-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iu3xWkwiiNun2blueO6aKwVSWE72EjvS/rqtkDkniHa5qXwtWbm3Pnw+ROPgGlAF GiY1WpAmEPfH09JJRTpGdg== 0001047469-98-001062.txt : 19980115 0001047469-98-001062.hdr.sgml : 19980115 ACCESSION NUMBER: 0001047469-98-001062 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICESMART INC CENTRAL INDEX KEY: 0001041803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 330628530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22793 FILM NUMBER: 98506534 BUSINESS ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 BUSINESS PHONE: 6195814530 MAIL ADDRESS: STREET 1: 4649 MORENA BLVD CITY: SAN DIEGO STATE: CA ZIP: 92117 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED NOVEMBER 30, 1997 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) (619) 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. YES_X_ NO___ The registrant had 5,908,235 common shares, par value $.0001, outstanding at January 9, 1998. PRICESMART, INC. INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PAGE ---- Consolidated Balance Sheets...................................... 3 Consolidated Statements of Operations............................ 4 Consolidated Statements of Cash Flows............................ 5 Notes to Consolidated Financial Statements....................... 6-7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 8-11 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS................................................ 12 ITEM 2 - CHANGES IN SECURITIES............................................ 12 ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.................................. 12 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................................... 12 ITEM 5 - OTHER INFORMATION................................................ 12 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................. 12 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PRICESMART, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) NOVEMBER 30, AUGUST 31, 1997 1997 ---- ---- (unaudited) ASSETS Current assets: Cash and equivalents............................. $ 858 $58,383 Investments, available for sale.................. 57,773 - Accounts receivable, net......................... 7,395 4,806 Merchandise inventories.......................... 9,104 5,518 Prepaid expenses and other current assets........ 1,058 578 Property held for sale, net...................... 14,686 19,913 ---------- ---------- Total current assets............................... 90,874 89,198 Property and equipment: Land 2,250 2,250 Building and improvements 5,872 4,578 Fixtures and equipment 7,098 4,712 ---------- ---------- 15,220 11,540 Less accumulated depreciation.................... (2,173) (1,946) ---------- ---------- 13,047 9,594 Other assets: City notes receivable............................ 22,582 23,052 Other notes receivable........................... 4,034 4,041 ---------- ---------- 26,616 27,093 ---------- ---------- TOTAL ASSETS $130,537 $125,885 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank borrowings.................................. $ 2,972 $ - Accounts payable, trade.......................... 6,942 4,901 Accrued expenses................................. 3,106 4,813 Other current liabilities........................ 4,063 3,563 ---------- ---------- Total current liabilities.......................... 17,083 13,277 Minority interest.................................. 5,457 5,436 STOCKHOLDERS' EQUITY Common stock, $.0001 par value, 15,000,000 shares authorized, 5,908,235 shares issued and outstanding.................................... 1 1 Additional paid-in capital....................... 107,171 107,171 Unrealized gains on investments.................. 123 - Retained earnings................................ 702 - ---------- ---------- Total Stockholders' Equity......................... 107,997 107,172 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $130,537 $125,885 ---------- ---------- ---------- ---------- See accompanying notes. 3 PRICESMART, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 3 MONTHS ENDED 16 WEEKS ENDED NOVEMBER 30, DECEMBER 22, 1997 1996 -------------- -------------- REVENUES Sales: International............................. $ 18,168 $17,315 Electronic Shopping....................... - 546 International royalties and other fees...... 593 902 Auto referral, travel and other programs.... 3,107 3,462 --------- ------- TOTAL REVENUES................................ 21,868 22,225 EXPENSES Cost of goods sold: International............................. 16,957 16,446 Electronic Shopping....................... - 1,173 Selling, general and administrative: International............................. 2,732 2,587 Electronic Shopping....................... - 3,253 Auto referral, travel and other programs.. 2,785 2,717 Corporate administrative expenses......... 547 490 --------- ------- TOTAL EXPENSES................................ 23,021 26,666 --------- ------- OPERATING LOSS................................ (1,153) (4,441) OTHER Real estate operations, net............... 363 (72) Interest income........................... 1,516 728 Minority interest......................... (24) (155) --------- ------- TOTAL OTHER................................... 1,855 501 --------- ------- Income (loss) before benefit for income taxes. 702 (3,940) Benefit for income taxes...................... - (1,615) --------- ------- NET INCOME (LOSS)............................. $ 702 $(2,325) --------- ------- --------- ------- NET INCOME (LOSS) PER SHARE................... $ .12 $ (.39) Weighted average shares outstanding........... 6,079 ... 5,908 See accompanying notes. 4 PRICESMART, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) 3 MONTHS ENDED 16 WEEKS ENDED NOVEMBER 30, DECEMBER 22, 1997 1996 -------------- -------------- OPERATING ACTIVITIES Net income (loss)............................ $ 702 $ (2,325) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization.............. 227 651 Income tax benefit......................... - (1,615) Minority interest.......................... 21 155 Change in accounts receivable and other assets................................... (6,655) (16,125) Change in accounts payable and other liabilities.............................. 834 9,602 Change in property held for sale........... 5,227 2,973 -------- -------- Net cash flows provided by (used in) operating activities..................... 356 (6,684) INVESTING ACTIVITIES Purchases of investments available for sale..................................... (68,249) - Sales of investments available for sale.... 10,599 - Additions to property and equipment........ (3,680) (1,612) Payments of notes receivable............... 477 517 -------- -------- Net cash flows (used in) investing activities............................... (60,853) (1,095) FINANCING ACTIVITIES Proceeds from bank borrowings.............. 2,972 - Net investment by PEI...................... - 4,148 Contributions by Panama JV partner......... - 3,631 -------- -------- Net cash flows provided by financing activities............................... 2,972 7,779 -------- -------- Net decrease in cash......................... (57,525) - -------- -------- Cash and cash equivalents at beginning of period................................... 58,383 - -------- -------- Cash and cash equivalents at end of period... $ 858 $ - -------- -------- -------- -------- See accompanying notes. 5 PRICESMART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) November 30, 1997 NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION FORMATION OF THE COMPANY PriceSmart, Inc. ("PriceSmart" or the "Company") owns and operates certain merchandising businesses. The Company's primary business is international merchandising consisting of membership shopping stores similar to, but smaller in size than, warehouse clubs in the United States. There are a total of five stores licensed to and owned by in-country business people and one store owned 51% by the Company. Additionally, the Company operates domestic auto referral and travel businesses marketed to Costco members. PriceSmart was formed in August 1994 as a subsidiary of Price Enterprises, Inc. ("PEI") and initially operated under the name Price Quest, Inc. and until recently was operating under the name PQI, Inc. However, the Company changed its name to PriceSmart, Inc. effective June 30, 1997 in anticipation of the spin-off of the Company from PEI. In June 1997, the PEI Board of Directors approved, in principle, a plan to separate PEI's core real estate business from the merchandising businesses it operated through a number of subsidiaries. To effect such separation, PEI first transferred to the Company, through a series of preliminary transactions, the assets listed below. PEI then distributed on August 29, 1997 all of the Company's Common Stock pro rata to PEI's existing stockholders through a special dividend (the "Distribution"). Assets transferred to PriceSmart were comprised of: (i) the merchandising business segment of PEI; (ii) certain real estate properties held for sale (the "Properties"), (iii) notes receivable from various municipalities and agencies ("City Notes") and certain secured notes receivable from buyers of properties; (iv) cash and cash equivalents of approximately $58.4 million; and (v) all other assets and liabilities not specifically associated with PEI's portfolio of 27 investment properties, except for current corporate income tax assets and liabilities. BASIS OF PRESENTATION The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the 3 months ended November 30, 1997 are not necessarily indicative of the results that may be expected for the year ending August 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the PriceSmart, Inc. annual report on Form 10-K for the year ended August 31, 1997. 6 PRICESMART, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Certain amounts in the prior period financial statements have been reclassified to conform to the current presentation. FISCAL YEAR Effective September 1, 1997, the Company changed its reporting periods to 12 months, ending August 31 with each quarter consisting of 3 months. Prior to the change, the Company generally reported 13 periods (ending on the Sunday closest to August 31) of 4 weeks each, with the first quarter consisting of 16 weeks, and each remaining quarter consisting of 12 weeks. NOTE 2 - INVESTMENTS AVAILABLE FOR SALE Investments available for sale are comprised of U.S. treasury securities and obligations of U.S. government agencies with an average maturity of 2 years and an average yield of 6%. NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 establishes new standards for computing and presenting earnings per share (EPS) for entities with publicly-held common stock. The Company is required to adopt SFAS No. 128 in its second quarter ending February 28, 1998, following the December 15, 1997 effective date. Under the new method, basic and diluted earnings per share will not be materially different than net income (loss) per share as presented herein. 7 ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements that involve risk and uncertainties. The Company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed hereunder, as well as those discussed under the caption "Risk Factors" in the Registration Statement on Form 10 filed pursuant to the Securities Exchange Act of 1934, as amended, on July 3, 1997, as amended by Amendment No. 1 to Form 10 filed on August 1, 1997 and Amendment No. 2 to Form 10 filed on August 13, 1997. The following discussion and analysis compares the results of operations for the first quarter of fiscal 1998, ended November 30, 1997 to the first quarter of fiscal 1997, ended December 22, 1996. Effective September 1, 1997, the Company changed its reporting periods to 12 months, with each quarter consisting of 3 months. Prior to the change, the Company generally reported 13 periods of 4 weeks each, with the first quarter consisting of 16 weeks, and each remaining quarter consisting of 12 weeks. As a result of the change in reporting periods, the discussion and analysis below compare 91 days of operations in Q1 fiscal 1998 to 112 days of operations for Q1 fiscal 1997 (a 19% reduction in days of operations). The longer fiscal 1997 first quarter also includes more days of the holiday season compared to fiscal 1998. INTERNATIONAL SALES International Sales Percent Change ------------------- -------------- 1st Quarter - FY 1998 $18,168 5% 1st Quarter - FY 1997 17,315 - Net sales for Q1 fiscal 1998 increased over Q1 fiscal 1997 primarily due to a full quarter of operations in fiscal 1998 for the Panama City location compared to a partial quarter in fiscal 1997 (opened October 1996) and sales made to two licensed locations that opened subsequent to Q1 fiscal 1997. These increases were partially offset by the shorter reporting period in Q1 fiscal 1998 discussed above and sales of the export trading business eliminated in fiscal 1997. GROSS MARGIN International Percent Change Percent of Sales ------------- -------------- ---------------- 1st Quarter - FY 1998 $1,211 39% 6.67% 1st Quarter - FY 1997 869 - 5.02% The international gross margin increased in Q1 fiscal 1998 compared to Q1 fiscal 1997 due to a full quarter of operations for the Panama City location which operates at a higher gross margin than that earned on exports of U.S.-sourced products. This increase was partially offset by decreased shipments of U.S.-sourced products to foreign licensees. The electronic shopping program was discontinued during fiscal 1997. Electronic shopping cost of goods sold for Q1 of fiscal 1997 includes inventory write-downs of $.7 million. 8 OTHER REVENUES International Auto Referral, Royalties & Percent Travel and Other Percent Fees Change Programs Change ---- ------ -------- ------ 1st Quarter - FY 1998 $ 593 (34%) $3,107 (10%) 1st Quarter - FY 1997 902 - 3,462 - International Royalties and Fees decreased in Q1 fiscal 1998 compared to Q1 fiscal 1997 primarily due to a decrease in non-recurring store opening fees and the timing of new membership fees in Panama in October 1996. This decrease was partially offset by higher royalties on increased sales at licensee locations. Revenues in Q1 fiscal 1998 from Auto Referral, Travel and other programs decreased primarily due to the shorter reporting period discussed above. SELLING, GENERAL & ADMINISTRATIVE Auto Referral, Percent Travel and Other Percent International Change Programs Change ------------- ------- ---------------- ------- 1st Quarter - FY 1998 $2,732 6% $2,785 3% 1st Quarter - FY 1997 2,587 - 2,717 - Selling, general and administrative expenses for International in Q1 fiscal 1998 were comparable to Q1 fiscal 1997 as increased expenses of the Panama location, open for the full quarter of fiscal 1998, were partially offset by a reduction in central expenses. Selling, general and administrative expenses for Electronic Shopping in Q1 fiscal 1997 includes a charge of $1.8 million for fixture and equipment write-downs and certain other reserves resulting from the decision to eliminate this business. Selling, general and administrative expenses for Auto Referral, Travel and other program expenses in Q1 fiscal 1998 were comparable with Q1 fiscal 1997. CORPORATE AND ADMINISTRATIVE EXPENSE Amount Percent Change ------ -------------- 1st Quarter - FY 1998 $547 12% 1st Quarter - FY 1997 490 - Corporate and Administrative Expense for Q1 fiscal 1998 reflects the actual costs incurred for corporate administration. In Q1 fiscal 1997, the Company was operated as certain subsidiaries of Price Enterprises, Inc. ("PEI"). Certain general and administrative costs of PEI were allocated to the Company, principally based on PEI's specific identification of individual cost items or otherwise based upon estimated levels of effort devoted by its general and administrative departments to individual entities or relative measures of size of entities. The 12% increase in expense is due to the addition of management and incremental expenses associated with becoming a separate, publicly held company. 9 REAL ESTATE OPERATIONS (NET) Gain (Loss) Revenues Expenses On Sales Total -------- -------- -------- ----- 1st Quarter - FY 1998 $680 $(429) $109 $363 1st Quarter - FY 1997 799 (871) - ( 72) Real estate operations relate to properties held for sale which were transferred to the Company in connection with the Distribution and reflect rental revenue, rental expenses, gain or loss on sale of properties and provisions for asset impairment related to these properties. The improvement is primarily due to the disposition of non-income producing properties in Q4 of fiscal 1997 and due to the gain on sale of a property in Q1 of fiscal 1998. INTEREST INCOME Interest income for the company reflects earnings on invested cash, earnings on City Notes and certain secured notes receivable from buyers of formerly owned properties. Interest income for fiscal 1998 increased primarily as a result of larger invested cash balances. LIQUIDITY AND CAPITAL RESOURCES While the Company is well positioned to finance its business activities through a variety of sources, it expects to satisfy short-term liquidity requirements through the cash distributed to the Company prior to the Distribution, cash from operations of the Company's businesses, and principal and interest payments on the City Notes and other notes receivable. The Company also expects to generate cash from sales of Properties held for sale, and the cash flow that may ultimately be generated by sales of these properties represents a major source of additional capital resources. The Company's working capital requirements are not expected to exceed $30 million during fiscal 1998. The Company estimates that it will spend approximately $10 million in the international merchandising businesses, $5 million in affinity-service businesses and $15 million for business opportunities that may arise. Actual capital expenditures, investment in merchandising businesses and gross proceeds realized from property sales for fiscal 1998 may vary from estimated amounts depending on business conditions and other risks and uncertainties to which the Company and its businesses are subject. The Company believes that the Company's cash balances and net cash provided by operating activities, principal and interest payments on notes receivable and sales of its Properties will be sufficient to meet its working capital expenditure requirements for at least fiscal 1998. Management has invested the Company's cash in excess of current operating requirements in short-term, interest-bearing, investment-grade securities. Certain Asian markets served by the Company have recently experienced a significant devaluation of local currencies relative to the US dollar; particularly in Indonesia and the Philippines. Because the Company transacts its business in U.S. dollars, exchange rate risk is not at issue. However, devaluation of local currencies relative to the U.S. dollar causes U.S. merchandise to be less affordable, and generally has a negative impact on the Company's sales of U.S.-sourced goods to the affected markets, location sales and royalty income. The Company has an immaterial risk of loss in the countries most affected by the economic downturn discussed above, as these are licensing arrangements. It is, however, unclear to what extent this economic situation will impact future results of operations. 10 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 cost of U.S.-sourced products. 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. 11 PART II - OTHER INFORMATION - -------------------------------- ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES 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: 27.1 Financial Data Schedule (b) No reports on Form 8-K were filed for the 3 months ended November 30, 1997 12 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. REGISTRANT Date: January 13, 1998 /s/ Robert E. Price ------------------- Robert E. Price CHAIRMAN Date: January 13, 1998 /s/ Gil Partida --------------- Gil Partida PRESIDENT & CHIEF EXECUTIVE OFFICER Date: January 13, 1998 /s/ Karen J. Ratcliff --------------------- Karen J. Ratcliff EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS AUG-31-1998 SEP-01-1998 NOV-30-1997 858 57,773 35,011 (1,000) 9,104 90,874 15,220 (2,173) 130,537 17,083 0 0 0 1 107,996 130,537 18,168 21,868 16,957 23,021 (339) 0 (1,516) 702 0 702 0 0 0 702 .12 .12
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