<PAGE>
3RD QUARTER
FISCAL 1998
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 MAY 31, 1998
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 5,924,869 common shares, par value $.0001, outstanding at
July 7, 1998.
<PAGE>
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
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK....... 12
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PRICESMART, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1998 1997
---------- ----------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 2,686 $ 58,383
Investments available for sale............................................... 63,454 -
Receivables, net............................................................. 7,250 4,806
Merchandise inventories...................................................... 9,110 5,518
Prepaid expenses and other current assets.................................... 851 578
Properties held for sale, net................................................ 9,263 19,913
--------------------- -------------------
Total current assets............................................................. 92,614 89,198
Property and equipment:
Land......................................................................... 2,250 2,250
Building and improvements.................................................... 6,818 4,578
Fixtures and equipment....................................................... 6,946 4,712
--------------------- -------------------
16,014 11,540
Less accumulated depreciation................................................ (2,602) (1,946)
--------------------- -------------------
13,412 9,594
Other assets:
City notes receivable........................................................ 21,958 23,052
Other notes receivable....................................................... 3,819 4,041
--------------------- -------------------
25,777 27,093
--------------------- -------------------
TOTAL ASSETS $ 131,803 $ 125,885
--------------------- --------------------
--------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings.............................................................. $ 3,932 $ -
Merchandise payable.......................................................... 5,198 4,901
Other payables and accrued expenses.......................................... 7,228 8,376
--------------------- --------------------
Total current liabilities........................................................ 16,358 13,277
Minority interest................................................................ 5,601 5,436
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value, 15,000,000 shares
authorized, 5.9 million shares issued and outstanding........................ 1 1
Additional paid-in capital..................................................... 107,680 107,171
Unrealized gains on investments................................................ 9 -
Retained earnings.............................................................. 2,154 -
--------------------- --------------------
Total Stockholders' Equity....................................................... 109,844 107,172
--------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $ 131,803 $ 125,885
--------------------- --------------------
--------------------- --------------------
</TABLE>
Note: The balance sheet at August 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
<PAGE>
PRICESMART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRD QUARTER YEAR-TO-DATE
--------------------------------- --------------------------------
3 MONTHS ENDED 12 WEEKS ENDED 9 MONTHS ENDED 40 WEEKS ENDED
MAY 31, JUNE 8, MAY 31, JUNE 8,
1998 1997 1998 1997
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Sales:
International...................................... $ 19,842 $ 14,067 $ 60,552 $ 45,281
Electronic Shopping................................ - - - 957
International royalties and other fees................. 481 524 2,214 2,222
Auto referral, travel and other programs............... 3,324 2,757 9,729 9,199
-------------- --------------- --------------- --------------
TOTAL REVENUES............................................ 23,647 17,348 72,495 57,659
EXPENSES
Cost of goods sold:
International...................................... 17,951 13,058 55,369 42,317
Electronic Shopping................................ - - - 1,793
Selling, general and administrative:
International...................................... 3,893 2,626 9,854 8,200
Electronic Shopping................................ - 191 - 4,129
Auto referral, travel and other programs........... 2,672 2,254 8,197 7,418
Corporate administrative expenses.................. 941 475 2,252 1,310
-------------- --------------- --------------- --------------
TOTAL EXPENSES............................................ 25,457 18,604 75,672 65,167
-------------- --------------- --------------- --------------
OPERATING LOSS............................................ (1,810) (1,256) (3,177) (7,508)
OTHER
Real estate operations, net........................ 689 201 1,223 293
Interest income, net............................... 1,495 676 4,480 2,102
Minority interest.................................. (12) 36 (197) (73)
-------------- --------------- --------------- --------------
TOTAL OTHER............................................... 2,172 913 5,506 2,322
-------------- --------------- --------------- --------------
Income (loss) before provision for income taxes .......... 362 (343) 2,329 (5,186)
Provision for income taxes................................ 19 19,989 175 18,003
-------------- --------------- --------------- --------------
NET INCOME (LOSS) $ 343 $ (20,332) $ 2,154 $ (23,189)
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
EARNINGS PER SHARE
Basic.................................................... $ .06 $ (3.44) $ .36 $ (3.93)
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
Diluted.................................................. $ .06 $ (3.44) $ .35 $ (3.93)
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
SHARES USED IN PER SHARE COMPUTATION
Basic.................................................... 5,915 5,908 5,912 5,908
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
Diluted.................................................. 6,058 5,908 6,072 5,908
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
</TABLE>
See accompanying notes.
4
<PAGE>
PRICESMART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-TO-DATE
-----------------------------------
9 MONTHS ENDED 40 WEEKS ENDED
MAY 31, JUNE 8,
1998 1997
---------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................................................ $ 2,154 $ (23,189)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization............................................. 1,051 1,145
Income tax provision...................................................... 175 18,003
Minority interest......................................................... 197 73
Stock-based compensation ................................................. 395 -
Change in receivables, inventories and other assets....................... (6,309) (4,873)
Change in accounts payable and other liabilities.......................... (851) 3,327
Change in properties held for sale........................................ 10,650 1,298
Other .................................................................... 59 -
---------------- --------------
Net cash flows provided by (used in) operating activities..................... 7,521 (4,216)
INVESTING ACTIVITIES
Purchases of investments available for sale............................... (84,240) -
Sales of investments available for sale................................... 20,744 -
Additions to property and equipment....................................... (5,114) (7372)
Proceeds from sale of property and equipment.............................. - 83
Payments of notes receivable.............................................. 1,316 5,083
---------------- --------------
Net cash flows used in investing activities................................... (67,294) (2,206)
FINANCING ACTIVITIES
Proceeds from bank borrowings............................................. 3,932 -
Proceeds from exercise of stock options................................... 144 -
Net investment by PEI..................................................... - 2,790
Contributions by Panama JV partner........................................ - 3,632
---------------- --------------
Net cash flows provided by financing activities............................... 4,076 6,422
---------------- --------------
Net decrease in cash.......................................................... (55,697) -
Cash and cash equivalents at beginning of period.............................. 58,383 -
---------------- --------------
Cash and cash equivalents at end of period.................................... $ 2,686 $ -
---------------- --------------
---------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
PRICESMART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
May 31, 1998
NOTE 1 - 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. As of May 31,
1998, there were a total of six stores licensed to and owned by in-country
business people and two stores owned 51% by the Company. (See Liquidity and
Capital Resources Section of Management Discussion and Analysis).
Additionally, the Company operates domestic auto referral and travel
businesses marketed primarily 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.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 9 months ended May 31, 1998 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.
The consolidated financial statements include the assets, liabilities and
results of operations for its wholly owned and majority owned merchandising
businesses.
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.
6
<PAGE>
PRICESMART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE
In 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
NOTE 3 - 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 18 months
and an average yield of 5.8%.
7
<PAGE>
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 third quarter and year-to-date periods of fiscal 1998 ended May 31, 1998
to the third quarter and year-to-date periods of fiscal 1997 ended June 8,
1997. All dollar amounts are in thousands.
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 92 days of operations in Q3 fiscal 1998 to 84 days of
operations for Q3 fiscal 1997; and 273 days of operations for fiscal 1998
year-to-date to 280 days of operations for fiscal 1997 year-to-date.
INTERNATIONAL SALES
<TABLE>
<CAPTION>
INTERNATIONAL SALES PERCENT CHANGE
<S> <C> <C>
3rd Quarter - FY 1998 $19,842 41%
3rd Quarter - FY 1997 14,067 -
Year-to-Date FY 1998 $60,552 34%
Year-to-Date FY 1997 45,281 -
</TABLE>
In Q3 fiscal 1998, the number of licensed stores consisted of two in Indonesia,
two in China, one in Guam and one in Saipan; and two stores owned 51% by the
Company in Panama. In Q3 fiscal 1997, the number of licensed stores consisted of
two in Indonesia, one in China, one in Guam, one in Saipan; and one store owned
51% by the Company in Panama. (See Liquidity and Capital Resources Section of
Management Discussion and Analysis).
Net sales for Q3 fiscal 1998 increased over Q3 fiscal 1997 primarily due to more
stores opened and longer reporting period as discussed above.
Year-to-date increase in net sales was primarily due to more stores opened.
However, this increase was offset by the shorter reporting period as discussed
above, and by the decline in export sales of U.S.-sourced products to Asia
during fiscal 1998, and the discontinuation of the export trading business in Q3
fiscal 1997.
GROSS MARGIN
<TABLE>
<CAPTION>
INTERNATIONAL PERCENT CHANGE PERCENT OF SALES
<S> <C> <C> <C>
3rd Quarter - FY 1998 $1,891 87% 9.53%
3rd Quarter - FY 1997 1,009 - 7.17%
Year-to-Date FY 1998 $5,183 75% 8.56%
Year-to-Date FY 1997 2,964 - 6.55%
</TABLE>
Gross margin as a percent of sales for Panama is generally higher than that
earned on exports of U.S. sourced products. The increase in gross margin
percentage in Q3 fiscal 1998 compared to Q3 fiscal 1997 was primarily due to
the opening of the second Panama store. The year-to-date period increase in
gross margin percentage was a result of the same factor as Q3. However, the
increase was somewhat offset by
8
<PAGE>
decreased shipments of U.S. sourced products to foreign licensees. (See
Liquidity and Capital Resources Section of Management Discussion and
Analysis).
The electronic shopping business was closed in Q2 fiscal 1997. The
year-to-date fiscal 1997 gross margins were negatively impacted by reserves
of $.9 million associated with markdowns to sell certain returned and
discontinued merchandise.
OTHER REVENUES
<TABLE>
<CAPTION>
INTERNATIONAL AUTO REFERRAL,
ROYALTIES PERCENT TRAVEL AND OTHER PERCENT
& FEES CHANGE PROGRAMS CHANGE
------------- ------- ---------------- ------
<S> <C> <C> <C> <C>
3rd Quarter - FY 1998 $481 -8% $3,324 21%
3rd Quarter - FY 1997 524 - 2,757 -
Year-to-Date FY 1998 $2,214 -.4% $9,729 6%
Year-to-Date FY 1997 2,222 - 9,199 -
</TABLE>
Revenues in Q3 fiscal 1998 from Auto Referral, Travel and other programs
increased primarily due to increases in cruise sales and special programs in
Travel, and the success of the Auto Referral program on the Internet. The
year-to-date amounts were partially offset by shorter reporting period as
discussed above. The Auto Referral and Travel Programs provide Services
primarily to Costco members under an exclusive contract that extends
through October 1999. The Company is exploring alternatives for other
customers for these services.
SELLING, GENERAL & ADMINISTRATIVE
<TABLE>
<CAPTION>
AUTO REFERRAL,
PERCENT TRAVEL AND OTHER PERCENT
INTERNATIONAL CHANGE PROGRAMS CHANGE
------------- ------- ---------------- -------
<S> <C> <C> <C> <C>
3rd Quarter - FY 1998 $3,893 48% $2,672 19%
3rd Quarter - FY 1997 2,626 - 2,254 -
Year-to-Date FY 1998 $9,854 20% $8,197 11%
Year-to-Date FY 1997 8,200 - 7,418 -
</TABLE>
The increase in selling, general and administrative expenses for International
during Q3 and year-to-date fiscal 1998 was primarily due to one additional
Panama store opened in December 1997. The fiscal 1998 year-to-date increase was
partially offset by a reduction in central expenses in Q1 fiscal 1998.
Selling, general and administrative expenses for Electronic Shopping for fiscal
1997 year-to-date period 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.
During Q3 and fiscal 1998 year-to-date periods, selling, general and
administrative expenses for Auto Referral, Travel and other programs increased
primarily due to increased personnel costs to support a service center test
program. The service center test program was discontinued in May 1998.
CORPORATE AND ADMINISTRATIVE EXPENSE
<TABLE>
<CAPTION>
AMOUNT PERCENT CHANGE
------ --------------
<S> <C> <C>
3rd Quarter - FY 1998 $941 98%
3rd Quarter - FY 1997 475 -
Year-to-Date FY 1998 $2,252 72%
Year-to-Date FY 1997 1,310 -
</TABLE>
Corporate and Administrative Expense for Q3 and year-to-date periods fiscal
1998 reflects the actual costs incurred for corporate administration. In
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
9
<PAGE>
or relative measures of size of entities. The increase in expense is
primarily due to the addition of management and incremental expenses
associated with becoming a separate, publicly held company.
REAL ESTATE OPERATIONS (NET)
<TABLE>
<CAPTION>
GAIN (LOSS)
REVENUES EXPENSES ON SALES NET
<S> <C> <C> <C> <C>
3rd Quarter - FY 1998 $ 473 $ (339) $555 $ 689
3rd Quarter - FY 1997 741 (540) --- 201
Year-to-Date FY 1998 $1,683 $(1,124) $664 $1,223
Year-to-Date FY 1997 2,236 (2,010) 67 293
</TABLE>
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 increase in net income from real estate operations during Q3 fiscal 1998
was primarily due to gains on sales of properties. The year to date
improvement also reflects reduced operating expenses resulting from the
disposition on non-income producing properties in Q4 fiscal 1997.
INTEREST INCOME
Interest income reflects earnings on invested cash, earnings on City Notes
and certain secured notes receivable from buyers of formerly owned
properties. During Q3 and year-to-date periods, the increase in interest
income was primarily due to 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.
The Company's net working capital requirements are not expected to exceed
$14.5 million during the remainder of fiscal 1998. Additionally, the Company
invested approximately $3 million in a majority owned joint venture in
Guatemala in Q4 fiscal 1998. Actual investment in merchandising businesses
and gross proceeds realized from property sales for the remainder of 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 experienced a significant
devaluation of local currencies relative to the U.S. dollar. 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 certain markets most affected
by the Asian 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.
In early March 1998, the Company terminated its license agreement with the
Philippines licensee because the licensee had failed to comply with certain
of its contractual obligations. The Company is currently undertaking efforts
to resolve this matter.
10
<PAGE>
In early June 1998, the Company and its Indonesian licensee agreed in
principle to a discontinuance of their license arrangement, due to the
uncertain economic conditions currently affecting that country. The Company
and the licensee are currently negotiating the terms of the dissolution. The
Company does not anticipate incurring any material losses from the
dissolution.
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.
IMPACT OF YEAR 2000
The year 2000 issue results from computer programs and hardware being written
with 2 digits rather than 4 digits to define the applicable year. As a
result, there is a risk that date sensitive software may recognize a date
using "00" as the year 1900, rather than the year 2000. This potentially
could result in system failure or miscalculations causing disruptions of
operations, including a temporary inability to process transactions or engage
in normal business activities.
The Company has already received letters of year 2000 compliance from its key
hardware and software vendors regarding the Company's core transaction
processing systems, including both the point of sale and back room processes.
In addition, the Company plans to conduct it's own internal testing of year
2000 compliance by the end of the calendar year 1998. Further, certain custom
programs are planned to be modified by the end of calendar year 1998. The
total cost of the year 2000 project is not expected to exceed $100,000, which
excludes the cost of the recently purchased hardware and software, which was
already year 2000 compliant.
The Company plans to initiate formal communications with its significant
suppliers regarding year 2000 compliance. However, the Company's systems
interface with its suppliers is minimal, which makes the Company less
vulnerable.
The costs of the year 2000 project and the estimated completion date are
based on management's best estimates, which are derived utilizing numerous
assumptions. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from the estimates.
Specific factors that might cause material differences include, but are not
limited to, the availability and cost of trained personnel, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
11
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
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
May 31, 1998
12
<PAGE>
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: July 14, 1998 /s/ GILBERT A. PARTIDA
----------------------
Gilbert A. Partida
PRESIDENT & CHIEF EXECUTIVE OFFICER
Date: July 14, 1998 /s/ KAREN J. RATCLIFF
---------------------
Karen J. Ratcliff
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 2,686
<SECURITIES> 63,454
<RECEIVABLES> 34,176
<ALLOWANCES> (1,149)
<INVENTORY> 9,110
<CURRENT-ASSETS> 92,614
<PP&E> 16,014
<DEPRECIATION> (2,602)
<TOTAL-ASSETS> 131,803
<CURRENT-LIABILITIES> 16,358
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 109,843
<TOTAL-LIABILITY-AND-EQUITY> 131,803
<SALES> 60,552
<TOTAL-REVENUES> 72,495
<CGS> 55,369
<TOTAL-COSTS> 75,672
<OTHER-EXPENSES> (1,026)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,480)
<INCOME-PRETAX> 2,329
<INCOME-TAX> 175
<INCOME-CONTINUING> 2,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,154
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
