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 May 31, 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 (State or other jurisdiction of incorporation or organization) |
33-0628530 (I.R.S. Employer 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. Yes /x/ No / /
The registrant had 6,186,837 shares of its common stock, par value $.0001 per share, outstanding at June 30, 2001.
PRICESMART, INC.
INDEX TO FORM 10-Q
PART I—FINANCIAL INFORMATION
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Page |
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| ITEM 1. | FINANCIAL STATEMENTS | 3 | ||
Condensed Consolidated Balance Sheets |
12 |
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Condensed Consolidated Statements of Operations |
13 |
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Condensed Consolidated Statements of Cash Flows |
14 |
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Condensed Consolidated Statements of Stockholders' Equity |
15 |
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Notes to Condensed Consolidated Financial Statements |
16 |
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ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
3 |
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ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
8 |
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PART II—OTHER INFORMATION |
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ITEM 1. |
LEGAL PROCEEDINGS |
9 |
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ITEM 2. |
CHANGES IN SECURITIES AND USE OF PROCEEDS |
9 |
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
9 |
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ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
9 |
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ITEM 5. |
OTHER INFORMATION |
9 |
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ITEM 6. |
EXHIBITS AND REPORTS ON FORM 8-K |
9 |
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2
ITEM 1. FINANCIAL STATEMENTS
PriceSmart, Inc.'s ("PriceSmart" or the "Company") unaudited condensed consolidated balance sheet as of May 31, 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 and nine months ended May 31, 2001 and May 31, 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, including the imposition of governmental controls and general political, economic and business conditions; 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 nine months ended May 31, 2001 (fiscal 2001) and May 31, 2000 (fiscal 2000), and should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included within.
As of May 31, 2001, the Company had twenty-one warehouse stores in operation in ten countries (four in Panama, three each in Guatemala, Costa Rica and the Dominican Republic, two each in El Salvador and Honduras, and one each in Aruba, the Philippines, Trinidad and the U.S. Virgin Islands) of which the Company owns at least a majority interest. The Company currently anticipates opening an additional warehouse store in 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 in March 2000 and increased its ownership from 60% to 100% in the operations in Costa Rica, Dominican Republic, El Salvador and Honduras in July 2000.
During the first nine months of fiscal 2001, the Company opened a total of five new US-style membership shopping warehouses (one in the first quarter and four in the third quarter), bringing the total number of warehouse stores in operation to twenty-one as of May 31, 2001. During the first nine months of fiscal 2000, the Company opened a total of seven US-style membership shopping warehouses (two each in the first and second quarters and three in the third quarter), bringing the total number of warehouses in operation to twelve as of May 31, 2000. Also, there were seven warehouse stores in operation (six in China and one in Saipan, Micronesia) licensed to and operated by local business
3
people at the end of the third quarter of fiscal 2001, versus six licensed warehouse stores (five in China and one in Saipan, Micronesia) at the end of the third quarter of fiscal 2000.
The Company's strategy is to establish significant market share in 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 the Company's stores have comparative prior period sales in metropolitan markets that have not had additional store openings), representing eight of the twenty-one warehouse stores in operation, increased 3.0% in the third quarter of fiscal 2001. As of May 31, 2001, the average life of the seventeen warehouses in operation was sixteen months.
COMPARISON OF THE THREE MONTHS ENDED MAY 31, 2001 AND 2000
Net warehouse sales increased 60% to $115.9 million in the third quarter of fiscal 2001, from $72.6 million in the third quarter of fiscal 2000. The increase is primarily attributable to the opening of nine new warehouses since the end of the third quarter of fiscal 2000.
The Company's warehouse gross profit margins (defined as net warehouse sales less associated cost of goods sold) in the third quarter of fiscal 2001 increased to 14.4% from 12.6% in the third quarter of fiscal 2000. The increase in gross profit margins is a result of the Company's increased purchasing power, an increase in sales penetration of higher margin non-food items, and lower shrink costs. 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 during each of the third quarters of fiscal 2001 and fiscal 2000. The Company does not anticipate significant export sales to its licensees for the remainder of fiscal 2001, but may have increased export sales to its licensees in fiscal 2002.
Membership fees and other revenue, including royalties earned from licensees, increased 113% to $3.7 million in the third quarter of fiscal 2001 from $1.7 million in the third quarter of fiscal 2000. Membership fees and other income (which includes rental income, advertising revenues and vendor promotions) increased to $3.5 million, or 3.0% of net warehouse sales, in the third quarter of fiscal 2001 from $1.5 million, or 2.1% of net warehouse sales, in the third quarter of fiscal 2000. The increase between quarters was primarily a result of the nine new warehouse openings between the periods presented, which resulted in an increase in the total memberships to 485,000 from 324,000, or an increase of 50%, and increases in rental and advertising revenues.
Warehouse operating expenses increased to $13.1 million, or 11.3% of net warehouse sales, in the third quarter of fiscal 2001 from $8.3 million, or 11.5% of net warehouse sales, in the third quarter of fiscal 2000. The increase in warehouse operating expenses is attributable to the nine new warehouses opened since the third 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, general payroll savings and general operating cost reduction initiatives.
General and administrative expenses were $4.5 million, or 3.9% of net warehouse sales, in the third quarter of fiscal 2001 compared with $4.6 million, or 6.3% of net warehouse sales, in the third quarter of fiscal 2000. As a percentage of net warehouse sales, general and administrative expenses have declined due to higher sales from the nine additional warehouse store openings between the periods presented. General and administrative expenses as a percentage of net warehouse sales are anticipated to decrease on a quarter over quarter comparative basis for the remainder of fiscal 2001 as a result of initial 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, increased to $2.2 million in the third quarter of fiscal 2001 from $1.7 million in the third quarter of
4
fiscal 2000. Preopening expenses increased as a result of opening four new warehouses in the third quarter of fiscal 2001 compared to three new warehouse openings in the third quarter of fiscal 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 was $721,000 in the third quarter of fiscal 2001 compared to $759,000 in the third 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 third quarter of fiscal 2001 compared with $833,000 in the third quarter of fiscal 2000. The increase is directly attributable to an increase in the amount of debt and the associated interest expense incurred on the amounts borrowed within the periods presented.
Minority interest relates to an allocation of the joint venture income (losses) to the minority interest shareholders' respective interests.
COMPARISON OF THE NINE MONTHS ENDED MAY 31, 2001 AND 2000
Net warehouse sales increased 73% to $342.5 million for the nine months ended May 31, 2001, from $198.5 million for the nine months ended May 31, 2000. The increase is primarily attributable to the opening of nine new warehouses since the end of the third 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) for the nine months ended May 31, 2001 increased to 14.3% from 12.5% for the same period in fiscal 2000. The increase in gross profit margins is a result of the Company's increased purchasing power, an increase in sales penetration of higher margin non-food items, and lower shrink costs. 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 for the nine months ended May 31, 2001 compared to $421,000 for the nine months ended May 31, 2000. The Company does not anticipate significant export sales to its licensees for the remainder of fiscal 2001, but may have increased export sales to its licensees in fiscal 2002.
Membership fees and other revenue, including royalties earned from licensees, increased 102% to $10.3 million for the nine months ended May 31, 2001 from $5.1 million in the first half of fiscal 2000. Membership fees and other income (which includes rental income, advertising revenues and vendor promotions) increased to $9.5 million, or 2.8% of net warehouse sales, for the nine months ended May 31, 2001 from $4.5 million, or 2.3% of net warehouse sales, for the nine months ended May 31, 2000. The increase between periods was primarily a result of the nine new warehouse openings between the periods presented, which resulted in an increase in the total memberships to 485,000 from 324,000, or an increase of 50%, and increases in rental 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 for the nine months ended May 31, 2000 to none for the nine months ended May 31, 2001.
Warehouse operating expenses increased to $36.5 million, or 10.7% of net warehouse sales, for the nine months ended May 31, 2001 from $22.0 million, or 11.1% of net warehouse sales, for the nine months ended May 31, 2000. The increase in warehouse operating expenses is attributable to the nine new warehouses opened since the third quarter of fiscal 2000. Also, on January 13, 2001 an earthquake,
5
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.
General and administrative expenses were $13.2 million, or 3.9% of net warehouse sales, for the nine months ended May 31, 2001 compared with $13.1 million, or 6.6% of net warehouse sales, for the nine months ended May 31, 2000. As a percentage of net warehouse sales, general and administrative expenses have declined due to higher sales from the nine 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 initial 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 $3.4 million for the nine months ended May 31, 2001 from $5.0 million for the nine months ended May 31, 2000. Preopening expenses have decreased as a result of opening five new warehouses within the past nine months ended May 31, 2001 compared to seven new warehouse openings over the same nine month period in the prior fiscal year. The Company anticipates opening one additional location during the fourth quarter of fiscal 2001, for a total of six new warehouse openings in the current fiscal year compared to eleven new warehouses that were opened in fiscal 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 was $2.5 million for the nine months ended May 31, 2001 compared to $2.7 million for the nine months ended May 31, 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 $5.8 million for the nine months ended May 31, 2001 compared to $1.7 million for the nine months ended May 31, 2000. The increase is directly attributable to an increase in the amount of debt and the associated interest expense incurred on the amounts borrowed within the periods presented.
In the third quarter of fiscal 2000, the Company sold its travel program for $1.5 million to Club-4U, Inc. under an asset purchase agreement ("purchase agreement"). Club-4U, Inc., a California corporation, is owned by Sol Price who is a principal stockholder of the Company. Under the purchase agreement, Club-4U, Inc. acquired the assets primarily used in connection with the travel businesses, subject to liabilities under the travel business existing contracts, resulting in a gain of $1.1 million.
Also in the third quarter of fiscal 2000, the Company entered into an agreement to sell its notes receivable from various municipalities and agencies, known as the "City Notes," to the Price Family Charitable Trust, a California Trust. Sol Price (a principal stockholder of PriceSmart, Inc.) and Robert Price (a principal stockholder and Chairman of the Board of PriceSmart, Inc.) are trustee and successor trustee, respectively, of the Trust. The aggregate purchase price for the City Notes was $22.5 million that resulted in a gain of $3.9 million.
6
In 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.
Minority interest relates to an allocation of the joint venture income (losses) to the minority interest shareholders' respective interests.
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 which was used for the redemption of common stock of the Company pursuant to a pre-existing contractual obligation. 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 increase bank borrowings by $37.4 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.
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 repurchased these shares pursuant to its obligations under the Stock Purchase Agreement, as amended, relating to the Company's acquisition in March 2000 of the 49% minority interest in its Panamanian subsidiaries which previously had been owned by BB&M International Trading Group ("BB&M"). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of the Company's common stock and agreed to redeem the shares 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. The Company has agreed to redeem 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 Corporation ("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 received initial funding of $10 million in May 2001, and anticipates the majority of the loan(s) to fund by August 31, 2001.
In April 2001, the Company sold 67,700 shares of common stock previously held as treasury stock in a private placement for $39.00 per share for total proceeds of approximately $2.6 million.
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.
7
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 May 31, 2001, the Company had a total of twenty-one warehouses operating in ten foreign countries. Fourteen of the twenty-one warehouses operate under foreign currencies other than the U.S. dollar. For the nine months ended May 31, 2001, approximately 70% of the Company's net warehouse sales were in foreign currencies.
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 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 $764,000 and $388,000 as of May 31, 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. In April 2001, the Company purchased a total of approximately $2.0 million in NDFs which expired in June 2001. The Company currently has approximately $4.0 million in NDFs were purchased that expire in approximately two months. 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 nine months ended May 31, 2001 were not material as foreign currency rates have been relatively stable and any devaluation has been mitigated through internal hedging.
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 $625,000.
8
| 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 (other than disclosed below) that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results. |
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On May 18, 2001, the Company opened its first warehouse in Manila, Philippines. The warehouse is operated (through a joint venture of which the Company is the majority owner) under the name of "S&R Price Membership Shopping Warehouse." On June 15, 2001 the Company was served with a temporary restraining order effectively requiring that the Company cease its operation in the Philippines, which was issued in an action filed by a former Company licensee, whose license was terminated in 1998. The Company shut down operations accordingly, but was able to reopen on June 19, 2001 after the Court of Appeals in the Philippines issued its own temporary restraining order staying enforcement of the restraining order that had closed the warehouse. The trial court judge subsequently issued an order lifting the restraining order. The appellate court also set a hearing date of July 24, 2001 for arguments before the appellate court on whether to permanently bar the trial court's restraining order. The Company believes that the factual allegations and legal claims asserted in the complaint are without merit and it intends to defend them vigorously. |
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The Company currently has three more warehouses in pre-construction or under construction in the Philippines. Openings are scheduled in the fall of 2001, spring of 2002 and fall of 2002. Any adverse rulings by the Philippine courts could delay or prevent these planned openings. |
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Item 2. |
Changes in Securities and Use of Proceeds |
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Recent Sales of Unregistered Securities: |
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On April 20, 2001, the Company sold an aggregate of 67,700 shares of its common stock to institutional investors at a price of $39.00 per share in a private placement pursuant to Rule 506 under the Securities Act of 1933. The purchasers have represented to the Company that they are accredited investors, the shares were acquired for their own account and not with a view to any distribution thereof to the public and the absence of general solicitation or advertising. |
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Item 3. |
Defaults Upon Senior Securities |
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None |
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Item 4. |
Submission of Matters to a Vote of Security Holders |
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None |
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Item 5. |
Other Information |
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None |
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Item 6. |
Exhibits and Reports on Form 8-K |
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(a) |
Exhibits: |
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None |
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9
(b) |
Reports on Form 8-K were filed for the three months ended February 28, 2000: |
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On April 6, 2001, the Company filed a Form 8-K under Item 5 announcing 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 repurchased these shares pursuant to its obligations under the Stock Purchase Agreement, as amended, relating to the Company's acquisition in March 2000 of the 49% minority interest in its Panamanian subsidiaries which previously had been owned by BB&M International Trading Group ("BB&M"). In exchange for BB&M's 49% interest, the Company issued to BB&M's principals 306,748 shares of the Company's common stock and agreed to redeem the shares 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. The Company has agreed to redeem 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. |
10
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: July 13, 2001 |
/s/ GILBERT A. PARTIDA Gilbert A. Partida President and Chief Executive Officer |
|
Date: July 13, 2001 |
/s/ ALLAN C. YOUNGBERG Allan C. Youngberg Executive Vice President, Chief Financial Officer |
11
PRICESMART, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
| |
May 31, 2001 |
August 31, 2000 |
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|---|---|---|---|---|---|---|---|---|
| |
(Unaudited) |
|
||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 23,606 | $ | 24,503 | ||||
| Marketable securities | 5,303 | 5,482 | ||||||
| Receivables, net of allowance for doubtful accounts | 5,562 | 1,732 | ||||||
| Other receivables | 5,135 | — | ||||||
| Merchandise inventories | 72,322 | 54,949 | ||||||
| Prepaid expenses and other current assets | 7,226 | 5,405 | ||||||
| Property held for sale | 726 | 1,652 | ||||||
| Total current assets | 119,880 | 93,723 | ||||||
| Restricted cash | 15,093 | 12,698 | ||||||
| Property and equipment, net | 144,555 | 128,985 | ||||||
| Goodwill, net | 19,491 | 19,178 | ||||||
| Notes receivable and other | 3,413 | 6,816 | ||||||
| TOTAL ASSETS | $ | 302,432 | $ | 261,400 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term borrowings | $ | 12,415 | $ | 9,493 | ||||
| Accounts payable | 60,478 | 43,312 | ||||||
| Accrued salaries and benefits | 3,643 | 3,086 | ||||||
| Deferred membership income | 3,825 | 3,892 | ||||||
| Other accrued expenses | 4,221 | 5,946 | ||||||
| Long-term debt, current portion | 9,561 | 8,773 | ||||||
| Total current liabilities | 94,143 | 74,502 | ||||||
| Long-term debt, net of current portion | 72,136 | 50,532 | ||||||
| Total liabilities | 166,279 | 125,034 | ||||||
| Minority interest | 7,845 | 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, 6,902,368 and 6,812,485 shares issued and outstanding at May 31, 2001 and August 31, 2000, respectively | 1 | 1 | ||||||
| Additional paid-in capital | 149,959 | 148,970 | ||||||
| Notes receivable from stockholders | (855) | (1,000 | ) | |||||
| Deferred compensation | (402) | (679 | ) | |||||
| Accumulated other comprehensive loss | (764) | (695 | ) | |||||
| Accumulated deficit | (3,379) | (6,308 | ) | |||||
| Less: Treasury stock at cost, 715,531 and 555,093 shares at May 31, 2001 and August 31, 2000, respectively | (16,252) | (8,606 | ) | |||||
| Total stockholders' equity | 128,308 | 131,683 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 302,432 | $ | 261,400 | ||||
See accompanying notes.
12
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED—DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
| |
Three Months Ended May 31, |
Nine Months Ended May 31, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2001 |
2000 |
2001 |
2000 |
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| Revenues: | |||||||||||||||
| Sales: | |||||||||||||||
| Net warehouse | $ | 115,940 | $ | 72,605 | $ | 342,498 | $ | 198,545 | |||||||
| Export | — | — | — | 421 | |||||||||||
| Membership fees and other | 3,720 | 1,743 | 10,278 | 5,084 | |||||||||||
| Travel program | — | — | — | 3,964 | |||||||||||
| Total revenues | 119,660 | 74,348 | 352,776 | 208,014 | |||||||||||
| Expenses: | |||||||||||||||
| Cost of goods sold: | |||||||||||||||
| Net warehouse | 99,221 | 63,484 | 293,528 | 173,654 | |||||||||||
| Export | — | — | — | 405 | |||||||||||
| Selling, general and administrative: | |||||||||||||||
| Warehouse operations | 13,109 | 8,316 | 36,459 | 22,025 | |||||||||||
| General and administrative | 4,462 | 4,600 | 13,173 | 13,063 | |||||||||||
| Travel program expenses | — | — | — | 1,520 | |||||||||||
| Goodwill amortization | 252 | 44 | 737 | 44 | |||||||||||
| Preopening expenses | 2,171 | 1,679 | 3,352 | 4,969 | |||||||||||
| Total expenses | 119,215 | 78,123 | 347,249 | 215,680 | |||||||||||
| Operating income (loss) | 445 | (3,775 | ) | 5,527 | (7,666 | ) | |||||||||
Other income (expense): |
|||||||||||||||
| Interest income | 721 | 759 | 2,462 | 2,699 | |||||||||||
| Interest expense | (1,867 | ) | (833 | ) | (5,751 | ) | (1,650 | ) | |||||||
| Other income (expense) | (29 | ) | 77 | (38 | ) | (79 | ) | ||||||||
| Gain on sale: | |||||||||||||||
| Travel program (related party) | — | 1,133 | — | 1,133 | |||||||||||
| City Notes (related party) | — | 3,948 | — | 3,948 | |||||||||||
| Real estate | — | — | 1,776 | — | |||||||||||
| Minority interest | 97 | 394 | (772 | ) | 843 | ||||||||||
| Total other income (expense) | (1,078 | ) | 5,478 | (2,323 | ) | 6,894 | |||||||||
| Income (loss) before provision (benefit) for income taxes | (633 | ) | 1,703 | 3,204 | (772 | ) | |||||||||
| Provision (benefit) for income taxes | (202 | ) | — | 275 | 87 | ||||||||||
| Net income (loss) | $ | (431 | ) | $ | 1,703 | $ | 2,929 | $ | (859 | ) | |||||
| Basic earnings (loss) per share | $ | (0.07 | ) | $ | 0.32 | $ | 0.47 | $ | (0.17 | ) | |||||
Diluted earnings (loss) per share |
$ |
(0.07 |
) |
$ |
0.28 |
$ |
0.44 |
$ |
(0.17 |
) |
|||||
Shares used in computation (000's): |
|||||||||||||||
| Basic | 6,236 | 5,392 | 6,274 | 5,196 | |||||||||||
| Diluted | 6,236 | 5,987 | 6,691 | 5,196 | |||||||||||
See accompanying notes.
13
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED—DOLLARS IN THOUSANDS)
| |
Nine Months Ended May 31, |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| |
2001 |
2000 |
|||||||
| OPERATING ACTIVITIES: | |||||||||
| Net income (loss) | $ | 2,929 | $ | (859 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||
| Depreciation | 6,591 | 3,030 | |||||||
| Goodwill amortization | 737 | 44 | |||||||
| Allowance for doubtful accounts | 27 | (227 | ) | ||||||
| Gain on sale of city notes (related party) | — | (3,948 | ) | ||||||
| Gain on sale of travel program (related party) | — | (1,133 | ) | ||||||
| Gain on sale of real estate | (1,776 | ) | — | ||||||
| Income tax provision | 275 | 87 | |||||||
| Minority interest | 772 | (843 | ) | ||||||
| Compensation expense recognized for stock options | 279 | 452 | |||||||
| Change in operating assets and liabilities: | |||||||||
| Restricted cash | (2,395 | ) | 2,695 | ||||||
| Receivables and other assets | (28,401 | ) | (20,768 | ) | |||||
| Accounts payable and other liabilities | 15,668 | 4,119 | |||||||
| Net cash flows used in operating activities | (5,294 | ) | (17,351 | ) | |||||
INVESTING ACTIVITIES: |
|||||||||
| Sale of marketable securities | — | 12,174 | |||||||
| Additions to property and equipment | (23,608 | ) | (56,244 | ) | |||||
| Payments (disbursements) of notes receivable | 3,729 | (702 | ) | ||||||
| Proceeds from sale of city notes (related party) | — | 22,534 | |||||||
| Proceeds from sale of travel program (related party) | — | 1,500 | |||||||
| Proceeds from sale of real estate | 3,339 | — | |||||||
| Proceeds from property held for sale | 926 | 440 | |||||||
| Panama acquisition—repurchase of common stock | (11,347 | ) | — | ||||||
| Net cash flows used in investing activities | (26,961 | ) | (20,298 | ) | |||||
FINANCING ACTIVITIES: |
|||||||||
| Proceeds from debt | 35,880 | 44,518 | |||||||
| Repayments of debt | (10,565 | ) | (707 | ) | |||||
| Contributions by minority interest shareholders | 2,390 | 5,621 | |||||||
| Proceeds from exercise of stock options | 999 | 1,456 | |||||||
| Sale of treasury stock | 2,641 | — | |||||||
| Notes receivable from stockholders, net | 144 | (48 | ) | ||||||
| Net cash flows provided by financing activities | 31,489 | 50,840 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (131 | ) | 105 | ||||||
| Net increase (decrease) in cash and cash equivalents | (897 | ) | 13,296 | ||||||
Cash and equivalents beginning of period |
24,503 |
14,957 |
|||||||
| Cash and equivalents end of period | $ | 23,606 | $ | 28,253 | |||||
| Supplemental disclosure of cash flow information | |||||||||
| Cash paid during the period for: | |||||||||
| Interest (excludes amounts capitalized) | $ | 5,429 | $ | 842 | |||||
| Income taxes | $ | 193 | $ | 111 | |||||
See accompanying notes.
14
PRICESMART, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MAY 31, 2001
(UNAUDITED—AMOUNTS IN THOUSANDS)
| |
Common Shares |
Stock Amount |
Additional Paid-in Capital |
Notes Receivable from Stockholders |
Deferred Compensation |
Other Comprehensive Loss |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at August 31, 2000 | 6,813 | $ | 1 | $ | 148,970 | $ | (1,000 | ) | $ | (679 | ) | $ | (695 | ) | |||||
| Exercise of stock options | 89 | — | 770 | — | — | — | |||||||||||||
| Repurchase of common stock—Panama acquisition | — | — | (884 | ) | — | — | — | ||||||||||||
| Sale of treasury stock | — | — | 1,103 | — | — | — | |||||||||||||
| Payment on notes receivables from stockholders | — | — | — | 145 | — | — | |||||||||||||
| Amortization of deferred compensation | — | — | — | — | 277 | — | |||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||
| Net unrealized gain on marketable securities | — | — | — | — | — | 62 | |||||||||||||
| Translation adjustment | — | — | — | — | — | (131 | ) | ||||||||||||
| Comprehensive income | — | — | — | — | — | — | |||||||||||||
| Balance at May 31, 2001 | 6,902 | $ | 1 | $ | 149,959 | $ | (855 | ) | $ | (402 | ) | $ | (764 | ) | |||||
| |
Accumulated Deficit |
Shares |
Less: Treasury Stock Stock Capital |
Total Stockholders' Equity |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at August 31, 2000 | $ | (6,308 | ) | 555 | $ | (8,606 | ) | $ | 131,683 | ||||
| Exercise of stock options | — | (13 | ) | 229 | 999 | ||||||||
| Repurchase of common stock—Panama acquisition | — | 242 | (9,413 | ) | (10,297 | ) | |||||||
| Sale of treasury stock | — | (68 | ) | 1,538 | 2,641 | ||||||||
| Payment on notes receivables from stockholders | — | — | — | 145 | |||||||||
| Amortization of deferred compensation | — | — | — | 277 | |||||||||
| Net income | 2,929 | — | — | 2,929 | |||||||||
| Net unrealized gain on marketable securities | — | — | — | 62 | |||||||||
| Translation adjustment | — | — | — | (131 | ) | ||||||||
| Comprehensive income | — | — | — | 2,860 | |||||||||
| Balance at May 31, 2001 | $ | (3,379 | ) | 716 | $ | (16,252 | ) | $ | 128,308 | ||||
See accompanying notes.
15
PRICESMART, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
May 31, 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 May 31, 2001, the Company had twenty-one warehouse stores in operation in ten countries (four in Panama, three each in Guatemala, Costa Rica and the Dominican Republic, two each in El Salvador and Honduras, and one each in Aruba, the Philippines, Trinidad and the U.S. Virgin Islands) 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 seven warehouse stores in operation (six in China and one in Saipan, Micronesia) licensed to and operated by local business people as of May 31, 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 |
|||
|---|---|---|---|---|---|
| PriceSmart Panama | 100.0 | % | Consolidated | ||
| PriceSmart US Virgin Islands | 100.0 | % | Consolidated | ||
| Ventures Services, Inc. | 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 | ||
16
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.
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):
| |
May 31, 2001 |
August 31, 2000 |
||||||
|---|---|---|---|---|---|---|---|---|
| Land | $ | 28,305 | $ | 29,779 | ||||
| Building and improvements | 68,564 | 61,649 | ||||||
| Fixtures and equipment | 48,106 | 40,299 | ||||||
| Construction in progress | 14,625 | 5,712 | ||||||
| 159,600 | 137,439 | |||||||
| Less: accumulated depreciation | (15,045 | ) | (8,454 | ) | ||||
| Property and equipment, net | $ | 144,555 | $ | 128,985 | ||||
17
Building and improvements includes capitalized interest of $1.3 million and $891,000 as of May 31, 2001 and August 31, 2000, respectively.
NOTE 4—EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed based on the weighted average common shares outstanding in the period. Diluted earnings (loss) per share is computed based on the weighted average common 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 May 31, |
Nine Months Ended May 31, |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2001 |
2000 |
2001 |
2000 |
||||||||||
| Net income (loss) | $ | (431 | ) | $ | 1,703 | $ | 2,929 | $ | (859 | ) | ||||
| Determination of shares (000's): | ||||||||||||||
| Common shares outstanding | 6,236 | 5,392 | 6,274 | 5,196 | ||||||||||
| Assumed conversion of stock options | — | 595 | 417 | — | ||||||||||
| Dilutive average common shares outstanding | 6,236 | 5,987 | 6,691 | 5,196 | ||||||||||
Basic earnings (loss) per share |
$ |
(0.07 |
) |
$ |
0.32 |
$ |
0.47 |
$ |
(0.17 |
) |
||||
Dilutive earnings (loss) per share |
$ |
(0.07 |
) |
$ |
0.28 |
$ |
0.44 |
$ |
(0.17 |
) |
||||
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 (other than disclosed below) that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
On May 18, 2001, the Company opened its first warehouse in Manila, Philippines. The warehouse is operated (through a joint venture of which the Company is the majority owner) under the name of "S&R Price Membership Shopping Warehouse". On June 15, 2001 the Company was served with a temporary restraining order effectively requiring that the Company cease its operation in the Philippines, issued in an action filed by a former Company licensee, whose license was terminated in 1998. The Company shut down operations accordingly, but was able to reopen on June 19, 2001 after the Court of Appeals in the Philippines issued its own temporary restraining order staying enforcement of the restraining order that had closed the warehouse. The trial court judge subsequently issued an order lifting the restraining order. The appellate court also set a hearing date of July 24, 2001 for arguments before the appellate court on whether to permanently bar the trial court's restraining order. The Company believes that the factual allegations and legal claims asserted in the Complaint are without merit and it intends to defend them vigorously.
The Company currently has three more warehouses in pre-construction or under construction in the Philippines. Openings are scheduled in the fall of 2001, spring of 2002 and fall of 2002. Any adverse rulings by the Philippine courts could delay or prevent these planned openings.
NOTE 6—SHORT-TERM BORROWINGS AND DEBT
As of May 31, 2001, the Company, through its majority or wholly owned subsidiaries, had $12.4 million outstanding in short-term bank borrowings through seven separate facilities, which are
18
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 May 31, 2001, the Company had drawn down the full amounts for six of the facilities and had availability of approximately $10 million under the seventh.
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 $15 million as of May 31, 2001, which is secured by collateral deposits for the same amount and are included in restricted cash on the balance sheet.
On January 25, 2001, the Company entered into two loan agreements with the International Finance Corporation ("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 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 received initial funding of $10 million in May 2001. Upon funding of the remaining portion of the loan, 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.
On April 5, 2000, the Company entered into an agreement to sell its notes receivable from various municipalities and agencies, known as the "City Notes," to the Price Family Charitable Trust, a California Trust. Sol Price (a principal stockholder of PriceSmart, Inc.) and Robert Price (a principal stockholder and Chairman of the Board of PriceSmart, Inc.) are trustee and successor trustee, respectively, of the Trust. The aggregate purchase price for the City Notes was $22.5 million that resulted in a gain of $3.9 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, the Company 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
19
$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 and resulted in an incremental goodwill adjustment of approximately $1.1 million. 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.
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 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, as adjusted, was $20.5 million and is reflected in goodwill, net of accumulated amortization of $737,000 and $223,000, as of May 31, 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.
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—SALE OF COMMON STOCK
In April 2001, the Company sold 67,700 shares of common stock previously held as treasury stock in a private placement for $39.00 per share for total proceeds of approximately $2.6 million.
20