69
Condensed Consolidated Pro Forma Income
Statement for the six months ended
June 30, 1997.................................................... 70
Condensed Consolidated Pro Forma Income
Statement for the Year ended
December 31, 1996................................................ 72
Notes to Condensed Consolidated Pro Forma
Financial Statements............................................. 74
-6-
7
[PEAT MARWICK LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Americold Corporation:
We have audited the consolidated balance sheets of Americold Corporation as of
the last day of February 1996 and 1997, and the related consolidated statements
of operations, common stockholders' deficit and cash flows for each of the years
in the three-year period ended the last day of February 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Americold
Corporation as of the last day of February 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended the last day of February 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
May 2, 1997
-7-
8
AMERICOLD CORPORATION
Consolidated Balance Sheets
Last day of February 1996 and 1997
(In Thousands, Except Share Data)
Assets 1996 1997
------ ---- ----
Current assets:
Cash and cash equivalents $ 20,857 $ 13,702
Trade receivables, less allowance for doubtful accounts
of $218 and $396, respectively 25,461 27,560
Other receivables 3,512 3,138
Prepaid expenses 4,286 3,828
Tax refund receivable 3,336 2,636
Other current assets 845 891
--------- --------
Total current assets 58,297 51,755
Net property, plant and equipment 375,851 384,484
Cost in excess of net assets acquired, less accumulated
amortization of $22,138 and $24,644, respectively 77,255 74,749
Debt issuance costs, less accumulated amortization
of $3,987 and $5,168, respectively 6,627 11,041
Other noncurrent assets 8,962 9,005
--------- ---------
Total assets $ 526,992 $ 531,034
========= =========
See accompanying notes to consolidated financial statements.
-8-
9
Liabilities, Preferred Stock and Common Stockholders' Deficit 1996 1997
------------------------------------------------------------- ---- ----
Current liabilities:
Accounts payable $ 11,363 $ 16,116
Accrued interest 19,056 18,466
Accrued expenses 11,604 13,660
Deferred revenue 5,707 5,555
Current maturities of long-term debt 2,732 5,229
Other current liabilities 4,630 5,259
--------- ---------
Total current liabilities 55,092 64,285
Long-term debt, less current maturities 461,667 465,834
Deferred income taxes 102,041 98,524
Other noncurrent liabilities 9,861 10,347
--------- ---------
Total liabilities 628,661 638,990
--------- ---------
Preferred stock, Series A, $100 par value. Authorized 1,000,000
shares; issued and outstanding 52,936 shares 5,771 5,753
--------- ---------
Common stockholders' deficit:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 4,931,194 and 4,995,556 shares, respectively 49 50
Additional paid-in capital 50,173 51,182
Retained deficit (157,345) (164,580)
Adjustment for minimum pension liability (317) (361)
--------- ---------
Total common stockholders' deficit (107,440) (113,709)
Commitments and contingencies - -
--------- ---------
Total liabilities, preferred stock and common stockholders' deficit $ 526,992 $ 531,034
========= =========
-9-
10
AMERICOLD CORPORATION
Consolidated Statements of Operations
Years ended last day of February 1995, 1996 and 1997
(In Thousands, Except Per Share Data)
1995 1996 1997
---- ---- ----
Net sales $ 215,207 $ 279,788 $ 310,767
--------- --------- ---------
Operating expenses:
Cost of sales 138,132 194,936 228,762
Amortization of cost in excess of net assets acquired 2,535 2,773 2,506
Selling and administrative expenses 25,955 28,525 31,142
Employee stock ownership plan expense 750 750 500
--------- --------- ---------
Total operating expenses 167,372 226,984 262,910
--------- --------- ---------
Gross operating margin 47,835 52,804 47,857
--------- --------- ---------
Other income (expense):
Interest income 1,870 1,199 932
Interest expense (55,344) (56,610) (56,678)
Amortization of debt issuance costs (1,276) (964) (1,185)
Gain on insurance settlement 16,953 - -
Reorganization expenses - (7,344) (771)
Other, net 753 (591) 701
--------- --------- ---------
Total other expense (37,044) (64,310) (57,001)
--------- --------- ---------
Income (loss) before income taxes and extraordinary item 10,791 (11,506) (9,144)
Provision (benefit) for income taxes 5,227 (3,426) (2,604)
--------- --------- ---------
Income (loss) before extraordinary item 5,564 (8,080) (6,540)
Extraordinary item, net of income tax benefit of $1,158 - (1,794) -
--------- --------- ---------
Net income (loss) $ 5,564 $ (9,874) $ (6,540)
========= ========= =========
Income (loss) per share:
Income (loss) before extraordinary item $ 1.00 $ (1.80) $ (1.46)
Extraordinary item - (.37) -
--------- --------- ---------
Net income (loss) per common share $ 1.00 $ (2.17) $ (1.46)
========= ======== =========
Weighted average number of shares outstanding 4,864 4,867 4,952
========= ========= =========
See accompanying notes to consolidated financial statements.
-10-
11
AMERICOLD CORPORATION
Consolidated Statements of Common Stockholders' Deficit
Years ended last day of February 1995, 1996 and 1997
(In Thousands, Except Share Data)
Adjustment
for
Additional minimum Total common
Common paid-in Retained pension stockholders'
stock capital deficit liability deficit
----- ------- ------- --------- -------
Balance last day of February 1994 $ 49 $ 49,082 $(151,653) $ (55) $(102,577)
Purchase of common stock (3,065 shares) - (60) - - (60)
11.5% preferred stock dividend - - (190) - (190)
Undeclared cumulative preferred stock dividend - - (496) - (496)
Adjustment for minimum pension liability - - - 12 12
Net income - - 5,564 - 5,564
-------- -------- -------- -------- --------
Balance last day of February 1995 49 49,022 (146,775) (43) (97,747)
Issuance of common stock (26,685 shares) - 436 - - 436
13.5% preferred stock dividend - 715 (219) - 496
Undeclared cumulative preferred stock dividend - - (477) - (477)
Adjustment for minimum pension liability - - - (274) (274)
Net loss - - (9,874) - (9,874)
-------- -------- -------- -------- ---------
Balance last day of February 1996 49 50,173 (157,345) (317) (107,440)
Issuance of common stock (64,362 shares) 1 1,009 - - 1,010
13.5% preferred stock dividend - - (237) - (237)
Undeclared cumulative preferred stock dividend - - (458) - (458)
Adjustment for minimum pension liability - - - (44) (44)
Net loss - - (6,540) - (6,540)
-------- -------- -------- -------- --------
Balance last day of February 1997 $ 50 $ 51,182 $(164,580) $ (361) $(113,709)
======== ======== ========= ======== =========
See accompanying notes to consolidated financial statements.
-11-
12
AMERICOLD CORPORATION
Consolidated Statements of Cash Flows
Years ended last day of February 1995, 1996 and 1997
(In Thousands)
1995 1996 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 5,564 $ (9,874) $ (6,540)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 20,140 19,682 20,697
Amortization of cost in excess of net assets acquired 2,535 2,773 2,506
Amortization of debt issuance costs 1,276 964 1,185
Amortization of original issue discount 1,369 430 -
Gain (loss) on sale of assets (286) (555) 25
Gain on insurance settlement (16,953) - -
Other amortization 302 570 570
Write-off of unamortized issuance costs - 962 -
Write-off of original issuance discount - 1,989 -
Write-off of long-term investment - 750 -
Change in assets and liabilities:
Receivables (6,952) (6,358) (1,725)
Prepaid expenses (1,268) 954 458
Tax refund receivable 1,012 (3,057) 700
Other current assets (67) (150) (46)
Accounts payable 1,291 4,622 4,753
Accrued interest 349 1,373 (590)
Accrued expenses 3,833 259 2,806
Deferred revenue 1,142 (207) (152)
Other current liabilities (1,032) 718 629
Deferred income taxes 1,540 (4,057) (3,517)
Other noncurrent liabilities (1,111) 772 (2,901)
---------- --------- ---------
Net cash provided by operating activities 12,684 12,560 18,858
---------- --------- ---------
See accompanying notes to consolidated financial statements.
-12-
13
AMERICOLD CORPORATION
Consolidated Statements of Cash Flows, Continued
(In Thousands)
1995 1996 1997
---- ---- ----
Cash flows from investing activities:
Proceeds from sale of assets $ 1,105 $ 6,169 $ 1,658
Expenditures for property, plant and equipment (13,203) (34,183) (33,634)
Purchase of long-term investment (447) -- --
Proceeds from insurance policies 26,343 -- --
Expenditures for logistics software (1,650) (230) (56)
Other items, net 287 646 943
-------- --------- ---------
Net cash provided (used) by investing activities 12,435 (27,598) (31,089)
-------- --------- ---------
Cash flows from financing activities:
Principal payments under capital lease and other
debt obligations (2,087) (2,752) (2,425)
Proceeds from mortgage 13,475 -- 15,222
Retirement of note and mortgage (9,044) -- (11,376)
Proceeds from sale of senior subordinated notes -- -- 120,000
Retirement of senior subordinated debentures -- -- (115,000)
Retirement of mortgage bonds -- (10,000) --
Release of escrow funds 2,714 20,083 4,820
Deposit of escrow funds -- (4,768) --
Debt issuance costs (846) (269) (5,668)
Purchase of treasury stock (60) -- --
Issuance of stock -- 438 218
Preferred stock dividend -- -- (715)
-------- --------- ---------
Net cash provided by financing activities 4,152 2,732 5,076
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 29,271 (12,306) (7,155)
Cash and cash equivalents at beginning of year 3,892 33,163 20,857
-------- --------- ---------
Cash and cash equivalents at end of year $ 33,163 $ 20,857 $ 13,702
======== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest, net of
amounts capitalized $ 53,626 $ 54,806 $ 57,268
Cash paid during the year for income taxes 2,675 2,531 58
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations incurred to lease new
equipment 1,120 844 243
Sale proceeds placed in escrow 1,483 450 5,334
Exchange of senior subordinated debentures -- 115,000 --
Employee stock ownership plan contribution made
with common stock -- -- 750
See accompanying notes to consolidated financial statements.
-13-
14
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements
Last day of February 1996 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies and methods of their application that significantly
affect the determination of financial position, cash flows and results
of operations are as follows:
(a) Business Description
Americold Corporation (the "Company") provides integrated logistics
services for the frozen food industry consisting of warehousing and
transportation management. These services are provided through the
Company's network of 49 refrigerated warehouses and its refrigerated
transportation management unit. The Company has a wholly-owned
warehousing subsidiary, Americold Services Corporation.
In addition, the Company operates a limestone quarry. This business is
not significant to the Company as a whole and is not required to be
reported as a separate industry segment.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Americold
Corporation and its wholly-owned subsidiary. All significant
intercompany transactions, profits and balances have been eliminated.
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
generally provided on the straight-line method over the estimated
useful lives of the respective assets ranging from 3 to 45 years for
financial reporting purposes and on accelerated methods for income tax
purposes where possible. Property held under capital leases (at
capitalized value) is amortized on the straight-line method over its
estimated useful life, limited generally by the lease period. The
-14-
15
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
amortization of the property held under capital leases is included with
depreciation expense. Estimated remaining useful lives are reviewed
periodically for reasonableness and any necessary change is generally
effected at the beginning of the accounting period in which the
revision is adopted.
Maintenance and repairs are expensed in the year incurred; major
renewals and betterments of equipment and refrigeration facilities are
capitalized and depreciated over the remaining life of the asset.
(d) Cost in Excess of Net Assets Acquired
On December 24, 1986, all the outstanding capital stock of the Company
was acquired by a private group consisting of affiliates of Kelso &
Company, Inc., certain institutional investors and certain key
employees and members of the Company's management. The acquisition of
the Company was accounted for as a purchase. An allocation of the
purchase price was made to the acquired assets and liabilities based on
their estimated fair market values at the date of acquisition. The
unallocated purchase price is the Company's estimate of goodwill
associated with the acquisition and is being amortized using the
straight-line method over a period of 40 years.
The Company assesses the recoverability of the goodwill by determining
whether the amortization of the goodwill balance over its remaining
useful life can be recovered through projected undiscounted future net
income. The amount of goodwill impairment, if any, is measured based on
projected discounted future net income using a discount rate reflecting
the Company's current average cost of funds.
(e) Debt Issuance Costs
Debt issuance costs incurred are amortized over the term of the related
debt.
-15-
16
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
(f) Income Taxes
Income taxes are computed using the asset and liability method. Under
the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the currently enacted tax rates and laws.
(g) Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(h) Revenue Recognition
The Company's revenues are primarily derived from services provided to
customers in both handling and storing frozen products and from freight
services. Handling and storage revenue is based primarily upon the
total weight of frozen product received into and held in storage and is
recognized as earned, not as billed. Differences between revenue earned
and revenue billed are recorded as deferred revenue. Approximately 50%
of the handling revenue is deferred until the customer's products are
released. The freight services revenues and direct costs are recognized
upon delivery of freight.
(i) Income (Loss) Per Share
Income (loss) per common share is computed by dividing net income
(loss) less preferred dividend requirements, by the weighted average of
common shares outstanding.
(j) Major Customers
Consolidated net sales to H. J. Heinz Company and subsidiaries amounted
to approximately $45.5 million, $108.1 million and $149.9 million in
the years ended
-16-
17
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
the last day of February 1995, 1996 and 1997, respectively. No other
customer accounted for 10% or more of consolidated net sales.
(k) Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. There were cash
equivalents of $15.4 million and $10.0 million as of the last day of
February 1996 and 1997, respectively.
(l) New Accounting Standards
Effective March 1, 1996, the Company adopted Financial Accounting
Standard Board Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." This statement generally requires assessment
of recoverability of an asset after events or circumstances that
indicate an impairment to the asset and its future cash flows. Any
impairment loss would be recognized as a one-time charge to earnings
affecting results of operations, but would not affect the cash flow of
the Company. There was no impairment loss to report upon adoption.
Effective March 1, 1996, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No.
123 requires that, except for transactions with employees that are
within the scope of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), all transactions in which goods or services are the
consideration received for the issuance of equity instruments are to be
accounted for based on the fair value of the consideration received or
the fair value of the equity instrument issued, whichever is more
reliably measurable. However, it also allows an entity to continue to
measure compensation costs for those plans using the intrinsic value
based method of accounting prescribed by APB No. 25. Entities electing
to follow the accounting methods of APB No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if
the fair value method of accounting defined in SFAS No. 123 had been
applied.
-17-
18
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Pro forma disclosures required for entities that elect to continue to
measure compensation cost using APB No. 25 must include the effects of
all awards granted in fiscal years that begin after December 15, 1994.
The Company has elected to continue using APB No. 25 and make the
necessary SFAS No. 123 pro forma disclosures.
The Company has not implemented the requirements of Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"), although it will be
required to do so for fiscal years beginning March 1, 1997 and
thereafter.
This Statement establishes a different method of computing net income
per share than is currently required under the provisions of Accounting
Principles Board Opinion No. 15. Under SFAS No. 128, the Company will
be required to present both basic net income per share and diluted net
income per share. The Company estimates that the adoption of SFAS No.
128 will not have a material impact on its income per share.
(2) Net Property, Plant and Equipment
Net property, plant and equipment consists of the following (in
thousands):
Last day
of February
-----------------------
1996 1997
---- ----
Land $ 31,911 $ 35,038
Refrigerated facilities, buildings
and land improvements 450,402 467,496
Machinery and equipment 67,661 74,599
-------- --------
549,974 577,133
Less accumulated depreciation 174,123 192,649
-------- --------
$375,851 $384,484
======== ========
-18-
19
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
(3) Other Noncurrent Assets
Other noncurrent assets consist of the following (in thousands):
Last day
of February
-----------
1996 1997
---- ----
Restricted funds held by trustee $5,037 $5,407
Real estate owned 300 300
Security deposits 261 261
Other 3,364 3,037
------ ------
$8,962 $9,005
====== ======
(4) Leases
Assets under capital leases are included in net property, plant and
equipment and consist of the following (in thousands):
Last day
of February
-----------
1996 1997
---- ----
Refrigerated facilities,
buildings and land improvements $ 7,075 $ 7,075
Machinery and equipment 4,635 3,124
------- -------
11,710 10,199
Less accumulated depreciation 4,108 3,368
------- -------
$ 7,602 $ 6,831
======= =======
-19-
20
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Future minimum lease payments under noncancelable leases for years
ended after the last day of February 1997 are as follows (in
thousands):
Year ending the last Capital Operating
day of February leases leases
--------------- ------ ------
1998 $ 4,013 $ 6,298
1999 782 5,348
2000 590 4,290
2001 509 3,211
2002 350 3,072
Thereafter 742 20,540
-------- ---------
Total minimum lease payments $ 6,986 $ 42,759
========
Less amounts representing interest 1,235
--------
Present value of net minimum
lease payments $ 5,751
========
Included in expenses for the years ended the last day of February 1995,
1996 and 1997 are approximately $9.5 million, $7.7 million and $7.2
million, respectively, of rental expense net of sublease rentals for
operating leases.
The Company has arranged for up to $25.0 million in lease financing of
which approximately $17.7 million was used as of the last day of
February 1997.
In November 1996, the Company entered into a sale/leaseback transaction
of its Pasco, Washington facility. Of the approximately $6.8 million of
net proceeds, the Company received approximately $1.5 million at
closing and the remaining $5.3 million was placed in escrow with the
Trustee under the indenture governing the Company's first mortgage
bonds. The Company has until November 1997 to substitute the
unencumbered property for the total amount of cash, or any portion
thereof, held in escrow. Any escrowed funds remaining after the one
year period will be used to repurchase outstanding mortgage bonds. The
deferred gain resulting from the sale/leaseback transaction of
approximately $2.7 million is being amortized over the approximate ten
year life of the lease.
-20-
21
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
(5) Accrued Expenses
Accrued expenses consist of the following (in thousands):
Last day
of February
-------------------------
1996 1997
--------- ---------
Accrued payroll $ 3,565 $ 3,747
Accrued vacation pay 2,462 2,831
Accrued taxes 1,022 1,163
Accrued employee stock ownership
plan contribution 750 500
Other 3,805 5,419
--------- ---------
$ 11,604 $ 13,660
========= =========
(6) Other Current Liabilities
Other current liabilities consist of the following (in thousands):
Last day
of February
-------------------------
1996 1997
--------- ---------
Workers' compensation $ 991 $ 693
Pension 1,100 2,110
Other 2,539 2,456
--------- ---------
$ 4,630 $ 5,259
========= =========
-21-
22
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
(7) Long-term Debt
Long-term debt consists of the following (in thousands):
Last day
of February
-----------
1996 1997
---- ----
Capital lease obligations (9.3% and 9.1%
weighted average interest rate,
respectively) $ 6,720 $ 5,751
Senior subordinated debentures - 15% fixed
due May 1, 2007 115,000 --
Senior subordinated notes - 12.875% fixed,
due May 1, 2008. Interest rate may
increase by 1% effective November 1, 1997 -- 120,000
First mortgage bonds, Series A - 11.45%
fixed, due June 30, 2002, interest
payments only to January 1, 1999
with principal amortization commencing
July 1, 1999 140,000 140,000
First mortgage bonds, Series B - 11.5%
fixed, due March 1, 2005, interest
payments only to September 1, 2003
with a mandatory sinking fund payment
of $88,125 on March 1, 2004 176,250 176,250
Mortgage notes payable - various interest
rates ranging from 8.6% to 13.6% requiring
monthly principal and interest payments
with maturities ranging from 2006 to 2017 26,429 29,062
-------- --------
464,399 471,063
Less current maturities of long-term debt 2,732 5,229
-------- --------
$461,667 $465,834
======== ========
-22-
23
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
The Company has issued first mortgage bonds and the bonds are secured
by mortgages or deeds of trust on 31 of the Company's facilities. The
Company entered into an indenture in connection with the issuance of
the first mortgage bonds which, like the Company's revolving credit
agreement with the Company's primary bank, requires the Company to meet
certain affirmative and restrictive covenants. Significant restrictive
items include, among others, limitations on additional indebtedness,
liens, dividends, capital expenditures, asset dispositions, lease
commitments and investments. Also, certain "pro forma debt service"
ratios and senior debt to net worth ratios must be maintained. At
February 28, 1997, the Company was in compliance with all such
covenants.
The Company was notified in December 1996 that the Metropolitan Life
Insurance Company (the "Met") sold its entire $140 million holdings of
the Company's Series A, 11.45% First Mortgage Bonds. As a result of
such transaction, the Second Amended and Restated Investment Agreement,
dated May 5, 1995, between the Met and the Company, which included
certain financial covenants and other restrictive covenants, was
terminated.
On April 9, 1996, the Company sold $120.0 million aggregate principal
amount of the Company's 12.875% Notes. The interest rate on the 12.875%
Notes can be increased from 12.875% to 13.875% if the 12.875% Notes are
not rated "B3 or higher" by Moody's Investor Services, and "B- or
higher" by Standard & Poor's, by November 1, 1997. The 12.875% Notes
have been rated "B-" by Standard & Poor's since they were issued, and
as of February 28, 1997, "Caa" by Moody's Investor Services.
The available amount under the Company's revolving credit agreement was
$23.1 million as of the last day of February 1997, of which $8.7
million of letters of credit were outstanding. No cash borrowings were
outstanding at February 28, 1997.
As of the last day of February 1997, aggregate annual maturities of
long-term debt are as follows (in thousands):
-23-
24
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Year ended the last
day of February
-------------------
1998 $ 5,229
1999 2,463
2000 32,502
2001 38,642
2002 38,282
Thereafter 353,945
---------
$ 471,063
=========
(8) Employee Benefit Plans
(a) Defined Benefit Pension Plans
The Company has defined benefit pension plans which cover substantially
all employees, other than union employees covered by union pension
plans under collective bargaining agreements. Benefits under these
plans are based on years of credited service and compensation during
the years preceding retirement or on years of credited service and
established monthly benefit levels.
Pension expense for all plans, including plans jointly administered by
industry and union representatives, totaled $1.4 million, $1.7 million
and $1.9 million for years ended the last day of February 1995, 1996
and 1997, respectively. Actuarial valuations for defined benefit plans
are performed as of the end of the plan year. The most recent actuarial
valuations are as of the last day of February 1997.
The funded status of the Company's defined benefit pension plans and
the accrued pension expense amounts recognized in the Company's
consolidated financial statements within other noncurrent liabilities,
as of the last day of February 1996 and 1997, are as follows (in
thousands):
-24-
25
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Last day of Last day of
February 1996 February 1997
----------------------------- ----------------------------
Plans with Plans with Plans with Plans with
assets in accumulated assets in accumulated
excess of benefits in excess of benefits in
accumulated excess of accumulated excess of
benefits assets benefits assets
----------- ----------- ----------- -----------
Actuarial present value of benefit obligations:
Accumulated benefit obligations:
Vested benefits $ 19,902 $ 7,382 $ 19,805 $ 7,740
Nonvested benefits 220 128 947 316
-------- -------- -------- -------
20,122 7,510 20,752 8,056
Effect of assumed future
compensation increases 3,808 -- 4,379 --
-------- -------- -------- -------
Projected benefit obligations
for services rendered to date 23,930 7,510 25,131 8,056
Plan assets at fair value 20,644 6,005 22,227 6,659
-------- -------- -------- -------
Projected benefit obligations in excess
of plan assets 3,286 1,505 2,904 1,397
Unrecognized prior service cost (119) (108) (85) (101)
Unrecognized net gain (loss) from past
experience different from that assumed
and effects of changes in assumptions 1,323 (317) 1,277 (361)
-------- -------- -------- -------
Accrued pension liability $ 4,490 $ 1,080 $ 4,096 $ 935
======== ======== ======== =======
Net periodic pension expense for the years ended the last day of
February 1995, 1996 and 1997 includes the following components (in
thousands):
Last day of February
1995 1996 1997
------- ------- -------
Service cost - benefits earned
during the period $ 1,107 $ 1,165 $ 1,186
Interest cost on projected
benefit obligation 2,121 2,293 2,431
Actual return on plan assets (2,554) (4,301) (2,826)
Net amortization and deferral (143) 1,541 109
------- ------- -------
$ 531 $ 698 $ 900
======= ======= =======
-25-
26
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Actuarial assumptions used for determining pension liabilities were:
Last day of February
1995 1996 1997
---- ---- ----
Discount rate for interest cost 8.5% 8.0% 8.0%
Rate of increase in future
compensation levels 4.0% 4.0% 4.0%
Expected long-term rate of
return on plan assets 10.5% 10.5% 10.5%
Plan assets are assigned to several investment management companies and are
invested in various equity and fixed fund investments in accordance with the
Company's investment policy.
(b) Employee Stock Ownership Plan
The Company established an employee stock ownership plan, effective
March 1, 1987, which is intended to provide qualifying employees an
equity interest in the Company, as well as potential retirement
benefits. The trust established under the plan is designed to invest
primarily in the Company's stock. Contributions by the Company, in the
form of common or preferred stock of the Company, or cash, or a
combination thereof, may be made to the trustee on behalf of eligible
participants for each plan year as determined by the Company's Board of
Directors. Participating employees with vested benefits, upon
retirement or termination, have the option of retaining the stock or
selling it back to the Company at its fair market value.
(c) Postretirement Benefits Other Than Pensions
In addition to providing retirement benefits, the Company provides
certain health care and life insurance benefits for retired employees.
These benefits are provided to substantially all employees other than
certain union employees who have elected not to participate.
-26-
27
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
The total of accumulated postretirement benefits obligation (APBO),
which is an unfunded obligation, is as follows:
Last day of February
1995 1996 1997
---- ---- ----
Retirees $2,314 $2,375 $2,618
Active employees 1,511 1,832 2,209
------ ------ ------
$3,825 $4,207 $4,827
====== ====== ======
The components of net periodic postretirement expense for the years
ended the last day of February are as follows (in thousands):
1995 1996 1997
----- ----- -----
Service cost benefits earned
in period $ 104 $ 114 $ 123
Interest cost on APBO 313 334 383
Amortization of unamortized
prior service cost (22) (22) (8)
----- ----- -----
$ 395 $ 426 $ 498
===== ===== =====
The discount rate used to determine the APBO and net periodic expense
as of February 28, 1995 was 9.0%, and as of February 29, 1996 and
February 28, 1997 was 8.5%.
For fiscal 1997, an 11% increase in the medical cost trend rate was
assumed. This rate is projected to decrease incrementally to 5.5% after
nine years. A 1% increase in the medical trend rate would increase the
APBO by $0.2 million and increase the net periodic expense by a
negligible amount.
-27-
28
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
9. Common Stockholders' Deficit
The Company has reserved 300,000 shares of common stock for issuance
under a stock option plan established in 1987. Under the plan, options
are granted by the Compensation Committee of the Board of Directors to
purchase common stock at a price not less than 85% of the fair market
value on the date the option is granted.
Stock options outstanding and transactions involving the stock option
plan are summarized for the years ended the last day of February as
follows:
1995 1996 1997
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding at beginning
of year 257,934 $16.06 253,795 $16.17 249,656 $15.45
Granted -- -- -- -- 160,000 12.30
Exercised -- -- -- -- (21,748) 10.00
Cancelled -- -- -- -- (160,000) 19.77
Forfeited (4,139) 10.00 (4,139) 10.00 (2,760) 10.00
------- ------ ------- ------ ------- ------
Outstanding at end of year 253,795 $16.17 249,656 $16.26 225,148 $11.63
======= ====== ======= ====== ======= ======
Options exercisable at
year end 185,795 $14.57 213,656 $15.45 65,148 $10.00
======= ====== ======= ====== ======= ======
Weighted average grant date
fair value of options granted
during the year $ 0 $ 0 $ 2.67
====== ====== ======
The Company has computed the value of all options granted during fiscal
1997 using the minimum value method as prescribed under SFAS No. 123
for pro forma disclosure purposes. The following weighted average
assumptions were used for the grants made in fiscal 1997: risk free
interest rate at 6.875%; expected life of ten years; and dividend rate
of zero percent.
-28-
29
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
The total value of options granted during fiscal 1997 was computed at
$428,000. The options granted in fiscal 1997 have a five-year vesting
schedule and compensation will be amortized on a pro forma basis over
that period.
The options granted in fiscal 1997 had not vested as of the last day of
February 1997 and therefore there would be no compensation cost in the
current year under the pro forma disclosure provisions of SFAS No. 123.
The effects of applying SFAS No. 123 in the pro forma disclosure are
not indicative of future amounts.
As of February 28, 1997, options for 225,148 shares were outstanding
with exercise prices between $10.00 and $12.30, and a remaining
weighted average contractual life of 6.7 years.
10. Preferred Stock
The Company has contributed shares of its Series A, variable rate,
cumulative preferred stock to the Americold Employee Stock Ownership
Plan (ESOP). The preferred stock is redeemable by participants of the
plan. As of the last day of February 1996 and 1997, dividends not
declared on the Company's cumulative preferred stock total
approximately $477,000 and $458,000, respectively.
11. Income Taxes
The provision (benefit) for income taxes consists of the following (in
thousands):
1995 1996 1997
------- ------- -------
Federal:
Current $ 2,867 $ -- $ 250
Deferred 1,494 (2,858) (2,422)
------- ------- -------
4,361 (2,858) (2,172)
------- ------- -------
-29-
30
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
State:
Current 820 -- 112
Deferred 46 (568) (544)
------- ------- -------
$ 5,227 $(3,426) $(2,604)
======= ======= =======
Following is a reconciliation of the difference between income taxes
computed at the federal statutory rate and the provision for income
taxes (in thousands):
1995 1996 1997
---- ---- ----
Computed income tax expense
(benefit) at federal statutory
rate $ 3,777 $(4,027) $(3,200)
State and local income taxes,
net of federal income tax
benefits 563 (369) (280)
Amortization of cost in excess of
net assets acquired 887 970 876
------- ------- -------
$ 5,227 $(3,426) $(2,604)
======= ======= =======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the related amounts used for income
tax purposes. Significant components of the Company's deferred tax
liabilities as of the last day of February 1996 and 1997 are as follows
(in thousands):
1996 1997
---- ----
Deferred tax liabilities:
Property, plant and equipment, due to
differences in depreciation and
prior accounting treatment $(110,574) $(109,099)
--------- ---------
-30-
31
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Deferred tax assets:
Receivables, due to allowance for
doubtful accounts 86 155
Employee compensation and other
benefits 1,879 3,605
Capital leases, net 1,714 1,617
Postretirement benefits other than
pensions, due to accrual for
financial reporting purposes 1,650 1,794
Alternative minimum tax credit
carryforwards 2,865 3,192
Other, net 1,659 1,532
--------- --------
Total deferred tax assets 9,853 11,895
--------- --------
Net deferred tax liability
before valuation allowance (100,721) (97,204)
Deferred tax asset valuation allowance (1,320) (1,320)
--------- --------
$(102,041) $(98,524)
========= ========
The valuation allowance for deferred tax assets as of March 1, 1995 was
$1.3 million. The valuation allowance is required to reduce the amount
of deferred tax assets to an amount which will more likely than not be
realized.
At February 28, 1997, the Company has an alternative minimum tax credit
carryforward of approximately $3.2 million available to offset future
regular taxes in excess of future alternative minimum taxes.
12. Extraordinary Item
In conjunction with the exchange of the senior subordinated debentures
and the repurchase of the $10.0 million of first mortgage bonds in
fiscal 1996, as discussed in note 15, unamortized original issue
discount of approximately $2.0
-31-
32
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
million and unamortized issuance costs of approximately $1.0 million
were written off, resulting in an extraordinary loss, net of taxes, of
approximately $1.8 million.
13. Disclosures About The Fair Value of Financial Instruments
Cash, Trade Receivables, Other Receivables, Accounts Payable and
Accrued Expenses
The carrying amount of these items approximates fair value because of
the short maturity of these instruments.
Long-Term Debt
The fair values of each of the Company's long-term debt instruments are
based on (a) the amount of future cash flows associated with each
instrument discounted using the Company's current borrowing rate for
similar debt instruments of comparable maturity; (b) in the case of the
first mortgage bonds Series B and senior subordinated notes, market
price; or (c) in the case of the first mortgage bonds - Series A, at
par, because there is not a market for such securities (in thousands).
As of the last day
of February 1997
----------------
Estimated
Carrying fair market
amount value
------ -----
Senior subordinated notes $120,000 $124,500
First mortgage bonds - Series A 140,000 140,000
First mortgage bonds - Series B 176,250 185,063
Mortgage notes payable 29,062 29,062
-32-
33
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
14. Gain on Insurance Settlement
Gain on insurance settlement of approximately $17.0 million relates to
the Company's settlement of its first party claims with its insurance
carriers for business interruption, property damage and out-of-pocket
expenses with respect to the December 1991 fire at the Company's Kansas
City, Kansas warehouse facility. No previous income recognition was
determinable until the Company had settled all of the lawsuits and
claims related to the fire.
15. Plan of Reorganization Under Chapter 11
On May 9, 1995, the Company filed a prepackaged plan of reorganization
(the "Plan") under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Oregon (the
"Court"). The principal purpose of the Plan was to reduce the Company's
short-term cash requirements with respect to payments due on its
subordinated indebtedness and to adjust certain restrictive financial
covenants and certain other provisions contained in the Amended and
Restated Investment Agreement, dated March 2, 1993, between the Company
and the Met. On June 19, 1995, the Court approved the Company's
Disclosure Statement dated April 14, 1995 and the Company's
solicitation of votes to accept or reject the Plan, and confirmed the
Plan. On June 30, 1995, the Plan became effective.
In connection with the Plan, the Company rejected certain lease
agreements relating to four warehouse facilities at Watsonville,
Oakland and San Francisco, California; and Chicago, Illinois. In
February 1996, the Company settled all lease rejection issues with the
lessor of three properties located in Watsonville, Oakland
-33-
34
AMERICOLD CORPORATION
Notes to Consolidated Financial Statements - (continued)
and San Francisco, California. Such settlement did not involve the
payment of any damages by the Company. In September 1996, the Company
settled all lease rejection issues with the lessor of the Chicago,
Illinois property. Such settlement, representing one year's rent
recovery by the lessor as provided by the Bankruptcy Code, required a
payment of approximately $0.4 million.
The Company has expensed the settlement payment and related
professional fees and all professional fees and similar expenditures
incurred related to the prepackaged bankruptcy as "reorganization
expenses."
-34-
35
PART I - Financial Information
Item 1. Financial Statements
AMERICOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
Last day of February 1997 and August 1997
(In thousands, except share data)
Last day of Last day of
February 1997 August 1997
------------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 13,702 $ 16,315
Trade receivables, net 27,560 28,677
Other receivables, net 3,138 3,319
Prepaid expenses 3,828 3,276
Tax refund receivable 2,636 2,669
Other current assets 891 733
--------- ---------
Total current assets 51,755 54,989
Property, plant and equipment, less accumulated depreciation
of $192,649 and $202,385, respectively 384,484 375,501
Cost in excess of net assets acquired, less accumulated
amortization of $24,644 and $25,897, respectively 74,749 73,496
Other noncurrent assets 20,046 19,425
--------- ---------
Total assets $ 531,034 $ 523,411
========= =========
LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 16,116 $ 12,989
Accrued interest 18,466 18,161
Accrued expenses 13,660 13,993
Deferred revenue 5,555 6,022
Current maturities of long-term debt 5,229 5,242
Other current liabilities 5,259 5,119
--------- ---------
Total current liabilities 64,285 61,526
Long-term debt, less current maturities 465,834 464,581
Deferred income taxes 98,524 97,532
Other noncurrent liabilities 10,347 10,443
--------- ---------
Total liabilities 638,990 634,082
--------- ---------
Preferred stock, $100 par value; authorized 1,000,000 shares;
issued and outstanding 52,936 and 46,797 shares, respectively 5,753 5,477
--------- ---------
Common stockholders' deficit:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding 4,995,556 and
5,037,823 shares, respectively 50 50
Additional paid-in capital 51,182 51,870
Retained deficit (164,580) (167,707)
Equity adjustment to recognize minimum pension liability (361) (361)
--------- ---------
Total common stockholders' deficit (113,709) (116,148)
--------- ---------
Total liabilities, preferred stock and
common stockholders' deficit $ 531,034 $ 523,411
========= =========
See accompanying notes to consolidated financial statements.
-35-
36
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and six months ended last day of August 1996 and 1997
(In thousands, except per share data)
Three months Three months Six months Six months
ended ended ended ended
last day of last day of last day of last day of
August 1996 August 1997 August 1996 August 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 73,139 $ 73,299 $152,535 $145,807
-------- -------- -------- --------
Operating expenses:
Cost of sales 55,024 53,457 114,489 106,085
Amortization of cost in excess of
net assets acquired 626 626 1,253 1,253
Selling and administrative expenses 7,312 7,545 15,035 15,219
-------- -------- -------- --------
Total operating expenses 62,962 61,628 130,777 122,557
-------- -------- -------- --------
Gross operating margin 10,177 11,671 21,758 23,250
-------- -------- -------- --------
Other (expense) income:
Interest expense (13,721) (13,893) (29,256) (27,816)
Reorganization expenses (403) -- (403) --
Other, net (46) 722 468 785
-------- -------- -------- --------
Total other expense (14,170) (13,171) (29,191) (27,031)
-------- -------- -------- --------
Loss before income taxes (3,993) (1,500) (7,433) (3,781)
Benefit for income taxes 1,320 343 2,424 992
-------- -------- -------- --------
Net loss $ (2,673) $ (1,157) $ (5,009) $ (2,789)
======== ======== ======== ========
Net loss per common share $ (0.58) $ (0.26) $ (1.09) $ (0.62)
======== ======== ======== ========
Weighted average number of shares
outstanding 4,931 5,012 4,931 5,004
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
-36-
37
AMERICOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS Six
months ended last day of August 1996 and 1997
(In thousands)
Six months Six months
ended last ended last
day of day of
August 1996 August 1997
----------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (5,009) $(2,789)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation 10,203 10,534
Amortization and other noncash expenses 2,086 2,310
Changes in assets and liabilities (5,826) (176)
Provision for deferred taxes (2,424) (992)
--------- -------
Net cash provided (used) by operating activities (970) 8,887
--------- -------
Cash flows from investing activities:
Net expenditures for property, plant
and equipment (15,220) (5,979)
Other items, net 291 754
--------- -------
Net cash used by investing activities (14,929) (5,225)
--------- -------
Cash flows from financing activities:
Principal payments under capitalized
lease and other debt obligations (1,457) (1,240)
Proceeds from sale of senior subordinated notes 120,000 --
Retirement of senior subordinated debentures (115,000) --
Debt issuance costs (5,379) (50)
Release of escrowed funds 4,820 167
Issuance of stock -- 74
--------- -------
Net cash provided (used) by financing activities 2,984 (1,049)
--------- -------
Net increase (decrease) in cash and cash equivalents (12,915) 2,613
Cash and cash equivalents at beginning of period 20,857 13,702
--------- -------
Cash and cash equivalents at end of period $ 7,942 $16,315
========= =======
Supplemental disclosure of cash flow information:
Cash paid year-to-date for interest,
net of amounts capitalized $ 28,920 $28,121
========= =======
Capital lease obligations incurred to lease new equipment $ 231 $ --
========= =======
Cash paid during the year for income taxes $ 24 $ 34
========= =======
See accompanying notes to consolidated financial statements.
-37-
38
AMERICOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet as of the last day of August 1997; the
related consolidated statements of operations for the six months ended
the last day of August 1996 and August 1997; and the related
consolidated statements of cash flows for the six months ended the last
day of August 1996 and August 1997 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. Such adjustments consisted of
normal recurring items. Interim results are not necessarily indicative
of results for a full year. The financial information presented herein
should be read in conjunction with the financial statements included in
the registrant's Annual Report on Form 10-K for the year ended the last
day of February 1997.
2. COMMON STOCKHOLDERS' DEFICIT
The Company has reserved 300,000 shares of common stock for issuance
under a stock option plan established in 1987. Under the plan, options
are granted by the Compensation Committee of the Board of Directors to
purchase common stock at a price not less than 85% of the fair market
value on the date the option is granted.
Information with regard to the plan as of the last day of August 1997
follows:
Weighted
Average
Exercise
Shares Price
------ -----
Outstanding at beginning of year 225,148 $11.63
Granted - -
Exercised (3,449) 10.00
Cancelled - -
Forfeited (690) 10.00
------- ------
Outstanding 221,009 $11.66
======= ======
-38-
39
Options exercisable 93,009 $10.79
======= ======
All stock options will become fully exercisable upon the completion of
the merger discussed in Note 8.
3. PROVISION FOR INCOME TAXES
The provision for income taxes was computed using a tax rate of 39.2%.
The tax rate was applied to loss before income taxes, after adjusting
for amortization of cost in excess of net assets acquired.
4. LOSS PER COMMON SHARE
Loss per common share is computed by dividing net loss, less preferred
dividend requirements, by the weighted average number of common shares
outstanding. See Exhibit 11, Statement Regarding Computation of Per
Share Earnings.
5. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes highly liquid instruments, with
original maturities of three months or less when purchased. There were
cash equivalents totaling $10.0 million and $13.0 million as of the
last day of February 1997 and August 1997, respectively.
6. LONG-TERM DEBT
On April 9, 1996, the Company sold $120.0 million aggregate principal
amount of the Company's 12.875% Senior Subordinated Notes due 2008. The
Company used $115.0 million of the proceeds to redeem at par on May 9,
1996 the Company's 15% Senior Subordinated Debentures due 2007. The
remaining proceeds were used to pay transaction costs. The interest
rate on the notes can be increased from 12.875% to 13.875% if the notes
are not rated "B- or higher" by Standard & Poor's and "B3 or higher" by
Moody's Investors Service by November 1, 1997. The notes have been
rated "B-" by Standard and Poor's since they were issued, and as of
September 30, 1997, "Caa" by Moody's Investors Service.
-39-
40
7. NEW ACCOUNTING STANDARDS
The Company has not implemented the reporting requirements of Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS No. 128"), although it will be
required to do so during the fourth quarter of fiscal 1998 and
thereafter. This Statement establishes a different method of computing
net income per share than is currently required under the provisions of
Accounting Principles Board Opinion No. 15. Under SFAS No. 128, the
Company will be required to present both basic net income per share and
diluted net income per share. The Company estimates that the adoption
of SFAS No. 128 will not have a material impact on its income per
share.
The Company has not implemented the reporting requirements of Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"), although it
will be required to do so during the first quarter of fiscal 1999 and
thereafter. This Statement establishes standards for reporting and
display of comprehensive income and its components. The Company does
not believe that the adoption of SFAS No. 130 will have a material
impact on its financial statement presentation.
The Company has not implemented the reporting requirements of Financial
Accounting Standards Board Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"),
although it will be required to do so for fiscal 1999 and thereafter.
This statement establishes standards for reporting operating segments
in annual financial statements and requires selected information about
operating segments in interim financial statements. The Company
believes it may be required to show information not currently
disclosed.
8. SUBSEQUENT EVENT
On September 29, 1997, the Company announced that it had entered into a
merger agreement pursuant to which Vornado Realty Trust ("Vornado")
would acquire the Company. Vornado announced that, in addition, it had
also entered into a merger agreement to acquire URS Logistics, Inc.
(Kelso & Company, who owns a controlling interest in the Company, holds
approximately 57% of the common equity of URS Logistics, Inc). Vornado
also announced that it had entered into a partnership agreement with
Crescent Real Estate Equities Company ("Crescent") to make the
acquisitions, with Vornado controlling 60% of the partnership and
Crescent 40%.
-40-
41
The consideration for the acquisition of the Company is approximately
$582 million, including $111 million in cash and $471 million in
indebtedness. The price to be paid to the shareholders per common share
is $20.70. The purchase price also includes the redemption of the
Company's preferred stock for $100 per share, its par value, plus
accrued and unpaid dividends to the date of closing, and the buyout of
all existing stock options at $20.70 per share, less the exercise price
of each option share. The transaction is expected to close no later
than December 31, 1997.
The Company believes that the transaction, when completed, will afford
the Company the opportunity to improve its capital structure and
provide substantial capital to support warehouse growth.
-41-
42
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
URS Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of URS Logistics,
Inc. (the "Company") and subsidiary as of December 31, 1996 and 1995 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiary as of
December 31, 1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Atlanta, Georgia
March 7, 1997
(October 3, 1997 as to Note 10)
42
43
URS LOGISTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash investments $ 904,000 $ 1,722,000
Trade accounts receivable, less allowance for doubtful
accounts of $100,000 in 1996 and 1995 17,345,000 14,391,000
Other current assets 2,072,000 1,775,000
Refundable income taxes 1,015,000 190,000
Deferred income taxes 2,303,000 2,206,000
----------- -----------
Total current assets 23,639,000 20,284,000
OTHER ASSETS:
Loan closing costs 4,334,000 4,952,000
Investment in partnership 2,838,000 2,058,000
Other 872,000 954,000
----------- -----------
Total other assets 8,044,000 7,964,000
PROPERTY, PLANT, AND EQUIPMENT:
Land 15,617,000 14,286,000
Buildings and improvements 228,610,000 219,323,000
Machinery and equipment 70,036,000 66,440,000
Construction-in-progress 1,772,000 2,005,000
----------- -----------
316,035,000 302,054,000
Less accumulated depreciation 86,474,000 73,209,000
Property, plant, and equipment, net 229,561,000 228,845,000
CAPITALIZED LEASES:
Refrigerated warehouse facilities 15,828,000 15,828,000
Equipment 5,321,000 2,967,000
----------- -----------
21,149,000 18,795,000
Less accumulated depreciation 3,401,000 2,720,000
----------- -----------
Capitalized leases, net 17,748,000 16,075,000
----------- -----------
$278,992,000 $273,168,000
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 14,898,000 $ 13,590,000
Current portion of:
Long-term debt 5,523,000 4,938,000
Capitalized lease obligations 869,000 470,000
------------ ------------
Total current liabilities 21,290,000 18,998,000
LONG-TERM DEBT - Less current portion 147,660,000 147,701,000
CAPITALIZED LEASE OBLIGATIONS - Less current portion 16,499,000 15,015,000
DEFERRED INCOME TAXES 50,761,000 51,337,000
OTHER LIABILITIES 1,892,000 1,968,000
STOCKHOLDERS' EQUITY:
Common stock; par value $.10 per share; 100,000 shares
authorized; 48,687 shares issued and outstanding at
December 31, 1996 and 1995 5,000 5,000
Additional paid-in capital 44,766,000 44,766,000
Accumulated deficit (3,296,000) (6,160,000)
------------- ----------
41,475,000 38,611,000
Less:
Due from stockholders 288,000 361,000
Treasury stock - 192 shares and 96 shares at December 31,
1996 and 1995, at cost 297,000 101,000
------------ ------------
Stockholders' equity, net 40,890,000 38,149,000
-- --
------------ ------------
$278,992,000 $273,168,000
============ ============
See notes to consolidated financial statements.
43
44
URS LOGISTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
- ----------------------------------------------------------------------------------
1996 1995 1994
REVENUES $ 144,229,000 $ 138,938,000 $ 126,337,000
OPERATING EXPENSES:
Cost of services 94,931,000 94,967,000 87,984,000
General and administrative 12,259,000 10,239,000 9,728,000
Depreciation and amortization 14,574,000 14,958,000 13,484,000
------------- ------------- ---------------
Total operating expenses 121,764,000 120,164,000 111,196,000
------------- ------------- ---------------
22,465,000 18,774,000 15,141,000
INTEREST EXPENSE (18,037,000) (18,425,000) (18,446,000)
INTEREST INCOME 263,000 215,000 105,000
------------- ------------- ---------------
(17,774,000) (18,210,000) (18,341,000)
------------- ------------- ---------------
NET INCOME (LOSS) BEFORE
INCOME TAXES 4,691,000 564,000 (3,200,000)
INCOME TAX (EXPENSE) BENEFIT (1,827,000) (324,000) 552,000
------------- ------------- ---------------
NET INCOME (LOSS) $ 2,864,000 $ 240,000 $ (2,648,000)
============= ============= ===============
See notes to consolidated financial statements.
44
45
URS LOGISTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
COMMON STOCK TREASURY STOCK
---------------- ADDITIONAL ----------------
NUMBER PAR PAID-IN ACCUMULATED DUE FROM NUMBER
OF SHARES VALUE CAPITAL DEFICIT STOCKHOLDERS OF SHARES COST
BALANCE - December 31, 1993 40,508 $ 4,000 $36,035,000 $(3,752,000) $(433,000)
Sale of common stock:
Proceeds 8,179 1,000 9,099,000
Transaction costs (368,000)
-----------
8,731,000
Purchase of treasury shares 72,000 96 $(101,000)
Net loss (2,648,000)
------ ------- ----------- ----------- --------- --- ----------
BALANCE - December 31, 1994 48,687 $ 5,000 $44,766,000 $(6,400,000) $(361,000) 96 $(101,000)
Net income 240,000
------ ------ ----------- ----------- ---------- --- ----------
BALANCE - December 31, 1995 48,687 5,000 44,766,000 (6,160,000) (361,000) 96 (101,000)
Purchase of treasury shares 73,000 96 (196,000)
Net income 2,864,000
------ ------ ----------- ----------- --------- --- ----------
BALANCE - December 31, 1996 48,687 $ 5,000 $44,766,000 $(3,296,000) $ (288,000) 192 $ (297,000)
====== ======= =========== =========== ========== === ==========
See notes to consolidated financial statements.
45
46
URS LOGISTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
OPERATING ACTIVITIES:
Net income $ 2,864,000 $ 240,000 $(2,648,000)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 14,574,000 14,958,000 13,484,000
Gain on disposal of assets (7,000) (20,000) (24,000)
Partnership earnings (687,000) (172,000) (125,000)
Changes in assets and liabilities:
Trade accounts receivable (2,954,000) 1,270,000 (1,261,000)
Other current assets (297,000) (293,000) (455,000)
Accounts payable and accrued expenses 1,308,000 (950,000) 3,983,000
Deferred income taxes (673,000) (1,304,000) (1,370,000)
Other liabilities (76,000) 136,000 137,000
Refundable income taxes (825,000) (42,000) 168,000
----------- ----------- -----------
Net cash provided by operating activities 13,227,000 13,823,000 11,889,000
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (13,994,000) (12,828,000) (21,212,000)
Proceeds from disposals of property, plant, and equipment 9,000 20,000 6,384,000
Contribution to partnership (630,000) (701,000)
Partnership distributions 537,000 414,000 285,000
Payments received on notes receivable 42,000 33,000 28,000
Decrease in other long-term assets 40,000 35,000 146,000
----------- ----------- -----------
Net cash used in investing activities (13,996,000) (13,027,000) (14,369,000)
FINANCING ACTIVITIES:
Proceeds from borrowings 11,483,000 21,000,000
Payments on long-term debt (10,939,000) (18,765,000) (4,508,000)
Principal payments under capital lease obligations (470,000) (708,000) (570,000)
Purchase of treasury stock (123,000) (29,000)
Loan closing costs (1,813,000) (414,000)
Proceeds from issuance of common stock,
net of transaction costs 8,732,000
Debt service reserve refunding 4,000 193,000
----------- ----------- -----------
Net cash used in financing activities (49,000) (282,000) 3,404,000
----------- ----------- -----------
NET CHANGE IN CASH AND CASH INVESTMENTS (818,000) 514,000 924,000
CASH AND CASH INVESTMENTS:
Beginning of year 1,722,000 1,208,000 284,000
----------- ----------- -----------
End of year $ 904,000 $1,722,000 $ 1,208,000
========== ========== ===========
(Continued)
46
47
URS LOGISTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
SUPPLEMENTAL DISCLOSURES:
Interest paid, net of amount capitalized $ 18,045,000 $18,396,000 $ 18,444,000
============= =========== ============
Income taxes paid $ 3,324,000 $ 2,138,000 $ 423,000
============= =========== ============
SUPPLEMENTAL INFORMATION ABOUT NONCASH FINANCING
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $2,353,000 were incurred during the year ended
December 31, 1996 when the Company entered into new leases for equipment.
See notes to consolidated financial statements.
(Concluded)
47
48
URS LOGISTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of URS
Logistics, Inc. (formerly United Refrigerated Services, Inc. - the
"Company") and its wholly owned subsidiary, United Refrigerated Services
of Texarkana, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company operates and manages
public refrigerated warehouses in the continental United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Depreciation and amortization are computed on the straight-line method
over the estimated remaining useful lives of the respective assets, which
are generally 50 years for buildings, 20 years for building improvements,
and 5-12 years for machinery and equipment. Depreciation and amortization
begin the month in which the asset is placed into service. For federal
income tax purposes, accelerated depreciation methods and shorter lives
are utilized.
Loan closing costs are capitalized and amortized on the straight-line
method over the term of the loan to which they apply.
Lease agreements are classified as capital or operating in accordance
with Statement of Financial Accounting Standards ("SFAS") 13, "Accounting
for Leases," including subsequent amendments and interpretations.
Capitalized leases are recorded at the lower of the present value of
future lease payments or the fair market value of the property.
Capitalized leases are depreciated on a straight-line basis over the
lease terms for real estate and the estimated asset life or lease term
for equipment, whichever is shorter.
The Company charges construction costs with interest on borrowed funds
during the construction period of major facilities. This interest is
subsequently charged to operations through depreciation over the life of
capitalized property. Approximately $190,000, $280,000, and $406,000 of
interest was capitalized during the years ended December 31, 1996, 1995
and 1994, respectively.
The Company defines "cash and cash investments" as all unrestricted cash
and highly liquid investments with an original maturity of three months
or less.
Revenues include storage and handling fees and management fees for
locations managed on behalf of third parties. Costs related to managed
facilities are included in operating expenses.
The Company charges customers for certain storage and handling in
advance, but defers the related revenue until it has been earned.
Unearned revenue of approximately $2,088,000, $2,423,000, and
48
49
$2,430,000 is included in accounts payable and accrued expenses at
December 31, 1996, 1995, and 1994, respectively.
The Company records deferred income taxes for the difference in the bases
of assets and liabilities for tax and financial statement purposes and
the enacted rates in effect in the years that the differences are
expected to reverse.
The Company evaluates possible impairment of noncurrent assets and
recognition of impairment losses whenever circumstances indicate that the
carrying value of such assets may be less than their fair values.
Certain reclassifications of prior year balances have been made to
conform with current year financial statement presentation.
2. INVESTMENT IN PARTNERSHIP
The Company's wholly owned subsidiary is a partner with an unrelated
third party (collectively the "Partnership") for the purpose of operating
a public refrigerated warehouse in Texarkana, Arkansas. The investment is
accounted for using the equity method.
The Company is entitled to 50% of the Partnership's earnings. Included in
revenues in 1996, 1995, and 1994 are $687,000, $172,000, and $125,000,
respectively, representing the Company's equity in the earnings of the
Partnership.
The partnership owns land and building and is responsible for the related
mortgage debt. The Company has guaranteed approximately $3,735,000 that
represents 50% of the mortgage debt.
3. LONG-TERM DEBT
1996 1995
Term Note A $ 11,700,000 $16,639,000
Term Note B 42,000,000 42,000,000
Term Note C 73,000,000 73,000,000
Line of credit borrowings 26,483,000 21,000,000
Mortgage loan, interest at 11.08%
Equipment notes, interest at 9.75%
to 11.05%
-------------- ------------
153,183,000 152,639,000
Less current portion 5,523,000 4,938,000
-------------- ------------
$ 147,660,000 $147,701,000
============== ============
Term Notes A, B, and C, issued in 1989, require semi-annual payments of interest
only at 11.52% for initial periods of 5, 10, and 15 years, respectively. Term
Note A requires semi-annual principal and interest payments of $3,358,000 from
June 15, 1994 through December 15, 1998. Term Note B requires semi-annual
principal and interest payments of $5,642,000 from June 15, 1999 through
December 15,
49
50
2003. Term Note C requires semi-annual principal and interest payments of
$9,806,000 from June 15, 2004 through December 15, 2008.
The Company's revolving line of credit currently provides for borrowings of up
to $30,000,000, with availability reduced by outstanding borrowings and letters
of credit issued (outstanding letters of credit totaled $3,517,000 at December
31, 1996). Under certain circumstances, the Company can obtain up to an
additional $10,000,000 in borrowing capacity by meeting certain financial
targets and by providing additional collateral.
Beginning on June 30, 1998, amount of available credit declines under certain
circumstances. The line matures and the outstanding balance becomes payable in
full on June 2, 2000, the fifth anniversary of the line.
At the Company's option, borrowings under the line bear interest at formula
rates based on the Federal Funds rate, the prime rate, or Eurodollar lending
rates. The weighted average interest rate applicable to borrowings at December
31, 1996 was 8.60%.
The Company has entered into interest rate swap agreements to reduce the impact
of changes in interest rates on its line of credit borrowings. At December 31,
1996, the Company had outstanding two interest rate swap agreements with
commercial banks, having a total notional principal amount of $16 million. These
agreements effectively convert the Company's floating reference interest rate
(based on three-month LIBOR) on $16 million of its revolving line of credit
borrowings to a fixed reference rate of 5.42%. The interest rate swap agreements
mature in December 1997. Although the Company is exposed to credit loss in the
event of nonperformance by the other parties to the interest rate swap
agreements, the Company does not anticipate nonperformance by the
counterparties. The interest rate swap agreements resulted in an immaterial
amount of net interest income for the year ended December 31, 1996.
The loan agreements covering the Term Notes and the revolving line of credit
contain covenants requiring maintenance of certain financial ratios, earnings
levels, and net worth. The agreements also place restrictions on additional
borrowings, dividend payments, stock redemptions, mergers, and sale of assets.
The Company is in compliance with all such covenants at December 31, 1996.
The weighted average interest rate on the debt outstanding at December 31, 1996
was 11.02%. All long-term debt is collateralized by substantially all owned
property, plant, and equipment.
As of December 31, 1996 approximate annual principal payments on total
long-term debt are:
1997 $ 5,523,000
1998 6,178,000
1999 16,631,000
2000 23,899,000
2001 8,295,000
Thereafter 92,657,000
-----------------
$ 153,183,000
=================
4. LEASE COMMITMENTS
The Company leases two refrigerated warehouse facilities from entities owned by
a significant shareholder. These leases are classified as capital leases. The
lease terms expire on April 1, 2013. Fixed
50
51
rental payments under these leases aggregate $1,650,000 annually. The Company
also leases under an operating lease one refrigerated warehouse facility from an
entity owned by a significant shareholder. The lease term expires on December
30, 2010 and may be extended for two five-year periods at the option of the
Company. The future minimum lease payments under this lease are set at
$1,120,000 annually.
The Company also has both capital and operating lease agreements for equipment
and other facilities. The Company pays taxes, insurance, and maintenance costs
on substantially all of the leased property. Lease terms generally range from 5
to 20 years with renewal or purchase options.
As of December 31, 1996, future minimum lease payments under these leases are as
follows:
Refrigerated Warehouse
Facilities and Equipment Headquarters
------------------------- Facility Total
Capitalized Operating Operating Operating
Leases Leases Lease Leases
1997 $ 2,363,000 $8,376,000 $ 429,000 $ 8,805,000
1998 2,401,000 7,312,000 476,000 7,788,000
1999 2,401,000 6,648,000 487,000 7,135,000
2000 2,273,000 6,262,000 434,000 6,696,000
2001 2,398,000 5,920,000 445,000 6,365,000
Thereafter 18,495,000 35,215,000 913,000 36,128,000
---------- ---------- ------- ----------
Total minimum obligations 30,331,00 $69,733,000 $3,184,000 $72,917,000
========== ========= ==========
Less interest portion 12,963,000
----------
Present value of net
minimum payments 17,368,000
Less current portion 869,000
-------
$16,499,000
===========
Included in the above future minimum lease payments are the following future
payments to related parties:
Capitalized Operating
Leases Leases
1997 $1,650,000 $1,120,000
1998 1,650,000 1,120,000
1999 1,650,000 1,120,000
2000 1,650,000 1,120,000
2001 1,650,000 1,120,000
Thereafter 18,449,000 10,076,000
---------- ----------
Total minimum obligations $26,699,000 $15,676,000
=========== ===========
Rental expense for all operating leases was $9,092,000 in 1996, $9,202,000 in
1995, and $8,261,000 in 1994.
51
52
5. TAXES ON INCOME
Deferred income taxes at December 31, 1996 and 1995 consist of the tax effects
of temporary differences in the basis of assets and liabilities for financial
reporting and tax purposes as follows:
1996 1995
Current assets:
Deferred revenue $ 814,000 $ 945,000
Accrued expenses 1,489,000 1,261,000
-------------- ----------
$ 2,303,000 $2,206,000
============== ==========
Noncurrent liabilities:
Depreciation $ 52,848,000 $54,126,000
Other (2,087,000) (2,789,000)
-------------- ----------
$ 50,761,000 $1,337,000
============= ==========
Tax benefit (expense) for December 31, 1996, 1995, and 1994 consists of the
following:
1996 1995 1994
Current Expense:
Federal $ (1,707,000) $(1,109,000) $ (696,000)
State (793,000) (519,000) (122,000)
-------- -------- --------
(2,500,000) (1,628,000) (818,000)
Deferred Benefit 673,000 1,304,000 1,370,000
------- --------- ---------
Net (Expense) Benefit $ (1,827,000) $ (324,000) $ 552,000
============= =========== ==========
Reconciliations of the differences between the federal statutory rate in
1996, 1995, and 1994 and the effective tax rate in those years are as
follows:
Federal statutory rate 35.0% 34.9% (35.0)%
State taxes, net of Federal benefit 6.7 6.6 6.4
Non-deductible expenses 2.7 17.7 3.4
Increase in tax credit carryforward (6.2) 0.0 0.0
Other 0.8 (1.8) 7.9
-------------------------
Effective tax rate 38.9% 57.4% (17.3)%
=========================
In 1996,the Company amended certain of its previously filed tax returns.
The amended filings resulted in an increase in certain tax credit
carryforward amounts, which have been included as a reduction of 1996 tax
expense.
The Company has alternative minimum tax credit carryforwards for tax
purposes of approximately $1,813,000 at December 31, 1996, which have
been recognized for financial reporting purposes.
6. SIGNIFICANT CUSTOMERS
In 1996, revenues from two customers represented 10% each of total
revenue. In 1995, revenues from one customer represented 10% of total
revenue. A significant portion of the Company's customers operate in the
processed foods industry.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of long-term
debt was approximately $166,047,000 at December 31, 1996 and $169,283,000
at December 31, 1995. Based on the contractual interest rates and
maturity dates of the Company's interest rate swaps, the fair value of
such swaps at December 31, 1996 was not significant.
52
53
8. EMPLOYEE BENEFIT PLANS
Profit Sharing - The Company has a defined contribution employee benefit
plan which covers all eligible employees. The Company's profit sharing
expense was $1,536,000 in 1996, $1,509,000 in 1995, and $1,378,000 in
1994. The plan was also allows contributions by plan participants in
accordance with Section 401(k) of the Internal Revenue Code.
Deferred Compensation - The Company has deferred compensation and
supplemental retirement plan agreements with certain of its executives.
The agreements provide for certain benefits at retirement or disability,
and also provide for survivor benefits in the event of death of the
employee. The Company charges expense for the accretion of the liability
each year.
The Company is presently funding the plan through a life insurance
program which protects it against losses due to acceleration of benefits
arising from disability or death and provides for the funds expected to
be needed for the normal benefits.
The net expense for all deferred compensation and supplemental retirement
plans was approximately $207,000 for 1996, $179,000 for 1995, and
$170,000 for 1994.
9. STOCK WARRANTS AND TRANSACTIONS
In October 1996, the Company issued warrants to certain employees that
allow the holders to purchase up to 4,535 shares of the Company's
common stock. These warrants were outstanding and vested at December 31,
1996 and were exercisable only in the event of a change in control of the
Company. The warrants were issued in four series, each series becoming
exercisable if the exit value, as defined, exceeded the threshold value
specified in each series. Generally, exit value is equivalent to the
price per share realized in a change in control transaction.
The exercise price of all warrants is $1,100 per share. In the event of a
change in control, the warrant holder may elect to receive a cash payment
equal to the excess of the exit value over the exercise price of the
warrant. The Company recorded no expense in connection with these
warrants for the year ended December 31, 1996 (see Note 10).
On December 1, 1994, a preexisting shareholder purchased an additional
8,179 shares of common stock for total consideration of $9,100,000,
$6,100,000 of which was paid in cash and the remaining amount paid by
means of forgiveness of the Company's $3,000,000 promissory note payable
to such shareholder. In addition, in consideration of shareholder's prior
furnishing of the promissory note and its agreement to forego all
interest due under such note, the shareholder received warrants to
purchase an additional 1,250 shares of common stock at par value,
exercisable at any time prior to the tenth anniversary of their issuance.
10. SUBSEQUENT EVENTS
On June 27, 1997, the Company entered into an agreement amending and
restating the credit facility dated June 2, 1995 among the Company's
various lending institutions party thereto and Bankers Trust Company, as
agent. The agreement included a $40,000,000 Revolving Credit Facility
with a five-year term and a $40,000,000 term loan with a six-year
maturity. Both the term loan and borrowings under the line bear interest
at formula rates based on the Federal Funds rate, the Prime rate, or
Eurodollar lending rates. The term loan currently bears a rate of LIBOR
plus 3%. All amounts outstanding under the original credit agreement were
paid with proceeds from the term loan. There have been no borrowings
under the amended and restated Revolving Credit Facility.
Also on June 27, 1997, the Company executed an agreement to purchase a
frozen and dry warehouse complex located in Montezuma, Georgia, together
with related equipment and other tangible and intangible property. In
addition, the seller engaged the Company to provide on going logistical
services. Total purchase price of the warehouse complex was approximately
$9,200,000 and was financed through the term loan.
On September 26, 1997, the Company's shareholders signed an agreement to
sell 100% of the Company's common stock to Vornado Realty Trust
("Vornado") for approximately $365,000,000 less debt and adjusted for the
change in working capital, as defined, at final closing. Final
consummation of the transaction is anticipated by December 31, 1997.
53
54
In connection with the sale of the Company to Vornado, warrants issued to
employees for 3,000 shares of the Company's common stock will become
exercisable. The remaining 1,535 warrants will expire. The Company
recorded $6,837,000 of expense in connection with the exercise of these
warrants.
54
55
URS LOGISTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1997 1996
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash investments $ 3,728,000 $ 904,000
Trade accounts receivable, less allowance for doubtful
accounts of $100,000 in 1997 and 1996 13,359,000 17,345,000
Other current assets 3,535,000 2,072,000
Refundable income taxes 150,000 1,015,000
Deferred income taxes 2,303,000 2,303,000
------------ ------------
Total current assets 23,075,000 23,639,000
OTHER ASSETS:
Loan closing costs 5,441,000 4,334,000
Investment in partnership 2,854,000 2,838,000
Other 1,050,000 872,000
------------ ------------
Total other assets 9,345,000 8,044,000
PROPERTY, PLANT, AND EQUIPMENT:
Land 15,704,000 15,617,000
Buildings and improvements 235,776,000 228,610,000
Machinery and equipment 74,284,000 70,036,000
Construction-in-progress 4,909,000 1,772,000
------------ ------------
330,673,000 316,035,000
Less accumulated depreciation 93,424,000 86,474,000
------------ ------------
Property, plant, and equipment, net 237,249,000 229,561,000
CAPITALIZED LEASES:
Refrigerated warehouse facilities 15,828,000 15,828,000
Equipment 6,629,000 5,321,000
------------ ------------
22,457,000 21,149,000
Less accumulated depreciation 4,014,000 3,401,000
------------ ------------
Capitalized leases, net 18,443,000 17,748,000
------------ ------------
$288,112,000 $278,992,000
============ ============
(Continued)
55
56
URS LOGISTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 11,932,000 $ 14,898,000
Current portion of:
Long-term debt 5,841,000 5,523,000
Capitalized lease obligations 895,000 869,000
------------- -------------
Total current liabilities 18,668,000 21,290,000
LONG-TERM DEBT - Less current portion 158,175,000 147,660,000
CAPITALIZED LEASE OBLIGATIONS - Less current portion 17,311,000 16,499,000
DEFERRED INCOME TAXES 49,905,000 50,761,000
OTHER LIABILITIES 1,719,000 1,892,000
STOCKHOLDERS' EQUITY:
Common stock; par value $.10 per share; 100,000 shares
authorized; 48,687 shares issued and outstanding at
June 30, 1997 and December 31, 1996 5,000 5,000
Additional paid-in capital 44,766,000 44,766,000
Accumulated deficit (1,999,000) (3,296,000)
------------- -------------
42,772,000 41,475,000
Less:
Due from stockholders 91,000 288,000
Treasury stock - 240 shares and 192 shares at June 30,
1997 and December 31, 1996, at cost 347,000 297,000
------------- -------------
Stockholders' equity, net 42,334,000 40,890,000
------------- -------------
$288,112,000 $ 278,992,000
------------- -------------
See notes to condensed consolidated financial statements.
(Concluded)
56
57
URS LOGISTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
----------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
REVENUES $ 76,320,000 $ 71,219,000
OPERATING EXPENSES:
Cost of services 51,273,000 46,091,000
General and administrative 5,968,000 5,060,000
Depreciation and amortization 7,872,000 7,209,000
------------ ------------
Total operating expenses 65,113,000 58,360,000
------------ ------------
11,207,000 12,859,000
INTEREST EXPENSE (9,183,000) (9,157,000)
INTEREST INCOME 102,000 141,000
------------ ------------
Total expense (9,081,000) (9,016,000)
------------ ------------
NET INCOME BEFORE INCOME TAXES 2,126,000 3,843,000
INCOME TAX EXPENSE (829,000) (1,499,000)
------------ ------------
NET INCOME $ 1,297,000 $ 2,344,000
============ ============
See notes to condensed consolidated financial statements.
57
58
URS LOGISTICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net income $ 1,297,000 $ 2,344,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 7,872,000 7,209,000
Gain on disposal of assets (1,000)
Partnership earnings (449,000) (276,000)
Changes in assets and liabilities:
Trade accounts receivable 3,986,000 1,074,000
Other current assets (1,463,000) (1,315,000)
Accounts payable and accrued expenses (2,966,000) 612,000
Deferred income taxes (856,000) (902,000)
Other liabilities (173,000) 29,000
Refundable income taxes 865,000 190,000
------------ ------------
Net cash provided by operating activities 8,113,000 8,964,000
INVESTING ACTIVITIES:
Additions to property, plant, and equipment (14,638,000) (4,289,000)
Additions to capitalized leases (1,308,000)
Proceeds from disposals of property, plant, and equipment 2,000
Contributions to partnership (630,000)
Distributions from partnership 433,000 26,000
Payments received on notes receivable 17,000 19,000
Change in other long term assets (195,000) 77,000
------------ ------------
Net cash used in investing activities (15,691,000) (4,795,000)
FINANCING ACTIVITIES:
Proceeds from borrowings 47,000,000 5,000,000
Payments on long-term debt (36,167,000) (7,402,000)
Additions to capitalized lease obligations 1,309,000 20,000
Principal payments under capital lease obligations (471,000) (247,000)
Payments received on notes receivable shareholders 197,000
Purchase of treasury stock (50,000)
Loan closing costs (1,416,000)
------------ ------------
Net cash provided by (used in) financing activities 10,402,000 (2,629,000)
------------ ------------
NET CHANGE IN CASH AND CASH INVESTMENTS 2,824,000 1,540,000
CASH AND CASH INVESTMENTS:
Beginning of period 904,000 1,722,000
------------ ------------
End of period $ 3,728,000 $ 3,262,000
============ ============
See notes to condensed consolidated financial statements.
58
59
URS LOGISTICS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which in certain
instances require the use of management's estimates. The information
contained in these condensed consolidated financial statements and notes for
the six-month periods ended June 30, 1997 and 1996 is unaudited but, in the
opinion of management, all adjustments necessary for a fair presentation of
such information have been made. All adjustments are of a normal recurring
nature. Reclassifications of certain 1996 amounts have been made to conform
with the 1997 presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
applicable rules and regulations of the Securities and Exchange Commission.
2. CONSOLIDATION POLICY
The condensed consolidated financial statements include the accounts of URS
Logistics, Inc. (formerly United Refrigerated Services, Inc. - the
"Company") and its wholly owned subsidiary, United Refrigerated Services of
Texarkana, Inc. All significant intercompany accounts and transactions have
been eliminated in consolidation.
3. NATURE OF OPERATIONS
The Company operates and manages public refrigerated warehouses in the
continental United States.
The Company records deferred income taxes for the difference in the bases of
assets and liabilities for tax and financial statement purposes and the
enacted rates in effect in the years that the differences are expected to
reverse.
The Company evaluates possible impairment of noncurrent assets and
recognition of impairment losses whenever circumstances indicate that the
carrying value of such assets may be less than their fair values. There was
no impact on the Company's financial statements of adopting this policy for
the year ended December 31, 1995.
Certain reclassifications of prior year balances have been made to conform
with current year financial statement presentation.
4. RECENT EVENTS
On June 27, 1997, the Company entered into an agreement amending and
restating the credit facility dated June 2, 1995 among the Company's various
lending institutions party thereto and Bankers Trust Company, as agent. The
agreement included a $40,000,000 Revolving Credit Facility with a five-year
term and a $40,000,000 term loan with a six-year maturity. Both the term
loan and borrowings under the line bear interest at formula rates based on
the Federal Funds rate, the Prime rate, or Eurodollar lending rates. The
term loan currently bears a rate of LIBOR plus 3%. All amounts outstanding
under the original credit agreement were paid with proceeds from the term
loan. There have been no borrowings under the amended and restated Revolving
Credit Facility.
Also on June 27, 1997, the Company executed an agreement to purchase a
frozen and dry warehouse complex located in Montezuma, Georgia, together
with related equipment and other tangible and intangible property. In
addition, the Seller engaged the Company to provide on-going logistical
services. Total purchase price of the warehouse complex was approximately
$9,200,000 and was financed through the term loan.
On September 26, 1997, the Company's shareholders signed an agreement to
sell 100% of the Company's common stock to Vornado Realty Trust for
approximately $365,000,000 less debt and adjusted for change in working
capital at final closing. Final consummation of the transaction is
anticipated by December 31, 1997.
In connection with the sale of the Company to Vornado, warrants issued to
employees for 2,000 shares of the Company's common stock will become
exercisable. The remaining 1,525 warrants will expire. The Company recorded
$6,837,000 of expense in connection with the exercise of these warrants.
59
60
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Vornado Realty Trust:
We have audited the statement of revenue and certain expenses of The Montehiedra
Town Center (the "Property"), as described in Note 1, for the year ended
December 31, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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.
The accompanying statement of revenue and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in a Form 8-K to be filed by Vornado Realty
Trust, as described in Note 1, and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the statement of revenue and certain expenses of the
Property, as described in Note 1, for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
October 3, 1997
60
61
THE MONTEHIEDRA TOWN CENTER
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(IN THOUSANDS OF DOLLARS)
FOR THE FOR THE
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996 1996
------------------- ----------
(UNAUDITED) (UNAUDITED)
REVENUE:
Minimum and percentage rents $ 2,059 $1,793 $8,086
Tenant recoveries 470 350 2,104
Other income 57 16 106
------- ------- ------
Total revenues 2,586 2,159 10,296
------- ------- ------
CERTAIN EXPENSES:
Real estate taxes 87 88 349
Management fee 65 54 211
General operating expenses 433 403 1,973
------- ------- ------
Total certain expenses 585 545 2,533
------- ------- ------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 2,001 $1,614 $7,763
======= ====== ======
See notes to statements of revenue and certain expenses.
61
62
THE MONTEHIEDRA TOWN CENTER
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
The statements of revenue and certain expenses reflect the operations of The
Montehiedra Town Center (the "Property"), a 529,000 square foot shopping
center located in Rio Piedras, Puerto Rico. The Property was developed and
owned by Big Beaver of Rio Piedras Development Corporation, a wholly owned
subsidiary of Kmart Corporation. On April 18, 1997, Big Beaver of Rio
Piedras Development Corporation sold its interest in the Property to Vornado
Montehiedra Acquisition L.P. The statements of revenue and certain expenses
are to be included in a Form 8-K to be filed by Vornado Realty Trust.
The accounting records of the Property are maintained in accordance with
generally accepted accounting principles. The accompanying financial
statement excludes certain expenses such as interest, depreciation and
amortization, certain professional fees, and other costs not directly
related to the future operations of the Property.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
The statements of revenue and certain expenses for the three-month periods
ended March 31, 1997 and 1996 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of these statements of
revenue and certain expenses for the interim periods have been included. The
results for such interim periods are not necessarily indicative of the
results for an entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Rental income is recognized from leases with scheduled
rent increases on a straight-line basis over the lease term. The excess of
straight-line rent over amounts currently due amounted to $262,662 for the
year ended December 31, 1996, and $57,015 and $65,665 for the three-month
periods ended March 31, 1997 and 1996, respectively, and are included in
minimum rent on the accompanying statements of revenue and certain expenses.
Percentage rents and escalation rents based upon payments for taxes,
insurance, utilities and maintenance by tenants are estimated and accrued.
3. RELATED-PARTY TRANSACTIONS
Kmart Corporation, the parent company of Big Beaver of Rio Piedras
Development Corporation, and Builders Square, Inc., a wholly owned
subsidiary of Kmart Corporation, lease space at the Property. The related
rental income and reimbursements included in the statements of revenue and
certain expenses for the year ended December 31, 1996 totaled $2,938,593.
62
63
4. RENTAL UNDER OPERATING LEASES
The Property's operations consist of leasing retail space in an enclosed
regional shopping center. The leases are operating leases expiring in
various years through 2019. The leases generally provide for a fixed minimum
annual rent, percentage rents based on sales volume and reimbursements for
certain real estate taxes and operating costs. Two of the tenants at the
shopping center lease a total of 48% of the gross leasable area, and
accounted for approximately 30% of the total rental income and
reimbursements for the year ended December 31, 1996. Future minimum fixed
rents, including related-party leases, in place at December 31, 1996 are as
follows:
YEAR ENDING
DECEMBER 31 AMOUNT
1997 $ 7,854,290
1998 7,889,511
1999 7,937,324
2000 8,031,788
2001 8,149,108
Thereafter 76,964,680
--------------
Total $ 116,826,701
==============
* * * * * *
63
64
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Vornado Realty Trust
We have audited the statement of revenues and certain expenses of the
Riese Properties, as described in Note 1 for the year ended April 30, 1997. This
financial statement is the responsibility of Vornado Realty Trust's management.
Our responsibility is to express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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.
The accompanying statement of revenue and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Current Report on Form 8-K of
Vornado Realty Trust as described in Note 1, and is not intended to be a
complete presentation of Riese Properties' revenue and expenses.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the statement of revenues and certain expenses
of The Riese Properties as described in Note 1 for the year ended April 30, 1997
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
October 7, 1997
64
65
THE RIESE PROPERTIES
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(in thousands)
For the
For the Six Months Ended Year
------------------------ Ended
April 30, 1997 April 30, 1996 April 30, 1997
-------------- -------------- --------------
(unaudited) (unaudited)
REVENUES:
Base rent $1,208 $1,232 $2,493
Tenant recoveries 65 70 159
Other income 34 30 41
------ ------ ------
Total Revenues 1,307 1,332 2,693
------ ------ ------
CERTAIN EXPENSES:
Real estate taxes 402 439 798
Repairs & maintenance 47 46 107
Professional fees 244 163 431
Utilities 56 58 121
Insurance 35 58 67
Management fee 128 129 263
Administrative 89 90 154
------ ------ ------
Total Certain Expenses 1,001 983 1,941
------ ------ ------
REVENUES IN EXCESS OF
CERTAIN EXPENSES $ 306 $ 349 $ 752
====== ====== ======
See notes to Statements of Revenues and Certain Expenses.
65
66
THE RIESE PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Note 1 - ORGANIZATION AND BASIS OF PRESENTATION
On June 27, 1997, Vornado acquired for approximately $26,000,000 four properties
previously owned by affiliates of the Riese Organization ("The Riese
Properties"). These properties are located in Manhattan, New York. Vornado also
made a $41,000,000 mortgage loan to Riese Affiliates cross collateralized by ten
other Manhattan properties. This increasing rate loan bears an initial interest
rate of 9.75% and has a five year term.
The statements of revenues and certain expenses reflect the operations of the
Riese Properties. The accounting records of the Riese Properties are maintained
in accordance with generally accepted accounting principles. The accompanying
financial statements exclude certain expenses such as interest, depreciation and
amortization, certain professional fees, and other costs not directly related to
the future operations of the Riese Properties.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. The ultimate results could differ from those estimates.
The statements of revenues and certain expenses for the six month periods ended
April 30, 1997 and 1996 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for the fair presentation of these statements of revenue and certain expenses
for the interim periods have been included. The results for such interim periods
are not necessarily indicative of the results for an entire year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Rental income is recognized from leases with scheduled rent increases on a
straight-line basis over the lease term. Escalation rents based upon payments
for taxes, insurance, utilities and maintenance by tenants are estimated and
accrued. Total revenues do not include rent for space occupied by Riese.
66
67
Note 3 - OPERATING LEASES
The Riese Properties are leased to various tenants with lease terms expiring in
various years through 2008. The following is a schedule, by years, of the
approximate minimum future rentals required under these operating leases as of
April 30, 1997:
Year Ending
April 31, Amount
1998 $ 4,034,000
1999 3,962,000
2000 3,754,000
2001 3,498,000
2002 3,287,000
Thereafter 15,486,000
-----------
Total $34,021,000
===========
67
68
Pro Forma Financial Information:
The unaudited condensed consolidated pro forma financial information
attached presents (i) the condensed consolidated pro forma statements of income
for Vornado Realty Trust for the year ended December 31, 1996 and the six months
ended June 30, 1997, as if the previously reported acquisitions (Mendik Company,
90 Park Avenue and Arbor Property Trust) and the acquisition of Americold and
URS (collectively "Cold Storage"), Montehiedra, Riese, Charles E. Smith
Commercial Realty L.P. and the Hotel Pennsylvania (collectively presented as
"Unrelated Acquisitions") had occurred on January 1, 1996 and (ii) the condensed
consolidated pro forma balance sheet of Vornado Realty Trust as of June 30,
1997, as if the above acquisitions had occurred on June 30, 1997 or the date of
acquisition, if earlier.
The unaudited condensed consolidated pro forma financial information is
not necessarily indicative of what Vornado Realty Trust's actual results of
operations or financial position would have been had these transactions been
consummated on the dates indicated, nor does it purport to represent Vornado
Realty Trust's results of operations or financial position for any future
period. The results of operations for the period ended June 30, 1997 are not
necessarily indicative of the operating results for the full year.
The unaudited condensed consolidated pro forma financial information
should be read in conjunction with the Consolidated Financial Statements and
notes thereto included in Vornado's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, and the Quarterly Report on Form 10-Q for
the period ended June 30, 1997 and the financial statements of Americold, URS,
Montehiedra and Riese included or incorporated by reference herein or
incorporated by reference. In management's opinion, all adjustments necessary to
reflect these transactions have been made. All share and per share amounts have
been restated to reflect the 100% stock dividend announced on October 7, 1997.
68
69
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
HISTORICAL
---------------------------------------------- PREVIOUSLY
PREVIOUSLY REPORTED
REPORTED PRO FORMA COMPANY
VORNADO ACQUISITIONS ADJUSTMENTS PRO FORMA
---------------------- -------------------- -------------------- ------------------
ASSETS:
Real estate, net $ 888,027 $ 141,898 $ 185,000 (A) $ 1,300,750
102,100 (B)
(16,275)(B)
Cash and cash equivalents 260,485 260,485
Investment in and advances to
Preferred Stock Affiliates
Investment in and advances to
Alexander's, Inc. 108,100 108,100
Investment in partnerships 38,275 38,275
Investment in and advances to
management companies 13,008 13,008
Officer's deferred compensation
expense 10,419 10,419
Mortgage loans receivable 243,001 (185,000)(A) 58,001
Receivable arising from straight-
lining of rents 19,619 19,619
Other assets 65,362 13,180 (2,861)(C) 75,681
----------------- -------------------- -------------------- ----------------------
$ 1,646,296 $ 155,078 $ 82,964 $ 1,884,338
================= ==================== ==================== ======================
LIABILITIES:
Notes and mortgages payable $ 862,883 $ 124,873 $ 987,756
Deferred leasing fee income 10,550 10,550
Officer's deferred compensation
payable 25,000 25,000
Other liabilities 30,429 13,930 44,359
----------------- -------------------- ----------------------
928,862 138,803 1,067,665
----------------- -------------------- ----------------------
Minority interest of unitholders in the
Operating Partnership 178,093 - 178,093
----------------- -------------------- ----------------------
EQUITY 539,341 16,275 $ 102,100 (B) 638,580
(16,275)(B)
(2,861)(C)
----------------- -------------------- -------------------- ----------------------
$ 1,646,296 $ 155,078 $ 82,964 $ 1,884,338
================= ==================== ==================== ======================
PRO FORMA PRO FORMA
COLD UNRELATED COMPANY
STORAGE ACQUISITIONS PRO FORMA
-------------------- ------------------- ----------------------
ASSETS:
Real estate, net $ 1,300,750
Cash and cash equivalents $ (204,000)(BB) 56,485
Investment in and advances to
Cold Storage 204,000 (BB) 204,000
Investment in and advances to
Alexander's, Inc. 108,100
Investment in partnerships 77,000 (SS) 115,275
Investment in and advances to
management companies 13,008
Officer's deferred compensation
expense 10,419
Mortgage loans receivable 58,001
Receivable arising from straight-
lining of rents 19,619
Other assets 75,681
-------------------- ------------------- ----------------------
$ - $ 77,000 $ 1,961,338
==================== =================== ======================
LIABILITIES:
Notes and mortgages payable $ 77,000 (SS) $ 1,064,756
Deferred leasing fee income 10,550
Officer's deferred compensation
payable 25,000
Other liabilities 44,359
------------------- ----------------------
77,000 1,144,665
------------------- ----------------------
Minority interest of unitholders in the
Operating Partnership 178,093
----------------------
EQUITY 638,580
-------------------- ------------------- ----------------------
$ - $ 77,000 $ 1,961,338
==================== =================== ======================
69
70
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
----------------------------------------- PREVIOUSLY
PREVIOUSLY REPORTED
REPORTED PRO FORMA COMPANY
VORNADO ACQUISITIONS (1) ADJUSTMENTS PRO FORMA
-------------------- -------------------- ------------------- --------------------
REVENUES:
Property rentals $ 63,471 $ 58,493 $ 1,775 (D) $ 123,739
Expense reimbursements 15,161 13,502 28,663
Other income 1,327 3,451 (2,622)(E) 2,156
------------------- ------------------ ------------------- --------------------
79,959 75,446 (847) 154,558
------------------- ------------------ ------------------- --------------------
EXPENSES:
Operating 26,658 27,530 54,188
Depreciation and amortization 8,429 6,828 368 (F) 16,608
983 (G)
General and administrative 4,748 3,453 (1,607)(E) 5,825
(769)(H)
Amortization of officer's deferred
compensation expense 12,498 12,498
------------------- ------------------ ------------------- --------------------
52,333 37,811 (1,025) 89,119
------------------- ------------------ ------------------- --------------------
Operating income (loss) 27,626 37,635 178 65,439
(Loss) income applicable to
Cold Storage -
Income applicable to Alexander's 2,842 2,842
Equity in net income of
management companies 520 964 (E) 1,484
Equity in net income of investees 282 362 276 (I) 920
Interest income on mortgage
notes receivable 4,305 (3,045)(J) 1,260
Interest and dividend income 6,774 899 7,673
Interest and debt expense (17,350) (13,111) 4,537 (K) (29,745)
(4,410)(L)
589 (M)
Net gain on marketable securities 579 579
Minority interest of unitholders in
the Operating Partnership (2,100) (3,084)(N) (5,184)
------------------- ------------------ ------------------- --------------------
Net income (loss) 23,478 25,785 (3,995) 45,268
Preferred stock dividends (4,855) (5,137)(O) (9,992)
------------------- ------------------ ------------------- --------------------
Net income (loss) applicable to
common shares $ 18,623 $ 25,785 $ (9,132) $ 35,276
=================== ================== =================== ====================
Net income per common share,
based on 53,437,682 and
56,434,764 shares, respectively $ 0.35
===================
OTHER DATA:
Funds from Operations (2):
Net income (loss) applicable to
common shares $ 18,623 $ 25,785 $ (9,132) $ 35,276
Depreciation and amortization
of real property 7,857 4,727 1,351 13,935
Straight-lining of property rent
escalations (1,487) 1,169 (1,775) (2,093)
Leasing fees received in excess
of income recognized 1,303 1,303
Proportionate share of adjustments
to income from equity
investments to arrive at FFO 887 832 1,719
Non-recurring lease cancellation
income and write-off of related
costs (11,581) (11,581)
------------------- ------------------ ------------------- --------------------
$ 27,183 $ 20,932 $ (9,556) $ 38,559
=================== ================== =================== ====================
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ 50,989 $ 15,377 $ (2,701) $ 63,665
Investing activities $ (629,813) $ (5,754) $ (328,638) $ (964,205)
Financing activities $ 688,954 $ (7,126) $ 290,287 $ 972,115
PRO FORMA HISTORICAL
COLD UNRELATED PRO FORMA COMPANY
STORAGE ACQUISITIONS (1) ADJUSTMENTS PRO FORMA
------------------ ---------------------------------------------------------------
REVENUES:
Property rentals $ 3,267 $ 1,093 (LL) $ 128,099
Expense reimbursements 535 29,198
Other income 91 2,247
------------------- ---------------- --------------------
3,893 1,093 159,544
------------------- ---------------- --------------------
EXPENSES:
Operating 1,586 55,774
Depreciation and amortization 3,697 (II) 20,305
General and administrative 5,825
Amortization of officer's deferred
compensation expense 12,498
------------------- ---------------- --------------------
1,586 3,697 94,402
------------------- ---------------- --------------------
Operating income (loss) 2,307 (2,604) 65,142
(Loss) income applicable to
Cold Storage $ (3,970)(CC) 6,942 (DD) 2,972
Income applicable to Alexander's 2,842
Equity in net income of
management companies 1,484
Equity in net income of investees 1,899 (MM) 2,819
Interest income on mortgage
notes receivable 1,999 (JJ) 3,259
Interest and dividend income 7,673
Interest and debt expense (7,650)(EE) (41,392)
(3,997)(KK)
Net gain on marketable securities 579
Minority interest of unitholders in
the Operating Partnership (5,184)
------------------ ------------------- ---------------- --------------------
Net income (loss) (3,970) 2,307 (3,411) 40,194
Preferred stock dividends (9,992)
------------------ ------------------- ---------------- --------------------
Net income (loss) applicable to
common shares $ (3,970) $ 2,307 $ (3,411) $ 30,202
================== =================== ================ ====================
Net income per common share,
based on 53,437,682 and
56,434,764 shares, respectively $ .54
====================
OTHER DATA:
Funds from Operations (2):
Net income (loss) applicable to
common shares $ (3,970) $ 2,307 $ (3,411) $ 30,202
Depreciation and amortization
of real property 3,697 17,632
Straight-lining of property rent
escalations (57) (2,150)
Leasing fees received in excess
of income recognized 1,303
Proportionate share of adjustments
to income from equity
investments to arrive at FFO 15,573 17,292
Non-recurring lease cancellation
income and write-off of related
costs (11,581)
------------------ ------------------- ---------------- --------------------
$ 11,603 $ 2,250 $ 286 $ 52,698
================== =================== ================ ====================
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ 11,190 $ 2,250 $ 286 $ 76,414
Investing activities $ (12,450) $ - $ - $ (976,655)
Financing activities $ 6,332 $ - $ - $ 978,447
70
71
(1) Certain revenue and expense items have been reclassified to conform to
Vornado's presentation.
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs
which is disclosed in the Consolidated Statements of Cash Flows for the
applicable periods. There are no material legal or functional
restrictions on the use of funds from operations. Funds from operations
should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity. Management considers funds
from operations a supplemental measure of Operating performance and
along with cash flow from operating activities, financing activities,
and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. Funds from operations may
not be comparable to similarly titled measures employed by other REITs
since a number of REITs, including the Company's, method of calculating
funds from operations is different from that used by NAREIT. Funds from
operations, as defined by NAREIT, represents net income applicable to
common shares before depreciation and amortization, extraordinary items
and gains or losses on sales of real estate. Funds from operations as
disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing
fee income.
71
72
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
--------------------------- PREVIOUSLY
PREVIOUSLY REPORTED PRO FORMA HISTORICAL
REPORTED PRO FORMA COMPANY COLD UNRELATED
VORNADO ACQUISITIONS(1) ADJUSTMENTS PRO FORMA STORAGE ACQUISITIONS(1)
--------- --------------- ------------ ---------- --------- ------------
REVENUES:
Property rentals $ 87,424 $134,756 $ 7,071 (P) $ 229,207 $10,579
(44)(Q)
Expense reimbursements 26,644 35,388 62,032 2,263
Other income 2,819 5,977 (5,378)(Q) 3,418 147
--------- ----------- ----------- ---------- -----------
116,887 176,121 1,649 294,657 12,989
--------- ----------- ---------- ---------- -----------
EXPENSES:
Operating 36,412 78,049 (39)(Q) 114,538 4,474
116 (R)
Depreciation and amortization 11,589 18,515 (144)(Q) 41,816
9,981 (S)
1,875 (T)
General and administrative 5,167 8,956 (3,788)(Q) 8,162
(2,173)(U)
Amortization of officer's deferred
compensation expense 2,083 2,083
--------- ----------- ---------- ---------- -----------
55,251 105,520 5,828 166,599 4,474
--------- ----------- ---------- ---------- -----------
Operating income (loss) 61,636 70,601 (4,179) 128,058 8,515
(Loss) income applicable to
Cold Storage $ (8,346)(FF)
Income applicable to Alexander's 7,956 7,956
Equity in net income of
management companies 1,855 1,471 (Q) 3,326
Equity in net income of investees 1,663 1,755 (V) 3,418
Interest income on mortgage
notes receivable 2,579 2,579
Interest and dividend income 3,151 2,536 (20)(Q) 5,667
Interest and debt expense (16,726) (34,692) 9,016 (W) (53,940)
(12,775)(X)
1,237 (Y)
Net gain on marketable 913 913
securities
Minority interest of unitholders in
the Operating Partnership (10,372)(Z) (10,372)
--------- ----------- ---------- ---------- ---------- ------------
Net income (loss) 61,364 40,108 (13,867) 87,605 (8,346) 8,515
Preferred stock dividends (19,800)(AA) (19,800)
--------- ----------- ---------- ---------- ---------- ------------
Net income (loss) applicable to
common shares $ 61,364 $ 40,108 $ (33,667) $ 67,805 $ (8,346) $ 8,515
========= =========== ========== ========== ========== ============
Net income per common share,
based on 49,206,884 and
52,203,966 shares, respectively $ 1.25
=========
OTHER DATA:
Funds from Operations (2):
Net income (loss) applicable to
common shares $ 61,364 $ 40,108 $ (33,667) $67,805 $ (8,346) $ 8,515
Depreciation and amortization
of real property 10,583 18,515 11,712 40,810
Straight-lining of property rent
escalations (2,676) (2,413) (7,071) (12,160) (263)
Leasing fees received in excess
of income recognized 1,805 1,805
Proportionate share of adjustments
to income from equity
investments to arrive at FFO (1,760) 2,747 (970) 17 30,239
--------- ----------- ---------- ---------- ---------- -----------
$ 69,316 $ 58,957 $ (29,996) $ 98,277 $ 21,893 $ 8,252
========= =========== ========== ========== ========== ===========
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ 70,703 $ 58,016 $ 42 $ 128,761 $ 22,614 $ 996
Investing activities $ 14,912 $ (8,690) $(513,638) $(507,416) $(26,510) $ (240)
Financing activities $(15,046) $(21,075) $ 455,209 $ 419,088 $ 2,956 $ 1,044
PRO FORMA COMPANY
ADJUSTMENTS PRO FORMA
-------------- ---------------
REVENUES:
Property rentals $ 2,186 (QQ) $ 241,972
Expense reimbursements 64,295
Other income 3,565
-------------- ---------------
2,186 309,832
-------------- ---------------
EXPENSES:
Operating 119,012
Depreciation and amortization 8,126 (NN) 49,942
General and administrative 8,162
Amortization of officer's deferred
compensation expense 2,083
-------------- ---------------
8,126 179,199
-------------- ---------------
Operating income (loss) (5,940) 130,633
(Loss) income applicable to
Cold Storage 13,885 (GG) 5,539
Income applicable to Alexander's 7,956
Equity in net income of
management companies 3,326
Equity in net income of investees 2,191 (RR) 5,609
Interest income on mortgage
notes receivable 3,998 (OO) 6,577
Interest and dividend income 5,667
Interest and debt expense (15,300) (HH) (79,312)
(10,072) (PP)
Net gain on marketable 913
securities
Minority interest of unitholders in
the Operating Partnership (10,372)
-------------- ---------------
Net income (loss) (11,238) 76,536
Preferred stock dividends (19,800)
-------------- ---------------
Net income (loss) applicable to
common shares $ (11,238) $ 56,736
============== ===============
Net income per common share,
based on 49,206,884 and
52,203,966 shares, respectively $ 1.09
==============
OTHER DATA:
Funds from Operations (2):
Net income (loss) applicable to
common shares $ (11,238) $56,736
Depreciation and amortization
of real property 8,126 48,936
Straight-lining of property rent
escalations (12,423)
Leasing fees received in excess
of income recognized 1,805
Proportionate share of adjustments
to income from equity
investments to arrive at FFO 30,256
-------------- ---------------
$ (3,112) $ 125,310
============== ===============
CASH FLOW PROVIDED BY (USED) IN:
Operating activities $ (3,112) $ 147,305
Investing activities $(130,000) $(664,166)
Financing activities $ 130,000 $ 553,088
72
73
(1) Certain revenue and expense items have been reclassified to conform to
Vornado's presentation.
(2) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs
which is disclosed in the Consolidated Statements of Cash Flows for the
applicable periods. There are no material legal or functional
restrictions on the use of funds from operations. Funds from operations
should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative
to cash flows as a measure of liquidity. Management considers funds
from operations a supplemental measure of Operating performance and
along with cash flow from operating activities, financing activities,
and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. Funds from operations may
not be comparable to similarly titled measures employed by other REITs
since a number of REITs, including the Company's, method of calculating
funds from operations is different from that used by NAREIT. Funds from
operations, as defined by NAREIT, represents net income applicable to
common shares before depreciation and amortization, extraordinary items
and gains or losses on sales of real estate. Funds from operations as
disclosed above has been modified to adjust for the effect of
straight-lining of property rentals for rent escalations and leasing
fee income.
73
74
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PREVIOUSLY REPORTED ACQUISITIONS (MENDIK COMPANIES, 90 PARK AVENUE AND ARBOR
REALTY TRUST):
Pro Forma June 30, 1997 Balance Sheet:
(A) Reclassification of investment in 90 Park Avenue to real estate.
(B) Assumed issuance of 2,997,082 common shares, with a fair value of
$102,100 (based on an average price of $34.066 per share), in exchange
for all of the common shares of Arbor.
(C) Write-off of deferred assets of Arbor as reflected in the values
allocated to the real estate and the debt in accordance with APB No.
16.
Pro Forma June 30, 1997 Income Statement:
(D) To adjust rentals for the period from January 1, 1997 to April 14, 1997
arising from the straight-lining of property rentals for rent
escalations based on the remaining terms of the applicable Mendik
leases.
(E) To reflect adjustments required to record the Company's investment in
the Mendik management company for the period from January 1, 1997 to
April 14, 1997 under the equity method of accounting.
(F) Increase in depreciation for the period from January 1, 1997 to April
14, 1997 due to allocation of the Mendik purchase price.
(G) Adjustment to depreciation based on allocation of the Arbor purchase
price and the reclassification of the 90 Park Avenue investment to real
estate.
(H) Reflects the elimination of Arbor management expenses in connection
with the merger.
(I) Increase in equity in investees for the period from January 1, 1997 to
April 14, 1997 due to net decrease in interest expense on refinanced
Mendik debt.
(J) Elimination of interest income earned on mortgage loan receivable from
90 Park Avenue for the period from May 7, 1997 (date of acquisition) to
June 30, 1997.
(K) Reflects decrease in interest expense and loan cost amortization for
the period from January 1, 1997 to April 14, 1997 resulting from the
reduction and refinancing of Mendik debt.
(L) Reflects interest expense of $4,410 for the six months ended June 30,
1997 (January 1, 1997 to May 6, 1997) on the 90 Park Avenue investment
of $185,000, based on an average interest rate of approximately 7.0%.
(M) Reflects elimination of amortization of deferred financing costs of
$589 for the six months ended June 30, 1997 on existing Arbor debt.
(N) To reflect preferential distributions for the period from January 1,
1997 to April 14, 1997 relating to the Mendik Transaction.
(O) To reflect preferred stock dividends at a rate of 6.50% plus
amortization of the underwriting discount for the period from January
1, 1997 to April 14, 1997 on the proportionate number of Series A
Preferred Shares used to fund the Mendik acquisition.
Pro Forma December 31, 1996 Income Statement:
(P) To adjust rentals arising from the straight-lining of property rentals
for rent escalations based on the remaining terms of the applicable
Mendik leases.
(Q) To reflect adjustments required to record the Company's investment in
the Mendik management company under the equity method of accounting.
(R) Increase in Mendik operating expenses due to contract changes.
(S) Increase in depreciation due to preliminary allocation of the Mendik
purchase price.
(T) Adjustment to depreciation based on allocation of the Arbor purchase
price and the reclassification of the 90 Park Avenue investment to real
estate.
(U) Reflects the elimination of Arbor management expenses in connection
with the merger.
(V) Increase in equity in investees, due to net decrease in interest
expense on refinanced Mendik debt.
(W) Reflects decrease in interest expense and loan cost amortization
resulting from the reduction and refinancing of the Mendik debt.
(X) Reflects interest expense on the 90 Park Avenue investment of $185,000,
based on an average interest rate of approximately 7.0%.
(Y) Reflects elimination of amortization of deferred financing costs on
existing Arbor debt.
(Z) To reflect preferential distributions relating to the Mendik
Transaction.
(AA) To reflect preferred stock dividends at a rate of 6.50% plus
amortization of the underwriting discount on the proportionate number
of Series A Preferred Shares used to fund the Mendik acquisition.
74
75
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COLD STORAGE:
On September 26, 1997, Vornado entered into merger agreements pursuant to
which its newly formed Preferred Stock Affiliates will acquire Americold
Corporation and URS Logistics, Inc. (collectively, "Cold Storage"). The
Preferred Stock Affiliates entered into an agreement with Crescent Real Estate
Equities Limited Partnership ("Crescent") to make these acquisitions. While a
definitive structure has not yet been determined, it is anticipated that Vornado
will own directly or indirectly an approximate 60% non-voting interest in Cold
Storage. Accordingly Vornado expects to account for this investment on the
equity method. In connection with the acquisition of Americold, certain of
Americold's existing debt may be in default upon completion of the merger.
Below is summarized pro forma information of Cold Storage:
COLD STORAGE CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
HISTORICAL
------------------------------------ PRO FORMA
AMERICOLD URS PRO FORMA COLD
CORPORATION* LOGISTICS, INC. ADJUSTMENT STORAGE
----------------- ----------------- ----------------- -----------------
ASSETS:
Cash and cash equivalents $ 16,315 $ 3,728 $ 20,043
Property, plant, equipment, and
capitalized leases, net 375,501 255,692 $ 492,833 (a) 1,124,026
Cost in excess of net assets $ 197,133 (a) 197,133
acquired, net 73,496 (73,496)(b) -
Other 58,099 28,692 (11,000)(c) 75,791
----------------- ----------------- ----------------- -----------------
$ 523,411 $ 288,112 $ 605,470 $1,416,993
================= ================= ================= =================
LIABILITIES:
Accounts payable, accrued
expenses and other $ 60,705 $ 13,651 $ 74,356
Long-term debt 469,823 164,016 633,839
Capitalized leases 18,206 18,206
Deferred income taxes and other 103,554 49,905 197,133 (a) 350,592
----------------- ----------------- ----------------- -----------------
634,082 245,778 197,133 1,076,993
(DEFICIT) EQUITY (110,671) 42,334 $ 492,833 (a) 340,000
(73,496)(b)
(11,000)(c)
----------------- ----------------- ----------------- -----------------
$ 523,411 $ 288,112 $ 605,470 $1,416,993
================= ================= ================= =================
VORNADO'S SHARE OF EQUITY $ 204,000
=================
* As of the last day of August 1997
(a) To preliminarily allocate the purchase cost to property, plant and
equipment, cost in excess of net assets acquired and the tax effect
thereon.
(b) To write-off cost in excess of net assets acquired in accordance with
Accounting Principles Board Opinion No. 16 ("APB No. 16").
(c) To write-off deferred loan costs in accordance with APB No. 16.
75
76
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COLD STORAGE (CONTINUED):
COLD STORAGE CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
HISTORICAL
------------------------------------------ PRO FORMA
AMERICOLD URS PRO FORMA COLD
CORPORATION* LOGISTICS, INC. ADJUSTMENTS STORAGE
------------------- -------------------- ------------------ ------------------
Revenues $ 145,807 $ 76,319 $ 222,126
Operating expenses 112,023 57,241 $ 1,211 (d) 170,475
------------------- -------------------- ------------------ ------------------
Gross operating margin 33,784 19,078 (1,211) 51,651
Other income (expense):
Interest expense (27,816) (9,183) 9,275 (e) (27,131)
593 (f)
Depreciation and amortization (10,534) (7,872) (5,615)(g) (24,021)
Management fees (7,084)(h) (7,084)
Other, net 785 103 888
------------------- -------------------- ------------------ ------------------
(Loss) income before income taxes (3,781) 2,126 (4,042) (5,697)
Benefit (provision) for income taxes 992 (829) (1,217)(i) (1,054)
------------------- -------------------- ------------------ ------------------
Net (loss) income $ (2,789) $ 1,297 $ (5,259) $ (6,751)
=================== ==================== ================== ==================
VORNADO'S SHARE OF NET LOSS $ (3,970)
==================
* For the period ended on the last day of August 1997
COLD STORAGE CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
HISTORICAL
------------------------------------------ PRO FORMA
AMERICOLD URS PRO FORMA COLD
CORPORATION* LOGISTICS, INC. ADJUSTMENTS STORAGE
------------------- -------------------- ------------------ ------------------
Revenues $ 310,767 $ 144,229 $ 454,996
Operating expenses 242,213 107,190 $ 2,422 (d) 351,825
------------------- -------------------- ------------------ ------------------
Gross operating margin 68,554 37,039 (2,422) 103,171
Other income (expense):
Interest expense (57,863) (18,037) 18,549 (e) (56,166)
1,185 (f)
Depreciation and amortization (20,697) (14,574) (11,229)(g) (46,500)
Management fees (14,169)(h) (14,169)
Other, net 862 263 1,125
------------------- -------------------- ------------------ ------------------
(Loss) income before income taxes (9,144) 4,691 (8,086) (12,539)
Benefit (provision) for income taxes 2,604 (1,827) (2,433)(i) (1,656)
------------------- -------------------- ------------------ ------------------
Net (loss) income $ (6,540) $ 2,864 $ (10,519) $ (14,195)
=================== ==================== ================== ==================
VORNADO'S SHARE OF NET LOSS $ (8,346)
==================
* For the period ended on the last day of February 1997
(d) To adjust amortization of cost in excess of net assets acquired in
accordance with APB No. 16.
(e) To adjust decrease in interest expense from the refinancing of
$600,000 of existing debt at a rate of 8.5%.
(f) To eliminate amortization of deferred loan costs in accordance with APB
No. 16.
(g) To adjust depreciation expense based on the preliminary allocation of
the purchase cost.
(h) To reflect non-taxable management fees due to Vornado's based on
1% of the combined Cold Storage assets.
(i) To reflect income taxes on pro forma adjustments at 40%.
76
77
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
COLD STORAGE (CONTINUED):
The acquisition will be recorded under "purchase accounting" applying the
provisions of APB No. 16. The estimated purchase price at the date of
acquisition is comprised of:
Vornado's
Total 60% Share
---------- ----------
Cash $ 289,000 $ 173,400
Estimated fees and expenses 51,000 30,600
---------- ----------
340,000 204,000
Debt 660,000 396,000
---------- ----------
$1,000,000 $ 600,000
========== ==========
The respective purchase costs were allocated to acquired assets and assumed
liabilities using their relative fair values as of the closing dates, based on
valuations and other studies which are not yet complete. Accordingly, the excess
of the purchase cost over the net assets acquired has not yet been allocated to
individual assets and liabilities. However, Vornado believes that the excess
purchase price will be allocated principally to property, plant and equipment.
FOOTNOTES:
Pro Forma June 30, 1997 Balance Sheet:
(BB) To reflect loan receivable in connection with Cold Storage acquisition.
Pro Forma June 30, 1997 Income Statement:
(CC) To reflect Vornado's share of net loss per the Cold Storage Condensed
Consolidated Pro Forma Income Statement for the Six Months Ended June 30,
1997.
(DD) To reflect Vornado's share of the management fee income received from Cold
Storage.
(EE) To reflect interest expense at 7.5% on the loans by Vornado in connection
with the Cold Storage acquisition.
Pro Forma December 31, 1996 Income Statement:
(FF) To reflect Vornado's share of net loss per the Cold Storage Condensed
Consolidated Pro Forma Income Statement for the Year Ended December 31,
1996.
(GG) To reflect Vornado's share of the management fee income received from Cold
Storage.
(HH) To reflect interest expense at 7.5% on the loans by Vornado in connection
with the Cold Storage acquisition.
UNRELATED ACQUISITIONS:
On April 18, 1997, Vornado acquired the Montehiedra Town Center in San Juan,
Puerto Rico from Kmart for $74 million of which $63 million is newly issued 10
year financing. The Montehiedra shopping center, which opened in 1994, contains
525,000 square feet, including a 135,000 square foot Kmart.
On June 30, 1997, Vornado acquired for approximately $26 million four properties
previously owned by affiliates of the Riese Organization. These properties are
located in midtown Manhattan. Vornado also made a $41 million mortgage loan to
Riese Affiliates cross collateralized by ten other Manhattan properties. This
five year increasing rate loan bears an initial interest rate of 9.75%.
On September 22, 1997 Vornado entered into an agreement to acquire a 15% limited
partnership interest in Charles E. Smith Commercial Realty Limited Partnership
for $60 million. Charles E. Smith Commercial Realty Limited Partnership is being
formed to own interests in and manage approximately 7.2 million square feet of
office properties in Crystal City, Alexandria, Virginia, a suburb of Washington
D.C., and to manage an additional 14 million square feet of office and other
commercial properties in the Washington D.C. area. The Crystal City properties
in which Charles E. Smith Commercial Realty Limited Partnership will own an
interest are now owned by various Charles E. Smith affiliates.
On September 25, 1997 Vornado acquired a 40% interest in Hotel Pennsylvania,
which is located on Seventh Avenue in New York City, opposite Madison Square
Garden. The property was acquired in a joint venture with Hotel Properties
Limited and Planet Hollywood International, Inc. The venture intends to create a
sports-themed hotel and entertainment complex. Under the joint venture
agreement, Hotel Properties Limited and Planet Hollywood International, Inc.
will have 40% and 20% interests, respectively. The joint venture acquired the
hotel for approximately $159 million, of which $120 million is newly-issued 5
year financing. The Hotel Pennsylvania contains approximately 800,000 square
feet of hotel space with 1,700 rooms and 400,000 square feet of retail and
office space. Vornado will manage the site's retail and office space, and Hotel
Properties will manage the hotel.
FOOTNOTES:
Pro Forma June 30, 1997 Income Statement:
(II) Adjustment to depreciation expense for the period from January 1, 1997 to
date of acquisitions based on the allocation of the purchase price.
(JJ) Adjustment to interest income for the period from January 1, 1997 to the
date of the Riese acquisition on mortgage note receivable $41,000 at a rate
of 9.75%.
(KK) Adjustment to interest expense for the period from January 1, 1997 to date
of acquisitions based on the amount of the investments.
(LL) To reflect rent from new leases entered into with the Riese organization.
(MM) To reflect equity in income from investment in Charles E. Smith Commercial
Realty Limited Partnership and the Hotel Pennsylvania.
Pro Forma December 31, 1996 Income Statement:
(NN) Adjustment to depreciation based on the allocation of the purchase price.
(OO) Adjustment to interest income on the mortgage note receivable with the
Riese organization of $41,000 at a rate of 9.75%.
(PP) Adjustment to interest expense based on the amount of the investments.
(QQ) To reflect rent from new leases entered into with the Riese organization.
(RR) To reflect equity in income from investment in Charles E. Smith Commercial
Realty Limited Partnership and the Hotel Pennsylvania.
Pro Forma June 30, 1997 Balance Sheet:
(SS) To reflect investments in Charles E. Smith Commercial Realty Limited
Partnership ($60,000) and Hotel Pennsylvania ($17,000).
77
78
VORNADO REALTY TRUST
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VORNADO REALTY TRUST
-----------------------------------
(Registrant)
Date: October 8, 1997 /s/ Joseph Macnow
-----------------------------------
JOSEPH MACNOW
Vice President,
Chief Financial Officer
78
79
INDEX TO EXHIBITS
Page
Exhibit No. Exhibit Reference
- ----------- ------- ---------
23.1 Consent of KPMG Peat Marwick LLP 80
23.2 Consent of KPMG Peat Marwick LLP 81
23.3 Consent of Deloitte & Touche LLP 82
23.4 Consent of Deloitte & Touche LLP 83
23.5 Consent of Deloitte & Touche LLP 84
99.1 Press Release, dated September 22, 1997,
of Vornado Realty Trust, announcing the
acquisition of a 15% limited partnership
interest in Charles E. Smith Commercial
Realty, L.P. 85
99.2 Press Release, dated September 25, 1997,
of Vornado Realty Trust, announcing the
acquisition of a 40% interest in Hotel
Pennsylvania. 86
99.3 Press Release, dated September 29, 1997,
of Vornado Realty Trust, announcing the
acquisition of Americold Corporation and
URS Logistics, Inc. and the formation of
a partnership with Crescent Real Estate
Equities Company. 87
99.4 Agreement and Plan of Merger, dated as of
September 26, 1997 among Vornado Realty
Trust, Atlanta Parent, Inc., Atlanta
Storage Acquisition Co. and URS Logistics,
Inc. 88
99.5 Agreement and Plan of Merger, dated as of
September 26, 1997 among Vornado Realty
Trust, Portland Parent, Inc. Portland
Storage Acquisition Co. and Americold
Corporation. 151
99.6 Agreement dated September 28, 1997 between
Atlanta Parent Incorporated, Portland
Parent Incorporated and Crescent Real
Estate Equities, Limited Partnership. 214
79