UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 2001
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 6,108,085 shares of its common stock, par value $.0001
per share, outstanding at April 12, 2001.
PRICESMART, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS........................................................ 3
Condensed Consolidated Balance Sheets....................................... 11
Condensed Consolidated Statements of Operations............................. 12
Condensed Consolidated Statements of Cash Flows............................. 13
Condensed Consolidated Statements of Stockholders' Equity................... 14
Notes to Condensed Consolidated Financial Statements........................ 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................... 3
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................................. 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................ 8
ITEM 2. CHANGES IN SECURITIES AND USE
OF PROCEEDS.................................................................. 8
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.............................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS.......................................................... 8
ITEM 5. OTHER INFORMATION............................................................ 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 9
Page 2
ITEM 1. FINANCIAL STATEMENTS
PriceSmart, Inc.'s ("PriceSmart" or the "Company") unaudited condensed
consolidated balance sheet as of February 28, 2001, 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 February 28, 2001 and February 29, 2000 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, Caribbean and Asian
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 the
three and six months ended February 28, 2001 (fiscal 2001) and February 29, 2000
(fiscal 2000), and should be read in conjunction with the condensed consolidated
financial statements and the accompanying notes included within.
As of February 28, 2001, the Company had seventeen warehouse stores in operation
in seven countries (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. Subsequent to the end of
the quarter, the Company opened an eighteenth warehouse on the island of Aruba.
The Company currently anticipates opening a total of four additional warehouse
stores (one each in the U.S. Virgin Islands, the Philippines, Guatemala and
Barbados) bringing the total number of warehouses in operation to 22 by the end
of fiscal 2001.
In fiscal 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 six months 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 February 28, 2001. During the first six months of fiscal 2000,
the Company opened four US-style membership shopping warehouses, bringing the
total number of warehouses in operation to nine as of February 29, 2000. 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
second quarter of fiscal 2001, versus five licensed warehouse stores (four in
China and one in Saipan, Micronesia) at the end of the second quarter of fiscal
2000.
Page 3
The Company's strategy is to dominate metropolitan areas in emerging market
countries by rapidly saturating these areas with second and third stores.
Same-store-sales (where at least one-third of its stores have comparative prior
period sales in metropolitan markets that have not had additional store
openings), representing six of the seventeen warehouse stores in operation,
increased 3.4% in the second quarter of fiscal 2001. As of February 28, 2001,
the average life of the seventeen warehouses in operation was fourteen months.
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Net warehouse sales increased 61% to $121.3 million in the second quarter of
fiscal 2001, from $75.5 million in the second quarter of fiscal 2000. The
increase is primarily attributable to the opening of eight new warehouses since
the end of the second quarter of fiscal 2000. The Company benefits from seasonal
holiday sales in the second quarter of each fiscal year, primarily in the month
of December.
The Company's warehouse gross profit margins (defined as net warehouse sales
less associated cost of goods sold) in the second quarter of fiscal 2001
increased to 14.6% from 12.4% in the second 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 holiday U.S. products,
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
second quarter of fiscal 2001 compared to $146,000 in the second quarter of
fiscal 2000. The Company does not anticipate significant export sales to its
licensees in future periods.
Membership fees and other revenue, including royalties earned from licensees,
increased 70% to $3.4 million in the second quarter of fiscal 2001 from $2.0
million in the second quarter of fiscal 2000. Membership fees and other income
(which includes rental income, advertising revenues and vendor promotions)
increased to $3.0 million, or 2.5% of net warehouse sales, in the second quarter
of fiscal 2001 from $1.7 million, or 2.3% of net warehouse sales, in the second
quarter of fiscal 2000. The increase between quarters was primarily a result of
the eight new warehouse openings between the periods presented, which resulted
in an increase in the total memberships to 448,000 from 264,000, or an increase
of 70%, 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 $2.4 million
in the second quarter of fiscal 2000 to none in the second quarter of fiscal
2001.
Warehouse operating expenses increased to $12.1 million, or 10.0% of net
warehouse sales, in the second quarter of fiscal 2001 from $7.8 million, or
10.3% of net warehouse sales, in the second quarter of fiscal 2000. The increase
in warehouse operating expenses is attributable to the eight additional
warehouses opened since the second quarter of fiscal 2000. Also, on January 13,
2001 an earthquake, and subsequent aftershocks, 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 had no structural damage and each was reopened shortly
after the initial earthquake. The total losses sustained, net of reimbursable
insurance amounts totaled approximately $120,000, which have been reflected
as a part of warehouse operating expenses. Net warehouse sales for the
operations in El Salvador were not impacted and did not have a materially
adverse impact on the overall financial operating results of the Company. The
decrease in operating expenses as a percentage of net warehouse sales is
attributable to the leveraging of centralized warehouse costs over additional
warehouses, general payroll savings and general operating cost reduction
initiatives, offset by the earthquake expenses incurred.
General and administrative expenses were $4.4 million, or 3.6% of net warehouse
sales, in the second quarter of fiscal 2001 compared with $4.4 million, or 5.8%
of net warehouse sales, in the second quarter of fiscal 2000. As a percentage of
net warehouse sales, general and administrative expenses have declined due to
higher sales from the eight additional warehouse store openings between the
periods presented. General and administrative expenses are anticipated to
decrease on a quarter over quarter comparative basis for 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, offset slightly by anticipated expenses
in connection with the Company's sales growth.
Preopening expenses, which represent expenses incurred before a warehouse store
is in operation, decreased to $704,000 in the second quarter of fiscal 2001 from
$905,000 in the second quarter of fiscal 2000. Preopening expenses have
decreased as the Company anticipates opening a total of six warehouses in fiscal
2001 (one of
Page 4
which opened in the first quarter) compared to eleven new warehouses that were
opened in fiscal 2000 (two of which opened in the second quarter).
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 increased to $910,000 in the second
quarter of fiscal 2001 from $839,000 in the second quarter of fiscal 2000. The
change in interest income is due to the change in amounts between
interest-bearing instruments held by the Company between the periods presented
and the interest rate earned on those instruments.
Interest expense primarily reflects borrowings by the Company's majority or
wholly owned foreign subsidiaries to finance the capital requirements of new
warehouse store operations. Interest expense increased to $1.9 million in the
second quarter of fiscal 2001 compared with $506,000 in the second quarter of
fiscal 2000. The increase is directly attributable to an increase in the
amount of debt and interest expense incurred on amounts borrowed between the
periods presented.
Minority interest relates to an allocation of the joint venture income (losses)
to the minority interest shareholders' respective interests.
During the second quarter of fiscal 2001, the Company sold excess real estate
properties primarily owned by its majority owned foreign subsidiary in Trinidad.
The sale of the excess land resulted in a gain of $648,000, of which the
Company's share was $505,000.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Net warehouse sales increased 80% to $226.6 million in the first half of fiscal
2001, from $125.9 million in the first half of fiscal 2000. The increase is
primarily attributable to the opening of eight new warehouses since the end of
the second quarter of fiscal 2000.
The Company's warehouse gross profit margins (defined as net warehouse sales
less associated cost of goods sold) in the first half of fiscal 2001 increased
to 14.2% from 12.5% in the first half 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 holiday U.S. products, non-food
items and anticipated lower margins in the same prior year period 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 half of fiscal 2001 compared to $421,000 in the first half of fiscal 2000.
The Company does not anticipate significant export sales to its licensees in
future periods.
Membership fees and other revenue, including royalties earned from licensees,
increased 100% to $6.6 million in the first half of fiscal 2001 from $3.3
million in the first half of fiscal 2000. Membership fees and other income
(which includes rental income, advertising revenues and vendor promotions)
increased to $5.9 million, or 2.6% of net warehouse sales, in the first half of
fiscal 2001 from $2.9 million, or 2.3% of net warehouse sales, in the first half
of fiscal 2000. The increase between quarters was primarily a result of the
eight new warehouse openings between the periods presented, which resulted in an
increase in the total memberships to 448,000 from 264,000, or an increase of
70%, 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 $4.0 million
in the first half of fiscal 2000 to none in the first half of fiscal 2001.
Warehouse operating expenses increased to $23.4 million, or 10.3% of net
warehouse sales, in the first half of fiscal 2001 from $13.7 million, or 10.9%
of net warehouse sales, in the first half of fiscal 2000. The increase in
warehouse operating expenses is attributable to the eight additional warehouses
opened since the second quarter of fiscal 2000. Also, on January 13, 2001 an
earthquake, and subsequent aftershocks, 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 had no structural damage and each was reopened shortly
after the initial earthquake. The total losses sustained, net of reimbursable
insurance amounts totaled approximately $120,000, which have been reflected
as a part of warehouse operating expenses. Net warehouse sales for the
operations in El Salvador were not impacted and did not have a materially
adverse impact on the overall financial operating results of the Company.
The decrease in operating expenses as a percentage of net warehouse sales is
attributable to the
Page 5
leveraging of centralized warehouse costs over additional warehouses, general
payroll savings and general operating cost reduction initiatives, offset by
the earthquake expenses incurred.
General and administrative expenses were $8.7 million, or 3.8% of net warehouse
sales, in the second quarter of fiscal 2001 compared with $8.5 million, or 6.7%
of net warehouse sales, in the second quarter of fiscal 2000. As a percentage of
net warehouse sales, general and administrative expenses have declined due to
higher sales from the eight additional warehouse store openings between the
periods presented. General and administrative expenses are anticipated to
decrease on a quarter over quarter comparative basis for 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, offset slightly by anticipated expenses
in connection with the Company's sales growth.
Preopening expenses, which represent expenses incurred before a warehouse store
is in operation, decreased to $1.2 million in the first half of fiscal 2001 from
$3.3 million in the first half of fiscal 2000. Preopening expenses have
decreased as the Company anticipates opening a total of six warehouses in fiscal
2001 (one of which opened in the first quarter) compared to eleven new
warehouses that were opened in fiscal 2000, (four of which opened in the first
and second quarters).
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 $1.7 million in the
first half of fiscal 2001 from $1.9 million in the first half of fiscal 2000.
The change in interest income is due to the change in amounts between
interest-bearing instruments held by the Company between the periods presented
and the interest rate earned on those instruments.
Interest expense primarily reflects borrowings by the Company's majority or
wholly owned foreign subsidiaries to finance capital requirements of new
warehouse store operations. Interest expense increased to $3.9 million in the
first half of fiscal 2001 compared with $817,000 in the first half of fiscal
2000. The increase is directly attributable to an increase in the amount of
debt and interest expense incurred on amounts borrowed between the periods
presented.
Minority interest relates to an allocation of the joint venture income (losses)
to the minority interest shareholders' respective interests.
During the first half 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 Trinidad. The
sale of the excess land resulted in a gain of $1.8 million, of which the
Company's share was $1.3 million.
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.
For fiscal 2001, the Company's current intention is to spend an aggregate of
approximately $50.4 million, which includes $39.0 million for construction,
equipment and working capital for six new warehouses and approximately $11.4
million for the redemption of common stock of the Company. 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 a Stock Purchase Agreement to acquire
the remaining interest in the PriceSmart Panama majority owned subsidiary
("Panama Acquisition"), 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
Page 6
49% interest, PriceSmart issued to BB&M's principals 306,748 shares of
PriceSmart common stock. As a result of this acquisition, PriceSmart, Inc.
increased its guarantee for the outstanding loans related to the Panama
operations to 100%. Under the Stock Purchase Agreement, as amended, related
to the Panama Acquisition, the Company agreed to redeem the shares of the
Company's common stock issued to BB&M at a price of $46.86 per share
following the one-year anniversary of the completion of the acquisition upon
the request of BB&M's principals. On April 5, 2001, the Company repurchased
242,144 shares of its common stock, par value $.0001 par value per share, for
an aggregate of approximately $11.4 million in cash. The Company has agreed
to redeem, at its option for cash or additional stock, the remaining 64,604
shares following the second anniversary of the completion of the acquisition
at the price of $46.86 per share upon the holders' request.
On January 25, 2001, the Company entered into two loan agreements with the
International Finance Committee ("IFC") for a total of $32.0 million and has
received commitments from the Overseas Private Investment Corporation
("OPIC") to loan to the Company $10.0 million for 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 (in the case of OPIC) 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 shortly, with the funding of the balance of the IFC
loan and the OPIC loan to follow shortly thereafter.
Subsequent to the end of the quarter, the Company entered into a loan agreement
for $6.0 million to finance the construction of a new warehouse located in St.
Thomas, U.S. Virgin Islands.
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 additional credit
facilities or reduce the number of anticipated warehouse openings. Furthermore,
the Company has and will continue to consider sources of capital, including the
sale of equity or debt securities to strengthen its financial position and
liquidity. 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 February 28,
2001, the Company had a total of seventeen warehouses operating in seven foreign
countries. For the first half of fiscal 2001, approximately 70% 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 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
Page 7
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 $794,000 and $388,000 as of February 28, 2001 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 February 28, 2001,
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 six months ended February 28, 2001were not
material as foreign currency rates have been relatively stable and any
devaluation has been mitigated through internal hedging procedures.
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.
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
The Company's Annual Meeting of Stockholders was held on January 24,
2001 at the Hilton San Diego Mission Valley in San Diego, California.
Stockholders of record at the close of business on November 28, 2000
were entitled to notice of and to vote in person or by proxy at the
Annual Meeting. As of the record date there were 6,296,182 shares
outstanding and entitled to vote. The matter presented for vote
received the required votes for approval and had the following total
votes for and withheld, as noted below.
Page 8
1. To elect directors for the ensuing year, to serve until the
next Annual Meeting of Stockholders and until their successors
are elected and have qualified:
Votes For Votes Withheld
-------------------- --------------------
Rafael E. Barcenas 5,328,317 19,258
James F. Cahill 5,338,895 8,680
Murray L. Galinson 5,338,868 8,707
Katherine L. Hensley 5,338,820 8,755
Leon C. Janks 5,338,878 8,697
Lawrence B. Krause 5,338,645 8,930
Jack McGrory 5,337,946 9,629
Gilbert A. Partida 5,338,842 8,733
Robert E. Price 5,338,795 8,780
Edgar A. Zurcher 5,338,543 9,032
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Fourth Amendment of Employment Agreement between the
Company and K.C. Breen, dated January 24, 2001.
10.2 Fourth Amendment of Employment Agreement between the
Company and Thomas Martin, dated January 24, 2001.
10.3 Master Agreement between PriceSmart, Inc. and Payless
ShoeSource Holdings, Ltd., dated November 27, 2000.
10.4 Licensee Agreement - PRC Technology License
Agreement, as amended, between PriceSmart, Inc. and
Novont Holdings Co., LTD. and Novont Inc., dba
Timetone International Group and Cheng Cheng Import
Export Co., Ltd., dated February 28, 2001.
10.5 (a) Loan Agreement by and between CitiBank, N.A. and
PriceSmart (Guatemala), S.A., dated December 19, 2000
for $1.5 million (in Spanish).
10.5 (b) Loan Agreement by and between CitiBank, N.A. and
PriceSmart (Guatemala), S.A., dated December 19, 2000
for $1.5 million (in English).
10.6 Loan Agreement among PriceSmart, Inc., PSMT Caribe,
Inc., PSMT Trinidad / Tobago Limited, and
International Finance Corporation, dated January 26,
2001 for $22 million.
10.7 Loan Agreement among PriceSmart, Inc., PSMT Caribe,
Inc., PSMT Trinidad / Tobago Limited, and
International Finance Corporation, dated January 26,
2001 for $10 million.
10.8 Escrow Account Agreement among PriceSmart, Inc.,
International Finance Corporation and The Bank of New
York, dated January 26, 2001 for $7.5 million.
(b) No reports on Form 8-K were filed for the three months ended
February 28, 2001
Page 9
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: February 14, 2002 /s/ Gilbert A. Partida
----------------------
Gilbert A. Partida
President and Chief Executive Officer
Date: February 14, 2002 /s/ Allan C. Youngberg
----------------------
Allan C. Youngberg
Executive Vice President,
Chief Financial Officer
Page 10
PRICESMART, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
February 28, August 31,
2001 2000
---------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,967 $ 24,503
Marketable securities 5,514 5,482
Receivables, net of allowance for doubtful accounts 1,855 1,732
Other receivables 5,455 --
Merchandise inventories 53,726 54,949
Prepaid expenses and other current assets 5,937 5,405
Property held for sale 726 1,652
---------- ----------
Total current assets 95,180 93,723
Restricted cash 12,485 12,698
Property and equipment, net 140,561 128,985
Goodwill, net 18,693 19,178
Notes receivable and other 2,824 6,816
---------- ----------
TOTAL ASSETS $ 269,743 $ 261,400
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 10,000 $ 9,493
Accounts payable 45,339 43,312
Accrued salaries and benefits 3,130 3,086
Deferred membership income 3,479 3,892
Other accrued expenses 5,714 5,946
Long-term debt, current portion 7,964 8,773
---------- ----------
Total current liabilities 75,626 74,502
Long-term debt 50,345 50,532
---------- ----------
Total liabilities 125,971 125,034
---------- ----------
Minority interest 7,943 4,683
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.0001 par value, 15,000,000 shares
authorized, 6,884,438 and 6,812,485 shares issued
and outstanding at February 28, 2001 and
August 31, 2000, respectively 1 1
Additional paid-in capital 149,562 148,970
Notes receivable from stockholders (1,000) (1,000)
Deferred compensation (493) (679)
Accumulated other comprehensive loss (794) (695)
Accumulated deficit (2,948) (6,308)
Less: Treasury stock at cost, 548,231 and 555,093
shares at February 28, 2001 and August 31, 2000,
respectively (8,499) (8,606)
---------- ----------
Total stockholders' equity 135,829 131,683
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 269,743 $ 261,400
========== ==========
See accompanying notes.
Page 11
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
--------------------------------- -------------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
--------------- --------------- --------------- ---------------
Revenues:
Sales:
Net warehouse $ 121,305 $ 75,458 $ 226,558 $ 125,940
Export -- 146 -- 421
Membership fees and other 3,405 1,963 6,558 3,341
Travel program -- 2,384 -- 3,964
--------------- --------------- --------------- ---------------
Total revenues 124,710 79,951 233,116 133,666
--------------- --------------- --------------- ---------------
Expenses:
Cost of goods sold:
Net warehouse 103,592 66,131 194,307 110,170
Export -- 139 -- 405
Selling, general and administrative:
Warehouse operations 12,072 7,842 23,350 13,709
General and administrative 4,388 4,384 8,711 8,463
Travel program expenses -- 394 -- 1,520
Goodwill amortization 243 -- 485 --
Preopening expenses 704 905 1,181 3,290
--------------- --------------- --------------- ---------------
Total expenses 120,999 79,795 228,034 137,557
--------------- --------------- --------------- ---------------
Operating income (loss) 3,711 156 5,082 (3,891)
Other income (expense):
Interest income 910 839 1,741 1,940
Interest expense (1,906) (506) (3,884) (817)
Other income (expense) (9) 32 (9) (156)
Gain on sale of real estate 648 -- 1,776 --
Minority interest (249) (227) (869) 449
--------------- --------------- --------------- ---------------
Total other income (expense) (606) 138 (1,245) 1,416
--------------- --------------- --------------- ---------------
Income (loss) before provision for
income taxes 3,105 294 3,837 (2,475)
Provision for income taxes 591 87 477 87
--------------- --------------- --------------- ---------------
Net income (loss) $ 2,514 $ 207 $ 3,360 $ (2,562)
=============== =============== =============== ===============
Basic earnings (loss) per share $ 0.40 $ 0.04 $ 0.53 $ (0.50)
Diluted earnings (loss) per share $ 0.38 $ 0.04 $ 0.50 $ (0.50)
Shares used in computation (000's):
Basic 6,323 5,114 6,293 5,100
Diluted 6,696 5,734 6,716 5,100
Page 12
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - DOLLARS IN THOUSANDS)
Six Months Ended
------------------------------
February 28, February 29,
2001 2000
------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ 3,360 $ (2,562)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 4,063 1,948
Goodwill amortization 485 --
Gain on sale of real estate (1,776) --
Allowance for doubtful accounts 20 (106)
Income tax charge 477 87
Minority interest 869 (470)
Compensation expense recognized for stock options 186 302
Change in operating assets and liabilities:
Restricted cash 213 6,445
Receivables and other assets (4,939) (6,583)
Accounts payable and other liabilities 784 1,814
------------- -------------
Net cash flows provided by operating activities 3,742 875
INVESTING ACTIVITIES
Sale of marketable securities -- 12,156
Additions to property and equipment (17,037) (39,437)
Payments of notes receivable 3,992 361
Proceeds from sale of real estate 3,339 --
Proceeds from property held for sale 926 440
Other 62 103
------------- -------------
Net cash flows used in investing activities (8,718) (26,377)
FINANCING ACTIVITIES
Net proceeds from issuance of debt 6,089 23,416
Repayments of debt (6,578) (707)
Contributions by minority interest shareholders 2,391 4,157
Proceeds from exercise of stock options 699 1,197
Payment on notes receivable from stockholders -- 100
------------- -------------
Net cash flows provided by financing activities 2,601 28,163
Effect of exchange rate changes on cash
and cash equivalents (161) 41
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,536) 2,702
Cash and equivalents beginning of period 24,503 14,957
------------- -------------
Cash and equivalents end of period $ 21,967 $ 17,659
============= =============
Supplemental disclosure of cash flow information Cash
paid during the period for:
Interest (excludes amounts capitalized) $ 3,543 $ 690
Income taxes $ 729 $ 423
See accompanying notes.
Page 13
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2001
(UNAUDITED - DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
Additional Notes Receivable Other
Common stock Paid-in from Deferred Comprehensive
Shares Amount Capital Stockholders Compensation Loss
----------------------------------------------------------------------------------------
Balance at August 31, 2000 6,813 $1 $148,970 $(1,000) $(679) $(695)
Exercise of stock options 71 -- 592 -- -- --
Amortization of deferred
compensation
-- -- -- -- 186 --
Net income -- -- -- -- -- --
Net unrealized gain on marketable
securities -- -- -- -- -- 62
Translation adjustment -- -- -- -- -- (161)
Comprehensive income -- -- -- -- -- --
----------------------------------------------------------------------------------------
Balance at February 28, 2001 6,884 $1 $149,562 $(1,000) $(493) $(794)
========================================================================================
Less:
Treasury stock Total
Accumulated at Cost Stockholders'
Deficit Shares Amount Equity
-----------------------------------------------------
Balance at August 31, 2000 $(6,308) 555 $(8,606) $131,683
Exercise of stock options -- (7) 107 699
Amortization of deferred compensation
-- -- -- 186
Net income 3,360 -- -- 3,360
Net unrealized gain on marketable
securities -- -- -- 62
Translation adjustment -- -- -- (161)
-----------------
Comprehensive income -- -- -- 3,261
-----------------------------------------------------
Balance at February 28, 2001 $(2,948) 548 $(8,499) $135,829
=====================================================
See accompanying notes.
Page 14
PRICESMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
February 28, 2001
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 February 28, 2001, the
Company had seventeen warehouse stores in operation in seven countries (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. Subsequent to the end of the
quarter, the Company opened an eighteenth warehouse on the island of Aruba.
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 February 28, 2001.
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 "SEC"), 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 accounting principles
generally accepted in the United States 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
accounting principles generally accepted in the United States 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.
Page 15
PriceSmart, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
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.
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.
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 prior period interim condensed consolidated
financial statement amounts have been reclassified to conform to current
period presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
February 28, August 31,
2001 2000
--------------- ---------------
Land $ 28,272 $ 29,779
Building and improvements 68,010 61,649
Fixtures and equipment 46,189 40,299
Construction in progress 10,607 5,712
--------------- ---------------
153,078 137,439
Less: accumulated depreciation (12,517) (8,454)
--------------- ---------------
Property and equipment, net $ 140,561 $ 128,985
=============== ===============
Building and improvements includes capitalized interest of $1.0 million and
$891,000 as of February 28, 2001 and August 31, 2000, respectively.
Page 16
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 (dollars in thousands, except per share data):
Three Months Ended Six Months Ended
------------------------------ ----------------------------
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
-------------- ------------- ------------ -------------
Net income (loss) $ 2,514 $ 207 $ 3,360 $ (2,562)
============== ============= ============ =============
Determination of shares (000's):
Average common shares outstanding 6,323 5,114 6,293 5,100
Assumed conversion of stock options 373 620 423 --
-------------- ------------- ------------ -------------
Dilutive average common shares outstanding 6,696 5,734 6,716 5,100
Basic earnings (loss) per share $ 0.40 $ 0.04 $ 0.53 $ (0.50)
Dilutive earnings (loss) per share $ 0.38 $ 0.04 $ 0.50 $ (0.50)
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 - SHORT-TERM BORROWINGS AND DEBT
As of February 28, 2001, the Company, through its majority or wholly owned
subsidiaries, had $11 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 February 28, 2001, the Company had drawn down the full amounts
for five of the facilities and had availability of approximately $10 million
under the sixth.
All debt is collateralized by certain land, building, fixtures and equipment
of each respective subsidiary and guaranteed by the Company up to its
respective ownership percentage, except for approximately $11.3 million as of
February 28, 2001, which are secured by collateral deposits for the same
amount and are included in restricted cash on the balance sheet (see Note 10).
On January 25, 2001, the Company entered into two loan agreements with the
International Finance Committee ("IFC") for a total of $32.0 million. Under
the $22.0 million facility, the term of the loan is for a period of ten years
and interest is calculated on the basis of LIBOR plus 4.0% and due
semi-annually. Beginning in March
Page 17
PriceSmart, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
2003, minimum principal payments of $1.4 million are due semi-annually. Under
the $10 million facility, the term of the loan is for a period of ten years
and interest is calculated on the basis of LIBOR plus 2.0% and due
semi-annually. The full principal amount of the loan is due at the end of the
term. The loan agreements are to be secured by certain land, building,
fixtures and equipment, a pledge of the Company's equity interests underlying
the loans as well as $7.5 million to be held in escrow. The loans are also
subject to certain financial and operating covenants. The funding of the IFC
loans is subject to fulfillment of all approved conditions, which include the
perfection of the underlying security of these loans. The Company anticipates
the funding of these loans to occur shortly, of which approximately $28
million will be utilized to extinguish certain existing debt with the
remainder to be used to finance new warehouse expenditures.
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.
NOTE 8 - ACQUISITION OF MINORITY INTERESTS
In March 2000, the Company entered into a Stock Purchase Agreement to acquire
the remaining interest in the PriceSmart Panama majority owned subsidiary
("Panama Acquisition"), 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. increased its guarantee for the outstanding
loans related to the Panama operations to 100% (see Note 10).
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 $708,000 and $223,000, as of February 28, 2001
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. As disclosed in Note 10, the subsequent transaction related to
the Panama Acquisition results in an incremental goodwill adjustment of
approximately $1.0 million, which will occur in the third quarter.
Page 18
PriceSmart, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
NOTE 9 - OTHER
On January 13, 2001 an earthquake, and subsequent aftershocks, 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 had no structural damage and each was
reopened shortly after the initial earthquake. The total losses sustained,
net of reimbursable insurance amounts totaled approximately $120,000, which
have been reflected as a part of warehouse operating expenses. Net warehouse
sales for the operations in El Salvador were not impacted and did not have a
materially adverse impact on the overall financial operating results of the
Company.
NOTE 10 - SUBSEQUENT EVENTS
REDEMPTION OF COMMON STOCK: Under the Stock Purchase Agreement, as amended,
related to the Panama Acquisition, the Company agreed to redeem the shares of
the Company's common stock issued to BB&M at a price of $46.86 per share
following the one-year anniversary of the completion of the acquisition upon
the request of BB&M's principals. On April 5, 2001, the Company repurchased
242,144 shares of its common stock, par value $.0001 par value per share, for
an aggregate of approximately $11.4 million in cash. The Company has agreed
to redeem, at its option for cash or additional stock, the remaining 64,604
shares following the second anniversary of the completion of the acquisition
at the price of $46.86 per share upon the holders' request.
ADDITIONAL DEBT: In early April 2001, the Company, entered into a loan
agreement with Royal Merchant Bank and Finance Company Limited for $6.0
million to finance the construction of a warehouse located in St. Thomas,
U.S. Virgin Islands. The term of the loan is for 10 years and interest is
calculated on the basis of three month LIBOR plus 4.0%. Minimum principal
payments of $150,000 and interest payments are due quarterly. The loan is
collateralized by the building, fixtures and equipment of the warehouse and
guaranteed by the Company. The loan is also subject to certain financial and
operating covenants.
Page 19