Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended November 30, 2009
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to
COMMISSION
FILE NUMBER 0-22793
PriceSmart,
Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
33-0628530
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
9740
Scranton Road, San Diego, CA 92121
(Address
of principal executive offices)
(858)
404-8800
(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
þ
|
No
¨
|
|
Indicate
by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
|
|
Yes þ
|
No
¨
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
Large
accelerated filer ¨
|
Accelerated
filer þ
|
Non-accelerated
filer ¨
|
Smaller
Reporting Company ¨
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange
Act).
|
|
Yes
¨
|
No
þ
|
|
The
registrant had 29,761,856 shares of its common stock, par value
$0.0001 per share, outstanding at December 31,
2009.
|
PRICESMART,
INC.
INDEX
TO FORM 10-Q
|
Page
|
||
i
ITEM 1. FINANCIAL STATEMENTS
PriceSmart,
Inc.’s (“PriceSmart” or the “Company”) unaudited consolidated balance sheet as
of November 30, 2009, the consolidated balance sheet as of
August 31, 2009, the unaudited consolidated statements of income for
the three months ended November 30, 2009 and 2008, the unaudited
consolidated statements of equity for the three months ended
November 30, 2009 and 2008, and the unaudited consolidated statements of
cash flows for the three months ended November 30, 2009 and 2008, are
included elsewhere herein. Also included herein are the unaudited notes to the
unaudited consolidated financial statements.
1
CONSOLIDATED
BALANCE SHEETS
(UNAUDITED—AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA)
|
N
|
||||||||
|
November
30, 2009
|
August
31,
2009
|
|||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$
|
39,039
|
$
|
44,193
|
||||
|
Short-term
restricted cash
|
—
|
10
|
||||||
|
Receivables,
net of allowance for doubtful accounts of $8 and $10 in November and
August of 2009, respectively
|
2,399
|
2,187
|
||||||
|
Merchandise
inventories
|
147,390
|
115,841
|
||||||
|
Deferred
tax assets – current
|
2,940
|
2,618
|
||||||
|
Prepaid
expenses and other current assets
|
18,010
|
19,033
|
||||||
|
Assets
of discontinued operations
|
947
|
900
|
||||||
|
Total
current assets
|
210,725
|
184,782
|
||||||
|
Long-term
restricted cash
|
765
|
732
|
||||||
|
Property
and equipment, net
|
236,857
|
231,798
|
||||||
|
Goodwill
|
37,415
|
37,538
|
||||||
|
Deferred
tax assets – long term
|
19,849
|
20,938
|
||||||
|
Other
assets
|
3,885
|
3,927
|
||||||
|
Investment
in unconsolidated affiliates
|
7,761
|
7,658
|
||||||
|
Total
Assets
|
$
|
517,257
|
$
|
487,373
|
||||
|
LIABILITIES
AND EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Short-term
borrowings
|
$
|
2,951
|
$
|
2,303
|
||||
|
Accounts
payable
|
113,280
|
101,412
|
||||||
|
Accrued
salaries and benefits
|
7,715
|
8,831
|
||||||
|
Deferred
membership income
|
8,977
|
8,340
|
||||||
|
Income
taxes payable
|
5,937
|
5,942
|
||||||
|
Other
accrued expenses
|
9,481
|
10,022
|
||||||
|
Long-term
debt, current portion
|
5,386
|
4,590
|
||||||
|
Deferred
tax liability – current
|
198
|
189
|
||||||
|
Liabilities
of discontinued operations
|
121
|
299
|
||||||
|
Total
current liabilities
|
154,046
|
141,928
|
||||||
|
Deferred
tax liability – long-term
|
1,224
|
1,026
|
||||||
|
Long-term
portion of deferred rent
|
2,793
|
2,673
|
||||||
|
Long-term
income taxes payable, net of current portion
|
3,562
|
3,458
|
||||||
|
Long-term
debt, net of current portion
|
42,795
|
37,120
|
||||||
|
Total
liabilities
|
204,420
|
186,205
|
||||||
|
Equity:
|
||||||||
|
Common
stock, $0.0001 par value, 45,000,000 shares authorized;
30,402,285 and 30,337,109 shares issued and 29,746,173 and 29,681,031
shares outstanding (net of treasury shares),
respectively
|
3
|
3
|
||||||
|
Additional
paid-in capital
|
378,326
|
377,210
|
||||||
|
Tax
benefit from stock-based compensation
|
4,609
|
4,547
|
||||||
|
Accumulated
other comprehensive loss
|
(17,149
|
)
|
(17,230
|
)
|
||||
|
Accumulated
deficit
|
(39,621
|
)
|
(49,998
|
)
|
||||
|
Less:
treasury stock at cost; 656,112 shares as of November 30, 2009 and
656,078 as of August 31, 2009.
|
(14,135
|
)
|
(14,134
|
)
|
||||
|
Total
PriceSmart stockholders’ equity
|
312,033
|
300,398
|
||||||
|
Noncontrolling
interest
|
804
|
770
|
||||||
|
Total
equity
|
312,837
|
301,168
|
||||||
|
Total
Liabilities and Equity
|
$
|
517,257
|
$
|
487,373
|
||||
See
accompanying notes.
2
CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED—AMOUNTS
IN THOUSANDS, EXCEPT PER SHARE DATA)
|
Three
Months Ended
November
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Net
warehouse club sales
|
$
|
308,653
|
$
|
298,518
|
||||
|
Export
sales
|
587
|
836
|
||||||
|
Membership
income
|
4,649
|
4,325
|
||||||
|
Other
income
|
1,530
|
1,529
|
||||||
|
Total
revenues
|
315,419
|
305,208
|
||||||
|
Operating
expenses:
|
||||||||
|
Cost
of goods sold:
|
||||||||
|
Net
warehouse club
|
261,717
|
254,426
|
||||||
|
Export
|
554
|
800
|
||||||
|
Selling,
general and administrative:
|
||||||||
|
Warehouse
club operations
|
29,234
|
27,280
|
||||||
|
General
and administrative
|
7,568
|
7,544
|
||||||
|
Pre-opening
expenses
|
111
|
—
|
||||||
|
Asset
impairment and closure costs
|
—
|
248
|
||||||
|
Total
operating expenses
|
299,184
|
290,298
|
||||||
|
Operating
income
|
16,235
|
14,910
|
||||||
|
Other
income (expense):
|
||||||||
|
Interest
income
|
215
|
126
|
||||||
|
Interest
expense
|
(630
|
)
|
(581
|
)
|
||||
|
Other
income (expense), net
|
4
|
(20
|
)
|
|||||
|
Total
other expense
|
(411
|
)
|
(475
|
)
|
||||
|
Income
from continuing operations before provision for income taxes and loss of
unconsolidated affiliates
|
15,824
|
14,435
|
||||||
|
Provision
for income taxes
|
(5,401
|
)
|
(3,647
|
)
|
||||
|
Loss
of unconsolidated affiliates
|
(2
|
)
|
(5
|
)
|
||||
|
Income
from continuing operations
|
10,421
|
10,783
|
||||||
|
Income
(loss) from discontinued operations, net of tax
|
9
|
(19
|
)
|
|||||
|
Net
income
|
10,430
|
10,764
|
||||||
|
Net
income attributable to noncontrolling interest
|
(53
|
)
|
(66
|
)
|
||||
|
Net
income attributable to PriceSmart
|
$
|
10,377
|
$
|
10,698
|
||||
| Net income attributable to PriceSmart: | ||||||||
| Income from continuing operations | $ | 10,368 | $ | 10,717 | ||||
| Income (loss) from discontinued operations, net of tax | 9 | (19 | ) | |||||
| $ | 10,377 | $ | 10,698 | |||||
| Net income per share attributable to PriceSmart and available for distribution: | ||||||||
|
Basic
net income per share from continuing operations
|
$
|
0.35
|
$
|
0.36
|
||||
|
Basic
net income per share from discontinued operations, net of
tax
|
$
|
—
|
$
|
—
|
||||
|
Basic
net income per share
|
$
|
0.35
|
$
|
0.36
|
||||
|
Diluted
net income per share from continuing operations
|
$
|
0.35
|
$
|
0.36
|
||||
|
Diluted
net income per share from discontinued operations, net of
tax
|
$
|
—
|
$
|
—
|
||||
|
Diluted
net income per share
|
$
|
0.35
|
$
|
0.36
|
||||
|
Shares
used in per share computations:
|
||||||||
|
Basic
|
29,105
|
28,860
|
||||||
|
Diluted
|
29,163
|
28,964
|
||||||
|
Dividends
per share
|
$
|
—
|
$
|
—
|
||||
See
accompanying notes.
3
CONSOLIDATED
STATEMENTS OF EQUITY
(UNAUDITED—AMOUNTS
IN THOUSANDS)
|
Tax
Benefit
|
Accum-
|
|||||||||||||||||||||||||||||||||||||||||||
|
From
|
ulated
|
Total
|
||||||||||||||||||||||||||||||||||||||||||
|
Stock-
|
Other
|
PriceSmart
|
||||||||||||||||||||||||||||||||||||||||||
|
Additional
|
based
|
Compre-
|
Accum-
|
Stock-
|
Non-
|
|||||||||||||||||||||||||||||||||||||||
|
Common
Stock
|
Paid-in
|
Compen-
|
hensive
|
ulated
|
Treasury
Stock
|
holder’s
|
Controlling
|
Total
|
||||||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
sation
|
Loss
|
Deficit
|
Shares
|
Amount
|
Equity
|
Interest
|
Equity
|
||||||||||||||||||||||||||||||||||
| 30,196 | $ | 3 | $ | 373,192 | $ | 4,563 | $ | (12,897 | ) | $ | (77,510 | ) | 580 | $ | (12,845 | ) | $ | 274,506 | $ | 480 | $ | 274,986 | ||||||||||||||||||||||
|
Stock-based
compensation
|
— | — | 773 | 2 | — | — | — | — | 775 | — | 775 | |||||||||||||||||||||||||||||||||
|
Common
stock subject to put agreement
|
— | — | 161 | — | — | — | — | — | 161 | — | 161 | |||||||||||||||||||||||||||||||||
|
Purchase
of treasury stock for PSC settlement
|
— | — | — | — | — | — | 7 | (161 | ) | (161 | ) | — | (161 | ) | ||||||||||||||||||||||||||||||
|
Dividend
payable to stockholders
|
— | — | — | — | — | 4,744 | — | — | 4,744 | — | 4,744 | |||||||||||||||||||||||||||||||||
|
Dividend
paid to stockholders
|
— | — | — | — | — | (4,744 | ) | — | — | (4,744 | ) | — | (4,744 | ) | ||||||||||||||||||||||||||||||
|
Change
in fair value of interest rate swaps
|
— | — | — | — | (578 | ) | — | — | — | (578 | ) | — | (578 | ) | ||||||||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | — | 10,698 | — | — | 10,698 | 66 | 10,764 | |||||||||||||||||||||||||||||||||
|
Translation
adjustment
|
— | — | — | — | (1,538 | ) | — | — | — | (1,538 | ) | 4 | (1,534 | ) | ||||||||||||||||||||||||||||||
|
Comprehensive
income
|
8,582 | 70 | 8,652 | |||||||||||||||||||||||||||||||||||||||||
|
Balance
at November 30, 2008
|
30,196 | $ | 3 | $ | 374,126 | $ | 4,565 | $ | (15,013 | ) | $ | (66,812 | ) | 587 | $ | (13,006 | ) | $ | 283,863 | $ | 550 | $ | 284,413 | |||||||||||||||||||||
|
Balance
at August 31, 2009
|
30,337 | $ | 3 | $ | 377,210 | $ | 4,547 | $ | (17,230 | ) | $ | (49,998 | ) | 656 | $ | (14,134 | ) | $ | 300,398 | $ | 770 | $ | 301,168 | |||||||||||||||||||||
|
Stock-based
compensation
|
— | — | 770 | 62 | — | — | — | — | 832 | — | 832 | |||||||||||||||||||||||||||||||||
|
Purchase
of treasury stock
|
— | — | — | — | — | — | — | (1 | ) | (1 | ) | — | (1 | ) | ||||||||||||||||||||||||||||||
|
Issuance
of restricted stock awards
|
15 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
|
Forfeiture
of restricted stock awards
|
(3 | ) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
|
Exercise
of stock options
|
53 | — | 346 | — | — | — | — | — | 346 | — | 346 | |||||||||||||||||||||||||||||||||
|
Change
in fair value of interest rate swaps, net of tax
|
— | — | — | — | (71 | ) | — | — | — | (71 | ) | — | (71 | ) | ||||||||||||||||||||||||||||||
|
Net
income
|
— | — | — | — | — | 10,377 | — | — | 10,377 | 53 | 10,430 | |||||||||||||||||||||||||||||||||
|
Translation
adjustment
|
— | — | — | — | 152 | — | — | — | 152 | (19 | ) | 133 | ||||||||||||||||||||||||||||||||
|
Comprehensive
income
|
10,458 | 34 | 10,492 | |||||||||||||||||||||||||||||||||||||||||
|
Balance
at November 30, 2009
|
30,402 | $ | 3 | $ | 378,326 | $ | 4,609 | $ | (17,149 | ) | $ | (39,621 | ) | 656 | $ | (14,135 | ) | $ | 312,033 | $ | 804 | $ | 312,837 | |||||||||||||||||||||
See
accompanying notes.
4
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED—AMOUNTS
IN THOUSANDS)
|
Three
Months Ended
November
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Income
from continuing operations
|
$
|
10,421
|
$
|
10,783
|
||||
|
Adjustments
to reconcile income from continuing operations to net cash (used
in) provided by operating activities:
|
||||||||
|
Depreciation
and amortization
|
3,636
|
2,972
|
||||||
|
Allowance
for doubtful accounts
|
(2
|
)
|
(2
|
)
|
||||
|
Asset
impairment and closure costs
|
—
|
175
|
||||||
|
(Gain)
Loss on sale of property and equipment
|
(4
|
)
|
8
|
|||||
|
Deferred
income taxes
|
1,036
|
(107
|
)
|
|||||
|
Equity
in losses of unconsolidated affiliates
|
2
|
5
|
||||||
|
Excess
tax benefit on stock-based compensation
|
(62
|
)
|
(2
|
)
|
||||
|
Stock-based
compensation
|
770
|
773
|
||||||
|
Change
in operating assets and liabilities:
|
||||||||
|
Change
in accounts receivable, prepaid expenses and other current assets, accrued
salaries and benefits, deferred membership income and other accrued
expenses
|
102
|
(3,678
|
)
|
|||||
|
Merchandise
inventories
|
(31,549
|
)
|
(20,410
|
)
|
||||
|
Accounts
payable
|
11,868
|
11,847
|
||||||
|
Net
cash (used in) provided by continuing operating
activities
|
(3,782
|
)
|
2,364
|
|||||
|
Net
cash provided by (used in) discontinued operating
activities
|
140
|
(144
|
)
|
|||||
|
Net
cash (used in) provided by operating activities
|
(3,642
|
)
|
2,220
|
|||||
|
Investing
Activities:
|
||||||||
|
Additions
to property and equipment
|
(8,625
|
)
|
(14,174
|
)
|
||||
|
Proceeds from
disposal of property and equipment
|
60
|
4
|
||||||
|
Purchase
of interest in Costa Rica joint ventures
|
—
|
(2,241
|
)
|
|||||
|
Purchase
of interest in Panama joint venture
|
—
|
(4,616
|
)
|
|||||
|
Capital
contribution to Panama joint venture
|
(100
|
)
|
—
|
|||||
|
Net
cash used in continuing investing activities
|
(8,665
|
)
|
(21,027
|
)
|
||||
|
Net
cash provided by discontinued investing activities
|
—
|
51
|
||||||
|
Net
cash used in investing activities
|
(8,665
|
)
|
(20,976
|
)
|
||||
|
Financing
Activities:
|
||||||||
|
Proceeds
from bank borrowings
|
13,582
|
7,260
|
||||||
|
Repayment
of bank borrowings
|
(6,427
|
)
|
(7,063
|
)
|
||||
|
Cash
dividend payments
|
—
|
(4,744
|
)
|
|||||
|
Excess
tax benefit on stock-based compensation
|
62
|
2
|
||||||
|
Purchase
of treasury stock for PSC settlement
|
—
|
(161
|
)
|
|||||
|
Purchase
of treasury stock - excluding PSC Settlement
|
(1
|
)
|
—
|
|||||
|
Proceeds
from exercise of stock options
|
346
|
—
|
||||||
|
Net
cash provided by (used in) financing activities
|
7,562
|
(4,706
|
)
|
|||||
|
Effect
of exchange rate changes on cash and cash
equivalents
|
(409
|
)
|
33
|
|||||
|
Net
decrease in cash and cash equivalents
|
(5,154
|
)
|
(23,429
|
)
|
||||
|
Cash
and cash equivalents at beginning of period
|
44,193
|
48,121
|
||||||
|
Cash
and cash equivalents at end of period
|
$
|
39,039
|
$
|
24,692
|
||||
5
PRICESMART,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS—(Continued)
(UNAUDITED—AMOUNTS
IN THOUSANDS)
|
Three
Months Ended
November
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest,
net of amounts capitalized
|
$ | 698 | $ | 112 | ||||
|
Income
taxes
|
$ | 4,197 | $ | 4,093 | ||||
6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
November 30,
2009
PriceSmart,
Inc.’s (“PriceSmart” or the “Company”) business consists primarily of
international membership shopping warehouse clubs similar to, but smaller in
size than, warehouse clubs in the United States. As of November 30, 2009,
the Company had 26 consolidated warehouse clubs in operation in 11 countries and
one U.S. territory (five in Costa Rica, four in Panama, three each in Guatemala
and Trinidad, two each in Dominican Republic, El Salvador, and Honduras and one
each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin
Islands), of which the Company owns substantially all of the corresponding legal
entities (see Note 2-Summary of Significant Accounting Policies). In
addition to the warehouse clubs operated directly by the Company (or through a
joint venture in the case of Trinidad), there is one facility in operation
in Saipan, Micronesia licensed to and operated by local business people, from
which the Company earns a royalty fee. The Company primarily operates
in three segments based on geographic area.
Basis of Presentation - The
consolidated interim financial statements have been prepared in accordance with
the instructions to Form 10-Q for interim financial reporting pursuant to the
rules and regulations of the U.S. Securities and Exchange Commission ("SEC").
These consolidated interim financial statements should be read in conjunction
with the consolidated financial statements and notes included in the Company’s
annual report filed on Form 10-K for the fiscal year ended August 31, 2009. The
consolidated interim financial statements include the accounts of PriceSmart,
Inc., a Delaware corporation, and its subsidiaries. Intercompany
transactions between the Company and its subsidiaries have been eliminated in
consolidation.
In May 2009 the
Financial Accounting Standards Board (“FASB”) issued guidance establishing
general accounting standards and disclosure of subsequent events. The
Company, in accordance with this guidance, evaluated subsequent events
through the date and time these financial statements were issued on January 8,
2010.
Reclassifications - As a result of the
application of a new accounting pronouncement for noncontrolling interests in
consolidated entities, as discussed below in Recently Adopted Accounting
Pronouncements, the Company:
|
·
|
Reclassified
to noncontrolling interest, a component of total equity, $770,000 at
August 31, 2009, which was previously reported as minority interest
on the consolidated balance sheet. A new subtotal,
"total PriceSmart stockholders’ equity", refers to the equity attributable
to stockholders of PriceSmart;
|
|
·
|
Reported
as separate captions within the consolidated statements of
income: "Net income attributable to noncontrolling interest" and
"Net income attributable to PriceSmart;"
and
|
|
·
|
Utilized
income from continuing operations as the starting point on the
consolidated statements of cash flows in order to reconcile net
income to cash flows from operating
activities.
|
These
reclassifications did not have a material impact on the Company’s previously
reported results of operations, financial position or cash flows.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -
The 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 consolidated interim financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the SEC, and
reflect all adjustments (consisting of normal recurring adjustments) that are,
in the opinion of management, necessary to fairly present the financial
position, results of operations, and cash flows for the interim periods
presented. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") 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.
7
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The table
below indicates the Company’s percentage ownership of and basis of presentation
for each subsidiary as of November 30, 2009:
|
Subsidiary
|
Countries
|
Ownership
|
Basis
of Presentation
|
||||
|
PriceSmart,
Aruba
|
Aruba
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Barbados
|
Barbados
|
100.0%
|
Consolidated
|
||||
|
PSMT
Caribe, Inc.:
|
|||||||
|
Costa Rica
|
Costa
Rica
|
100.0%
|
Consolidated
|
||||
|
Dominican Republic
|
Dominican
Republic
|
100.0%
|
Consolidated
|
||||
|
El Salvador
|
El
Salvador
|
100.0%
|
Consolidated
|
||||
|
Honduras
|
Honduras
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Guam
|
Guam
|
100.0%
|
Consolidated
(1)
|
||||
|
PriceSmart,
Guatemala
|
Guatemala
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Jamaica
|
Jamaica
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Nicaragua
|
Nicaragua
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Panama
|
Panama
|
100.0%
|
Consolidated
|
||||
|
PriceSmart,
Trinidad
|
Trinidad
|
95.0%
|
Consolidated
|
||||
|
PriceSmart,
U.S. Virgin Islands
|
U.S. Virgin
Islands
|
100.0%
|
Consolidated
|
||||
|
GolfPark
Plaza, S.A.
|
Panama
|
50.0%
|
Equity
(2)
|
||||
|
Price
Plaza Alajuela PPA, S.A.
|
Costa
Rica
|
50.0%
|
Equity (2)
|
||||
|
Newco2
|
Costa
Rica
|
50.0%
|
Equity
(2)
|
|
(1)
|
Entity
is treated as discontinued operations in the consolidated financial
statements.
|
|
(2)
|
Purchases
of joint venture interests during the first quarter of fiscal year 2009
recorded as investment in unconsolidated affiliates on the consolidated
balance sheets.
|
Use of Estimates – The
preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Variable Interest
Entities – The Company reviews
and determines annually whether any of its investments in joint ventures are
Variable Interest Entities (“VIE”), and whether it must consolidate a VIE and/or
disclose information about its involvement in a VIE. The Company has determined
that the joint ventures for GolfPark Plaza, Price Plaza Alajuela and Newco2 are
VIEs. The Company has determined that it is not the primary
beneficiary of the VIEs and, therefore, has accounted for these entities under
the equity method.
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 – As of November 30, 2009
the Company had no short-term restricted cash. Long-term restricted
cash represents deposits directly with federal regulatory agencies and within
banking institutions in compliance with federal regulatory requirements in Costa
Rica and Panama for approximately $765,000.
Merchandise Inventories – Merchandise inventories,
which include merchandise for resale, are valued at the lower of cost (average
cost) or market. The Company provides for estimated inventory losses and
obsolescence between physical inventory counts on the basis of a percentage of
sales. The provision is adjusted periodically to reflect the trend of actual
physical inventory count results, with physical inventories occurring primarily
in the second and fourth fiscal quarters. In addition, the Company may be
required to take markdowns below the carrying cost of certain inventory to
expedite the sale of such merchandise.
Allowance for Doubtful Accounts
– The Company generally does not extend credit to its members, but may do
so for specific wholesale, government, other large volume members and for
subtenants. The Company maintains an allowance for doubtful accounts based on
assessments as to the probability of collection of specific customer accounts,
the aging of accounts receivable, and general economic conditions.
8
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property and Equipment –
Property and equipment are stated at cost. Depreciation is computed on
the straight-line basis over the estimated useful lives of the assets. The
useful life of fixtures and equipment ranges from three to 15 years and that of
buildings from ten to 25 years. Leasehold improvements are amortized over the
shorter of the life of the improvement or the expected term of the lease. In
some locations, leasehold improvements are amortized over a period longer than
the initial lease term as management believes it is reasonably assured that the
renewal option in the underlying lease will be exercised as an economic penalty
may be incurred if the option is not exercised. The sale or purchase of property
and equipment is recognized upon legal transfer of property. For property and
equipment sales, if any long term notes are carried by the Company as part of
the sales terms, the sale is reflected at the net present value of current and
future cash streams.
Lease Accounting – Certain of
the Company's operating leases, where the Company is the lessee (see Revenue
Recognition Policy for lessor accounting), provide for minimum annual payments
that increase over the life of the lease. The aggregate minimum annual payments
are expensed on the straight-line basis beginning when the Company takes
possession of the property and extending over the term of the related lease
including renewal options where the exercise of the option is reasonably assured
as an economic penalty may be incurred if the option is not
exercised in some locations. The amount by which straight-line rent exceeds
actual lease payment requirements in the early years of the leases is accrued as
deferred rent and reduced in later years when the actual cash payment
requirements exceed the straight-line expense. The Company also accounts in its
straight-line computation for the effect of any “rental holidays.” In addition
to the minimum annual payments, in certain locations, the Company pays
additional contingent rent based on a contractually stipulated percentage of
sales.
Fair Value Measurements
– The Company measures the fair value for all financial and
nonfinancial assets and liabilities that are recognized or disclosed at fair
value in the financial statements on a recurring basis or on a nonrecurring
basis during the reporting period. The Company measures fair value
for interest rate swaps on a recurring basis. As of the balance sheet
dates, there were no other financial assets for which the Company measures fair
value. As of the balance sheet dates, there were no nonfinancial
assets and liabilities that are recognized or disclosed at fair value in the
consolidated financial statements measured on a recurring basis. The
Company measures at fair value nonfinancial assets and liabilities recognized or
disclosed in the consolidated financial statements on a nonrecurring basis, such
as goodwill and long-lived assets, that require measurement at fair value after
taking into account impairment charges if any are deemed necessary.
Also included as nonfinancial assets and liabilities measured on a
nonrecurring basis are those initially measured at fair value in a business
combination or other new basis event, but not measured at fair value in
subsequent periods.
The
Company has established a three-tier fair value hierarchy, which prioritizes the
inputs used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are either directly or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions. The Company was not required to revalue any assets or
liabilities utilizing Level 1 or Level 3 inputs at the balance sheet
dates. The Company's Level 2 assets and liabilities at the balance
sheet dates primarily included cash flow hedges (interest rate swaps) and
pricing of assets in connection with business acquisitions prior to fiscal
year 2010.
Valuation
techniques utilized in the fair value measurement of assets and liabilities
presented on the Company’s consolidated balance sheets were not changed from
previous practice during the reporting period. The Company discloses
the valuation techniques and any change in method of such within the body of
each footnote.
Goodwill – Goodwill resulting
from certain business combinations totaled $37.4 million at November 30, 2009
and $37.5 million at August 31, 2009. The decrease in goodwill
was due to foreign exchange translation losses. The Company reviews
previously reported goodwill at the entity reporting level for impairment on an
annual basis or more frequently if circumstances dictate. No
impairment of goodwill has been recorded to date.
Derivative Instruments and Hedging
Activities – Derivative instruments and hedging activities primarily
consist of interest rate swaps. Interest rate swaps are accounted for
as cash flow hedges. Under cash flow hedging, the effective portion of the fair
value of the derivative, calculated as the net present value of the future cash
flows, is deferred on the consolidated balance sheets in accumulated other
comprehensive loss. If any portion of an interest rate swap were determined to
be an ineffective hedge, the gains or losses from changes in market value would
be recorded directly in the consolidated statements of income. Amounts recorded
in accumulated other comprehensive loss are released to earnings in the same
period that the hedged transaction impacts consolidated earnings. (See Note
12—Interest Rate Swaps.)
Components of Equity Attributable to
PriceSmart and Noncontrolling Interests – The Company reports its
noncontrolling interests in consolidated subsidiaries as a component of equity
separate from the Company’s equity. The accumulated other comprehensive loss
consists of foreign currency translation adjustments and unrealized gains and
losses on investments and their related tax effects.
9
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue Recognition – The
Company recognizes merchandise sales revenue when title passes to the customer.
Membership income represents annual membership fees paid by the Company’s
warehouse club members, which are recognized ratably over the 12-month term of
the membership. The historical membership fee refunds have been minimal and,
accordingly, no reserve has been established for membership refunds for the
periods presented. The Company recognizes and presents
revenue-producing transactions on a net of tax basis. The Company
recognizes gift certificates sales revenue when the certificates are redeemed.
The outstanding gift certificates are reflected as other accrued expenses
in the consolidated balance sheets. Operating leases, where the Company is the
lessor, with lease payments that have fixed and determinable rent increases are
recognized as revenue on a straight-line basis over the lease term. The Company
also accounts in its straight-line computation for the effect of any "rental
holidays." Contingent rental revenue is recognized as the contingent rent
becomes due per the individual lease agreements.
Cost of Goods Sold – The
Company includes the cost of merchandise, food service and bakery raw materials,
and one hour photo supplies in cost of goods sold. The Company also includes the
external and internal distribution and handling costs for supplying such
merchandise, raw materials and supplies to the warehouse clubs. External costs
include inbound freight, duties, drayage, fees, insurance, and non-recoverable
value-added tax related to inventory shrink, spoilage and damage. Internal costs
include payroll and related costs, utilities, consumable supplies, repair and
maintenance, rent expense, and building and equipment depreciation at our
distribution facilities.
Vendor
consideration consists primarily of volume rebates, time limited product
promotions and prompt payment discounts. Volume rebates are generally linked to
pre-established purchase levels and are recorded as a reduction of cost of goods
sold when the achievement of these levels is confirmed by the vendor in writing
or upon receipt of funds, whichever is earlier. On a quarterly basis, the
Company calculates the amount of rebates recorded in cost of goods sold that
relates to inventory on hand and this amount is recorded as a reduction to
inventory, if significant. Product promotions are generally linked to coupons
that provide for reimbursement to the Company from vendor rebates for the
product being promoted. The Company records the reduction in cost of
goods sold on a transactional basis for these programs. Prompt
payment discounts are taken in substantially all cases and, therefore, are
applied directly to reduce the acquisition cost of the related inventory, with
the resulting impact to cost of goods sold when the inventory is
sold.
Selling, General and
Administrative – Selling, general and administrative costs are comprised
primarily of expenses associated with warehouse operations. Warehouse operations
include the operating costs of the Company's warehouse clubs, including all
payroll and related costs, utilities, consumable supplies, repair and
maintenance, rent expense, building and equipment depreciation, and bank and
credit card processing fees. Also included in selling, general and
administrative expenses are the payroll and related costs for the Company's U.S.
and regional purchasing and management centers.
Pre-Opening Costs – The
Company expenses pre-opening costs (the costs of start-up activities, including
organization costs, and rent) as incurred.
Asset Impairment Costs
– The
Company periodically evaluates its long-lived assets for indicators of
impairment. Management's judgments are based on market and operational
conditions at the time of the evaluation and can include management's best
estimate of future business activity. These periodic evaluations could cause
management to conclude that impairment factors exist, requiring an adjustment of
these assets to their then-current fair market value. Future business conditions
and/or activity could differ materially from the projections made by management
causing the need for additional impairment charges.
Closure Costs – The Company
records the costs of closing warehouse clubs as follows: severance
costs that are determined to be an arrangement for one-time employee termination
benefits are accrued at the date the plan of termination has received management
authority and approval, the plan identifies the numbers, job classification,
functions, locations and expected completion dates, the plan establishes the
terms of the severance, and management has deemed it unlikely that significant
changes to the plan will be made. In addition the plan must have been
communicated to employees (referred to as the communication
date). Lease obligations are accrued at the cease use date by
calculating the net present value of the minimum lease payments net of the fair
market value of rental income that is expected to be received for these
properties from third parties. Gain or loss on the sale of property, buildings
and equipment is recognized based on the cash or net present value of future
cash to be received as compensation upon consummation of the sale. All other
costs are expensed as incurred.
Contingencies and Litigation
– The Company accounts and reports for loss contingencies if
(a) information available prior to issuance of the consolidated financial
statements indicates that it is probable that an asset had been impaired or a
liability had been incurred at the date of the consolidated financial statements
and (b) the amount of loss can be reasonably estimated.
Common Stock Put Agreement –
The Company recorded in fiscal year 2008 a liability for a common stock put
agreement (see Note 13—PSC Settlement). The Company utilized the Black-Scholes
method to determine the fair value of the put agreement, taking the fair market
value of the common stock, time to expiration of the put agreement, volatility
of the common stock and the risk-free interest rate over the term of the put
agreement as part of the fair market valuation. The Company recorded in fiscal
year 2008 an expense for the fair value of the put agreement granted as part of
the legal settlement with the PSC Parties. On September 9, 2008 (fiscal
year 2009), the Company recorded the final settlement of the related
liability.
10
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign Currency Translation –
The assets and liabilities of the Company’s foreign operations are primarily
translated to U.S. dollars when the functional currency in our international
subsidiaries is the local currency, which in many cases is not U.S. dollars.
Assets and liabilities of these foreign subsidiaries are translated to U.S.
dollars at the exchange rate on the balance sheet date, and revenue, costs and
expenses are translated at average rates of exchange in effect during the
period. The corresponding translation gains and losses are recorded as a
component of accumulated other comprehensive income or
loss. These adjustments will affect net income upon the sale or
liquidation of the underlying investment.
Monetary
assets and liabilities in currencies other than the functional currency of the
respective entity are revalued to the functional currency using the exchange
rate on the balance sheet date. These foreign exchange transaction gains
(losses), including repatriation of funds, which are included as a part of costs
of goods sold in the consolidated statements of income, for the first three
months of fiscal years 2010 and 2009 were approximately $383,000 and ($541,000),
respectively.
Stock-Based Compensation – As
of November 30, 2009, the Company had four stock-based employee compensation
plans which it accounts for by applying the valuation technique based on the
Black-Scholes model. As part of the valuation, the Company estimates
forfeitures in calculating the expense relating to stock-based compensation as
opposed to only recognizing these forfeitures and the corresponding reduction in
expense as they occur. The Company records as additional paid-in capital the tax
savings resulting from tax deductions in excess of expense, based on the Tax Law
Ordering method. In addition, the Company reflects the tax savings resulting
from tax deductions in excess of expense as a financing cash flow in its
consolidated statement of cash flows, rather than as an operating cash
flow.
Income Taxes – The Company is
required to file federal and state income tax returns in the United States and
various other tax returns in foreign jurisdictions. The preparation of these tax
returns requires the Company to interpret the applicable tax laws and
regulations in effect in such jurisdictions, which could affect the amount of
tax paid by the Company. The Company, in consultation with its tax advisors,
bases its tax returns on interpretations that are believed to be reasonable
under the circumstances. The tax returns, however, are subject to routine
reviews by the various federal, state and international taxing authorities in
the jurisdictions in which the Company files its returns. As part of these
reviews, a taxing authority may disagree with respect to the income tax
positions taken by the Company (“uncertain tax positions”) and, therefore,
require the Company to pay additional taxes. As required under applicable
accounting rules, the Company accrues an amount for its estimate of additional
income tax liability, including interest and penalties, which the Company could
incur as a result of the ultimate or effective resolution of the uncertain tax
positions. The Company reviews and updates the accrual for uncertain tax
positions as more definitive information becomes available from taxing
authorities, completion of tax audits, expiration of statute of limitations, or
upon occurrence of other events.
The
Company accounts for uncertain income tax positions by accruing for the
estimated additional amount of taxes for the uncertain tax positions when the
uncertain tax position does not meet the more likely than not standard for
sustaining the position.
As of
November 30, 2009 and August 31, 2009, the Company had $13.6 million and $13.9
million, respectively, of aggregate accruals for uncertain tax positions (“gross
unrecognized tax benefits”). Of these totals, $2.1 million and $2.0 million,
respectively, represent the amount of net unrecognized tax benefits that, if
recognized, would favorably affect the Company’s effective income tax rate in
any future period.
The
Company records the aggregate accrual for uncertain tax positions as a component
of current or long-term income taxes payable and the offsetting amounts as a
component of the Company’s net deferred tax assets and liabilities. These
liabilities are generally classified as long-term even if the underlying statute
of limitation will expire in the following twelve months. The Company classifies
these liabilities as current if it expects to settle them in cash in the next
twelve months. As of November 30, 2009 and August 31, 2009, the Company did not
expect to make cash payments for these liabilities in the respective following
12 months.
The
Company expects changes in the amount of unrecognized tax benefits in the
next twelve months as the result of a lapse in various statutes of
limitations. For the quarter ended November 30, 2009, the Company reduced the
long-term income tax payable and recorded a reduction in the income tax
expense as the result of a lapse in the underlying statute of limitations
totaling $49,000. The lapse of statutes of limitations in the twelve-month
period ending November 30, 2010 would result in a reduction to long-term income
taxes payable totaling $954,000.
The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense in the long-term income tax payable
caption on the consolidated balance sheets. As of November 30, 2009 and August
31, 2009, the Company had accrued $1.5 million and $1.4 million, respectively,
for the payment of interest and penalties.
The
Company has various audits and appeals pending in foreign jurisdictions. The
Company does not anticipate that any adjustments from these audits and appeals
would result in a significant change to the results of operations, financial
conditions or liquidity.
11
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Tax
expense for the first quarter of fiscal year 2010 was $5.4 million on pre-tax
income of $15.8 million, as compared to $3.6 million of tax expense on pre-tax
income of $14.4 million for the first quarter of fiscal year 2009. The effective
tax rate for the first quarter of fiscal year 2010 is 34.1% as compared to
25.3% for the first quarter of fiscal year 2009. The increase in the
effective tax rate is primarily attributable to the following factors: (i)
during the first quarter of fiscal year 2010, as compared to the first quarter
of fiscal year 2009, there was a significant increase in U.S. pre-tax
income relative to non-U.S. pre-tax income, which is taxed at a
statutory rate that is generally 4% to 9% higher than the foreign statutory tax
rates; and (ii) the Company reversed approximately $49,000 of previously accrued
income tax liability for uncertain tax positions due to a lapse in various
statues of limitations in the first quarter of fiscal year 2010, as compared
to a reversal of approximately $1.0 million in the first quarter of
fiscal year 2009.
The
Company is subject to taxation in the U.S. and various states and foreign
jurisdictions. The Company is generally no longer subject to income tax
examinations by tax authorities in its major jurisdictions except for the fiscal
years subject to audit as set forth in the table below:
|
Tax
Jurisdiction
|
Fiscal
Years Subject to Audit
|
|
|
U.S.
federal
|
1995
through 1998, 2000 through 2001, and 2005 through
2009
|
|
|
California
(U.S.)
|
2000
through 2001 and 2005 to the present
|
|
|
Florida(U.S.)
|
2000
through 2001 and 2005 to the present
|
|
|
Aruba
|
2002
to the present
|
|
|
Barbados
|
2000
to the present
|
|
|
Costa
Rica
|
2006
to the present
|
|
|
Dominican
Republic
|
2006
to the present
|
|
|
El
Salvador
|
2006
to the present
|
|
|
Guatemala
|
2005
to the present
|
|
|
Honduras
|
2005
to the present
|
|
|
Jamaica
|
2003
to the present
|
|
|
Mexico
|
2006
to the present
|
|
|
Nicaragua
|
2006
to the present
|
|
|
Panama
|
2006
to the present
|
|
|
Trinidad
|
2003
to the present
|
|
|
U.S.
Virgin Islands
|
2001
to the present
|
Recent Accounting
Pronouncements –
FASB
ASC 105
In
June 2009, the FASB established the FASB Accounting Standards Codification
(“ASC” or the “Codification”). The Codification supersedes all existing
accounting standard documents and will become the single source of authoritative
non-governmental U.S. GAAP. All other accounting literature not included within
the Codification will be considered non-authoritative. The Company adopted the
Codification effective September 1, 2009. The adoption of the Codification did
not have a material effect on the Company’s financial position or results of
operations.
FASB
ASC 810
In June
2009, the FASB issued guidance that amends and replaces the quantitative-based
risks and rewards calculation for determining which enterprise, if any, has a
controlling financial interest in a variable interest entity and requires
ongoing reassessments of whether an enterprise is the primary beneficiary of a
variable interest entity. It also requires the elimination of the
quantitative approach for determining the primary beneficiary of a variable
interest entity and amends certain guidance for determining whether an entity is
a variable interest entity requiring enhanced disclosure that will provide users
of financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. Additionally, an
enterprise is required to assess whether it has an implicit financial
responsibility to ensure that a variable interest entity operates as designed
when determining whether it has the power to direct the activities of the
variable interest entity that most significantly impact the entity’s economic
performance. The Company is required to adopt this guidance as of the
beginning of its first annual reporting period that begins on September 1, 2010
(fiscal year 2011) and for all subsequent interim and annual
periods. The adoption of the standard is not expected to have a
material impact on its consolidated financial statements.
FASB
ASC 855
In May
2009, the FASB issued guidance which establishes general standards of accounting
for, and disclosure of, events that occur after the balance sheet date but
before financial statements are issued or are available to be
issued. The Company adopted this guidance as of August 31,
2009. The adoption of this guidance did not have a material effect on the
Company’s financial position or results of operations.
12
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
FASB
ASC 820
In
April 2009, the FASB amended guidance on determining the fair value of
assets and liabilities when the volume and level of activity for the asset or
liability have significantly decreased and identifying transactions that are not
orderly. In addition, the FASB set the effective date of guidance for FASB ASC
820 for the recognition and presentation of other than temporary
impairments and interim disclosure about fair value of financial instruments.
The Company adopted the guidance in the fourth quarter of fiscal year
2009. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial condition and results of
operations.
FASB
ASC 825
In
April 2009, the FASB amended guidance on interim disclosures related to the
fair value of financial instruments, which the Company adopted on a prospective
basis beginning June 30, 2009. This guidance extends the disclosure
requirements to interim financial statements of publicly traded companies, and
requires the inclusion of those disclosures in summarized financial information
at interim reporting periods. The adoption of this guidance did not have a
material effect on the Company’s financial position or results of
operations.
FASB
ASC 323
In
October 2008, the FASB amended guidance on Equity Method Investment Accounting
Considerations. The objective of this guidance is to clarify how to
account for certain transactions involving equity method investments. These
transactions are the initial investment, decrease in investment value and
change in ownership or degree of influence. The Company was required
to adopt this amended guidance on a prospective basis beginning on
September 1, 2009. Because this guidance relates specifically to
transactions for which the Company accounted for the transactions as required by
the guidance or for transactions that were not applicable to the Company, there
was no impact on the Company’s consolidated financial statements as a result of
the adoption of this guidance.
FASB
ASC 260
In June
2008, the FASB issued guidance on determining whether instruments granted in
share-based payment transactions are participating securities prior to
vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share (“EPS”) under the two-class method. The
two-class method of computing EPS is an earnings allocation formula that
determines EPS for each class of common stock and participating security
according to dividends declared (or accumulated) and participation rights in
undistributed earnings that would have been available to common stockholders.
The terms of the Company’s restricted stock awards and restrictive stock
units provide a non-forfeitable right to receive dividend equivalent payments on
unvested awards, whether paid, or unpaid. As such, these awards are considered
participating securities under the new guidance. Effective
September 1, 2009, the Company adopted this guidance and applied such
guidance retrospectively to all periods presented (see Note 5 - Earnings Per
Share).
FASB
ASC 815
In March
2008, the FASB issued guidance requiring enhanced disclosures regarding
derivative instruments and hedging activities. This guidance requires
enhanced disclosures about an entity’s derivative and hedging activities
including: (a) the manner in which an entity uses derivative instruments;
(b) the manner in which derivative instruments and related hedged items are
accounted for; and (c) the effect of derivative instruments and related hedged
items on an entity’s financial position, financial performance, and cash flows.
The Company adopted this guidance beginning December 1, 2008. The adoption
of this guidance did not have a material effect on the Company’s financial
position or results of operations.
FASB
ASC 805
In
December 2007, the FASB changed the requirements for an acquirer’s recognition
and measurement of the assets acquired and liabilities assumed in a business
combination, including the treatment of contingent consideration,
pre-acquisition contingencies, transaction costs, in-process research and
development and restructuring costs. In addition, changes in an acquired
entity’s deferred tax assets and uncertain tax positions after the measurement
period will impact income tax expense. The Company adopted this
guidance prospectively effective September 1, 2009. The Company has not
entered into any business combinations subsequent to adoption.
FASB
ASC 810
In
December 2007, the FASB amended existing guidance requiring that noncontrolling
("minority") interests be reported as a component of equity, that net income
attributable to the parent and to the noncontrolling interest be separately
identified in the income statement, that changes in a parent’s ownership
interest while the parent retains its controlling interest be accounted for as
equity transactions, and that any retained noncontrolling equity investment be
initially measured at fair value upon the deconsolidation of a subsidiary.
The Company adopted these new requirements retrospectively to prior
periods at the beginning of its first quarter of fiscal year
2010.
13
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE
3 – DISCONTINUED OPERATIONS
In
accordance with FASB guidance on accounting for the impairment or disposal of
long-lived assets the accompanying consolidated financial statements
reflect the results of operations and financial position of the Company’s
activities in the Philippines and Guam as discontinued operations. As a
result of the closure of the Guam operations in December
2003, the Company included the results of operations from Guam in the asset
impairment and closure costs line of the consolidated statements of income
through May 2005. Since the sale of the Philippine operations in August
2005, the results of the Philippine and Guam activities have
been consolidated in the discontinued operations line of the consolidated
statements of income. Management views these activities as one activity
managed under a shared management structure. Cash flow activities related to the
Guam discontinued operations’ leased property will terminate in August
2011, which is the end date of the lease term.
The
assets and liabilities of the discontinued operations are presented in the
consolidated balance sheets under the captions “Assets of discontinued
operations” and “Liabilities of discontinued operations.” The underlying assets
and liabilities of the discontinued operations for the periods presented are as
follows (in thousands):
|
November
30, 2009
|
August
31,
2009
|
|||||||
|
Cash
and cash equivalents
|
$
|
143
|
$
|
28
|
||||
|
Accounts
receivable, net
|
223
|
223
|
||||||
|
Prepaid
expenses and other current assets
|
43
|
46
|
||||||
|
Other
assets
|
538
|
603
|
||||||
|
Assets
of discontinued operations
|
$
|
947
|
$
|
900
|
||||
|
Other
accrued expenses
|
$
|
121
|
$
|
299
|
||||
|
Liabilities
of discontinued operations
|
$
|
121
|
$
|
299
|
||||
The
Company’s former Guam operation has a deferred tax asset of $2.6 million,
primarily generated from NOLs. This deferred tax asset has a 100% valuation
allowance, as the Company currently has no plans that would allow it to utilize
these losses. Additionally, a significant portion of these losses are limited as
to future use due to the Company’s Section 382 change of ownership in
October 2004.
The
following table sets forth the income (loss) from discontinued
operations for each period presented (in thousands):
|
Three
Months Ended November 30,
|
|||||||
|
2009
|
2008
|
||||||
|
Net
warehouse club sales
|
$
|
—
|
$
|
—
|
|||
|
Pre-tax
income (loss) from operations
|
9
|
(19
|
) | ||||
|
Income
tax (provision) benefit
|
—
|
—
|
|||||
|
Net
income (loss)
|
$
|
9
|
$
|
(19
|
) | ||
The net
income (loss) from discontinued operations for the three months ended November
30, 2009 and 2008 of approximately $9,000 and $(19,000), respectively, is the
net result of the subleasing activity in Guam.
14
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment consist of the following (in thousands):
|
November
30, 2009
|
August
31,
2009
|
|||||||
|
Land
|
$ | 74,564 | $ | 74,506 | ||||
|
Building
and improvements
|
141,977 | 139,639 | ||||||
|
Fixtures
and equipment
|
83,672 | 80,680 | ||||||
|
Construction
in progress
|
19,745 | 16,253 | ||||||
|
Total
property and equipment, historical cost
|
319,958 | 311,078 | ||||||
|
Less:
accumulated depreciation
|
(83,101 | ) | (79,280 | ) | ||||
|
Property
and equipment, net
|
$ | 236,857 | $ | 231,798 | ||||
Building
and improvements includes net capitalized interest of approximately $1.4 million
as of both November 30, 2009 and August 31, 2009. Construction in progress
includes capitalized interest of $931,000 and $595,000 for the fiscal
periods ended November 30, 2009 and August 31, 2009,
respectively. For the three month period ended November 30, 2009 and
the twelve month period ended August 31, 2009, the Company recorded
approximately $126,000 and $2.9 million, respectively, in translation
adjustments that reduced the carrying value of the total property and
equipment.
The
Company continued with the development of new warehouse club sites and the
expansion of existing warehouse clubs in Central America and the
Caribbean. Construction costs within these two segments for the three
months ended November 30, 2009 were approximately $1.8 million and $3.4 million,
respectively. In addition, the Company continued to acquire fixtures and
equipment for new warehouse club sites, the expansion of existing warehouse
clubs and corporate offices in Central America, the Caribbean and the
United States. The Company acquired fixtures and equipment
for approximately $1.5 million, $1.4 million and $34,000, respectively, in these
segments for the three months ended November 30, 2009. The
Company acquired approximately $574,000 of software and computer hardware
during the three months ended November 30, 2009.
The
Company continued with the development of new warehouse club sites, the
expansion of existing warehouse clubs and warehouse distribution center
expansions in Central America, the Caribbean and the
United States. Construction costs and additions of fixtures and
equipment within these segments for the three months ended November 30,
2008 were approximately $4.2 million, $2.2 million and $1.2 million,
respectively.
On
September 24, 2008, PriceSmart acquired 13,162 square meters of real estate
in Panama City, Panama, upon which the Company plans to construct and relocate
an existing PriceSmart warehouse club. Typically, PriceSmart land
requirements are approximately 20,000 square meters; however, the new Panama
City location will be constructed on two levels, with parking at grade level and
the building on the second level. The existing PriceSmart warehouse
club in Panama City, Panama (known as the Los Pueblos Club) will be relocated to
this new site, and the Company will thereby continue to operate four warehouse
clubs in Panama. It is currently anticipated that the new PriceSmart warehouse
club will open in the spring of 2010. Additionally, on
September 29, 2008 PriceSmart acquired 21,576 square meters of real estate
in Alajuela, Costa Rica (near San Jose), upon which the Company constructed a
new PriceSmart warehouse club, which is the Company’s fifth in Costa Rica. The
new PriceSmart warehouse club opened in April of fiscal year 2009. These
acquisitions were recorded as property within the following countries (in
thousands):
|
Land
Costa Rica
|
$
|
3,724
|
||
|
Land
Panama
|
2,856
|
|||
|
Total
land acquired
|
$
|
6,580
|
Depreciation
expense for the first three months of fiscal years 2010 and 2009 was
approximately $3.6 million and $3.0 million, respectively.
15
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE
5 – EARNINGS PER SHARE
Basic net
income per share is computed by dividing the net income attributable to
PriceSmart for the period by the weighted average number of common shares
outstanding during the period. Diluted net income per share is computed by
dividing the net income attributable to PriceSmart for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. The Company excludes stock options from the calculation of
diluted net income per share when the combined exercise price, average
unamortized fair values and assumed tax benefits upon exercise are greater than
the average market price for the Company’s common stock because their effect is
anti-dilutive.
Effective
September 1, 2009, the Company adopted FASB guidance which addresses
whether instruments granted in share-based payment transactions are
participating securities and, therefore, have a potential dilutive effect on
earnings per share (“EPS”). This guidance was applied retrospectively to all
periods presented. The following table sets forth the computation of net income
per share for the three months ended November 30, 2009 and 2008 (in thousands,
except per share amounts):
|
Three
Months Ended
|
||||||||||||||||||||||||
|
November
30, 2009
|
November
30, 2008
|
|||||||||||||||||||||||
|
Income
|
Weighted
Average Shares Outstanding
|
Per
Share Amount
|
Income
|
Weighted
Average Shares Outstanding
|
Per
Share Amount
|
|||||||||||||||||||
|
Net income from
continuing operations attributable to PriceSmart
|
$ | 10,368 | $ | 10,717 | ||||||||||||||||||||
|
Less:
|
||||||||||||||||||||||||
|
Earnings
allocated to unvested stockholders
|
(218 | ) | (271 | ) | ||||||||||||||||||||
|
Basic
EPS
|
||||||||||||||||||||||||
|
Distributable
Income available to stockholders
|
10,150 | 29,105 | $ | 0.35 | 10,446 | 28,860 | $ | 0.36 | ||||||||||||||||
|
Effect
of Dilutive Securities
|
||||||||||||||||||||||||
|
Add
Back:
|
||||||||||||||||||||||||
|
Undistributed
earnings allocated to unvested stockholders (two-class
method)
|
218 | 271 | ||||||||||||||||||||||
|
Stock
Options
|
58 | 104 | ||||||||||||||||||||||
|
Less:
|
||||||||||||||||||||||||
|
Undistributed
earnings reallocated to unvested stockholders (two-class
method)
|
(218 | ) | (270 | ) | ||||||||||||||||||||
|
Diluted
EPS – common shares
|
$ | 10,150 | 29,163 | $ | 0.35 | 10,447 | 28,964 | $ | 0.36 | |||||||||||||||
Basic and
fully diluted EPS from discontinued operations attributable to PriceSmart for
the periods November 30, 2009 and 2008 was $0.00 per share.
In
previously reported periods, diluted net income (loss) per share was
computed using the treasury stock method to calculate the weighted average
number of common shares and, if dilutive, potential common shares outstanding
during the period. This method resulted in diluted income per share
of $0.37 for the period ended November 30, 2008, compared to $0.36 currently
being reported for the same period under the new
methodology.
16
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 6 – EQUITY
Dividends
On
January 29, 2009, the Company’s Board of Directors declared a cash dividend
in the total amount of $0.50 per share, of which $0.25 per share was paid on
February 27, 2009 to stockholders of record as of the close of business on
February 13, 2009 and $0.25 per share was paid on August 31, 2009
to stockholders of record as of the close of business on August 14,
2009.
On
January 24, 2008, the Company’s Board of Directors declared a cash dividend
in the total amount of $0.32 per share, of which $0.16 per share was paid on
April 30, 2008 to stockholders of record as of the close of business on
April 15, 2008 and $0.16 per share was paid on October 31,
2008 to stockholders of record as of the close of business on October 15,
2008.
The
Company anticipates the ongoing payment of semi-annual dividends in subsequent
periods, although the actual declaration of future dividends, the amount of such
dividends, and the establishment of record and payment dates is subject to final
determination by the Board of Directors at its discretion, after its review
of the Company’s financial performance and anticipated capital
requirements.
Accumulated
Other Comprehensive Loss
Accumulated
other comprehensive loss reported on the Company’s consolidated balance sheets
consists of foreign currency translation adjustments of approximately $16.6
million and approximately $16.8 million and unrealized losses on
interest rate swaps (net of tax) of approximately $535,000 and $464,000 as of
November 30, 2009 and August 31, 2009, respectively. The favorable
translation adjustments during the three months ended November 30, 2009 were
primarily due to a weaker U.S. dollar. The unfavorable translation adjustments
during the twelve months ended August 31, 2009 were primarily due to weaker
foreign currencies.
Retained
Earnings Not Available for Distribution
As of
November 30, 2009 and August 31, 2009, retained earnings include legal
reserves of approximately $2.4 million and $2.2 million, respectively, at
various subsidiaries, which cannot be distributed as dividends to PriceSmart,
Inc. according to applicable statutory
regulations.
NOTE
7 – STOCK OPTION AND EQUITY PARTICIPATION PLANS
In August
1997, the Company adopted the 1997 Stock Option Plan of PriceSmart, Inc. (the
“1997 Plan”) for the benefit of its eligible employees, consultants and
independent directors. Under the 1997 Plan, 700,000 shares of the Company's
common stock are authorized for issuance.
The
Compensation Committee of the Board of Directors administers the 1997 Plan with
respect to options granted to employees or consultants of the Company, and the
full Board of Directors administers the Plan with respect to director options.
Options issued under the 1997 Plan typically vest over five years and expire in
six years.
In July
1998, the Company adopted the 1998 Equity Participation Plan of PriceSmart, Inc.
(the “1998 Plan”) for the benefit of its eligible employees, consultants and
independent directors. The 1998 Plan authorizes 700,000 shares of the Company's
common stock for issuance. Options issued under the 1998 Plan typically vest
over five years and expire in six years. The 1998 plan also allows restricted
stock awards, which typically vest over five years.
In
November 2001, the Company adopted the 2001 Equity Participation Plan of
PriceSmart, Inc. (the “2001 Plan”) for the benefit of its eligible employees,
consultants and independent directors. The 2001 Plan initially authorized
350,000 shares of the Company’s common stock for issuance. On April 17,
2008 the Board of Directors approved an amendment to the 2001
Plan to authorize the award of restricted stock units to independent
directors, subject to approval of the amendment by the Company’s stockholders at
the next annual meeting of stockholders. The Board
also awarded restricted stock units to the independent directors which
vest at the rate of 20% per year commencing on March 29, 2008,
subject to stockholder approval of the amendment. On January 28, 2009, the
stockholders of the Company approved an amendment to the 2001 equity
participation plan expanding the eligibility provisions under the plan to permit
the award of restricted stock units to non-employee directors and authorizing an
increase to the number of shares of common stock reserved for issuance from
350,000 to 400,000. Options issued under the 2001 Plan typically vest over five
years and expire in six years. The 2001 plan also allows restricted stock
awards, which typically vest over five years.
17
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In
November 2002, the Company adopted the 2002 Equity Participation Plan of
PriceSmart, Inc. (the “2002 Plan”) for the benefit of its eligible employees,
consultants and independent directors. The 2002 Plan initially authorized
250,000 shares of the Company’s common stock for issuance. At the 2006 Annual
Meeting, the stockholders of the Company approved a proposal to amend the 2002
Equity Participation Plan of PriceSmart, Inc. to increase the number of shares
of Common Stock reserved for issuance under the 2002 Plan from 250,000 to
750,000 (the “Amendment”). On January 28, 2009, the stockholders of the Company
approved an amendment to the 2002 equity participation plan increasing the
number of shares of common stock reserved for issuance from 750,000 to
1,250,000. Options issued under the 2002 Plan typically vest over five years and
expire in six years. The 2002 plan also allows restricted stock awards, which
typically vest over five years.
The
following table summarizes the components of the stock-based compensation
expense for the three months ended November 30, 2009 and 2008 (in thousands),
which are included in general and administrative expenses and warehouse expenses
in the consolidated statements of income:
|
Three
Months Ended
November
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Options
granted to employees and directors
|
$ | 10 | $ | 27 | ||||
|
Restricted
stock grants
|
744 | 746 | ||||||
|
Restricted
stock units
|
16 | — | ||||||
|
Stock-based
compensation expense
|
$ | 770 | $ | 773 | ||||
The
following table summarizes stock options outstanding as of November 30, 2009, as
well as the activity during the first quarter then ended:
|
Shares
|
Weighted
Average Exercise Price
|
|||||||
|
Shares
subject to outstanding options at August 31, 2009
|
$ | 179,998 | $ | 10.02 | ||||
|
Granted
|
— | — | ||||||
|
Exercised
|
(59,150 | ) | 6.20 | |||||
|
Forfeited
or expired
|
— | — | ||||||
|
Shares
subject to outstanding options at November 30, 2009
|
$ | 120,848 | $ | 11.89 | ||||
As of
November 30, 2009, options to purchase 120,848 shares were outstanding and
625,772 shares were available for future grants. The following table
summarizes information about stock options outstanding and options exercisable
as of November 30, 2009:
|
Range
of
Exercise
Prices
|
Outstanding as
of
November 30, 2009
|
Weighted-Average
Remaining
Contractual
Life
(in
years)
|
Weighted-Average
Exercise
Price on Options Outstanding
|
Options
Exercisable as
of November
30, 2009
|
Weighted-Average
Exercise
Price
on
Options
Exercisable
as of
November
30, 2009
|
|||||||||||||||||
|
$
|
6.13
– $8.90
|
85,848
|
0.53
|
$
|
6.40
|
83,848
|
$
|
6.36
|
||||||||||||||
|
8.91
– 20.00
|
13,000
|
3.86
|
16.15
|
3,800
|
16.14
|
|||||||||||||||||
|
20.01
– 39.00
|
22,000
|
2.08
|
30.77
|
15,600
|
33.70
|
|||||||||||||||||
|
$
|
6.13
– $39.00
|
120,848
|
1.17
|
$
|
11.89
|
103,248
|
$
|
10.86
|
||||||||||||||
The
aggregate intrinsic value and weighted average remaining contractual term of
options exercisable at November 30, 2009 was approximately $1.1 million and 0.69
years, respectively. The aggregate intrinsic value and weighted
average remaining contractual term of options outstanding at November 30, 2009
was approximately $1.1 million and 1.2 years, respectively.
The
Company began issuing restricted stock grants in fiscal year 2006 and restricted
stock units in fiscal year 2008. The restricted stock grants and units vest over
a five year period and are forfeited if the employee or non-employee Director
leaves the Company before the vesting period is completed. Restricted stock
grants and units activity for the three months ended November 30, 2009 and 2008
was as follows:
|
Three
Months Ended November 30,
|
|||||
|
2009
|
2008
|
||||
|
Grants
outstanding at August 31,
|
618,250
|
748,860
|
|||
|
Granted
|
14,800
|
—
|
|||
|
Cancelled
|
(3,274
|
)
|
(1,150)
|
||
|
Vested
|
(112
|
)
|
—
|
||
|
Grants
outstanding at November 30,
|
629,664
|
747,710
|
|||
18
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The
remaining unrecognized compensation cost related to unvested
options, restricted stock grants and restricted stock units at
November 30, 2009 and 2008 was approximately $7.2 million and $9.1 million,
respectively, and the weighted-average period of time over which this cost
will be recognized is 3.0 years and 3.7 years, respectively. The excess
tax benefit on stock-based compensation related to options, restricted
stock grants and restricted stock units for the three months ended November 30,
2009 and 2008 was approximately $62,000 and $2,000, respectively.
Cash
proceeds from stock options exercised and the intrinsic value related to total
stock options exercised during the three months ended November 30, 2009 and 2008
are summarized in the following table (in thousands):
|
Three
Months Ended November 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Proceeds
from stock options exercised
|
$ | 346 | — | |||||
|
Intrinsic
value of stock options exercised
|
$ | 768 | — | |||||
During
the three months ended November 30, 2009, the Company repurchased 34 shares of
common stock from employees for approximately $1,000, based on the stock price
at the date of repurchase to cover the employees’ minimum statutory tax
withholding requirements related to the vesting of restricted stock grants. The
Company expects to continue this practice going forward. The Company
did not repurchase shares of common stock from employees during the three months
ended November 30, 2008.
NOTE
8 – ASSET IMPAIRMENT AND CLOSURE COSTS FOR CONTINUING OPERATIONS
During
fiscal year 2003, the Company closed two warehouse clubs, one each in the East
Side Santo Domingo, Dominican Republic and Guatemala Plaza, Guatemala. The
decision to close the warehouse clubs resulted from the determination that the
locations were not conducive to the successful operation of a PriceSmart
warehouse club. In fiscal year 2007, the Company sold the East Side
Santo Domingo, Dominican Republic location for the approximate book value of
$2.5 million. As part of the sale, the Company assumed notes receivable for a
total of approximately $2.2 million. During fiscal year 2009, the Company
finalized an agreement on June 3, 2009 to transfer all rights and obligations as
landlord for the property where the former Guatemala Plaza warehouse club was
located. The lease liability as of May 31, 2009 was approximately $3.8
million. Cash paid for lease buy out was $3.1 million and gain on the lease buy
out was recorded for approximately $651,000. The Company also recorded during
fiscal year 2009 approximately $144,000 in interest income and the receipt of
payment on the note issued for the sale of the East Side Santo Domingo,
Dominican Republic location. The total gain on closure costs recorded in fiscal
year 2009 for the two closed warehouse clubs was $418,000. With the transfer of
the sublease and the payment of the note receivable, the Company will not record
any closure costs related to these two closed locations in fiscal year
2010. Accordingly, the Company recorded no closure cost during the
first three months of fiscal year 2010. The Company recorded approximately
$253,000 in closure costs during the first three months of fiscal year 2009.
These were related to the Guatemala Plaza lease and other costs associated with
the closure of the Guatemala and Dominican Republic club warehouse
locations. For the first three months of fiscal year 2009, the
Company recorded a credit for impairment charges of approximately ($5,000) due
to the sale of previously impaired bulk packaging equipment. The Company did not
record any impairment charges for the first three months of fiscal year
2010.
NOTE
9 – LEASES
The
Company is committed under non-cancelable operating leases for rental of
facilities and land. These leases expire or become subject to renewal between
February 28, 2011 and July 5, 2031.
As
of November 30, 2009, the Company's warehouse clubs
occupied a total of approximately 1,672,370 square feet of which 420,647
square feet were on leased property. The following is a summary of the warehouse
clubs and Company facilities located on leased property:
|
Location (1)
|
Facility
Type
|
Date
Opened
|
Approximate
Square
Footage
|
Current
Lease
Expiration
Date
|
Remaining
Option(s)
to
Extend
|
|||
|
Via
Brazil, Panama
|
Warehouse
Club
|
December 4, 1997
|
68,696
|
October
31, 2026
|
10
years
|
|||
|
Miraflores, Guatemala
|
Warehouse
Club
|
April
8, 1999
|
66,059
|
December 31, 2020
|
5
years
|
|||
|
Pradera, Guatemala
|
Warehouse
Club
|
May
29, 2001
|
48,438
|
May
28, 2021
|
none
|
|||
|
Tegucigalpa, Honduras
|
Warehouse
Club
|
May
31, 2000
|
64,735
|
May
30, 2020
|
none
|
|||
|
Oranjestad,
Aruba
|
Warehouse
Club
|
March
23, 2001
|
64,627
|
March
23, 2021
|
10
years
|
|||
|
Port of Spain, Trinidad
|
Warehouse
Club
|
December
5, 2001
|
54,046
|
July
5, 2031
|
none
|
|||
|
St.
Thomas, U.S.V.I.
|
Warehouse
Club
|
May
4, 2001
|
54,046
|
February
28, 2020
|
10
years
|
|||
|
Barbados
|
Storage
Facility
|
May
5, 2006
|
4,800
|
May
31, 2011
|
1
year
|
|||
|
Chaguanas,
Trinidad
|
Employee
Parking
|
May
1, 2009
|
4,944
|
April
30, 2024
|
none
|
|||
|
San
Diego, CA
|
Corporate
Headquarters
|
April
1, 2004
|
35,000
|
March
31, 2011
|
5
years
|
|||
|
Miami,
FL
|
Distribution
Facility
|
March
1, 2008
|
200,709
|
August
31, 2018
|
10
years
|
|||
|
Miami,
FL
|
Distribution
Facility
|
September
1, 2001
|
36,575
|
February
28, 2011
|
none
|
|||
|
(1)
|
The
former club located in Guam is not included; this warehouse club was
closed in fiscal year 2004. The land and building are currently
subleased to a third-party.
|
19
PRICESMART,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The
following table summarizes the components of rental expense charged for
operating leases of open locations for each of the three months ended
November 30, 2009 and 2008 (in thousands):
|
Three
Months Ended
November
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Minimum
rental payments
|
$ | 1,695 | $ | 1,631 | ||||
|
Deferred
rent accruals
|
110 | 133 | ||||||
|
Total
straight line rent expense
|
1,805 | 1,764 | ||||||
|
Contingent
rental payments
|
356 | 328 | ||||||
|
Rental
expense
|
$ | 2,161 | $ | 2,092 | ||||
Future
minimum lease commitments for facilities under these leases with an initial term
in excess of one year are as follows (in thousands):
|
Periods
Ended November 30,
|
Open
Locations
(1)
|
|||
|
2010
|
$ | 6,569 | ||