UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2000
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to ___________
COMMISSION FILE NUMBER 0-22793
PRICESMART, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0628530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4649 Morena Boulevard
San Diego, California 92117
(Address of principal executive offices)
(858) 581-4530
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
The registrant had 6,320,407 shares of its common stock, par value $.0001
per share, outstanding at December 31, 2000.
Page 1
PRICESMART, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1. FINANCIAL STATEMENTS............................................................. 3
Condensed Consolidated Balance Sheets as of November 30, 2000
and August 31, 2000.............................................................. 9
Condensed Consolidated Statements of Operations
for the three months ended November 30, 2000 and 1999........................... 10
Condensed Consolidated Statements of Cash Flows
for the three months ended November 30, 2000 and 1999........................... 11
Condensed Consolidated Statements of Stockholders' Equity
for the three months ended November 30, 2000.................................... 12
Notes to Condensed Consolidated Financial Statements............................ 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................. 3
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................................... 6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................ 7
ITEM 2. CHANGES IN SECURITIES AND USE
OF PROCEEDS.....,................................................................ 7
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.............................................................. 7
ITEM 5. OTHER INFORMATION................................................................ 7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................. 7
Page 2
ITEM 1. FINANCIAL STATEMENTS
PriceSmart, Inc.'s ("PriceSmart" or the "Company") unaudited condensed
consolidated balance sheet as of November 30, 2000, the condensed
consolidated balance sheet as of August 31, 2000, and the unaudited condensed
consolidated statements of operations, cash flows and stockholders' equity
for the three months ended November 30, 2000 and 1999 are included elsewhere
herein. Also included within are notes to the unaudited condensed
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements concerning the
Company's anticipated future revenues and earnings, adequacy of future cash flow
and related matters. These forward-looking statements include, but are not
limited to, statements containing the words "expect", "believe", "will", "may",
"should", "project", "estimate", "scheduled", and like expressions, and the
negative thereof. These statements are subject to risks and uncertainties that
could cause actual results to differ materially, including the following risks:
the Company's financial performance is dependent on international operations;
the success of the Company's business requires effective assistance from local
business people with whom the Company has established strategic relationships;
any failure by the Company to manage its growth could adversely affect its
business; the Company faces significant competition; the Company may encounter
difficulties in the shipment of goods to its warehouses; the Company is exposed
to weather and other risks associated with Central American and Caribbean
operations; declines in the economies of the countries in which the Company
operates its warehouse stores would harm its business; the loss of key personnel
could harm the Company's business; and the Company is subject to volatility in
foreign currency exchange; as well as the other risks described in the Company's
SEC reports, including the Company's Form 10-K filed pursuant to the Securities
Exchange Act on November 29, 2000.
The following discussion and analysis compares the results of operations for
each of the first fiscal quarters ended November 30, 2000 (fiscal 2001) and 1999
(fiscal 2000), and should be read in conjunction with the condensed consolidated
financial statements and the accompanying notes included within.
As of November 30, 2000, the Company had seventeen warehouse stores in operation
(four in Panama, three each in Costa Rica and the Dominican Republic, two each
in El Salvador, Honduras, and Guatemala and one in Trinidad) of which the
Company owns at least a majority interest.
In fiscal year 2000, the Company increased its ownership from 51% to 100% in the
operations in Panama on March 27, 2000 and increased its ownership from 60% to
100% in the operations in Costa Rica, Dominican Republic, El Salvador and
Honduras on July 7, 2000.
During the first quarter of fiscal 2001, the Company opened one new US-style
membership shopping warehouse in East Santo Domingo, Dominican Republic on
October 12, 2000, bringing the total number of warehouse stores in operation to
seventeen as of November 30, 2000. During the first quarter of fiscal 2000, the
Company opened two US-style membership shopping warehouses, bringing the total
number of warehouses in operation to seven as of November 30, 1999. Also, there
were six warehouse stores in operation (five in China and one in Saipan,
Micronesia) licensed to and operated by local business people at the end of the
first quarter of fiscal 2001, versus five licensed warehouse stores (four in
China and one in Saipan, Micronesia) at the end of the first quarter of fiscal
2000.
Net warehouse sales increased 109% to $105.3 million in the first quarter of
fiscal 2001, from $50.5 million in the first quarter of fiscal 2000. The
increase is primarily attributable to the opening of ten new warehouses since
the end of the first quarter of fiscal 2000.
The Company will begin providing quarterly same-store-sales information when at
least one-third of its stores have comparative prior period sales in
metropolitan markets that have not had additional store openings. As of November
30, 2000, the average life of the seventeen warehouses in operation was fourteen
months.
The Company's warehouse gross profit margins in the first quarter of fiscal 2001
increased to 14.0% from 12.8% in the first quarter of fiscal 2000. The increase
in gross profit margins is a result of the Company's increased purchasing power
and an increase in sales penetration of higher margin pre-holiday U.S. products,
Page 3
non-food items and anticipated lower margins in the prior year quarter as the
Company entered new markets. Warehouse gross profit margins are expected to
exceed prior fiscal year margins during the remainder of fiscal 2001.
There were no export sales to the Company's licensee warehouses in Asia in
the first quarter of fiscal 2001 compared to $275,000 in the first quarter of
fiscal 2000. The Company does not anticipate significant export sales to its
licensees in future periods.
Membership fees and other income, including royalties earned from licensees,
increased 107% to $2.9 million in the first quarter of fiscal 2001 from $1.4
million in the first quarter of fiscal 2000. Membership fees and other income
(which includes rental income, advertising revenues and vendor promotions)
increased to $2.7 million, or 2.6% of net warehouse sales, in the first
quarter of fiscal 2001 from $1.2 million, or 2.4% of net warehouse sales, in
the first quarter of fiscal 2000. The increase between quarters was primarily
a result of the ten new warehouse openings, which resulted in an increase in
the total memberships to 425,000 from 216,000, or an increase of 97%, and
increases in rental income and advertising revenues.
The Company sold its travel program in March 2000 (fiscal 2000), accounting
for the decrease in travel program revenues over the prior period from $1.6
million in the first quarter of fiscal 2000 to none in the first quarter of
fiscal 2001.
Warehouse operating expenses increased to $11.3 million, or 10.7% of net
warehouse sales, in the first quarter of fiscal 2001 from $5.9 million, or
11.6% of net warehouse sales, in the first quarter of fiscal 2000. The
increase in warehouse operating expenses is attributable to the ten
additional warehouses opened since the first quarter of fiscal 2000. The
decrease in operating expenses as a percentage of net warehouse sales is
attributable to the leveraging of centralized warehouse costs over additional
warehouses within a market, general payroll savings and general operating
cost reduction initiatives.
General and administrative expenses increased to $4.3 million, or 4.1% of net
warehouse sales, in the first quarter of fiscal 2001 from $4.1 million, or
8.1% of net warehouse sales, in the first quarter of fiscal 2000. General and
administrative expenses have increased between the periods presented to
support the planned expansion efforts and improvements to the infrastructure
to support the rapid growth of the Company. As a percentage of net warehouse
sales, general and administrative expenses have declined due to higher sales
from the ten additional warehouse store openings between the periods
presented. General and administrative expenses are anticipated to decline in
comparison to prior periods during the remainder of fiscal 2001 as a result
of certain one-time costs incurred in the prior fiscal year related to the
Company's planned growth and certain cost reduction initiatives in the
current fiscal year.
Preopening expenses, which represent expenses incurred before a warehouse
store is in operation, decreased to $477,000 in the first quarter of fiscal
2001 from $2.4 million in the first quarter of fiscal 2000. Preopening
expenses have decreased as the Company anticipates opening a total of six
warehouse locations (one of which opened during the first quarter) in fiscal
2001 verses the eleven new warehouses that were opened in fiscal 2000,
including two warehouse store openings during the first quarter of fiscal
year 2000.
Interest income reflects earnings primarily on cash and cash equivalents,
marketable securities and certain secured notes receivables from buyers of
formerly owned properties. Interest income decreased to $831,000 in the first
quarter of fiscal 2001 from $1.1 million in the first quarter of fiscal 2000.
The decrease in interest income is due to the decrease in the amount of
interest-bearing instruments held by the Company as it has used cash for its
expansion.
Interest expense primarily reflects borrowings by the Company's majority or
wholly owned foreign subsidiaries to finance the construction of new
warehouse store operations, and was $2.0 million in the first quarter of
fiscal 2001 compared with $311,000 in the first quarter of fiscal 2000. The
increase is directly attributable to an increase in the amount of debt
between the quarters presented.
Minority interest relates to an allocation of the joint venture income
(losses) to the minority interest shareholders' respective interests.
During the first quarter of fiscal 2001, the Company sold excess real estate
properties owned by its wholly owned foreign subsidiaries in the Dominican
Republic, Costa Rica and its majority owned foreign subsidiary in
Page 4
Trinidad. The sale of the excess land resulted in a gain of $1.1 million, of
which the Company's share of the gain was $781,000.
The Company recognized an income tax benefit of $114,000 in the first quarter
of fiscal 2001, which relates primarily to a foreign tax benefit realized at
one of the Company's subsidiaries. A tax benefit has been recognized on the
net operating losses, because the Company believes the benefit of this loss
will be realized in the current fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are the financing of land,
construction and equipment costs associated with new warehouse stores, plus
the cost of preopening and working capital requirements, through investments
in foreign ventures.
For fiscal 2001, the Company's current intention is to spend an aggregate of
approximately $53.0 million, which includes $39.0 million for construction,
equipment and working capital for six new warehouses and approximately $14.0
million for the potential redemption of 306,748 shares of the Company's
common stock. Actual capital expenditures for new warehouse locations and
operations may vary from estimated amounts depending on the number of new
warehouses actually opened, business conditions and other risks and
uncertainties to which the Company and its businesses are subject. The
Company, primarily through its foreign subsidiaries, intends to borrow
approximately $26 million during fiscal 2001, and to use these proceeds, as
well as excess cash and cash equivalents and cash generated from existing
operations, to finance these expenditures.
In March 2000, the Company entered into an agreement to acquire the remaining
interest in the PriceSmart Panama majority owned subsidiary, which previously
had been 51% owned by the Company and 49% owned by BB&M International Trading
Group ("BB&M"), whose principals are several Panamanian businessmen,
including Rafael Barcenas, a director of PriceSmart. In exchange for BB&M's
49% interest, PriceSmart issued to BB&M's principals 306,748 shares of
PriceSmart common stock. As a result of this acquisition, PriceSmart, Inc.
has increased its guarantee for the outstanding loans related to the Panama
operations to 100%.
Under the Stock Purchase Agreement relating to the acquisition of BB&M's
interest, as subsequently amended by a July 11, 2000 letter agreement, the
Company has agreed to redeem the shares of the Company's common stock issued
to BB&M or otherwise provide additional consideration to BB&M under certain
circumstances. If the closing price of the Company's common stock is less
than $46.86 on the first anniversary of the closing of the Company's
acquisition of BB&M's 49% interest, the BB&M shareholders may request that
the Company redeem the shares of the Company's common stock issued to them in
the transaction. If the shareholders make such a request, the Company may
satisfy its redemption obligation in either of two alternative ways. First,
the Company may elect to redeem the shares for cash at a price of $46.86 per
share. Second, the Company may request that the shareholders sell shares on
the open market within a 30-day period; with respect to shares actually sold
by the shareholders, if the average sales price the shareholders receive is
less than $46.86 per share, the Company would pay to the shareholders the
difference between $46.86 and the price actually received, by a cash payment
or by issuing to the shareholders additional shares of the Company's common
stock, valued at the average closing price over the last ten trading days
during the 30-day sale period. In the event the share price remains below
$46.86 on March 27, 2001, it is presently anticipated that the Company will
elect the first alternative by paying cash for those shares that are tendered
for redemption.
The Company has received commitments from the International Finance
Corporation (IFC) and the Overseas Private Investment Corporation (OPIC) to
loan to the Company a total of $42.0 million. Approximately $28.0 million
will be used to repay certain existing loans outstanding with the remainder
to be used to finance new warehouse expenditures as described above. The
funding of the IFC and OPIC loans is subject to the execution of loan
agreements and the fulfillment of all approved conditions, which include the
perfection of the underlying security for these loans. The Company expects
initial funding of the IFC loan to occur in February 2001, with the funding
of the balance of the IFC loan and the OPIC loan to follow shortly thereafter.
The Company believes that borrowings under its current and future credit
facilities, together with its other sources of liquidity (including the IFC
and OPIC loans), will be sufficient to meet its working capital and capital
expenditure requirements for the foreseeable future. However, if such sources
of liquidity are insufficient to satisfy the Company's liquidity
requirements, the Company may need to sell equity or debt securities, obtain
Page 5
additional credit facilities or reduce the number of anticipated warehouse
openings. There can be no assurance that such financing alternatives will be
available under favorable terms, if at all.
SEASONALITY
Historically, the Company's merchandising businesses have experienced
moderate holiday retail seasonality in their markets. In addition to seasonal
fluctuations, the Company's operating results fluctuate quarter-to-quarter as
a result of economic and political events in markets served by the Company,
the timing of holidays, weather, timing of shipments, product mix, and
currency effects on the cost of U.S.-sourced products which may make these
products more expensive in local currencies and less affordable. Because of
such fluctuations, the results of operations of any quarter are not
indicative of the results that may be achieved for a full fiscal year or any
future quarter. In addition, there can be no assurance that the Company's
future results will be consistent with past results or the projections of
securities analysts.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company, through its majority or wholly owned subsidiaries, conducts
foreign operations primarily in Central America and the Caribbean, and as
such is subject to both economic and political instabilities that cause
volatility in foreign currency exchange rates or weak economic conditions. As
of November 30, 2000, the Company had a total of seventeen warehouses
operating in seven foreign countries. For the three months ended November 30,
2000, approximately 81% of the Company's net warehouse sales were in foreign
currencies. The Company currently has operations in Panama and will have
operations in the U.S. Virgin Islands, both of which are U.S. dollar
denominated currencies. In addition, effective January 1, 2001, the
government of El Salvador changed its currency to the U.S. dollar.
The Company's plans to enter into additional foreign countries in the future,
which may involve similar economic and political risks as well as challenges
that are different from those currently encountered by the Company. The
Company believes that because its present operations and expansion plans
involve numerous countries and currencies, the effect from any one-currency
devaluation may not significantly impact the overall financial or operating
results of the Company. However, there can be no assurance that the Company
will not experience a materially adverse effect on the Company's financial
condition as a result of the economic and political risks of conducting an
international merchandising business.
Translation adjustments from the Company's non-U.S. denominated majority or
wholly owned subsidiaries were $581,000 and $388,000 as of November 30, 2000
and August 31, 2000, respectively.
Foreign currencies in most of the countries where the Company operates have
historically devalued against the U.S. dollar and are expected to continue to
devalue. Managing foreign exchange is critical for operating successfully in
these markets and the Company at times manages its risks through a
combination of hedging currencies through Non Deliverable Forward Exchange
Contracts (NDFs) and internal hedging procedures. For the three months ended
November 30, 2000, the Company had not entered into any NDFs. However, the
Company may purchase NDFs in the future to mitigate foreign exchange losses,
but due to the volatility and lack of derivative financial instruments in the
countries the Company operates, significant risk from unexpected devaluation
of local currencies exists. Foreign exchange transaction losses realized,
which are included as a part of the costs of goods sold in the condensed
consolidated statements of operations, for the three months ended November
30, 2000, and for all of fiscal 2000 (including the cost of any NDFs) were
$404,000 and $1.3 million, respectively.
The Company is also exposed to changes in interest rates on various bank loan
facilities. A hypothetical 100 basis point adverse change in interest rates
along the entire interest rate yield curve would adversely affect the
Company's pretax net income (loss) by approximately $575,000.
Page 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is subject to legal proceedings and
claims arising in the ordinary course of business. The Company
currently is not aware of any such legal proceedings or claims that it
believes will have, individually or in the aggregate, a material
adverse effect on its business, financial condition or operating
results.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) No reports on Form 8-K were filed for the three months ended
November 30, 2000.
Page 7
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 thereunto duly authorized.
PriceSmart, Inc.
Date: January 15, 2000 /s/ Gilbert A. Partida
-----------------------
Gilbert A. Partida
President and Chief Executive Officer
Date: January 15, 2000 /s/ Allan C. Youngberg
-----------------------
Allan C. Youngberg
Executive Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 8
PRICESMART, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
November 30, August 31,
2000 2000
------------------ ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,035 $ 24,503
Marketable securities 5,500 5,482
Receivables, net of allowance for doubtful accounts 3,342 1,732
Other receivables 2,837 --
Merchandise inventories 63,287 54,949
Prepaid expenses and other current assets 6,615 5,405
Property held for sale 726 1,652
------------------ ------------------
Total current assets 108,342 93,723
Restricted cash 13,825 12,698
Property and equipment, net 132,585 128,985
Goodwill, net 18,935 19,178
Notes receivable and other 6,030 6,816
------------------ ------------------
TOTAL ASSETS $ 279,717 $ 261,400
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings $ 12,062 $ 9,493
Accounts payable 48,597 43,312
Accrued salaries and benefits 3,391 3,086
Deferred membership income 3,732 3,892
Other accrued expenses 13,384 5,946
Long-term debt, current portion 8,241 8,773
------------------ ------------------
Total current liabilities 89,407 74,502
Long-term debt 51,229 50,532
------------------ ------------------
Total liabilities 140,636 125,034
Minority interest 5,991 4,683
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 2,000,000 shares authorized, none issued -- --
Commonstock, $.0001 par value, 15,000,000 shares authorized, 6,848,964 and
6,812,485 shares issued and outstanding at November 30, 2000 and
August 31, 2000, respectively 1 1
Additional paid-in capital 149,260 148,970
Notes receivable from stockholders (1,000) (1,000)
Deferred compensation (586) (679)
Accumulated other comprehensive loss (610) (695)
Accumulated deficit (5,462) (6,308)
Less: Treasury stock at cost, 549,120 and 555,093 shares at November 30,
2000 and August 31, 2000, respectively (8,513) (8,606)
------------------ ------------------
Total stockholders' equity 133,090 131,683
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 279,717 $ 261,400
================== ==================
See accompanying notes.
Page 9
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
November 30,
---------------------------------
2000 1999
--------------- ---------------
Revenues:
Sales:
Net warehouse $ 105,253 $ 50,482
Export -- 275
Membership fees and other income 2,910 1,378
Travel program -- 1,580
--------------- ---------------
Total revenues 108,163 53,715
--------------- ---------------
Expenses:
Cost of goods sold:
Net warehouse 90,472 44,039
Export -- 266
Selling, general and administrative:
Warehouse operations 11,278 5,867
General and administrative 4,323 4,079
Travel program expenses -- 1,126
Goodwill amortization 242 --
Preopening expenses 477 2,385
--------------- ---------------
Total expenses 106,792 57,762
--------------- ---------------
Operating income (loss) 1,371 (4,047)
--------------- ---------------
Other:
Interest income 831 1,101
Interest expense (1,978) (311)
Other expense -- (187)
Gain on sale of real estate properties 1,128 --
Minority interest (620) 676
--------------- ---------------
Total other income (expense) (639) 1,279
--------------- ---------------
Income (loss) before provision for income taxes 732 (2,768)
Benefit for income taxes (114) --
--------------- ---------------
Net income (loss) $ 846 $ (2,768)
=============== ===============
Earnings (loss) per share:
Basic $ 0.14 $ (0.54)
=============== ===============
Diluted $ 0.13 $ (0.54)
=============== ===============
Shares used in per share computation:
Basic 6,264 5,087
Diluted 6,732 5,087
See accompanying notes.
Page 10
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
For the Three Months
Ended November 30,
----------------------------------
2000 1999
--------------- ---------------
OPERATING ACTIVITIES
Net income (loss) $ 846 $ (2,768)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,986 851
Amortization of goodwill 242 --
Allowance for doubtful accounts 6 (83)
Gain on sale of real estate properties (1,128) --
Income tax benefit 114 --
Minority interest 620 (676)
Compensation expense recognized for stock options 93 150
Change in operating assets and liabilities:
Restricted cash (1,127) 2,858
Accounts receivable and other assets (14,018) (10,349)
Accounts payable and other liabilities 12,665 5,175
Unrealized gain loss on marketable securities 33 --
--------------- ---------------
Net cash flows provided by (used in) operating activities 332 (4,842)
INVESTING ACTIVITIES
Sale of marketable securities -- 12,073
Additions to property and equipment (6,340) (20,539)
Payments of notes receivable 786 724
Proceeds from sale of real estate properties 2,896 --
Other -- 297
--------------- ---------------
Net cash flows used in investing activities (2,658) (7,445)
FINANCING ACTIVITIES
Proceeds from bank borrowings, net 2,735 5,535
Contributions by minority interest shareholders 688 1,732
Proceeds from exercise of stock options 383 194
--------------- ---------------
Net cash flows provided by financing activities 3,806 7,461
Effect of exchange rate changes on cash
and cash equivalents 52 32
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,532 (4,794)
Cash and cash equivalents, beginning of period 24,503 14,957
--------------- ---------------
Cash and cash equivalents, end of period $ 26,035 $ 10,163
=============== ===============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest, net of amounts capitalized $ 1,723 $ 210
Income Taxes $ -- $ 336
See accompanying notes.
Page 11
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000
(UNAUDITED - AMOUNTS IN THOUSANDS)
Notes Other
Additional Receivable Comprehensive
Common stock Paid-in from Deferred Income
Shares Amount Capital Stockholders Compensation (Loss)
------------------------------------------------------------------------------------
Balance at August 31, 2000 6,813 $1 $148,970 $(1,000) $(679) $(695)
Exercise of
stock options 36 -- 290 -- -- --
Amortization
of deferred
compensation -- -- -- -- 93 --
Net income -- -- -- -- -- --
Net unrealized
gain on marketable
securities -- -- -- -- -- 33
Translation
adjustment -- -- -- -- -- 52
Comprehensive income -- -- -- -- -- --
------------------------------------------------------------------------------------
Balance at November 30, 2000 6,849 $1 $149,260 $(1,000) $(586) $(610)
====================================================================================
Less:
Treasury
Accumulated stock Total
Deficit at Cost Stockholders'
Shares Amount Equity
-------------------------------------------------
Balance at August 31, 2000 $(6,308) 555 $(8,606) $131,683
Exercise of
stock options -- (6) 93 383
Amortization
of deferred
compensation -- -- -- 93
Net income 846 -- -- 846
Net unrealized
gain on marketable
securities -- -- -- 33
Translation
adjustment -- -- -- 52
-----------
Comprehensive income -- -- -- 931
-------------------------------------------------
Balance at November 30, 2000 $(5,462) 549 $(8,513) $133,090
=================================================
See accompanying notes.
Page 12
PRICESMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
November 30, 2000
NOTE 1 - COMPANY OVERVIEW AND BASIS OF PRESENTATION
PriceSmart, Inc.'s ("PriceSmart" or the "Company") business consists of
international membership shopping stores similar to, but smaller in size
than, warehouse clubs in the United States. As of November 30, 2000, the
Company had seventeen warehouse stores in operation (four in Panama, three
each in Costa Rica and the Dominican Republic, two each in El Salvador,
Honduras, and Guatemala and one in Trinidad) of which the Company owns at
least a majority interest. During fiscal year 2000, the Company increased its
ownership from 51% to 100% in the operations in Panama on March 27, 2000 and
increased its ownership from 60% to 100% in the operations in Costa Rica,
Dominican Republic, El Salvador and Honduras on July 7, 2000 (see Note 8). In
addition, there were six warehouse stores in operation (five in China and one
in Saipan) licensed to and operated by local business people as of November
30, 2000. Additionally, until March 1, 2000 of fiscal 2000, the Company
operated a domestic travel program (see Note 7).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The condensed consolidated interim financial
statements of the Company included herein include the assets, liabilities and
results of operations of the Company's majority and wholly owned subsidiaries
as listed below. All significant intercompany accounts and transactions have
been eliminated in consolidation. The condensed consolidated interim
financial statements have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"), and reflect all adjustments that are, in the
opinion of management, necessary to fairly present the financial position,
results of operations, and cash flows for the interim period presented.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such SEC rules and regulations. Management believes that the disclosures made
are adequate to make the information presented not misleading. The results
for interim periods are not necessarily indicative of the results for the
full year. The interim financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
audited consolidated financial statements for the year ended August 31, 2000
filed on Form 10-K.
Ownership Basis of Presentation
------------- -------------------------
Ventures Services, Inc. 100.0% Consolidated
PriceSmart Panama 100.0% Consolidated
PriceSmart US Virgin Islands 100.0% Consolidated
PriceSmart Guatemala 66.0% Consolidated
PriceSmart Trinidad 62.5% Consolidated
PriceSmart Aruba 60.0% Consolidated
PriceSmart Barbados 60.0% Consolidated
PriceSmart Philippines 60.0% Consolidated
PSMT Caribe, Inc.:
Costa Rica 100.0% Consolidated
Dominican Republic 100.0% Consolidated
El Salvador 100.0% Consolidated
Honduras 100.0% Consolidated
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent cash and
short-term investments with maturities of three months or less when purchased.
RESTRICTED CASH: Restricted cash represents time deposits that are pledged as
collateral for majority-owned subsidiary loans and amounts deposited in
escrow for future asset acquisitions.
PriceSmart, Inc.
Page 13
Notes to Condensed Consolidated Financial Statements (Continued)
MERCHANDISE INVENTORIES: Merchandise inventories, which include merchandise
for resale, are valued at the lower of cost (average cost) or market.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets, as follows:
Building and improvements 10-25 years
Fixtures and equipment 3-15 years
FOREIGN CURRENCY TRANSLATION: In accordance with SFAS No. 52 "Foreign
Currency Translation", the assets and liabilities of the Company's foreign
operations are translated to U.S. dollars using the exchange rates at the
balance sheet date, and revenues and expenses are translated at average rates
prevailing during the period. Related translation adjustments are recorded as
a component of accumulated comprehensive income.
SEGMENT REPORTING: The Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
which the Company adopted in fiscal 1999. SFAS No. 131 amends the
requirements to report financial and descriptive information about reportable
operating segments. The financial information is now required to be reported
on the basis that is used internally for evaluating the segment performance
and deciding how to allocate resources to segments. The Company principally
operates under one segment in two geographic regions.
BUSINESS COMBINATIONS: For business combinations accounted for under the
purchase method of accounting, the Company includes the results of operations
of the acquired business from the date of acquisition. Net assets of the
acquired business are recorded at their fair value at the date of
acquisition. The excess of the purchase price over the fair value of tangible
net assets acquired is included in goodwill in the accompanying consolidated
balance sheets, and is being amortized over a 20 year period.
RECLASSIFICATIONS: Certain amounts in the prior period interim condensed
consolidated financial statements have been reclassified to conform to
current period presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
November 30, August 31,
2000 2000
------------ ------------
PROPERTY AND EQUIPMENT:
Land $ 28,856 $ 29,779
Building and improvements 62,111 61,649
Fixtures and equipment 47,573 40,299
Construction in progress 4,485 5,712
------------ ------------
143,025 137,439
Less: accumulated depreciation (10,440) (8,454)
------------ ------------
Property and equipment, net $ 132,585 $ 128,985
============ ============
Building includes capitalized interest of $891,000 as of November 30, 2000
and August 31, 2000.
Page 14
PriceSmart, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 4 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average
shares outstanding in the period. Diluted earnings (loss) per share is computed
based on the weighted average shares outstanding in the period and the effect of
dilutive securities (options) except where the inclusion is antidilutive
(amounts in thousands, except share data):
For the Three Months
Ended November 30,
--------------------------------------
2000 1999
--------------- ---------------
Net income (loss) used for basic
and diluted computation $ 846 $ (2,768)
=============== ===============
Weighted average number of
common shares outstanding 6,263,979 5,086,797
Add:
Assumed exercise of those options
that are common stock equivalents 468,240 --
--------------- ---------------
Adjusted shares outstanding used
for diluted computation 6,732,219 5,086,797
=============== ===============
Earnings (loss) per share:
Basic $ 0.14 $ (0.54)
=============== ===============
Diluted $ 0.13 $ (0.54)
=============== ===============
NOTE 5 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to legal proceedings and claims
arising in the ordinary course of business. The Company currently is not
aware of any such legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on its business,
financial condition or operating results.
NOTE 6 - BANK FACILITIES
As of November 30, 2000, the Company, through its majority or wholly owned
subsidiaries, had $12 million outstanding in short-term bank borrowings
through six separate facilities, which are secured by certain assets of its
subsidiaries and are guaranteed by the Company up to its respective ownership
percentage. Each of the facilities expires during the year and typically are
renewed. As of November 30, 2000, the Company had drawn down the full amounts
for four of the facilities and had availability of approximately $7.4 million
under the fifth.
NOTE 7 - SALE OF ASSETS
On March 1, 2000, the Company sold its travel program for $1.5 million to
Club-4U, Inc. under an asset purchase agreement ("purchase agreement"). Under
the purchase agreement, Club-4U, Inc. acquired the assets primarily used in
connection with the travel program, subject to liabilities under the travel
program's existing contracts, resulting in a gain of approximately $1.1
million.
Page 15
PriceSmart, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 8 - ACQUISITION OF MINORITY INTERESTS
In March 2000, the Company entered into an agreement to acquire the remaining
interest in the PriceSmart Panama majority owned subsidiary, which previously
had been 51% owned by the Company and 49% owned by BB&M International Trading
Group ("BB&M"), whose principals are several Panamanian businessmen,
including Rafael Barcenas, a director of PriceSmart. In exchange for BB&M's
49% interest, PriceSmart issued to BB&M's principals 306,748 shares of
PriceSmart common stock. As a result of this acquisition, PriceSmart, Inc.
has increased its guarantee for the outstanding loans related to the Panama
operations to 100%.
Under the Stock Purchase Agreement relating to the acquisition of BB&M's
interest, as subsequently amended by a July 11, 2000 letter agreement, the
Company has agreed to redeem the shares of the Company's common stock issued
to BB&M or otherwise provide additional consideration to BB&M under certain
circumstances. If the closing price of the Company's common stock is less
than $46.86 on the first anniversary of the closing of the Company's
acquisition of BB&M's 49% interest, the BB&M shareholders may request that
the Company redeem the shares of the Company's common stock issued to them in
the transaction. If the shareholders make such a request, the Company may
satisfy its redemption obligation in either of two alternative ways. First,
the Company may elect to redeem the shares for cash at a price of $46.86 per
share. Second, the Company may request that the shareholders sell shares on
the open market within a 30-day period; with respect to shares actually sold
by the shareholders, if the average sales price the shareholders receive is
less than $46.86 per share, the Company would pay to the shareholders the
difference between $46.86 and the price actually received, by a cash payment
or by issuing to the shareholders additional shares of the Company's common
stock, valued at the average closing price over the last ten trading days
during the 30-day sale period. In the event the share price remains below
$46.86 on March 27, 2001, it is presently anticipated that the Company will
elect the first alternative by paying cash for those shares that are tendered
for redemption.
In July 2000, the Company acquired the 40% interest in PSMT Caribe, Inc. not
held by the Company. PSMT Caribe is the holding company formed by PriceSmart
and PSC, S.A. (a Panamanian company with shareholders representing five
Central American and Caribbean countries, including Edgar Zurcher, a director
of PriceSmart as of November 2000), to hold their respective interests in the
PriceSmart membership warehouse clubs operating in Costa Rica, El Salvador,
Honduras and the Dominican Republic. As consideration for the acquisition of
the 40% interest, PriceSmart issued to PSC, S.A. 679,500 shares of PriceSmart
common stock, half of which are restricted from sale for one year. As a
result of this acquisition, the Company has increased its guarantee for the
outstanding loans related to the warehouses operating in Costa Rica, El
Salvador, Honduras and the Dominican Republic to 100%.
The acquisitions were accounted for as purchases under Accounting Principles
Board Opinion No. 16 (APB No. 16). In accordance with APB No. 16, the Company
allocated the purchase prices of the acquisitions based on the fair value of
the assets acquired. The excess of the purchase price over the fair value of
assets acquired was $19.4 million and is reflected in goodwill, net of
accumulated amortization of $465,000 and $223,000, as of November 30, 2000
and August 31, 2000, respectively, in the accompanying condensed consolidated
balance sheets and is being amortized on a straight-line basis over a period
of 20 years.
NOTE 9 - SUBSEQUENT EVENT
On January 13, 2001 an earthquake occurred in Central America that impacted
most particularly El Salvador. The Company has two warehouses operating in El
Salvador, in the cities of San Salvador and Santa Elena. These two facilities
have been inspected for structural integrity and have reopened since the
event. Damage to the inventory was not substantial and certain losses should
be recoverable through the Company's insurance policies. The Company's local
distribution channels to its warehouse locations in El Salvador have been
rerouted to avoid road closures in the area, and the Company's local vendors
and suppliers appear to be substantially operational (and where not,
alternative sources are being secured). Net warehouse sales for the
operations in El Salvador were less than ten percent of total net warehouse
sales for the most recent quarter ended. The Company currently does not
anticipate that this event will have a materially adverse impact on the
overall financial operating results of the Company.
Page 16