UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2017 2022

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 000-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)

Delaware

33-0628530

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)

(Zip Code)

9740 Scranton Road, San Diego, CA 92121

(Address of principal executive offices)

Registrant’s telephone number, including area code: (858) 404-8800

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.0001 Par Value

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

PSMT

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes  No 

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  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  No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer ☐ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No 

The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant as of the last day of the Registrant's most recently completed second fiscal quarter was $1,925,567,077$1,822,456,943 based on the last reported sale price of $88.40$72.23 per share on the NASDAQ Global Select Market on February 28, 2017.2022.

As of October 18, 2017,  30,400,67425, 2022,30,904,826 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 24, 2018 February 3, 2023are incorporated by reference into Part III of this Form 10-K.


PRICESMART, INC.

ANNUAL REPORT ON FORM 10-K FOR

THE FISCAL YEAR ENDED August 31, 20172022

TABLE OF CONTENTS

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PARTI

Forward-Looking Statements

Item 1. Business

General

This annual report on Form 10-K contains forward-looking statements concerning PriceSmart, Inc.'s (“PriceSmart,” "we,"("PriceSmart", the "Company" or the “Company”"we") anticipated future revenues and earnings, adequacy of future cash flow, projectedflows, omni-channel initiatives, proposed warehouse club openings, the Company's performance relative to competitors and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled”“scheduled,” “intend,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially fromincluding, but not limited to the risks detailed in this Annual Report on Form 10-K under the heading Part I. “Item 1A. Risk Factors.” Forward-looking statements including foreign exchangeare only as of the date they are made, and we do not undertake to update these statements, except as required by law. In addition, these risks political or economic instability of host countries,are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and competition,in the U.S., as well as thoseother risks describedthat are not presently known to the Company or that the Company currently considers to be immaterial.

PART I

Item 1. Business

General

PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities by reliably and consistently providing quality goods and valuable services at the lowest possible prices. We believe that lower prices on products and services drive sales volume, which increases the Company’s buying leverage, which in turn leads to better pricing that we can then offer to our Members, validating the Company'svalue of the annual membership fee.

PriceSmart began operations in 1996 in San Diego, California, with the intent to bring our U.S. Securities and Exchange Commission reports, including the risk factors referenced in this Form 10-K. See Part I, Item 1A “Risk Factors.”

Our Company

PriceSmart owns and operates U.S.-stylestyle membership shopping warehouse club concept to emerging and developing countries. We currently operate 50 warehouse clubs in LatinCentral America, and the Caribbean, and Colombia. In all 13 markets, our Members are able to engage with us on social media and shop on our e-commerce platform, PriceSmart.com.

Member experience is our top priority. We rigorously limit the number of SKU’s in order to drive volume and leverage purchasing power for the benefit of our Members. Our curated selection offers a combination of specialty items that offer high quality brand nameare imported and/or unique to our markets, locally and regionally sourced goods, essential goods, direct-from-farm fresh produce and private label consumer products under the brand “Member’s Selection®”. Our Member’s Selection® offering allows us to maintain key quality items at lower prices and provides the opportunity to reduce supply chain risks. We also offer prepared foods and fresh-baked goods. Most merchandise is available for online ordering through PriceSmart.com and for delivery or contactless curbside pickup through our Click & Go™ service. We also offer Wellness programs such as Optical, Pharmacy and Audiology. Our clubs typically feature food courts and tire centers and services. We are also a significant provider of goods at low prices to individualssmall businesses in our markets that benefit from larger pack sizes and businesses. lower pricing. We strive to continually enhance the value of our membership such that the value of the goods and services purchased and received by the Member far exceeds the annual cost of the membership.

Our typical no-frills warehouse club-type buildingsclubs range in sales floor size from 48,000approximately 30,000 to 100,00060,000 square feet andfeet. Our larger clubs are typically located primarily in and around thedensely populated major cities in our markets to take advantagethat include a large penetration of dense populations and relatively higher levels ofconsumers with significant disposable income. During fiscal year 2017, average netOur smaller clubs tend to be in areas with less population density, but where there are significant opportunities to serve the population and supply and support businesses. We also have smaller format clubs in urban areas where it is difficult to secure sufficient real estate at a reasonable cost.

We strategically invest in technology to enhance Member experience and convenience. We believe technology allows us to access valuable data that supports our ability to increase efficiencies and gain important insights about our Members’ purchasing habits. We now provide digital membership and auto-renewal for the convenience of our Members.

Our logistics and distribution infrastructure is key to maximizing efficiencies. We continually review and upgrade our logistics and distribution systems in an attempt to capture efficiencies as our business grows in sales per warehouse club were approximately $74.6 million. By offering our members high qualityvolume, in geography and through activity generated by e-commerce. We utilize regional distribution centers in the U.S. and Costa Rica as well as several local distribution centers to distribute merchandise at competitive prices, we seekefficiently and to reinforcecreate flexibility to mitigate the valuerisk of a PriceSmart membership.supply-chain disruption. We also seek to provide above marketcapture efficiencies by using specialized distribution centers for produce and fair wagescentralized production for categories such as bakery and benefits to allmeat processing.


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Purchasing land and constructing warehouse clubs is generally our largest ongoing capital investment. Securing land for warehouse club locations is challenging in several of our employees as well as a fair returnmarkets because suitable sites at economically feasible prices are difficult to find. We believe ownership of our stockholders.real estate in many of our markets provides several advantages, including lower operating expenses, flexibility to expand or otherwise enhance our buildings, long-term control over the use of the property and potential increase of value in future years. Although we prefer to own real estate, we sometimes lease our real estate when leasing provides the best available opportunity.

Our warehouse clubs currently operate in developingemerging markets that historically have had higher growth rates and lower warehouse club market penetration than the U.S. market. In the countries in whichlocations where we operate, we do not currently face direct competition from U.S. membership warehouse club operators. However, we do face competition from various local and international retail formats such as hypermarkets, supermarkets, cash and carry outlets, hard discounters, home improvement centers, electronic retailers, specialty stores, andconvenience stores, traditional wholesale distribution.distribution and online sales.

The numbersnumber of warehouse clubs in operation as of August 31, 2017 for each country or territory were as follows:

Number of

Number of

Anticipated

Warehouse Clubs

Warehouse Clubs

Warehouse

in Operation as of

in Operation as of

Club Openings

Country/Territory

August 31, 2021

August 31, 2022

In Fiscal Year 2023

Colombia

8

9

1

Costa Rica

8

8

Panama

7

7

Dominican Republic

5

5

Guatemala

4

5

Trinidad

4

4

Honduras

3

3

El Salvador

2

2

1

Nicaragua

2

2

Jamaica

1

2

Aruba

1

1

Barbados

1

1

U.S. Virgin Islands

1

1

Totals

47

50

2



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Number of

 

Number of

 

Actual and Anticipated



 

Warehouse Clubs

 

Warehouse Clubs

 

warehouse



 

in Operation as of

 

in Operation as of

 

club openings

Country/Territory

 

August 31, 2016

 

August 31, 2017

 

in fiscal year 2018

Colombia

 

 

 

 

 

 

 —

Costa Rica

 

 

 

 

 

 

Panama

 

 

 

 

 

 

 —

Trinidad

 

 

 

 

 

 

 —

Dominican Republic

 

 

 

 

 

 

Guatemala

 

 

 

 

 

 

 —

Honduras

 

 

 

 

 

 

 —

El Salvador

 

 

 

 

 

 

 —

Nicaragua

 

 

 

 

 

 

 —

Aruba

 

 

 

 

 

 

 —

Barbados

 

 

 

 

 

 

 —

U.S. Virgin Islands

 

 

 

 

 

 

 —

Jamaica

 

 

 

 

 

 

 —

Totals

 

 

38 

 

 

39 

 

 

 We opened a new warehouse club in Chia, Colombia, in September 2016 (fiscal year 2017) that we constructed on land we acquired in May 2015, bringing the total of warehouse clubs operating in Colombia to seven. In April 2015, we acquired land in Managua, Nicaragua. We constructed and then opened a warehouse club on this site in November 2015 of fiscal year 2016, bringing the total number of warehouse clubs operating in Nicaragua to two. 

On February 1, 2017, we acquired land in Santa Ana, Costa Rica, upon which we built a new warehouse club. We opened this new warehouse club on October 5, 2017, fiscal year 2018.  This new warehouse club brings the number of PriceSmart warehouse clubs operating in Costa Rica to seven. In June 2017, we acquired land in Santo Domingo, Dominican Republic, upon which we are currently building a new warehouse club. We expect to open this new warehouse club in the spring of 2018. This

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will bring the number of PriceSmart warehouse clubs operating in Dominican Republic to four. We continue to explore other potential sites for future warehouse clubs in Central America, the Caribbean and Colombia.

Our warehouse clubs, one regional distribution center and several smaller local distribution centers are located in Latin America and the Caribbean, and our corporate headquarters, U.S. buying operations and our larger regional distribution centerscenter are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbean and Colombia.

We are currently constructing a smaller format warehouse club in the Hacienda San Andrés area of San Miguel, El Salvador, approximately 100 miles east of the capital city San Salvador, which is anticipated to open in the spring of 2023. It will be our third club in El Salvador. In addition, we are proceeding with the construction of a smaller format warehouse club in the affluent El Poblado area of Medellín, Colombia. We expect to open this warehouse club, which will be our second club in Medellín and the Company’s tenth warehouse club in Colombia, in the summer of 2023. Once these two new clubs are open, we will operate 52 warehouse clubs.

We also export products to a retailer in the Philippines and are exploring expansion of that business in other markets.

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Merchandising

Part of our unique value proposition is making available to our Members a curated selection of high quality merchandise sourced from around the world and valuable services, with lower margins than traditional retail stores.

We offer merchandise in the following categories:

Foods & Sundries consists primarily of our grocery, cleaning supplies, health & beauty and canned foods products and constituted approximately 49% of net merchandise sales for fiscal 2022.

Fresh Foods consists primarily of our meat, produce, deli, seafood and poultry products and constituted approximately 29% of net merchandise sales for fiscal 2022.

Hardlines consists primarily of our electronics, appliances, hardware, sporting goods, and toy products and constituted approximately 11% of net merchandise sales for fiscal 2022.

Softlines consists primarily of apparel, domestics and furniture products and constituted approximately 6% of our net merchandise sales for fiscal 2022.

Other Business consists primarily of our food service, bakery, wellness (optical, pharmacy, and audiology) and tire center constituted approximately 5% of net merchandise sales for fiscal 2022.

Across various categories, we offer exciting and unique seasonal merchandise and rotational programs that offer unique value throughout the year.

Competitive Strengths

Low Operating Costs. Our format is designed to move merchandise from our suppliers to our membersMembers at a lower expense ratio than our competitors. We focus on achievingstrive to achieve efficiencies in product distribution by minimizing the labor required to stock and display merchandise, limiting non-payroll operating expenses and maintaining low occupancy costs. For example, we offer a limited number of stock keeping units (SKUs) (approximately 2,500 per warehouse club) with large pack sizes, which allows us to keep shelves stocked with less labor cost than competitors that offer a greater number of SKUs. WeMore recently, we also have opened distribution centers in certain of our high volumehigh-volume markets to improve efficiency and in-stock ratesrate, reduce lead times on high volume products.products, and mitigate risks of supply chain disruption. Our focus on driving down operating costs relative to net warehouse club sales allows us to offer better value and lower prices to our members,Members, which we believe helps generate memberMember loyalty and renewals, which in turn leads to increased sales.

Membership. Our membership model in and of itself provides a competitive advantage. Our membership represents a desirable demographic concentration with strong purchasing power in our markets. The data we can access about our membership base not only provides better connectivity with our Members, but also enables us to identify and pursue additional opportunities to provide value for our Members. Membership has been a basic operating characteristic in the warehouse club industry, beginning over 4046 years ago at Price Club, the first warehouse club. MembershipWe believe membership promotes Member loyalty, and membership fees enable uscontribute to our ability to operate our business on lower margins than conventional retailretailers and wholesalers and representwholesalers. Membership fees were equal to approximately 1.6% 1.5% of net warehouse club sales.merchandise sales and 36.1% of operating income in fiscal year 2022. Our Members can sign up for and renew their memberships online, which gives us another valuable digital touch point with them.

We continue to expand our product and services offerings to our Members. One of our primary initiatives has been the expansion of our Wellness programs, which include our Optical, Pharmacy and Audiology departments. As of August 31, 2022, we had 47 Optical locations open, with eight Pharmacy and five Audiology locations open. We expect to continue our rollout of Audiology to a majority of our clubs and markets in fiscal year 2023. In addition, we plan to increase our Pharmacy locations by expanding this service to all the clubs in our Panama market. We believe that untapped opportunities exist to further enhance the value of our membership servesin various areas. We continue to promote customer loyalty.explore opportunities to provide our Members with products and services that are particularly attractive to our unique membership base while expanding current programs such as our co-branded credit card.

BusinessBusiness Members. Our product selection, marketinglarger pack sizes, and general business focus are directedlow prices appeal to both business and retail consumers. Our business membersMembers include a broad cross section of businesses such as restaurants, institutions including schools, and other businesses that purchase products for resale or use in their businesses.operations. These business membersMembers represent a significant source of sales and profit and provide purchasing volume that gives us better prices from our suppliers.


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Worldwide Sourcing.Approximately 49% of our sales come from merchandise sourced in the U.S., Asia and Europe. One of the primary advantages we have compared to most of our competitors is our United States-based buying team that sources merchandise from suppliers in the U.S. and around the world. Our buyers identify and purchase new and exciting items, including our own Member’s Selection private label products. Many of these branded products are available only at PriceSmart in the markets in which we operate.

Innovation. The warehouse club industry surpassed its fortieth anniversary in 2016, sincehas been operating for over forty years, following the founding of Price Club in 1976. The world of merchandising has changed greatly in those 40 years,evolved during this period, particularly relatedwith respect to how technology theimpacts operational efficiencies and how consumers shop. We are leveraging technological innovations we have developed to enhance our worldwide sourcing of products and make them available in our developing and emerging countries in a growing middle class in developing countries and ever changingmanner that meets current consumer preferences. We have developed know-how to operate effectively in multiple markets, many of which are relatively small, each with different legal requirements, local buying opportunities, cultural norms, unique distribution and logistical challenges and memberMember preferences that require a studiedus to source the correct mix of local versus imported merchandise. We believe that fundamental to our future success is highly dependent on our capacity to continue to adapt and innovate to meet the needs of our current and future members.  Members. We expect to expand our omni-channel offering to include additional services such as drop-ship and the creation of a digital business-to-business application. We also have therefore establisheddeveloped better inbound and outbound online communication channels, and we are using data analytics to better understand our Members’ evolving preferences.

Experienced Management Team. Sherry S. Bahrambeygui is PriceSmart’s Chief Executive Officer. She has led several new transformational initiatives that have allowed us to retain the key benefits of our business model, while expanding capabilities that generate new ways of approaching our business, including an innovation team reportingomni-channel platform and adoption and application of new technology and data analytics to a committeedrive growth. She has been instrumental to the evolution of the Company’s governance and other strategic initiatives for the past ten years, first as a member of our Board of Directors thatand then as CEO and Board member since 2018. Michael L. McCleary is dedicatedExecutive Vice President and Chief Financial Officer. Mr. McCleary joined the Company in 2003 and has over 30 years of international finance, tax and accounting experience. In addition to the evaluationMs. Bahrambeygui and development of technologies with the objective of offering ourMr. McCleary, many other members a seamless multi-channel experience, including on-line shopping.

Experienced Management Team. Our Chairman of the Board, Chief Executive Officer and many of our senior executives and managersmanagement team have workedextensive career experience in the warehouse club business, most, if not all, ofincluding some who learned the warehouse club business from their careers.time at Price Club. Their experience and knowledge represent a key strength and competitive advantage for our company. We also have retained key executives from when we acquired Aeropost in March 2018 who are experienced in developing online technology and marketing for e-commerce and who have assisted us in increasing our digital interaction with Members. We continue making investments in talent to support our technology development and other administrative functions. In March 2022, John D. Hildebrandt was appointed Acting Chief Operating Officer, and in May 2022, became the Chief Operating Officer of the Company. He had previously served as the Company’s Executive Vice President – Operations since February 2010. Before that office, Mr. Hildebrandt held various management positions with the Company dating back to 1997. He initially worked overseas in the Philippines and Panama as a country manager, then held positions of Vice President and Senior Vice President before becoming an Executive Vice President overseeing the Company’s Caribbean and Central American operations. Mr. Hildebrandt was a Senior Operations Manager of Price/Costco from 1994 through 1996 and served in various management roles for The Price Company beginning in 1979.

Growth Strategy

Our BoardAs we look to the future, our Company is focused on three major drivers of Directors has approvedgrowth:

Expand Real Estate Footprint with New Clubs and Distribution Facilities

Increase Membership Value

Drive Incremental Sales via PriceSmart.com and Enhanced Online, Digital and Technological Capabilities

I.Expand Real Estate Footprint with New Clubs and Distribution Facilities. We continue to seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. We plan to open a warehouse club in El Salvador located in the city of San Miguel in the spring of 2023 and another club in Medellín, Colombia in the summer of 2023. We continue to actively pursue club growth in our markets and to evaluate opportunities in new markets. Our growth strategy, thatas it pertains to real estate, includes physical distribution centers of various types to support the following elements:

Increasing Salesflow of merchandise from the supplier to the Member, be it sales generated from the clubs or through PriceSmart.com. Also, the need for supply chain optionality in Current PriceSmart Locations. Our approach for increasing sales at current PriceSmart locations focuses primarily on expanding or reconfiguring our buildingstoday’s world has proven essential. Therefore, we plan to add selling space and additional parkingmake appropriate investments in our higher volume locations; identifyingdistribution network to maximize efficiencies, minimize supply chain disruption, maximize the efficient use of limited space in our warehouse clubs, and purchasing the right products at the lowest possible prices to provide valueoptimal support for a growing e-commerce business. In addition to our members;distribution center in Miami, Florida, we also operate a regional distribution center in Costa Rica and are actively considering others. During fiscal 2022 we doubled our network of Produce Distribution Centers from two to four and are currently developing plans for two more. In some cases, these facilities also provide the opportunity to capture efficiencies by centralizing certain production activities, such as bakery, meat processing, packaging, and labeling.

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II.Increase Membership Value. We are seeking to attract more Members and retain our current Members by expanding the benefits of being a Member of PriceSmart through sales, services, and convenience. As benefits grow and the value of being a PriceSmart Member increases, adjustments to the membership fee may be warranted. A larger membership base and higher membership fee contribute to the bottom line of the business. We focus on growth of our membership base, Member renewal rates and spend per Member as part of how we determine how Members see our value. By adding more benefits that Members can only obtain with us, we expect to see growth in the number of Members, which drives Membership income and Merchandise sales. Recent examples of enhancements we have made to the value of membership include: additional services such as the ability for all of our Members to transact on PriceSmart.com; Click & Go™ curbside pickup and delivery service in all of our clubs; and the implementation and expansion of our Well-being initiative, which offers Optical services with free eye exams for the Member and additional members of their families and deeply discounted eyeglass frames; Audiology services with free hearing exams and deeply discounted hearing aids; and Pharmacy, which provides a significant convenience to our Members. Another way we enhance Membership value is through our private label products we sell under our Member’s Selection brand.

Adding New Warehouse Clubs in Existing Markets.offering, “Member’s Selection®,” a brand which is available only to PriceSmart Members. We operate in 13 countries/territories. All of our country markets are small in terms of population and gross domestic product (“GDP”) except Colombia. In our non-Colombia markets, we plan to add additional warehouse clubs where we believe the Member’s Selection® brand carries goodwill and is recognized in our markets canfor value. Private label also provides us the opportunity to source quality items locally when appropriate. Select local sourcing has multiple benefits, including support of local communities in which we operate by enhancing business activity and creating direct and indirect jobs, mitigation of foreign currency exchange risk, and reduced supply chain exposure. These initiatives offer additional clubs. We alsobenefits and services for our Members whether they choose to shop on-line, in-club, or both. In fiscal year 2022, our private label sales penetration grew by 12%, from 22.1% of the total merchandising sales in fiscal year 2021 to 24.7% in fiscal year 2022, and we plan to continue to add warehouseinvest in the development of additional private label products under the “Member’s Selection®” brand.

III.Drive Incremental Sales via PriceSmart.com and Enhanced Online, Digital and Technological Capabilities. We recognize the growing expectation of consumers in our markets for convenience. As a result, we continue to improve the functionality and content of PriceSmart.com and to expand our product offerings available online. We also build and apply technological tools to continue to learn more about and strengthen our relationships with each of our Members. Using data analytics, we believe we have been able to provide our Members with enhancements to the membership experience. PriceSmart.com and these tools provide the opportunity for us to continually strengthen and expand the scope of our relationship with each Member and offer incremental products and services in the future. Our PriceSmart.com offering provides data that informs us regarding the potential viability of new clubs in Colombia, whichnew areas and offers us options to serve and expand into new markets without the need for a traditional brick & mortar club location. We also invest in technology to capture operational efficiencies and enhance our decision-making for the increasingly dynamic environment we are in.

Distribution Efficiency

Since our inception, we have consistently believed that distribution efficiency is a large market thatfundamental for success in selling merchandise in our traditional clubs, and in today’s world, this principle holds true for purchases made online. Because PriceSmart sources merchandise from all over the world and especially in the United States, and because we believe can potentially provideare doing business in countries where infrastructure—roads and ports—is not as developed as in the United States, distribution efficiency is even more significant expansion opportunities.

Efficient Distribution Center Network.Logistics and distribution efficiencies are an important part of what allows us to deliver high quality merchandise at low prices to our members.  Our warehouse clubs acquire a significant amount of merchandise internationally, primarily processed through our Miami distribution centers. We then ship the merchandise either directly to our warehouse clubs or to regional distribution centers located in some of our larger markets.for us. Our ability to move products efficiently receive, handle and distribute merchandisein a timely manner from the suppliers to our Members is key to the point wherecost structure of our members put that merchandise into their shopping carts has a significant impact on our level of operating expensesbusiness and, ultimatelyconsequentially, to how low we can price our merchandise.  We continue to explore ways toproducts for our Members.

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improve efficiency, reduce costsHistorically, our international suppliers and ensure a good flow of merchandiseespecially our U.S. suppliers have generally shipped their products to our warehouse clubs.  WeMiami distribution facility where they are received and assigned to various containers for direct shipment to our locations. Regional and in-country suppliers have addedshipped directly to our locations. As our location sales volumes have grown, we have begun to route more of our products from international, regional and local suppliers to regional and regionallocal distribution centers in severalorder to improve in-stocks and reduce inventory weeks of supply and logistics costs and the working capital requirements of the business, all with the goal of giving better prices to our Members.

In addition to our Miami distribution facility, we have a large regional distribution center located in the metropolitan area of San Jose, Costa Rica. This 165,000 square foot building is designed to receive, store and ship dry, refrigerated, and frozen products to clubs in Central America. This regional distribution center has the capacity to ship products such as major appliances and online products directly to our Members or to convenient pick-up locations, including our clubs. We are considering other strategic locations for distribution centers to drive efficiencies and expand omni-channel offerings.

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Since the start of the COVID-19 pandemic, we have encountered numerous supply-chain challenges, including but not limited to, container shortages, port backlogs, and reduced trucking and shipping availability. Our expanded network of distribution centers has allowed for more alternative routings of shipments, increased throughput, and flexibility to be able to more effectively mitigate these challenges. Refer to Part II. “Item 7. Management’s Discussion & Analysis – Factors Affecting Our Business” for further discussion regarding these challenges and our efforts to mitigate them.

Lastly, as part of our marketsefforts to improve merchandise flowsource additional high quality and in-stock conditionshealthy fresh products, and reduce operating costs, the benefit of which can be passedexpand on our Direct Farm Program, we operate four produce distribution centers. We believe that our Direct Farm Program reduces expenses, waste and prices and allows us to our members in the form of lower merchandise prices.  These locations are generally leased,offer higher quality items, while simultaneously supporting local farmers and the addition of new locations or expansion of current capacity will not require significant investment. Additionally, in January 2017 we purchased a distribution center in Medley, Miami-Dade County, Florida, into which we transferred our Miami dry distribution center activities from a leased facility during the third quarter of fiscal year 2017.  This new distribution facility will increase our ability to efficiently receive, handle and distribute merchandise.  industry. Our produce distribution centers are currently contributingallow us to efficiencies in buyingget high-quality produce from farm-to-table quicker and product handling, and wemore efficiently. We expect our in-country distribution centers to continue to expand their rangethis program and are developing plans to build two additional produce distribution centers in more of operations to increase PriceSmart sales and to lowerour markets.

Operating Efficiency

As with distribution efficiency operating expenses.

New Markets.efficiency is a key tenet of our business model. We are focused on effortsconstantly seeking to expandimprove operating efficiencies, by investing in Colombia, a market where our membership concept has proven to be well-receivedtechnology and holds significant potential to grow our business, while we continually evaluate potential opportunitiesby centralizing back-office capabilities and facilities for future expansion into new markets in South America.processing and producing products, such as meat and bakery.

On-line Shopping and Other Services. We believe that there is significant opportunity to increase sales and profits with our current and future members through increasing online shopping opportunities; providing home and business product delivery; and offering additional products and services not currently available to our members. These capabilities are currently under development.

Our Membership Policy

We offer three types of memberships: Diamond, Business Diamond and in Costa Rica and Panama, Platinum memberships. Businesses qualify for Business membership. We promote Business membership through our marketing programs and by offering certain merchandise targeted primarily to businesses such as restaurants, hotels, convenience stores, offices and institutions. Business members pay an annual membership fee of approximately the equivalent of $30 for a primary and secondary membership card and approximately $10 for additional add-on membership cards.Platinum.

The Diamond membershipMembership is targeted at individuals and families. The annual fee for a Diamond membershipMembership (entitling Members to two cards), in most markets is approximately $35 (entitling members to two cards)(excluding sales tax). We increased the fee in June 2012 from approximately $30. In Colombia, the Diamond membership fee has been 65,000 (COP) (including VAT) since our initial entrance into the Colombian market.  The Colombian peso (COP) was trading at approximately 2,000 COP to $1.00 US dollar at that time.  More recently, the Colombian peso has been trading at approximately 3,000 COP to $1.00 US dollar, so that the converted membership price in U.S. dollars decreased from approximately U.S. $30 to approximately U.S. $20.  In February 2017, we raised the membershipDiamond Membership fee to 100,000 COP (excluding sales tax) in Colombia to 75,000 COP, moving the converted membershipJanuary 2022, yielding a current Membership price toof approximately U.S. $25. $23.

The Company began offeringcurrently offers the Platinum membershipsMembership program in Costa Rica during fiscal year 2013, whichall thirteen of its markets. The annual fee for a Platinum Membership in most markets is approximately $75 (excluding sales tax). The Platinum Membership provides membersMembers with a2%rebate on most items, up to an annual maximum of$500.00. $500. Platinum membersMembers can apply this rebate to future purchases at the warehouse club at the end of the annual membership period. The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction.  Accordingly, the Company has reduced warehouse sales and has accrued a liability within other accrued expenses.  The rebate is issued annually to Platinum membersMembers on March 1 and expires August 31. Any rebate amount not redeemed by August 31 is recognized as breakage revenue.

We promote our Business Membership by offering certain merchandise targeted primarily to businesses such as restaurants, hotels, convenience stores, offices and institutions. In Septembermost markets, our Business Members pay an annual membership fee of fiscal year 2018, we expanded thisapproximately $35 for a primary and secondary membership offering to our Panama market card and plan on adding the Platinumapproximately $10 for additional add-on membership level in the Dominican Republic over the next few months. We are considering expanding Platinum membership to other PriceSmart marketscards. Only businesses can qualify for a Business Membership.

Members can now sign-up and may do so during fiscal year 2018.renew their memberships as well as opt for auto-renewal online.

We recognize membership income over the 12-month term of the membership. Deferred membership income is presented separately on the consolidated balance sheetwas $28.0 million and totaled $22.1$26.0 million and $20.9 million as of August 31, 20172022 and August 31, 2016,2021, respectively. Our membership agreements provide that if our members mayMembers cancel their membership andin the first 60 days, they will receive a full refund. After the initial 60 day period, Members may receive a refund offor the prorated share of their remaining membership fee if they so request.

OurIntellectual Property Rights

It is our policy to obtain appropriate proprietaryintellectual property rights protection for trademarks by filing applications for registration of eligible trademarks with the U.S. Patent and Trademark Office and in certain foreign countries. We also rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with our employees, consultants and suppliers and other similar measures. There can be no assurance, however, that we will be successful in protecting our proprietary rights. While management believeswe believe that our trademarks, copyrights and other proprietary know-howknow how have significant value, changing technology and the competitive marketplace make our future success dependent principally upon our employees’ technical competence and creative skills for continuing innovation.

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Our Competition

Our international merchandising business competes with a wide range of international, regional, national and local retailers, and traditional wholesale distributors. Our industry is highly competitive, based on factors such as price,We compete in a variety of ways, including the prices at which we sell our merchandise, qualitymerchandise selection and selection, warehouseavailability, services offered to customers, location, store hours and member service.the shopping convenience and overall shopping experience we offer. We also prioritize above all the safety of our Members and our employees. Some of our competitors may have greater resources, buying power and name recognition. In the countries in which we operate, we do not currently face direct competition from U.S. membership warehouse club operators. However, we do face competition from various retail formats such as hypermarkets, supermarkets, convenience stores, cash and carry outlets, home improvement centers, electronic retailers and specialty stores, including those within Latin America that are owned and operated by large U.S. and international retailers, including Wal-Mart Stores,Walmart, Inc. in Central America and Grupo Éxito and Cencosud in Colombia. We have competed effectively in theseour markets in the past and expect to continue to do so in the future due to the unique nature of the membership warehouse club format. We have noted that certain retailers within our markets are making investments in upgrading their locations within our markets.and/or experimenting with different formats. These actions may result in increased competition within our markets. Further, it is possible that additional U.S. warehouse club operators may decide to enter our markets and compete more directly with us in a similar warehouse club format. We also face competition from online retailers, such as Amazon.com, Inc. in Colombia, and last-mile delivery services that serve our markets, and we expect that this type of competition will grow and intensify in the future.

Our EmployeesHuman Capital

As of August 31, 2017,2022, we had a total of 7,903approximately 10,600 employees. Approximately 95%96% of our employees were employed outside of the United States, and approximately 1,105about 1,800 employees arewere represented by labor unions.

Developing a Diverse Workforce Representative of Our policyMarkets

Fundamental to our mission is the ability to provide employees with good wages relative toattract, retain, and develop a diverse workforce representative of the competition in the markets in which they work and to provide good benefits which often exceed the legal requirements for countries in which we dooperate. We are proud to hire from the local communities where we operate, which then enhances our understanding of the legislation and operating environment of each country so we can better serve our Members. We provide our employees with competitive wages above minimum wage in each region, as well as comprehensive benefit programs, which generally include life and health insurance and post-employment savings plans. We also seek to identify opportunities to support local businesses and communities, with the goal of improving the quality of life in the countries where we operate.

Talent Development

We believe our investment in the education, training and development of our employees contributes to the overall success of our business. We believe that investing in our employees, treating them as partners in our business and providing opportunities for career advancement leada focus on talent development leads to long-serving, loyal employees, which in turn createsimproves efficiencies in operations, and resultsthus resulting in betterhigher quality service to our members.  Members. We considerprovide learning opportunities for our employees through various training courses including instructor-led internal and external programs. We also seek to promote from within, allowing us to develop the leadership strengths of our employees to provide a better overall customer experience for our Members.

Health and Safety

The COVID-19 pandemic brought unprecedented challenges to our business, communities, Members and employees. During the initial period of the pandemic, we prioritized the safety and well-being of our employees and Members by following applicable local and national government regulations at each of our warehouse clubs, offices, and distribution center locations. We implemented enhanced cleaning and sanitizing protocols and provided personal protective equipment to our employees, conducted contact tracing, preventative quarantining and implemented paid leave. We reinforced the education of our employees on safety, best practices of good hygiene, as well the encouraging to our employees to receive vaccinations as they became available. We had reserve teams of employees who did not overlap with each other so that they might step in as needed allowing those who were sick to take time off. We also had provided employee relationstransportation and meals to be very good.offer them a safe and reliable means to work. As the pandemic has evolved, we began pulling back on many of these activities. However, we will continue to monitor the evolution of the pandemic and related workforce trends, best practices and government regulations.

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Seasonality and Quarterly Fluctuations

Historically, our merchandising businesses have experienced holiday retail seasonality in ourtheir markets. In addition to seasonal fluctuations, in our comparable store net sales, operating income and net income occurresults fluctuate quarter-to-quarter as a result of a varietyeconomic and political events in markets that we serve, the timing of factorsholidays, weather, the timing of shipments, product mix and currency effects on the cost of U.S.-sourced products which may make these products more or less expensive in our markets.  These factors, include but are not limited to:

·

shifts in the timing of certain holidays, especially Easter;

·

the timing of new store openings;

·

the net sales contributed by new stores;

·

changes in our merchandise mix;

·

changes in the currency exchange rates that affect the cost of U.S.-sourced products, which may make these products more or less expensive in local currencies and therefore more or less affordable;

·

weather; and

·

competition.

local currencies and therefore more or less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts.

Working Capital Practices

Information about our working capital practices is disclosed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources.”

Financial Information about Segments and Geographic Areas

Financial information about segments and geographic areas is incorporated herein within Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations--Net Warehouse Club Sales by Segments” and Part II, Item 8 “Financial Statements and Supplementary Data Segment: Notes to Financial Statements, Note 15-Segments.”

Other Information

PriceSmart, Inc. was incorporated in the State of Delaware in 1994. Our principal executive offices are located at 9740 Scranton Road, San Diego, California 92121. Our telephone number is (858) 404-8800. Our website home page on the Internet is www.pricesmart.com. We make our website content available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Form 10-K.

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Available Information

The PriceSmart, Inc. investor relations website or internet address is www.pricesmart.com.https://investors.pricesmart.com. On this website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, and the annual report to the stockholders as soon as reasonably practicable after electronically filing such material with or furnishing it to the U.S. Securities and Exchange Commission (SEC). Our SEC reports can be accessed through the investor relations section of our website under “SEC Filings.” All of our filings with the SEC may also be obtained at the SEC’s Public Reference Room at Room 1580, 100 F Street NE, Washington, DC 20549. For information regarding the operation of the SEC’s Public Reference Room, please contact the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. We will make available our annual report on Form 10-K and our annual Proxy Statement for the fiscal year 20172022 at the internet address http://materials.proxyvote.com/741511 as soon as reasonably practicable after electronically filing such material with or furnishing it to the SEC.

Item 1A. Risk Factors

In evaluating the Company’s business, you should consider the following discussion of risk factors, in addition to other information contained in this report and in the Company’s other public filings with the U.S. Securities and Exchange Commission. Any such risks could materially and adversely affect our business, financial condition, results of operations, cash flow, financial condition, liquidity and prospects. However, the risks described below or incorporated by reference herein are not the only risks facing us. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations, cash flow and prospects.

External Factors that Could Adversely Affect Us

The global novel coronavirus COVID-19 pandemic had and may continue to have an adverse effect our business, results of operations, financial condition, and liquidity.

In addition to measures, we took voluntarily, the government authorities in our markets have taken actions to mitigate the spread of COVID-19, including travel restrictions, border closings, restrictions on public gatherings, stay-at-home orders and other quarantine and isolation measures. They also imposed business limitations such as mandatory temporary closures, required reduced operating hours, restrictions on segments of the population permitted to shop on particular days, customer occupancy limits and restrictions on sales of “non-essential” merchandise. Many of these policies and restrictions resulted in limiting access for our Members and adversely impacted our club operations. While all the limitations have been lifted in our markets, they could be re-imposed in the event of a resurgence of infections or if future mutations, variants or related strains of the virus become prevalent.

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Our business depends heavily on the uninterrupted operation of our distribution facilities located in Miami, Florida and San Jose, Costa Rica, our warehouse clubs located in Colombia, Central America and the Caribbean, and our headquarters and buying operations in San Diego, California. The operation of all of our facilities is highly dependent on our employees who staff these locations, and the coronavirus could directly threaten the health of our employees. Additionally, to protect our employees, we have trained our in-club and distribution center employees about and enforced social distancing. During much of the pandemic, most of our employees who could do so worked remotely. However, we are currently in the process of implementing a return to office plan, whereby employees work part of the week from home and the other part from a Company office. Management believes this hybrid approach allows for the continued safety of our workforce while also having the benefit of maintaining an engaging work environment and work life balance. Managing through this transition back to the office will be important to the continued success of our Company. Finally, we continue to identify alternative distribution channels in the case of closure of one or more of our distribution facilities or upstream and downstream disruption to our supply chain. Events such as these complicate and/or threaten the way we execute and the performance of our business and could have a material adverse effect or our business and operating results.

Operating during the COVID-19 pandemic increased our costs of operations. Among other things, we provided personal protective equipment to our employees, employed additional cleaning and sanitizing procedures at our warehouse clubs and distribution facilities. As the pandemic has evolved and COVID-19 restrictions have decreased, we believe we will still incur some costs depending on future outbreaks or resurgences.

In addition, as a result of COVID-19 and the measures designed to contain the spread of the virus, we faced and may again face delays or difficulty sourcing products, which could negatively affect our business and financial results. Certain of our suppliers had their manufacturing operations disrupted by the coronavirus outbreak, and even where goods have been completed, they had been subject to weeks-long shipping delays. If our third-party suppliers’ operations are curtailed, again, or transportation systems are disrupted, we may need to seek alternate sources of supply, which may be more expensive. If the production and distribution closures were to resume for an extended period of time, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows.

Negative economic conditions created or exacerbated by COVID-19, higher interest rates and inflation could adversely impact our business in various respects.

A slowdown in the economies of one or more of the countries in which we operate or adverse changes in economic conditions affecting discretionary consumer spending could adversely affect consumer demand for the products we sell, change the mix of products we sell to a mix with a lower average gross margin, cause a slowdown in discretionary purchases of goods, adversely affect our net sales and result in slower inventory turnover and greater markdowns of inventory, or otherwise materially adversely affect our operating results. Any prolonged outbreak of the coronavirus could result in the imposition of quarantines or closures of retailer locations, office spaces, manufacturing facilities, travel and transportation restrictions and/or import and export restrictions, any of which could contribute to a general slowdown in the global economy and the economies of the markets in which we operate. Increasing interest rates, inflation, higher fuel prices and other factors also could adversely affect the economies of the countries where we operate. A significant decline in the economies of the countries in which our warehouse clubs are located may lead to decreased sales and profitability, increased governmental ownership or regulation of the economy, higher interest rates and increased barriers to entry such as higher tariffs and taxes. The economic factors that affect our operations also may adversely affect the operations of our suppliers, which can result in an increase in the cost to us of the goods we sell to our Members or, in more extreme cases, in certain suppliers not producing goods in the volume typically available for sale to us.

The economic factors that affect our operations may also adversely affect the operations of our suppliers, which can result in an increase in the cost to us of the goods we sell to our customers or, in more extreme cases, in certain suppliers not producing goods in the volume typically available to us for sale.

Employment laws and regulations in the countries in which we operate may limit our ability to effect a reduction in force to reduce our labor expenses in line with declining revenues. In some of the countries in which we operate, before we could effect a reduction in force, we would need to negotiate with labor unions, demonstrate evidence of hardship or force majeure or obtain prior government approval, which may not be given in a timely manner or at all.

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Our financial performance is dependent on international operations, which exposes us to various risks.

Our international operations account for nearly all of our total revenues. Our financial performance is subject to risks inherent in operating and expanding our international membership warehouse club business, which include:

·

changes in, and inconsistent enforcement of laws and regulations, including those related to tariffs and taxes;

·

the imposition of foreign and domestic governmental controls, including expropriation risks;

·

natural disasters; 

·

trade restrictions, including import-export quotas and general restrictions on importation;

·

limitations on foreign investment;

·

difficulty and costs associated with international sales and the administration of an international merchandising business;

·

crime and security concerns, which can adversely affect the economies of the countries in which we operate and which require us to incur additional costs to provide additional security at our warehouse clubs;

·

product registration, permitting and regulatory compliance;

·

volatility in foreign currency exchange rates;

·

general political as well as economic and business conditions; and

·

interruption of our supply chain.

Circumstances relatingchanges in, and inconsistent enforcement of, laws and regulations, including those related to thesetariffs and taxes;

the imposition of foreign and domestic governmental controls, including expropriation risks;

natural disasters;

trade restrictions, including import-export quotas and general restrictions on importation;

difficulty and costs associated with international sales and the administration of an international merchandising business;

crime and security concerns, which can adversely affect the economies of the countries in which we operate and which require us to incur additional costs to provide additional security at our warehouse clubs;

political instability, such as the protests and civil unrest in Colombia in 2022 and 2021, in Honduras and Nicaragua in 2019, and a general strike in Costa Rica in 2018;

product registration, permitting and regulatory compliance;

volatility in foreign currency exchange rates;

general economic and business conditions; and

interruption of our supply chain.

These risks may arise, which may then result in disruption to our sales, banking transactions, operations and merchandise shipments, and currency exchange rates, any of which could have a material adverse effect on our business and results of operations.

Any failure by us to manage our widely dispersed operations could adversely affect our business.

As of August 31, 2017, the Company had 39 warehouse clubs Political and other factors in operation, located in 12 countries and one U.S. territory (seven in Colombia; six in Costa Rica; five in Panama; four in Trinidad; three each in Guatemala, Honduras, and in the Dominican Republic; two in El Salvador and Nicaragua; and one each in Aruba, Barbados, Jamaica, and the United States Virgin Islands).  We will need to continually evaluate the adequacy of our existingmarkets may have significant effects on our business. For example, the civil unrest in Colombia paralyzed significant portions of the country’s infrastructure systemsas roadblocks and procedures, financial controls, inventory controlsriots disrupted normal economic activity during the third quarter of fiscal 2021. Austerity and safety controlstax reform measures for Colombia and make upgrades from time to time. Moreover, we will be required to continually analyze the sufficiencyother Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened in Nicaragua and Honduras in 2019, respectively; Costa Rica also had a general strike against tax reform measures that significantly impeded regular economic activity in 2018. Events of our inventory distribution channels and systemsthis sort have, and may require additional or expanded facilities in ordercontinue to support our operations. We may not adequately anticipate all the changing demands that will be imposed on these systems. Any inability to effectively update our internal systems or procedures as required could have, a materialan adverse effect on our business, financial condition and results of operations.business.

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We face significant competition.

Our international warehouse club business competes with exporters, importers, wholesalers, local retailers and trading companies in various international markets. Some of our competitors have greater resources, buying power and name recognition than we have. We also face competition from online retailers who serve our markets, and we expect that this type of competition will grow and intensify in the future.

In the countries in which we operate, we do not currently face direct competition from U.S. membership warehouse club operators. However, we do face competition from various retail formats such as hypermarkets, supermarkets, cash and carry outlets, home improvement centers, electronic retailers and specialty stores, including those within Latin America that are owned and operated by large U.S. and international retailers, including Wal-Mart Stores,Walmart Inc. in Central America and Grupo Éxito and Cencosud in Colombia. We have noted that certain retailers are making investments in upgrading their locations which may result in increased competition. Further, it is possible that current U.S. warehouse club operators may decide to enter our markets and compete more directly with us in a similar warehouse club format. Our ability to operate profitably in our markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers.

We also face competition from on-line retailers who serve our markets, and we expect that this type of competition will grow and intensify in the future.

We compete in a variety of ways, including the value and prices at which we sell our merchandise, merchandise selection and availability, services offered to customers,Members, location, store hours, safety protocols and the shopping convenience and overall shopping experience we offer. We may be required to implement price reductions to remain competitive if any of our competitors reduce prices in any of our markets. In response to the increasing threat associated with on-lineonline retailers, we are making technology investments, which may result in increases in the use of cash and reduced profitability in the near term.


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Our sales could be adversely affected if one or more major international online retailers were to enter our markets or if other competitors were to offer a superior online experience.

Although online sales are currently a smaller proportion of total sales in our markets for the types of merchandise we offer than in the U.S., online shopping is becoming more prevalent in our markets as we and our competitors begin to offer more opportunities for online shopping and as delivery systems in our markets improve. COVID-19 has accelerated the growth of online sales in our markets due to government-imposed restrictions on shopping and changes in consumer preferences. While major international online retailers have not established a significant penetration in any of our markets yet, Amazon.com, Inc. continues to expand its online marketplace and make additional investments to bolster its presence in the countries where we operate. Also, it is possible that Amazon.com, Inc. or smaller regional companies will increase the penetration of online shopping in our markets, especially given the importance of e-commerce during the COVID-19 pandemic.

We continue to invest in our websites and systems with the long-term objective of offering our Members a seamless omnichannel experience. We currently offer our Click & Go™ online shopping, which includes both curbside pickup and delivery are available in all markets. Operating an e-commerce platform and fulfilment of online orders is a complex undertaking, and there is no guarantee that the resources we have applied to this effort will result in increased revenues or improved operating performance. If we do not maintain a successful and relevant omni-channel experience for our Members, our ability to compete and our results of operations could be adversely affected.

We are exposed to significant weather events and other natural disaster risks that might not be adequately compensated by insurance, and we are susceptible to the long-term impacts of climate change.

Our operations are subject to volatile weather conditions and natural disasters, such as earthquakes, hurricanes and volcanic activity, which are encountered periodically in the regions in which our warehouse clubs and other facilities are located. Natural disasters could result in physical damage to, or the complete loss of, one or more of our properties, the closure of one or more clubs or distribution centers, limitations on store or club operating hours, the lack of an adequate work force in a market, the inability of customers and employees to reach our clubs, the unavailability of our digital platforms to our customers, disruption in the supply of products or increases in the costs of procuring products. For example, in early fiscal year 2018, operations at our USVI warehouse club were adversely affected by Hurricanes Irma and Maria. The warehouse club was closed for nine days, and after re-opening, the warehouse club operated with limited hours for 16 days due to a government-imposed curfew. Damaged and destroyed roads restricted traffic flow, adversely affecting customer access for some time after the hurricane. Future losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on our business, financial condition, and results of operations.

Furthermore, the long-term impacts of climate change, whether involving physical risks (such as extreme weather conditions, drought, or rising sea levels) or transition risks (such as regulatory or technology changes) are expected to be widespread and unpredictable. Physical risks include extreme storms that damage or destroy our buildings and inventory or interrupt our business operations and supply chain and temperature changes that increase the heating and cooling costs at clubs and distribution and fulfillment centers. We also may experience changes in energy and commodity prices driven by climate change as well as new regulatory requirements resulting in higher compliance risk and operational costs.

We face difficulties in the shipment of, and risks inherent in the importation of, merchandise to our warehouse clubs.

Our warehouse clubs typically import nearly half or more of the merchandise that they sell. This merchandise originates from various countries and is transported over long distances, over water and over land, which results in:

substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory controls;

the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods;

product markdowns due to the prohibitive cost of returning merchandise upon importation;

product registration, tariffs, customs and shipping regulation issues in the locations we ship to and from;

ocean freight and duty costs; and

possible governmental restrictions on the importation of merchandise.

Civil unrest in certain countries in which we operate may adversely affect the flow of goods through those countries. For example, in April 2021, protestors in Colombia erected roadblocks inside and between major cities and damaged public transport, businesses and state buildings, which disrupted the normal flow of goods and economic activity. In 2019, political and civil unrest in Honduras and Nicaragua resulted in roadblocks in many portions of these countries. Any restriction in the movement of goods through Costa Rica’s ports or over Honduras and Nicaragua’s highways could impair our ability to supply warehouse clubs not just in those countries, but in countries throughout the region as well.

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Moreover, each country in which we operate has different governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation of merchandise may result in additional delays, costs or barriers in our deliveries of products to our warehouse clubs or may affect the type of products we select to import. In addition, only a limited number of transportation companies service our regions. The inability or failure of one or more key transportation companies to provide transportation services to us, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption to our ability to import our merchandise could have a material adverse effect on our business and results of operations.

We are subject to payment related risks, including risks to the security of payment card information.

We accept payments using an increasing variety of methods, including cash, checks, wire transfers, our co-branded credit cards and a variety of other credit and debit cards. Our operations, like those of most retailers, requires the transmission of information associated with cashless payments. As we offer new payment options to our Members, we may be subject to additional rules, regulations and compliance requirements, along with the risk of higher fraud losses. For certain payment methods, we pay interchange and other related card acceptance fees, along with additional transaction processing fees. We rely on third parties to provide secure and reliable payment transaction processing services, including the processing of credit and debit cards, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association and network operating rules, including data security rules, certification requirements and rules governing electronic funds transfers, which could change over time. If we fail to comply with these rules or transaction processing requirements, we may not be able to accept certain payment methods. In addition, if our internal systems are breached or compromised, we may be liable for banks’ compromised card re-issuance costs, we may be subject to fines and higher transaction fees and lose our ability to accept credit and/or debit card payments from our Members, and our business and operating results could be adversely affected. Failures or disruptions in data communication and transfer services also could significantly impact our ability to transact payments to vendors and process credit and debit card transactions. Lastly, we or our customers may experience “spoofing” transactions, particularly with respect to wire transfers, which could cause us to make payments to impostor vendors or result in our not receiving timely payment from customers for merchandise we have sold.

We face the possibility of operational interruptions related to union work stoppages.

We currently have labor unions in three of our subsidiaries (Trinidad, Barbados and Panama). A work stoppage or other limitation on operations from union or other labor-related matters could occur for any number of reasons, including as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements. A lengthy work stoppage or significant limitation on operations could have a substantial adverse effect on our financial condition and results of operation.

Risks Associated with Our Business Strategy and Operations

Any failure by us to manage our widely dispersed operations could adversely affect our business.

As of August 31, 2022, we had 50 warehouse clubs in operation, located in 12 countries and one U.S. territory (nine in Colombia, eight in Costa Rica and seven in Panama; five in the Dominican Republic and Guatemala, four in Trinidad; three in Honduras; two each in El Salvador, Jamaica and Nicaragua; and one each in Aruba, Barbados, and the United States Virgin Islands). We will need to continually evaluate the adequacy of our existing infrastructure, systems and procedures, financial controls, operating controls, inventory, and safety controls and make upgrades from time to time. Moreover, we will be required to continually analyze the sufficiency of our inventory distribution channels and systems and may require additional or expanded facilities in order to support our operations. We may not adequately anticipate all the changing demands that will be imposed on these systems. Any failure of our systems or our inability to effectively update our internal systems or procedures as required could have a material adverse effect on our business, financial condition and results of operations.

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We might not identify in a timely manner or effectively respond to changes in consumer preferences for merchandise, which could adversely affect our relationship with Members, demand for our products and market share.

Our success depends, in part, on our ability to identify and respond to trends in demographics and changes in consumer preferences for merchandise. It is difficult to consistently and successfully predict the products and services our Members will demand. Failure to timely identify or respond effectively to changing consumer tastes, preferences or spending patterns could adversely affect our relationship with our Members, the demand for our products and our market share. If we are not successful at predicting sales trends and adjusting purchases accordingly, we might have too much or too little inventory of certain products. If we buy too much of a product, we might be required to reduce prices or otherwise liquidate the excess inventory, which could have an adverse effect on margins (net sales less merchandise costs) and operating income. If we do not have sufficient quantities of a popular product, we might lose sales and profits we otherwise could have made.

Future sales growth depends, in part, on our ability to successfully open new warehouse clubs and grow sales in our existing locations.and new markets.

Sales growth at the existing warehouse clubs can be impacted by, among other things, the physical limitations of the warehouse clubs, which restrict the amount of merchandise that can be safely stored and displayed in the warehouse clubs and the number of membersMembers that can be accommodated during business hours. As a result, sales growth will depend, in part, upon our acquiring suitable sites for additional warehouse clubs. Land for purchase or lease, or buildings to be leased, in the size and locations in those markets that would be suitable for new PriceSmart warehouse clubs may be limited in number or not be available or financially feasible. In this regard, we compete with other retailers and businesses for suitable locations. Additionally, local land use, environmental and other regulations restricting the construction and operation of our warehouse clubs may impact our ability to find suitable locations, and increase the cost of constructing, leasing and operating our warehouse clubs. We have experienced these limitations in Colombia and in some of our other existing markets, which has negatively affected our growth rates in those markets. Limitations on the availability of appropriate sites for new warehouse clubs in the areas targeted by us could have a material adverse effect on the future growth of PriceSmart.

In some cases, we have more than one warehouse club in a single metropolitan area, and we may open new warehouse clubs in certain areas where we already have warehouse clubs. A new warehouse club in an area already served by existing warehouse clubs may draw membersMembers away from existing warehouse clubs and adversely affect comparable warehouse clubstore sales performance. We experienced this adverse effect on comparable sales for existing warehouse clubs recently within our Costa Rica and Honduras markets when we opened one new warehouse club in each of these markets in areas that already had an existing warehouse club.

We operate in comparativelyrelatively small markets. Given the growth of our sales over the past few years, market saturation could impact the rate of future sales growth.

We might open warehouse clubs in new markets in the future. The risks associated with entering a new market include potential difficulties in attracting membersMembers due to a lack of familiarity with us and our lack of familiarity with local memberMember preferences. In addition, entry into new markets may bring us into competition with new competitors or with existing competitors with a large, established market presence. As a result, our new warehouse clubs might not be successful in new markets.

We might not identify in a timely manner or effectively respond to changes in consumer preferences for merchandise, which could adversely affect our relationship with members, demand for our products and market share.  

Our success depends, in part, on our ability to identify and respond to trends in demographics and changes in consumer preferences for merchandise. It is difficult to consistently and successfully predict the products and services our members will demand. Failure to timely identify or respond effectively to changing consumer tastes, preferences or spending patterns could adversely affect our relationship with our members, the demand for our products and our market share. If we are not successful at predicting sales trends and adjusting purchases accordingly, we might have too much or too little inventory of certain products.

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If we buy too much of a product, we might be required to reduce prices or otherwise liquidate the excess inventory, which could have an adverse effect on margins (net sales less merchandise costs) and operating income. If we do not have sufficient quantities of a popular product, we might lose sales and profits we otherwise could have made.

Although we offer limited online shopping to our members in certain markets, our sales could be adversely affected if one or more major international online retailers were to enter our markets or if other competitors were to offer a superior online experience. 

Online sales currently represent a small fraction of the total sales in our markets of the types of merchandise we offer, but online shopping may become more prevalent in our markets as we and our competitors begin to offer more opportunities for online shopping and as delivery systems in our markets improve.  While major international online retailers have not established a significant penetration in any of our markets, it is possible that they or smaller regional companies will increase the penetration of online shopping in our markets. We continue to invest in our websites and systems with the long-term objective of offering our members a seamless multichannel experience.  If we do not successfully develop and maintain a relevant multichannel experience for our members, our ability to compete and our results of operations could be adversely affected.

Failure to grow our e-commerce business through the integration of physical and digital retail or otherwise,channels and the cost of our increasinginvestments we are making to develop a robust e-commerce investments, mayplatform could materially adversely affect our market position, net sales andand/or financial performance.

The retail business is quickly evolving, and consumers are increasingly embracing shopping online and through mobile commerce applications. As a result, the portion of total consumer expenditures with all retailers and wholesale clubs occurring online and through mobile commerce applications is increasing and the pace of this increase could accelerate. WeAs demonstrated by our launch of our Click & Go™ curbside pickup and delivery service, and other ongoing investments, we are increasing our investments in e-commerce, technology and other customer initiatives. The success of our ecommercee-commerce initiative willcontinues to depend in large measure on our ability to build and deliver a seamless shopping experience across the physical and digital retail channels. If we fail to successfully implement our ecommercee-commerce initiative, our market position, net sales and financial performance could be adversely affected. In addition, a greater concentration of e-commerce sales could result in a reduction in the amount of traffic in our warehouse clubs, which would, in turn, reduce the opportunities for cross-store or cross-club sales of merchandise that such traffic creates and could reduce our sales within our clubs, and materially adversely affectaffecting the financial performance of the physical retail side of our operations. In addition, the cost of certainour investments in e-commerce and technology investmentsinitiatives will adversely impact our short-term financial performance, inand our failure to realize the short-term andbenefits of these investments may adversely impact our financial performance over the longer term.

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Our profitability is vulnerable to cost increases.

Future increases in costs, such as the cost of merchandise, wage and benefits costs, shipping rates, freight costs, fuel costs, utilities and other store occupancy costs, may reduce our profitability. We seek to adjust our product sales pricing, operate more efficiently, and increase our comparable store net sales to offset inflation, currency rate changes, changes in tax rates or in the methods used to calculate or collect taxes on our sales or income inflation and other factors that can increase costs. We might not be able to adjust prices, operate more efficiently or increase our comparable store net sales in the future to a great enough extent to offset increased costs. In the first half of fiscal year 2022, we experienced significant increases in freight costs for our merchandise sourced overseas due to the global shortage of shipping containers and supply chain disruptions. Please see Item 7, “Management’sPart II. “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K for further discussion of the effect of currency rate changes, inflation and other economic factors on our operations.

We face difficulties in the shipment of, and risks inherent in the importation of, merchandise to our warehouse clubs.

Our warehouse clubs typically import nearly half or more of the merchandise that they sell. This merchandise originates from various countries and is transported over long distances, typically over water, which results in:

·

substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory control methods;

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the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods;

·

product markdowns due to the prohibitive cost of returning merchandise upon importation;

·

product registration, tariffs, customs and shipping regulation issues in the locations we ship to and from;

·

ocean freight and duty costs; and

·

possible governmental restrictions on the importation of merchandise.

Moreover, each country in which we operate has different governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation ofmerchandise may result in additional delays, costs or barriers in our deliveries of products to our warehouse clubs or may affect the type of products we select to

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import. In addition, only a limited number of transportation companies service our regions. The inability or failure of one or more key transportation companies to provide transportation services to us, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption to our ability to import our merchandise could have a material adverse effect on our business and results of operations.

We are exposed to weather and other natural disaster risks that might not be adequately compensated by insurance.

Our operations are subject to volatile weather conditions and natural disasters, such as earthquakes and hurricanes, which are encountered periodically in the regions in which our warehouse clubs are located. Natural disasters could result in many days of lost sales at our warehouse clubs or adversely affect our distribution chain. For example, operations at our USVI warehouse club have been adversely affected by Hurricanes Irma and Maria.  The warehouse club was closed for nine days, and after re-opening, the warehouse club operated with limited hours for 16 days due to a government-imposed curfew. Damaged and destroyed roads continue to restrict traffic flow, adversely affecting customer access.  Losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on our business, financial condition and results of operations.

Negative economic conditions could adversely impact our business in various respects.

A slowdown in the economies of one or more of the countries in which we operate or adverse changes in economic conditions affecting discretionary consumer spending, such as employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, availability of credit, interest rates, tax rates and consumer spending patterns in each of our foreign markets, could adversely affect consumer demand for the products we sell, change the mix of products we sell to one with a lower average gross margin, cause a slowdown in discretionary purchases of goods, adversely affect our net sales and result in slower inventory turnover and greater markdowns of inventory, or otherwise materially adversely affect our operating results.  Factors such as declining expatriate remittances, reduced tourism and less foreign investment also could negatively impact the economies of Latin America and the Caribbean. A significant decline in the economies of the countries in which our warehouse clubs are located may lead to increased governmental ownership or regulation of the economy, higher interest rates and increased barriers to entry such as higher tariffs and taxes. The economic factors that affect our operations also may adversely affect the operations of our suppliers, which can result in an increase in the cost to us of the goods we sell to our customers or, in more extreme cases, in certain suppliers not producing goods in the volume typically available to us for sale.

Our failure to maintain our brand and reputation could adversely affect our results of operations.

Our success depends on our ability to continue to preserve and enhance our brand and reputation.  Damage to the PriceSmart brand could adversely impact warehouse club sales, diminish member trust, reduce member renewal rates and impair our ability to add new members.  A failure to maintain and enhance our reputation also could lead to loss of new opportunities or employee retention and recruiting difficulties.  Negative incidents, such as a data breach or product recall, can quickly erode trust and confidence, particularly if they result in adverse mainstream publicity, governmental investigations or litigation. In particular, the propagation of negative publicity on social media, whether merited or not, can have a damaging effect on our business in one or more markets. In addition, we sell many products under our private label Member’s Selection brand. If we do not maintain consistent product quality of our Member’s Selection products, which generally carry higher margins than national brand products carried in our warehouse clubs, our net warehouse sales and gross margin results could be adversely affected and member loyalty could be harmed.

We face the risk of exposure to product liability claims, a product recall and adverse publicity.

We market and distribute products purchased from third-party suppliers and products prepared by us for resale, including meat, dairy and other food products, which exposes us to the risk of product liability claims, a product recall and adverse publicity. We may inadvertently redistribute food products or prepare food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the food service or consumer level. We generally seek contractual indemnification and proof of insurance from our major suppliers and carry product liability insurance for all products sold to our members by us. However, if we do not have adequate insurance or contractual indemnification available, product liability claims relating to products that are contaminated or otherwise harmful could have a material adverse effect on our ability to successfully market our products and on our financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that our products caused illness or injury could have a material adverse effect on our reputation with existing and potential members and on our business, financial condition and results of operations.

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We are subject to risks associated with possible changes in our relationships with third parties with whichdependence on third-party suppliers and service providers, and we do business, as well as the performancehave no assurances of such third parties.continued supply, pricing or access to new merchandise.

We have important ongoing relationships with various third-party suppliers of services and merchandise. These include, but are not limited to, local, regional, and regionalinternational merchandise suppliers, information technology suppliers, warehouse facilities and equipment suppliers, financial institutions, credit card issuers and processors, and lessors. Significant changes in the relationships or the agreements that govern the terms through which business is conducted could adversely affect our ability to purchase merchandise in sufficient quantities and at competitive prices, which could have a material adverse effect on our business, financial condition and results of operation.operations. We have no assurances of continued supply, pricing or access to new merchandise, and any supplier could at any time change the terms upon which it sells to us or discontinue selling to us. One of our significant suppliers operates a warehouse club business and may in the future seek to compete with us in some of our markets. In addition, the manner in which we acquire merchandise, either directly from the supplier’s parent company or through a local subsidiary or distributor, is subject to change from time to time based on changes initiated by the supplier and for reasons beyond our control. Significant changes or disruptions in how we acquire merchandise from these suppliers could negatively affect our access to such merchandise, as well as the cost of merchandise to us and hence our members,Members, which could have a material adverse effect on our business and results of operations.

Additionally,Our failure to maintain our suppliers are subject to risks, including labor disputes, union organizing activities, financial liquidity, inclement weather, natural disasters, supply constraints, regulatory compliance with localbrand and international agencies and general economic and political conditions that could limit their ability to timely provide us with acceptable merchandise, whichreputation could adversely affect our business. Furthermore,results of operations.

Our success depends on our ability to continue to preserve and enhance our brand and reputation. Damage to the PriceSmart brand could adversely impact merchandise club sales, diminish Member trust, reduce Member renewal rates and impair our ability to add new Members. A failure to maintain and enhance our reputation also could lead to loss of new opportunities or employee retention and recruiting difficulties. Negative incidents, such as a data breach or product recall, can quickly erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation. In particular, the propagation of negative publicity on social media, whether merited or not, can have a damaging effect on our business in one or more markets. In addition, we sell many products under our private label Member’s Selection brand. If we do not maintain consistent product quality of our suppliers might fail to comply with appropriate production, labor, environmentalMember’s Selection products, which generally carry higher margins than national brand products carried in our warehouse clubs, our net warehouse sales and other practices, as well as quality control, legal or regulatory standards. We might not identify any such deficiencies, which could lead to litigation and recalls, damage our reputation and our brands, increase our costs, and otherwise adversely impact our business.

Wegross margin results could be subjectadversely affected and Member loyalty could be harmed.

We face the risk of exposure to product liability claims, a product recall and adverse publicity.

If our merchandise, such as food and prepared food products for human consumption, medication, children's products, pet products and durable goods, do not meet or are perceived not to meet applicable safety standards or our Members’ expectations regarding safety, we could experience lost sales, increased costs, litigation or reputational harm. The sale of these items exposes us to the risk of product liability claims, a product recall and adverse publicity. We may inadvertently redistribute food products or prepare food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the food service or consumer level. We package and market fresh produce products within our markets, so we may be exposed to additional tax liabilities or subject to reserves on the recoverabilityrisk of tax receivables.

We compute our income tax based on enacted tax rates in the countries inproduct liability and adverse publicity if those fresh food products are contaminated, which we operate. As the tax rates vary among countries, a change in earnings attributable to the various jurisdictions in which we operate couldmay result in an unfavorable change inillness, injury or death if the contaminants are not eliminated by processing at our overall taxes.  Changes in tax laws, increases in the enacted tax rates, adverse outcomes in connection with tax audits in any jurisdiction, including transfer pricing disputes,packaging service centers.

We generally seek contractual indemnification and proof of insurance from our major suppliers and carry product liability insurance for all products we sell to or any change in the pronouncementspackage for our Members. However, if we do not have adequate insurance or contractual indemnification available, product liability claims relating to accounting for income taxesproducts that are contaminated or otherwise harmful could have a material adverse effect on our ability to successfully market our products and on our financial condition and results of operations. In some countries, there have been changes in the method of computing minimum tax prepayments and there are no clear rules that allow the Company to obtain refunds or to offset prepayments that are substantially in excess of the actual computed tax liability.  Additionally, in one country the government alleges that thereaddition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a clearly defined process in the laws and regulations to allow the tax authorities to refund Value Added Tax (“VAT”) receivables.  We, together withproduct recall or any assertion that our tax and legal advisers, are currently appealing these interpretations in court.  If we do not prevailproducts caused illness or injury could have a material adverse effect on our appeal, we may be required to establish a valuation reserve against these VAT receivablesreputation with existing and take an accompanying charge, which would adversely affectpotential Members and on our business, financial condition and results of operation. operations.

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We file federalrely extensively on computer systems to process transactions, summarize results and state tax returnsmanage our business. Failure to adequately maintain our systems and disruptions in our systems could harm our business and adversely affect our results of operations.

Given the United States and various other tax returns in foreign jurisdictions. The preparationhigh number of these tax returns requires usindividual transactions we have each year, we seek to interpret the applicable tax laws and regulations in effect in such jurisdictions, which affects the amountmaintain uninterrupted operation of tax paid by us. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe to be reasonable under the prevailing circumstances. The tax returns, however,business-critical computer systems. Our computer systems, including back-up systems, are subject to routine reviewsdamage or interruption from power outages, computer and telecommunications failures, computer viruses, internal or external security breaches, catastrophic events such as fires, earthquakes, tornadoes and hurricanes, and errors by the various taxing authoritiesour employees. Our information systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. If our computer systems and back-up systems are damaged or cease to function properly, we may have to make significant investments to fix or replace them, and we may suffer interruptions in our operations in the jurisdictionsinterim. Any material interruption in which we file our returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and therefore require us to pay additional taxes.

We face the possibility of operational interruptions related to union work stoppages.

We currently have labor unions at our distribution center in Miami, FL and in three of our subsidiaries (Trinidad, Barbados, and Panama). A work stoppage or other limitation on operations from union or other labor-related matters could occur for any number of reasons, including as a result of disputes under existing collective bargaining agreements with labor unions or in connection with negotiation of new collective bargaining agreements. A lengthy work stoppage or significant limitation on operationscomputer systems could have a substantialmaterial adverse effect on our business or results of operations.

We depend on third-party service providers to support transaction and payment processing, data security and other technology services. Any interruption in the operations of these service providers could, in turn, have a material adverse effect on us. For example, in 2022, a third party that supported our point-of-sale system became insolvent, which required us to quickly develop and implement short-term workarounds and delayed our migration to a cloud-based system integrating in-store and online functionality.

From time to time, we make technology investments to improve or replace our information processes and systems that are key to managing our business. The risk of system disruption is increased when system changes are undertaken. Targeting the wrong opportunities, failing to make the right investments, or making an investment commitment significantly above or below our needs could result in the loss of our competitive position and adversely impact our financial condition and results of operations. For example,Additionally, the potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce the efficiency of our operations in the short term. These initiatives might not provide the anticipated benefits or may provide them on a work stoppagedelayed schedule or at a higher cost.

Several years ago, we began evaluating options to replace our Miami distribution facilityexisting Enterprise Resource Planning (ERP) system. However, we have intentionally deferred this project as originally contemplated in order to more holistically assess our overall IT landscape and strategy. Not updating our systems on a timely basis could leave us at a disadvantage relative to our competitors. Our current ERP system is not supported by the developer of the software, which could increase the risk of a system disruption. In addition, there are newer versions available from the vendors of some of our other internal systems offering greater functionality and reliability which we have not yet implemented. We also continue to rely on other systems we developed internally a number of years ago, which will require us to migrate to more industry-standard technologies. During the last three years, we have been updating critical enterprise systems in a way that separates our e-commerce, logistics, reporting, membership and costing systems from our dated ERP system in an effort to simplify the migration to a new ERP system and minimize disruptions. As we have separated and updated these new systems, we have sought to improve functionality and reliability, while simultaneously reducing our dependency on legacy software, including our current ERP system. Nevertheless, these updates and a transition to a new ERP system will require a significant investment by us, and any failure by us to effectively design, implement and transition to new systems may adversely affect operations, Member satisfaction or sales.

Any failure by us to maintain the security of the information that we hold relating to our company, Members, employees and vendors, could damage our reputation with them, could disrupt our operations, could cause us to incur substantial additional costs and to become subject to litigation and could materially adversely affect our abilityoperating results.

We receive, retain, and transmit personal information about our Members and employees and entrust that information to supply adequate inventoriesthird-party business associates, including cloud service-providers that perform activities for us. In addition, we and our third-party service providers store and maintain health-related personal information, pharmacy, and medical records in connection with our health and wellness and pharmacy businesses. We also utilize third-party service providers for a variety of U.S. goodsreasons, including, without limitation, cloud services, back-office support, and other functions. In addition, our online operations depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments. Each year, computer hackers, cyber terrorists, and others make numerous attempts to access the information stored in companies’ information systems. The increased use of remote work infrastructure due to the COVID-19 pandemic has also increased cybersecurity risk.

The use of data by our warehouse clubs,business and work stoppages atour business associates is regulated in all of our operating countries. Privacy and information-security laws and regulations change, and compliance with them may result in cost increases due to, among other things, systems changes and the development of new processes. If we or those with whom we share information fail to comply with these laws and regulations, we could be subjected to legal risk as a result of non-compliance.

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We or our third-party service providers may be unable to anticipate one or more clubsof the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to defeat our security measures or those of our third-party service providers and breach our or our third-party service providers' information systems. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. As cyber threats evolve and become more difficult to detect and successfully defend against, one or more hackers, cyber terrorists or others might defeat our security measures or those of our third-party service providers and obtain the personal information of Members, employees and vendors that we hold or to which our third-party service providers have access, and we or our third-party service providers may not discover any security breach and loss of information for a significant period of time after the security breach occurs. We or one of our third-party service providers also may be subject to a ransomware or cyber-extortion attack, which could significantly disrupt our operations. In the enterprise context, ransomware attacks involve restricting access to computer systems or vital data until a ransom is paid. Error or malfeasance by our employees and consultants, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and breach our or our third-party service providers’ information systems (whether digital or otherwise).

Any breach of our security measures or those of our third-party service providers and loss of our confidential information, which could be undetected for a period of time, or any failure by us to comply with applicable privacy and information security laws and regulations, could cause us to incur significant costs to protect any Members and/or employees whose personal data was compromised and to restore Member and employee confidence in us and to make changes to our information systems and administrative processes to address security issues and compliance with applicable laws and regulations.

In addition, such events could have a material adverse effect on our reputation with our Members, employees, vendors and stockholders, as well as our operations, results of operations, financial condition and liquidity, could result in the release to the public of confidential information about our operations and financial condition and performance and could result in litigation against us or the imposition of penalties or liabilities. Moreover, a security breach could require us to devote significant management resources to address the problems created by the security breach and to expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyberattacks and other attempts to access such information, resulting in a disruption of our operations.

Business acquisitions or divestitures and new business initiatives could adversely impact the Company’s performance.

From time to time, we may consider acquisition opportunities and new business initiatives. During fiscal year 2018, we acquired Aeropost, Inc. (“Aeropost”). Acquisitions and new business initiatives involve certain inherent risks, including the failure to retain key personnel from an acquired business; undisclosed or subsequently arising liabilities or accounting, internal control, regulatory or compliance issues associated with an acquired business; challenges in the successful integration of operations, and alignment of standards, policies and systems; future developments that may impair the value of our purchased goodwill or intangible assets; and the potential diversion of management resources from existing operations to respond to unforeseen issues arising in the context of the integration of a new business or initiative.

We sold the legacy casillero and marketplace businesses operated by Aeropost in October 2021. In connection with this sale, we retained the technology and intellectual property rights required for the furtherance of our business interest in PriceSmart.com and related capabilities. We also retained the individuals formerly employed by Aeropost who we believed would best support PriceSmart’s objectives. We could incur unforeseen expenses or other issues in connection with the separation of these businesses. In addition, we and the buyer of the legacy casillero and marketplace businesses have agreed to indemnify each other for any breach of representations and warranties we made to one another in the purchase agreement.

On August 5, 2022, PriceSmart received notice from Click USA Inc. and Aeropost, Inc. alleging that PriceSmart had breached certain provisions of a Stock Purchase Agreement between PriceSmart and Click USA, Inc. dated October 1, 2021, concerning the sale of Aeropost, Inc. to Click USA Inc. In this notice, Click USA Inc. and Aeropost, Inc. allege that PriceSmart made inaccurate or incomplete representations and warranties relating to Aeropost, Inc.’s cyber security and the condition of its IT systems in connection with the sale. Click USA Inc. and Aeropost, Inc. further asserted that, in or around April 2022, Aeropost, Inc. suffered cyberattacks, and they seek to hold PriceSmart liable for some amount of damages due to alleged losses directly relating to the cyber-attacks as well as due to possible third-party claims as a result of the cyber-attacks. The notice suggested that aggregate losses attributable to these losses and future claims could exceed $3,000,000. Per the express terms of the agreement, the maximum amount of all losses for which PriceSmart may be liable for claims arising out of allegations concerning the above-referenced representations and warranties is $4,000,000. PriceSmart intends to vigorously defend itself and, as such, we have concluded that a loss related to this matter is not probable and any potential loss is not reasonably estimable; therefore, we have not accrued a liability for this matter.

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Failure to attract and retain qualified employees could materially adversely affect sales byour financial performance.

Our success depends, to a significant degree, on the affected warehouse club or clubs.

We are subject to volatility in foreign currency exchange ratescontinued contributions of Members of our senior management and limitsother key operations, merchandising and administrative personnel, and the loss of any such persons could have a material adverse effect on our abilitybusiness. We must attract, develop and retain a growing number of qualified employees, while controlling related labor costs and maintaining our core values. We compete with other retail and non-retail businesses for these employees and invest significant resources in training and motivating them. There is no assurance that we will be able to convert foreign currencies into U.S. dollars.

As of August 31, 2017, we had a total of 39 warehouse clubs operating in 12 foreign countriesadequately attract, develop and one U.S. territory, 31 of which operate under currencies other than the U.S. dollar. For fiscal year 2017, approximately 77% of our net warehouse club

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sales were in foreign currencies. We may enter into additional foreign countriesretain highly qualified employees in the future or open additional locations in existing countries, which may increase the percentage of net warehouse sales denominated in foreign currencies. 

Our consolidated financial statements are denominated in U.S. dollars, and to prepare those financial statements we must translate the amountsexecute management transitions when members of the assets, liabilities, net sales, other revenues and expenses of our operations outside of the U.S. from foreign currencies into U.S. dollars using exchange rates for the current period. As a result of such translations, fluctuations in currency exchange rates from period-to-period may result in our consolidated financial statements reflecting significant adverse period-over-period changes in our financial performanceCompany’s senior leadership retire or reflecting a period-over-period improvement in our financial performance that is not as robust as it would be without such fluctuations in the currency exchange rates.

In addition, devaluing foreign local currencies compared to the U.S. dollar could negatively impact the purchasing power of our members for imported merchandise in those countries.  Merchandise imported into our markets are generally purchased byotherwise leave the Company, in U.S. dollars and priced and sold in the local currency of that country.  If the local currency devalues against the U.S. dollar, the prices for those products in the local currency will increase.  Depending on the severity of the devaluation and corresponding price increase (as experienced in Colombia in 2015) the demand for, and sales of, those products could be negatively impacted.

Finally, the ability of the Company to convert local currency into U.S. dollars to settle U.S, dollar invoices can be impacted in certain markets due to economic factors or government policies creating illiquidity of the local currency.  This was the case in Trinidad at the end of 2016 which led us to reduce shipments from the U.S. to Trinidad to amounts that our Trinidad subsidiary could pay for using the amount of tradeable currency that could be sourced in that market, resulting in lost sales.

Volatility and uncertainty regarding the currencies and economic conditions in the countries where we operate could have a material impactadverse effect on our operations in future periods.business, financial condition and results of operations. We do not maintain life or disability insurance for our key executives.


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Legal and Compliance Risks

We face compliance risks related to our international operations.

In the United States and within the international markets where we operate, there are multiple laws and regulations that relate to our business and operations. These laws and regulations are subject to change, and any failure by us to effectively manage our operations and reporting obligations as required by the various laws and regulations can result in our incurring significant legal costs and fines as well as disruptions to our business and operations. Such failure could also result in investors’ loss of confidence in us, which could have a material adverse effect on our stock price.

In foreign countries in which we have operations, a risk exists that our employees, contractors or agents could, in contravention of our policies, engage in business practices prohibited by U.S. laws and regulations applicable to us, such as the Foreign Corrupt Practices Act and the laws and regulations of other countries. We maintain policies prohibiting such business practices and have in place global anti-corruption compliance programs designed to ensure compliance with these laws and regulations. Nevertheless, we remain subject to the risk that one or more of our employees, contractors or agents, including those based in or from countries where practices that violate such U.S. laws and regulations or the laws and regulations of other countries may be customary, will engage in business practices that are prohibited by our policies or circumvent our compliance programs and, by doing so, violate such laws and regulations. Any such violations of anti-corruption laws, even if prohibited by our internal policies, could adversely affect our reputation, business, or financial performance.

We could be subject to additional tax liabilities or subject to reserves on the recoverability of tax receivables.

We rely extensivelycompute our income tax based on computer systemsenacted tax rates in the countries in which we operate. As the tax rates vary among countries, a change in earnings attributable to process transactions, summarize results and manage our business. Failure to adequately maintain our systems and disruptionsthe various jurisdictions in which we operate could result in an unfavorable change in our systems could harm our business and adversely affect our results of operations.

Given the number of individual transactions we have each year, we seek to maintain uninterrupted operation of our business-critical computer systems. Our computer systems, including back-up systems, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, internal or external security breaches, catastrophic events such as fires, earthquakes, tornadoes and hurricanes, and errors by our employees. If our computer systems and back-up systems are damaged or cease to function properly, we may have to make significant investments to fix or replace them, and we may suffer interruptionsoverall taxes. Changes in our operationstax laws, increases in the interim. Any material interruptionenacted tax rates, adverse outcomes in our computer systemsconnection with tax audits in any jurisdiction, or any change in the pronouncements relating to accounting for income taxes could have a material adverse effect on our business orfinancial condition and results of operations.

From time In two countries, there have been changes in the method of computing minimum tax payments, under which the governments have sought to time, werequire the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company has made and may continue to make technology investmentsincome tax payments substantially in excess of those it would expect to improvepay based on taxable income, and the rules that allow the Company to obtain refunds or replace our information processes and systemsto offset payments that are keysubstantially in excess of taxes payable based on taxable income are unclear or complex. We, together with our tax and legal advisers, are currently appealing these interpretations. However, if we do not prevail in these efforts, we may be required to managing our business. The risk of system disruption is increased when system changes are undertaken. Targeting the wrong opportunities, failing to make the best investments or makingestablish a valuation reserve against these tax receivables and take an investment commitment significantly above or below our needs could result in the loss of our competitive position andaccompanying charge, which would adversely impactaffect our financial condition and results of operations. Additionally,In the potential problemsmeantime, we are taking other actions to recover excess taxes paid or withheld and interruptions associatedto limit further increases in these receivables, including the possibility that we might choose in one of the jurisdictions to make income tax payments using the original computation based on a percentage of taxable income in advance of a favorable court ruling.

We file federal and state tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which affects the amount of tax we pay. We, in consultation with implementing technology initiatives could disrupt or reduceour tax advisors, base our tax returns on interpretations that we believe to be reasonable under the prevailing circumstances. However, our tax returns are subject to routine reviews by the various taxing authorities in the jurisdictions in which we file our returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and therefore require us to pay additional taxes.

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the efficiencyA few of our operationsstockholders own approximately 16.5% of our voting stock as of August 31, 2022, which may make it difficult to complete some corporate transactions without their support and may impede a change in control.

Robert E. Price, the short term. These initiatives might not provide the anticipated benefits or may provide them on a delayed schedule or at a higher cost. 

We may experience difficulties implementing our new global enterprise resource planning system.

We are engaged in the selection of a new global enterprise resource planning system (ERP). ERP systems are designed to accurately maintain a company’s books and records and provide information important to the operationCompany’s Chairman of the business to the management team. ImplementationBoard, and affiliates of the new ERP, which will take several years, will require significant investmentMr. Price, including Price Philanthropies, The Price Group, LLC, The Robert & Allison Price Charitable Remainder Trust and various other trusts, collectively beneficially own approximately 16.5% of human and financial resources. In implementing the ERP, we may experience significant delays, increased costs and other difficulties. Any significant disruption or deficiency in the design and implementationour outstanding shares of the ERP could adversely affectcommon stock. Of this amount, approximately 74.8% (i.e., 12.3% of our ability to operate our business.

Any failuretotal outstanding shares) is held by us to maintain the security of the information that we hold relating to our company, members, employees and vendors, whether ascharitable entities. As a result of cybersecurity attacks ontheir beneficial ownership, these stockholders have the ability to significantly affect the outcome of all matters submitted to our information systems, failurestockholders for approval, including the election of internal controls, employee negligence or malfeasance or otherwise,directors. In addition, this ownership could damagediscourage the acquisition of our reputation with members, employees, vendors and others, could disrupt our operations, could cause us to incur substantial additional costs and to become subject to litigationcommon stock by potential investors and could materially adversely affect our operating results.

We receive and store in our digital information systems certain personal information about our members, and we receive and store personal information concerning our employees and vendors. We also utilize third-party service providers for a variety of reasons, including, without limitation, cloud services, back-office support, and other functions. In addition, our online operations and our websites in certainhave an anti- takeover effect, possibly depressing the trading price of our foreign markets depend upon the secure transmissioncommon stock. 

18


Financial and others make numerous attempts to access the information stored in companies’ information systems.Accounting Risks

We or our third-party service providers may be unable to anticipate one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to defeat our security measures or those of our third-party service providers and breach our or our third party service providers' information systems. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber threats might defeat our security measures or those of our third-party service providers in the future and obtain the personal information of members, employees and vendors that we hold or to which our third-party service providers have access, and we or our third-party service providers may not discover any security breach and loss of information for a significant period of time after the security breach occurs. We or one of our third-party service providers also may be subject to a ransomware or cyber-extortion attack, which could significantly disrupt our operations.  In the enterprise context, ransomware attacks involve restricting access to computer systems or vital data until a ransom is paid.  Associate error or malfeasance, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and breach our or our third-party service providers’ information systems (whether digital or otherwise).

Any breach of our security measures or those of our third-party service providers and loss of our confidential information, which could be undetected for a period of time, or any failure by us to comply with applicable privacy and information security laws and regulations, could cause us to incur significant costs to protect any members whose personal data was compromised and to restore member confidence in us and to make changes to our information systems and administrative processes to address security issues and compliance with applicable laws and regulations.

In addition, such events could materially adversely affect our reputation with our members, employees, vendors and stockholders, as well as our operations, results of operations, financial condition and liquidity, could result in the release to the public of confidential information about our operations and financial condition and performance and could result in litigation against us or the imposition of penalties or liabilities. Moreover, a security breach could require us to devote significant management resources to address the problems created by the security breach and to expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyberattacks and other attempts to access such information, resulting in a disruption of our operations.

We are subject to payment related risks.

We relyvolatility in foreign currency exchange rates and limits on third parties to provide payment transaction processing services, including the processing of credit and debit cards and the processing of payments to vendors. Our business could be disrupted if these companies become unwilling or unable to provide these services to us. Additionally, failures or disruptions in data communication and transfer services could significantly impact our ability to transact paymentsconvert foreign currencies into U.S. dollars.

As of August 31, 2022, we had a total of 50 warehouse clubs operating in 12 foreign countries and one U.S. territory, 40 of which operate under currencies other than the U.S. dollar. For fiscal year 2022, approximately 78.0% of our net merchandise sales were in foreign currencies. We may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net merchandise sales denominated in foreign currencies.

Our consolidated financial statements are denominated in U.S. dollars, and to vendorsprepare those financial statements we must translate the amounts of the assets, liabilities, net sales, other revenues, and process creditexpenses of our operations outside of the U.S. from foreign currencies into U.S. dollars using exchange rates for the current period. As a result of such translations, fluctuations in currency exchange rates from period-to-period may result in our consolidated financial statements reflecting significant adverse period-over-period changes in our financial performance or reflecting a period-over-period improvement in our financial performance that is not as robust as it would be without such fluctuations in the currency exchange rates.

In addition, devaluing foreign local currencies compared to the U.S. dollar could negatively impact the purchasing power of our Members for imported merchandise in those countries. Merchandise imported into our markets is generally purchased by the Company in U.S. dollars and debit card transactions. We are also subject to payment card association rulespriced and network operating rules, including data security rules, certification requirements and rules

11


governing electronic funds transfers, which could change over time.that country. If we fail to comply with these rules or transaction processing requirements,the local currency devalues against the U.S. dollar, we may notelect to increase prices in the local currency to maintain our target margins, making the products more expensive for our Members. We may also decide to reduce or modify the flow of merchandise into those markets. Depending on the severity of the devaluation and corresponding price increase (as experienced in Colombia in 2015, 2020, and 2022), the demand for, and sales of, those products could be ablenegatively impacted.

Finally, the ability of the Company to acceptconvert local currency into U.S. dollars to settle U.S. dollar invoices can be impacted in certain payment methods. In addition, ifmarkets due to economic factors or government policies creating illiquidity of the local currency. This has been the case in Trinidad in fiscal years 2017, 2020, and 2021, which led us to reduce shipments from the U.S. to Trinidad to amounts that our internal systems are breached or compromised,Trinidad subsidiary could pay for using the amount of tradeable currency that could be sourced in that market, resulting in lost sales.

As of August 31, 2022, our Trinidad subsidiary had Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $25.0 million, a decrease of $27.9 million from August 31, 2021, when these same balances were approximately $52.9 million. The Trinidad central bank manages the exchange rate of the Trinidad dollar with the U.S. dollar. While the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $5.0 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments balances described above, as of August 31, 2022, we had a U.S. dollar denominated monetary asset position of approximately $80.3 million in Trinidad (net of U.S. dollar denominated liabilities), which would produce a gain from a potential devaluation of Trinidad dollars. If, for example, a hypothetical 20% devaluation of the Trinidad dollar occurred, the net effect on other income (expense), net on our consolidated statement of operations of revaluing these U.S. dollar denominated net monetary assets would be an approximate $16.1 million gain. While we may be liable for banks’ compromised card re-issuance costs,pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we may be subjectuse the official exchange rate published by the Central Bank of Trinidad and Tobago to finesmeasure the U.S. dollar equivalent of Trinidad dollar-based revenues, expenses, assets and higher transaction fees and lose our ability to accept credit and/or debit card payments from our members, and our business and operating results could be adversely affected.

Failure to attract and retain qualified employees, increases in wage and benefit costs, changes in laws and other labor issues could materially adversely affect our financial performance.

Our success depends to a significant degree on the continued contributions of members of our senior management and other key operations, merchandising and administrative personnel,liabilities and the lossTrinidad dollar equivalent of any such personsU.S. dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities.

Volatility and uncertainty regarding the currencies and economic conditions in the countries where we operate could have a material adverse effectimpact on our business. We must develop and retain a growing numberoperations in future periods.

19


Changes in accounting standards and assumptions, projections, estimates and judgments by management related to complex accounting matters could significantly affect our financial condition and results of operations.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business are highly complex and involve many subjective assumptions, projections, estimates and judgments by our management. These include, but are not limited to assumptions, projections, estimates and judgements related to contingencies and litigation, income taxes, value added taxes, and long-lived assets. Changes in these rules or their interpretation or changes in underlying assumptions, projections, estimates or judgments by our management could significantly change our reported or expected financial performance.

A fewFor example, because of Accounting Standards Update ASU 2016-02 – Leases (Topic 842), which the Company adopted September 1, 2019, the Company is required to recognize a “Right-of-Use” (ROU) asset and lease liability for each of the Company’s long-term leases. Accounting Standard Codification (ASC) 842 requires that the ROU asset be designated as a non-monetary asset and the lease liability as a monetary liability. Therefore, when accounting for a lease that is denominated in a foreign currency, if remeasurement into the lessee’s functional currency is required, the lease liability is remeasured using the current exchange rate. We have leases in several of our stockholders own approximately 25.3%subsidiaries in which the lease payments are denominated in a foreign currency that is not the functional currency of our voting stockthat entity. Therefore, we are subject to additional volatility in foreign currency exchange rates as ofAugust 31, 2017,  which may make it difficult to complete some corporate transactions without their support and may impede a change in control.

Robert E. Price, the Company’s Chairman of the Board, and affiliates of Mr. Price, including Price Charities, Price Philanthropies, The Price Group, LLC, The Robert & Allison Price Charitable Remainder Trust and various other trusts, collectively beneficially own approximately 25.3% of our outstanding shares of common stock. Of this amount, approximately 14.4% is held by charitable entities.  As a result of their beneficial ownership, these stockholders havethis accounting standard update. The monetary lease liability subject to revaluation as of August 31, 2022 was $32.4 million. Due to the abilitymix of foreign currency exchange rate fluctuations during fiscal 2022, the impact to significantly affect the outcomeconsolidated statements of all matters submitted to our stockholders for approval, including the electionincome of directors. In addition,revaluing this ownership could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of our common stock. liability was immaterial.

Item 1B. Unresolved Staff Comments

None.


1220


Item 2. Properties

At August 31, 2017,2022, PriceSmart operated 3950 membership warehouse clubs, as detailed below:

Own land

Lease land

Location

and building

and/or building

COLOMBIA SEGMENT

Colombia(1)

8

1

CENTRAL AMERICA SEGMENT

Panama

5

2

Guatemala

3

2

Costa Rica

8

El Salvador(1)

2

Honduras

2

1

Nicaragua

2

CARIBBEAN SEGMENT

Dominican Republic

5

Aruba

1

Barbados

1

Trinidad

3

1

U.S. Virgin Islands

1

Jamaica

2

Total

41

9



 

 

 

 



 

 

 

 



 

Own land

 

Lease land

Location

 

and building

 

and/or building

COLOMBIA SEGMENT

 

 

 

 

Colombia(1)

 

 

CENTRAL AMERICA SEGMENT

 

 

 

 

Panama

 

 

Guatemala

 

 

Costa Rica

 

 

 —

El Salvador

 

 

 —

Honduras

 

 

Nicaragua(2)

 

 

 —

CARIBBEAN SEGMENT

 

 

 

 

Dominican Republic

 

 

 —

Aruba

 

 —

 

Barbados

 

 

 —

Trinidad

 

 

U.S. Virgin Islands

 

 —

 

Jamaica

 

 

 —

Total

 

31 

 

(1)

We constructed a new warehouse club on land acquired in May 2015 in Chia, Colombia that opened in September 2016, fiscal year 2017, bringing the total of warehouse clubs operating in Colombia to seven as of September 2016.    The Company continues to explore other potential sites for future warehouse clubs in other major cities in Colombia. 

(2)

In April 2015, we acquired land in Managua, Nicaragua. We constructed and then opened a warehouse club on this site in November 2015. This brought the number of PriceSmart warehouse clubs operating in Nicaragua to two. 

(1)We are currently constructing and plan to open warehouse clubs in San Miguel, El Salvador in Spring 2023 and in Medellín, Colombia in the summer of 2023. We own the land for each and expect to own each of the buildings upon its completion.

Although we have entered into real estate leases in the past and will likely do so in the future, our preference is to own rather than lease real estate. We lease land and in some cases land and buildings when appropriate sites within market areas are not available to purchase. The term on these leases generally run for 20 to 30 years and contain options to renew from 5 to 20 years. As currentWe actively seek to secure lease extensions or find suitable replacement properties before our leases expire,expire. We have successfully negotiated extensions in the past and believe we believewill continue to be able to do so in the future; however, each lease renewal is subject to its own facts and circumstances, so we cannot be sure that we will be able to obtainrenew each lease renewals, if desired, for present store locations, or to obtain leases for equivalent or better locations in the same general area. on economically favorable terms.

As of August 31, 2017,2022, sales floors of the Company’s warehouse club buildings occupied a total of approximately 2,925,7312,484,126 square feet, of which 522,131430,588 square feet were on leased property.

13


The followingmerchandise shipments to our warehouse clubs. Our corporate headquarters is a summary oflocated in San Diego, California, and we maintain other leased facilities as of August 31, 2017:

Lease land

Location

Facility Type

and/or building

COLOMBIA SEGMENT

Bogota, Colombia

Central Offices

CENTRAL AMERICA SEGMENT

Panama

Central Offices

Guatemala

Member Parking

Costa Rica

Construction and Real Estate Development Offices

Costa Rica

Storage and Distribution Facility

El Salvador

Employee Parking

CARIBBEAN SEGMENT

Barbados 

Storage Facility 

Chaguanas, Trinidad

Employee Parking

Chaguanas, Trinidad

Container Parking

Trinidad

Storage and Distribution Facility

Jamaica

Storage Facility

Santo Domingo, Dominican Republic

Central Offices

U.S. SEGMENT

San Diego, CA

Corporate Headquarters

Miami, FL

Dry Distribution Facility

Miami, FL

Cold Distribution Facility

Total

15 

regional offices in the Miami distribution facility and our international locations. We own our regional distribution facility in Miami, Florida, but we otherwise lease most non-warehouse club facilities and expect to continue to lease these types of facilities as we expand. Our leases for non-warehouse club facilities typically provide for initial lease terms between five and ten30 years, with options to extend; however, in some cases we have lease terms over ten years, mainly related to our Corporate Headquarters and Panama Central Offices.extend. We believe this leasing strategy for non-warehouse clubsclub facilities enhances our flexibility to pursue various expansion opportunities resulting from changing market conditions.when the needs of our business require. As current leases expire, we believe that we will be able to obtain lease renewals, if desired, for these present locations, or to obtain leases for equivalent or better locations in the same general area.

In January 2017, we purchased a distribution center in Medley, Miami-Dade County, Florida. We transferred our Miami dry distribution center activities that were previously in a leased facility to the new facility, during the third quarter of fiscal year 2017.  Some portions of the vacated space have been subleased (and subsequently returned to the landlord) while the remainder remains available for sublease.  We believe that the purchase of this distribution center will enable us to increase our ability to efficiently receive, handle and distribute merchandise.

14


The following is a summary of the warehouse clubs and Company facilities located on leased property as of August 31, 2017:

Approximate

Remaining

Square

Current Lease

Option(s)

Location

Facility Type

Date Opened

Footage

Expiration Date

to Extend

Salitre, Colombia

Warehouse Club

October 29, 2014

98,566 

January 29, 2044

20 years

Via Brazil, Panama

Warehouse Club

December 4, 1997

68,696 

October 31, 2026

10 years

Miraflores, Guatemala

Warehouse Club

April 8, 1999

68,977 

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

December 1, 2012

12,517 

November 30, 2025

3 years

Chaguanas, Trinidad

Employee Parking

May 1, 2009

4,944 

April 30, 2024

none

Chaguanas, Trinidad

Container Parking

April 1, 2010

65,340 

March 31, 2025

none

Jamaica

Storage and
Distribution Facility

September 1, 2012

17,000 

July 14, 2019

2 years

Santo Domingo,
Dominican Republic

Central Offices

June 1, 2010

2,002 

January 14, 2021

5 years

Bogota, Colombia

Central Offices

October 21, 2010

9,707 

December 31, 2017

none

San Diego, CA (1)

Corporate Headquarters

April 1, 2004

45,826 

May 31, 2026

5 years

Miami, FL(2)

Dry Distribution Facility

March 1, 2008

206,041 

July 31, 2021

none

Miami, FL

Cold Distribution Facility

August 1, 2016

100,295 

December 31, 2027

none

Panama

Central Offices

November 4, 2014

17,975 

December 12, 2028

15 years

Costa Rica

Storage and
Distribution Facility

January 28, 2013

37,674 

January 27, 2019

3 years

Costa Rica (3)

Distribution Facility and Parking Lot

March 26, 2018

233,794 

March 25, 2038

10 years

Panama

Distribution Facility 

August 14, 2017

4,874 

August 13, 2020

2 years

Trinidad(4)

Storage and
Distribution Facility

August 18, 2014

17,110 

August 17, 2017

none

(1)

October 31, 2016, the contract to sub-lease 2,799 square feet of space to a third party expired.  The Company has since occupied all 2,799 square feet of space as an expansion to its Corporate Headquarters and included the additional square feet in the table above. 

(2)

In January 2017, we purchased a distribution center in Medley, Miami-Dade County, Florida. We transferred our Miami dry distribution center activities that were previously in a leased facility to the new facility during the third quarter of fiscal year 2017.  Some portions of the vacated space have been subleased (and subsequently returned to the landlord) while the remainder remains available for sublease. 

(3)

In June 2017, the Company executed a contract to acquire 233,794 square feet of space for a domestic distribution center and parking lot. Delivery date is expected to be March 26, 2018 and June 26, 2018, respectively. 

(4)

Although the Company’s lease agreement for the Trinidad storage and distribution facility expired on August 17, 2017, the Company continues to occupy the space as an agreement for a one year renewal has been reached with the landlord, pending execution of the contract.  The Company has also included this one year lease as part of the minimum lease commitments.

Item 3.Legal Proceedings

We are often involved in claims arising in the ordinary course of business seeking monetary damages and other relief. Based upon information currently available to us, none of these claims is expected to have a material adverse effect on our business, financial condition or results of operations. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 9 – Commitments and Contingencies ” for additional information regarding our legal proceedings.

1521


Item 4. Mine Safety Disclosures

Not applicable.


22


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock has been quoted and traded on the NASDAQ Global Select Market under the symbol “PSMT” since September 2, 1997. As of October 18, 2017,21, 2022, there were approximately 23,51024,689 holders of record of the common stock. 

Dates

Stock Price

From

To

High

Low

2022 FISCAL QUARTERS

First Quarter

9/1/2021

11/30/2021

$

86.16

$

70.10

Second Quarter

12/1/2021

2/28/2022

76.13

66.77

Third Quarter

3/1/2022

5/31/2022

88.30

69.53

Fourth Quarter

6/1/2022

8/31/2022

$

74.74

$

63.14

2021 FISCAL QUARTERS

First Quarter

9/1/2020

11/30/2020

$

82.63

$

63.26

Second Quarter

12/1/2020

2/28/2021

103.07

81.89

Third Quarter

3/1/2021

5/31/2021

99.72

83.70

Fourth Quarter

6/1/2021

8/31/2021

$

94.13

$

79.56



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

Dates

 

Stock Price



 

From

 

To

 

High

 

Low

2017 FISCAL QUARTERS

 

 

 

 

 

 

 

 

 

 

First Quarter

 

9/1/2016

 

11/30/2016

 

$

92.40 

 

$

80.35 

Second Quarter

 

12/1/2016

 

2/29/2017

 

 

92.15 

 

 

82.50 

Third Quarter

 

3/1/2017

 

5/31/2017

 

 

93.60 

 

 

85.85 

Fourth Quarter

 

6/1/2017

 

8/31/2017

 

 

89.20 

 

 

80.50 



 

 

 

 

 

 

 

 

 

 

2016 FISCAL QUARTERS

 

 

 

 

 

 

 

 

 

 

First Quarter

 

9/1/2015

 

11/30/2015

 

$

97.26 

 

$

76.65 

Second Quarter

 

12/1/2015

 

2/29/2016

 

 

93.80 

 

 

70.11 

Third Quarter

 

3/1/2016

 

5/31/2016

 

 

88.95 

 

 

78.00 

Fourth Quarter

 

6/1/2016

 

8/31/2016

 

 

94.28 

 

 

76.00 

Recent Sales of Unregistered Securities

There were no sales of unregistered securities during the fiscal year ended August 31, 2017.  2022.

Dividends



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

First Payment

 

Second Payment

Declared

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

2/3/2017

  

$

0.70 

  

2/15/2017

  

2/28/2017

  

$

0.35 

  

8/15/2017

  

8/31/2017

  

$

0.35 

2/3/2016

  

$

0.70 

  

2/15/2016

  

2/29/2016

 

$

0.35 

  

8/15/2016

  

8/31/2016

 

$

0.35 

2/4/2015

 

$

0.70 

 

2/13/2015

 

2/27/2015

 

$

0.35 

 

8/14/2015

 

8/31/2015

 

$

0.35 

First Payment

Second Payment

Declared

Amount

Record
Date

Date
Paid

Amount

Record
Date

Date
Paid

Amount

2/3/2022

$

0.86

2/15/2022

2/28/2022

$

0.43

8/15/2022

8/31/2022

$

0.43

2/4/2021

$

0.70

2/15/2021

2/26/2021

$

0.35

8/15/2021

8/31/2021

$

0.35

2/6/2020

$

0.70

2/15/2020

2/28/2020

$

0.35

8/15/2020

8/31/2020

$

0.35

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. requirements, taking into account all relevant factors, including, but not limited to, the uncertainty surrounding the ongoing effects of the COVID-19 pandemic on our results of operations and cash flows.

1623


Repurchase of Equity Securities

Upon vesting of restricted stock awarded by the Company to employees, the Company repurchases shares and withholds the amount of the repurchase payment to cover employees’ tax withholding obligations.

As set forth in the table below, during fiscal year 20172022, the Company repurchased a total of 38,63488,415 shares in the indicated months. These were the only repurchases of equity securities made by the Company during fiscal year 20172022. The Company does not have a stock repurchase program.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

(c)

 

(d)



 

(a)

 

 

 

 

Total Number of

 

Maximum Number



 

Total

 

(b)

 

Shares Purchased

 

of Shares That May



 

Number of

 

Average

 

as Part of Publicly

 

Yet Be Purchased



 

Shares

 

Price Paid

 

Publicly Announced

 

Under the

Period

 

Purchased

 

Per Share

 

Plans or Programs

 

Plans or Programs

September 1, 2016 - September 30, 2016

 

 —

 

$

 —

 

 —

 

N/A

October 1, 2016 - October 31, 2016

 

 —

 

 

 —

 

 —

 

N/A

November 1, 2016 - November 30, 2016

 

 —

 

 

 —

 

 —

 

N/A

December 1, 2016 - December 31, 2016

 

 —

 

 

 —

 

 —

 

N/A

January 1, 2017 - January 31, 2017

 

23,283 

 

 

82.96 

 

 —

 

N/A

February 1, 2017 - February 29, 2017

 

108 

 

 

84.70 

 

 —

 

N/A

March 1, 2017 - March 31, 2017

 

771 

 

 

91.30 

 

 —

 

N/A

April 1, 2017 - April 30, 2017

 

 —

 

 

 —

 

 —

 

N/A

May 1, 2017 - May 31, 2017

 

 —

 

 

 —

 

 —

 

N/A

June 1, 2017 - June 30, 2017

 

 —

 

 

 —

 

 —

 

N/A

July 1, 2017 - July 31, 2017

 

2,398 

 

 

84.65 

 

 —

 

N/A

August 1, 2017 - August 31, 2017

 

12,074 

 

 

81.10 

 

 —

 

N/A

Total

 

38,634 

 

$

82.66 

 

 —

 

N/A

(c)

(d)

(a)

Total Number of

Maximum Number

Total

(b)

Shares Purchased

of Shares That May

Number of

Average

as Part of Publicly

Yet Be Purchased

Shares

Price Paid

Publicly Announced

Under the

Period

Purchased

Per Share

Plans or Programs

Plans or Programs

September 1, 2021 - September 30, 2021

$

N/A

October 1, 2021 - October 31, 2021

31,437

77.12

N/A

November 1, 2021 - November 30, 2021

114

72.65

N/A

December 1, 2021 - December 31, 2021

N/A

January 1, 2022 - January 31, 2022

19,140

70.58

N/A

February 2, 2022 - February 28, 2022

N/A

March 1, 2022 - March 31, 2022

2,505

77.13

N/A

April 1, 2022 - April 30, 2022

239

80.34

N/A

May 1, 2022 - May 31, 2022

N/A

June 1, 2022 - June 30, 2022

N/A

July 1, 2022 - July 31, 2022

3,036

65.90

N/A

August 1, 2022 - August 31, 2022

31,944

64.57

N/A

Total

88,415

$

70.79

N/A

Item 6. Reserved.


1724


Item 6. Selected Financial Data

The selected consolidated financial data presented below is derived from the Company's consolidated financial statements and accompanying notes. This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included elsewhere in this report.

SELECTED FINANCIAL DATA



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

 

2014

 

2013



 

(in thousands, except income per common share)

OPERATING RESULTS DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net warehouse club sales

 

$

2,910,062 

 

$

2,820,740 

 

$

2,721,132 

 

$

2,444,314 

 

$

2,239,266 

Export sales

 

 

34,244 

 

 

33,813 

 

 

33,279 

 

 

31,279 

 

 

23,059 

Membership income

 

 

47,743 

 

 

45,781 

 

 

43,673 

 

 

38,063 

 

 

33,820 

Other income

 

 

4,579 

 

 

4,842 

 

 

4,519 

 

 

3,911 

 

 

3,667 

Total revenues

 

 

2,996,628 

 

 

2,905,176 

 

 

2,802,603 

 

 

2,517,567 

 

 

2,299,812 

Total cost of goods sold

 

 

2,519,752 

 

 

2,449,626 

 

 

2,352,839 

 

 

2,113,664 

 

 

1,929,428 

Total selling, general and administrative

 

 

338,642 

 

 

316,474 

 

 

297,656 

 

 

262,420 

 

 

240,924 

Preopening expenses

 

 

44 

 

 

1,191 

 

 

3,737 

 

 

3,331 

 

 

1,525 

Loss (gain) on disposal of assets

 

 

1,961 

 

 

1,162 

 

 

2,005 

 

 

1,445 

 

 

889 

Operating income

 

 

136,229 

 

 

136,723 

 

 

146,366 

 

 

136,707 

 

 

127,046 

Total other income (expense)

 

 

(3,486)

 

 

(5,483)

 

 

(9,770)

 

 

(2,458)

 

 

(3,835)

Income before provision for income taxes and income (loss) of unconsolidated affiliates

 

 

132,743 

 

 

131,240 

 

 

136,596 

 

 

134,249 

 

 

123,211 

Provision for income taxes

 

 

(42,018)

 

 

(42,849)

 

 

(47,566)

 

 

(41,372)

 

 

(38,942)

Income (loss) of unconsolidated affiliates

 

 

(1)

 

 

332 

 

 

94 

 

 

 

 

(4)

Net income

 

$

90,724 

 

$

88,723 

 

$

89,124 

 

$

92,886 

 

$

84,265 

INCOME PER COMMON SHARE -BASIC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

 

$

3.07 

 

$

2.78 

INCOME PER COMMON SHARE -DILUTED:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

 

$

3.07 

 

$

2.78 

Weighted average common shares - basic

 

 

30,020 

 

 

29,928 

 

 

29,848 

 

 

29,747 

 

 

29,647 

Weighted average common shares - diluted

 

 

30,023 

 

 

29,933 

 

 

29,855 

 

 

29,757 

 

 

29,657 

18


SELECTED FINANCIAL DATA- (Continued)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of August 31,



 

2017

 

2016

 

2015

 

2014

 

2013



 

(in thousands)

BALANCE SHEET DATA:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

162,434 

 

$

199,522 

 

$

157,072 

 

$

137,098 

 

$

121,874 

Restricted cash

 

$

3,278 

 

$

3,194 

 

$

1,525 

 

$

29,366 

 

$

40,759 

Total assets

 

$

1,177,514 

 

$

1,096,735 

 

$

991,224 

 

$

937,338 

 

$

826,039 

Long-term debt

 

$

106,297 

 

$

88,107 

 

$

90,534 

 

$

91,439 

 

$

73,020 

Total PriceSmart stockholders’ equity

 

$

708,767 

 

$

638,071 

 

$

566,584 

 

$

548,265 

 

$

481,049 

Dividends paid on common stock(1)

 

$

21,285 

 

$

21,274 

 

$

21,126 

 

$

21,144 

 

$

18,133 

(1)

On February 1, 2017, February 3, 2016, February 4, 2015, January 23, 2014, and November 27, 2012, the Company declared cash dividends on its common stock.

19


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This annual reportAnnual Report on Form 10-K contains forward-looking statements concerning PriceSmart, Inc.'s ("PriceSmart", the "Company" or "we") anticipated future revenues and earnings, adequacy of future cash flows, omni-channel initiatives, proposed warehouse club openings, COVID-19 related factors and challenges, and the Company's performance relative to competitors and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” “intend,” and like expressions, and the negative thereof. Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements, except as required by law. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, but not limited to the risks described hereindetailed in this Annual Report on Form 10-K under the heading “Part I - Item1A -Part I. “Item 1A. Risk Factors,Factors. could materially and adversely affect our business, financial condition and results of operations. These risks are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial.

Our business consists primarily of operating internationalOverview

PriceSmart, headquartered in San Diego, California, owns and operates U.S.-style membership shopping warehouse clubs similarin Latin America and the Caribbean, selling high quality merchandise and services at low prices to but smaller in size than,our Members. We operate 50 warehouse clubs in 12 countries and one U.S. territory (nine in Colombia; eight in Costa Rica; seven in Panama; five in the Dominican Republic and Guatemala; four in Trinidad; three in Honduras; two each in El Salvador, Nicaragua and Jamaica; and one each in Aruba, Barbados and the United States.  We operate in 13 countries/territories that are located in Latin America and the Caribbean.  Our ownership in all operating subsidiaries as of August 31, 2017 is 100%, and they are presented on a consolidated basis.States Virgin Islands). The number ofCompany also plans to open new warehouse clubs in operation as of August 31, 2017 for each country or territory are as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Number of

 

Number of

 

Actual and Anticipated



 

Warehouse Clubs

 

Warehouse Clubs

 

warehouse



 

in Operation as of

 

in Operation as of

 

club openings

Country/Territory

 

August 31, 2016

 

August 31, 2017

 

in fiscal year 2018

Colombia

 

 

 

 

 

 

 —

Costa Rica

 

 

 

 

 

 

Panama

 

 

 

 

 

 

 —

Trinidad

 

 

 

 

 

 

 —

Dominican Republic

 

 

 

 

 

 

Guatemala

 

 

 

 

 

 

 —

Honduras

 

 

 

 

 

 

 —

El Salvador

 

 

 

 

 

 

 —

Nicaragua

 

 

 

 

 

 

 —

Aruba

 

 

 

 

 

 

 —

Barbados

 

 

 

 

 

 

 —

U.S. Virgin Islands

 

 

 

 

 

 

 —

Jamaica

 

 

 

 

 

 

 —

Totals

 

 

38 

 

 

39 

 

 

 We constructed and opened a new warehouse club in Chia, Colombia, in September 2016 (fiscal year 2017) on land we acquired in May 2015, bringing the total of warehouse clubs operating in Colombia to seven. In April 2015, we acquired land in Managua, Nicaragua.  We constructed and then opened a warehouse club on this site in November 2015 of fiscal year 2016 bringing the total number of warehouse clubs operating in Nicaragua to two. 

On February 1, 2017, we acquired land in Santa Ana, Costa Rica upon which we opened a new warehouse club on October 5, 2017, fiscal year 2018.  This new warehouse club brings the number of PriceSmart warehouse clubs operating in Costa Rica to seven. In June 2017, we acquired land in Santo Domingo, Dominican Republic. We are currently building a warehouse club on this site that we expect to openSan Miguel, El Salvador in the spring of calendar year 2018. This2023 and in Medellín, Colombia in the summer of 2023. Once these two new clubs are open, the Company will bring the number of PriceSmartoperate 52 warehouse clubs operating in Dominican Republic to four. We continue to explore other potential sites for future warehouse clubs in Central America, the Caribbean and Colombia.

clubs. Our warehouse clubs and local distribution centers are located in Latin America and the Caribbean, and our corporate headquarters, U.S. buying operations and regional distribution centers are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbean and Colombia.All intercompany balances and transactions have been eliminated in consolidation.

General Market FactorsMission and Business Strategy

PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities through the responsible delivery of the best quality goods and services at the lowest possible prices. Our mission is to serve as a model company, which operates profitably and provides a good return to our investors, by providing Members in emerging and developing markets with exciting, high quality merchandise sourced from around the world and valuable services at compelling prices in safe U.S. style clubs and through PriceSmart.com. We prioritize the well-being and safety of our Members and employees. We provide good jobs, fair wages and benefits and the opportunities for advancement. We strive to treat our suppliers right and empower them when we can. We conduct ourselves in a socially responsible manner as we endeavor to improve the quality of the lives of our Members and their businesses, while respecting the environment and the laws of all the countries in which we operate. The annual membership fee enables us to operate our business with lower margins than traditional retail stores. As we continue to invest in technological capabilities, we are increasing our tools to drive sales and operational efficiencies. We believe we are well positioned to blend the excitement and appeal of our brick-and-mortar business with the convenience and additional benefits of online shopping and services, and meanwhile, enhance Member experience and engagement.

Factors Affecting the Business

We continue to encounter operational challenges directly or indirectly related to the COVID-19 pandemic, including increased supply chain pressures, inflation, and foreign currency fluctuations relative to the U.S. dollar. COVID-19 may continue to affect consumer purchasing behavior as it continues to evolve and may affect our ability to meet unanticipated shifts in consumer demand and could give rise to additional operating costs that could have other potential long-term impacts on our financial condition and results of operations. For additional information, refer to the risk factors discussed in Part I. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2022.

However, the COVID pandemic also has presented us opportunities to improve how we do business, how we serve our Members and how we treat our employees. In response to the pandemic, we:

Increased our focus on expanding local sourcing and near-shoring of goods that we offer,

Expedited our efforts to engage with Members online, including the launch of PriceSmart.com, and

Highlighted the importance of employee well-being and accelerated our decision to ensure health coverage for all employees in our Company. We also are establishing flexible schedules and hybrid work environments for office employees in order to maximize efficiencies and provide opportunity for balance in our employees’ lives.

25


Overall economic trends, foreign currency exchange volatility, and other factors impacting the business

Our sales and profits vary from market to market depending on general economic factors, including GDP growth; consumer spending patterns;preferences; foreign currency exchange rates; political policies and social conditions; local demographic characteristics (such as population growth); the number of years PriceSmart haswe have operated in a particular market; and the level of retail and wholesale competition in that market. The economies of many of our markets are dependent on foreign trade, tourism, and foreign direct investments. Uncertain economic conditions and slowdown in global economic growth and investment may impact the economies in our markets, causing significant declines in GDP and employment and devaluations of local currencies against the U.S. dollar.

For most of fiscal year 2022, the environment we operated in was characterized by global supply chain disruption, high fuel and freight costs, inflation, significant foreign currency devaluations and less predictable consumer behavior and purchasing patterns due, in part, to the COVID pandemic’s impact on consumer lifestyles. These factors have increased the complexity of managing our inventory flow and business. We saw several factors pressuring supply chains, including raw material shortages, limited manufacturer capacity, factory labor shortages, container shortages, port delays, and truck and driver shortages. However, in the fourth quarter of fiscal year 2022, we saw a gradual improvement in shipping costs and a general improvement in on-time shipments from our Asia vendors. Despite the issues we experienced for most of the year, we had strong sales growth. We are working to hold down and/or mitigate the price increases passed on to our Members while maintaining the right inventory mix to grow sales. One key mitigating factor has been our expanded network of distribution centers, which has facilitated alternative routings of shipments, increased throughput, and provided flexibility to more effectively mitigate these challenges.

20


TableIn late fiscal year 2021, we made investments in inventory based on anticipated demand and worked with our local vendors to source alternative products in order to reduce out-of-stocks on high demand items that were impacted by these disruptions or that were affected by electronic part shortages. However, rapidly changing consumer preferences, long lead times, and supply chain disruptions led to inventory build up in some of Contentsthe discretionary non-foods categories in our hardlines segment. We took significantly higher than usual markdowns in the third quarter and approximately forty basis points of margin compression in the fourth quarter compared to the prior year. We are planning to reduce our days on hand of inventory to better adapt to and meet the changing demands of our Members for fiscal year 2023.

Currency fluctuationsfluctuation can be one of the largest variablevariables affecting our overall sales and profit performance, as we have experienced in prior fiscal year 2015 and 2016, asyears, because many of our markets are susceptible to foreign currency exchange rate volatility. During fiscal year 2017,2022, approximately 77%78.0% of our net warehousemerchandise sales were in markets whose functional currency iscurrencies other than the U.S. dollar. Of thesethose sales, approximately 52% were comprised48.6% consisted of sales of products we purchased in U.S. dollars.

Currency fluctuations within our Colombia market adversely affected our consolidated results of operations in prior fiscal years. Major changes in the value of the Colombian peso (“COP”) relative to the U.S. dollar negatively impacted sales and margins in that market during fiscal years 2015 and 2016.  For example, in fiscal year 2016, the devaluation of the Colombian peso against the U.S. dollar resulted in decreased U.S. dollar reported warehouse club sales for that market, after translation, by approximately 26% when compared to fiscal year 2015, following an approximately 60% devaluation that occurred in fiscal year 2015.  A devaluation of the COP not onlylocal currency reduces the value of sales and membership income that is generated in Colombiathat country when translated to U.S. dollars for our consolidated results, but also increasesresults. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which impactscould impact demand for a significant portionthe merchandise affected by the price increase. We may also modify the mix of the Company’simported versus local merchandise offering.  This, along withand/or the fact that we are still relatively new in the Colombian market, and the sophisticated level of competition in that market, impacted overall business performance resulting in an operating loss in Colombia in fiscal years 2015 and 2016. A stabilization of the currency during fiscal year 2017 has contributed to improving business conditions in Colombia, resulting in good sales growth and a return to operating profitability in our Colombia segment. 

Certain of our Central American and Caribbean markets have experienced some slowing of overall economic activity during the fiscal year which may continue to impact the level of consumer spending in the coming months. In particular, Trinidad’s economy, with its dependence on oil and gas exports as a major source of incomeimported merchandise to mitigate the impact of currency fluctuations. Information about the effect of local currency devaluations is discussed in “Management’s Discussion and resulting government policy to manage its foreign exchange reserves, has been experiencing overall difficult economic conditions with a corresponding impact on consumer spending. Other countries where general market conditions have provided a difficult operating environment which we expect may continue into fiscal year 2018 include Barbados,Analysis of Financial Condition and USVI where Hurricanes IrmaResults of Operations - Net Merchandise Sales and Maria had a severe impact on the infrastructure of the island.Comparable Sales.”

Our capture of total retail and wholesale sales can vary from market to market due to competition and the availability of other shopping options for our members.  In larger, more developed countries, such as Costa Rica, Panama and Colombia, customers have many alternatives available to them to satisfy their shopping needs, and therefore, our market share is less than in other smaller countries, such as Jamaica and Nicaragua, where consumers have a limited number of shopping options.

Members. Demographic characteristics within each of our markets can also affect both the overall level of sales and also future sales growth opportunities. Island countriesCertain island markets, such as Aruba, Barbados and the U.S. Virgin Islands offer us limited upside for sales growth given their overall market size.  Countries with a smaller upper and middle class consumer population, such as Honduras, El Salvador, Jamaica and Nicaragua, also have a more limited potential opportunity for sales growth as compared

We continue to more developed countries with larger upper and middle class consumer populations.

Political and other factors in eachface the risk of our marketspolitical instability which may have significant effects on our business. For example, when national electionscivil unrest in Colombia in response to tax reform and austerity measures paralyzed significant portions of the country’s infrastructure as roadblocks and riots disrupted normal economic activity during the third quarter of fiscal 2021. Nicaragua and Honduras experienced anti-government protests in 2019; Costa Rica also had a general strike against tax reform measures that significantly impeded regular economic activity in 2018.

Our operations are being held,subject to volatile weather conditions and natural disasters. In November 2020, Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, which caused significant damage to parts of that country’s infrastructure. Although our warehouse clubs were not significantly affected and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, these natural disasters could adversely impact our overall sales, costs and profit performance in the political situation can introduce uncertainty about how the leadership change may impact the economy and affect near-term consumer spending. The need for increased tax revenue in certain countries can cause changes in tax policies affecting consumer’s personal tax rates, and/or added consumption taxes, such as VAT (value-added taxes) effectively raising the pricesfuture.

26


Periodically, we have experiencedexperience a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity)., particularly in Trinidad. This impedescan and has impeded our ability to convert local currencies obtained through warehousemerchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products increasingand to otherwise redeploy these funds in our Company. This illiquidity also increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. During fiscal year 2017 and continuing into fiscal year 2018,2021, we experienced this situation insignificant limitations on our ability to convert Trinidad (“TT”).  We have been and continuedollars to work with our banks in Trinidad to source tradable currencies (including Euros and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this illiquidity condition is likely to continue.  During part of the first half of fiscal year 2017 we limited shipments of merchandise to Trinidad from our distribution center in Miami to levels that generally aligned with our Trinidad subsidiary’s ability to source U.S. dollars to pay for that merchandise.  This resulted in a reduced level of shipments, which negatively affected sales in the second quarter, particularly December, although by less than our initial estimate. These actions did not impact the level of merchandise we obtain locally in Trinidad.  Starting in the third quarter of fiscal year 2017, we were able to improve our sourcing ofor other tradeable currencies, which, in addition to other steps we took, allowed for a more normalized flow of imported merchandise during the third and fourth fiscal quarters.  currencies.

As of August 31, 2017,2022, our Trinidad subsidiary had Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $25.0 million, a decrease of $27.9 million from August 31, 2021 when these same balances were approximately $52.9 million and a decrease of $75.5 million from the peak of $100.5 million as of November 30, 2020. The Trinidad central bank manages the exchange rate of the Trinidad dollar with the U.S. dollar. While the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances.

In March 2022 the International Monetary Fund updated prior calculations and estimated that the Trinidad dollar was over-valued between approximately 11.6% and 20.4%. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $5.0 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments balances described above, as of August 31, 2022, we had a U.S. dollar, Euro, and Canadian dollar denominated monetary asset position (net of U.S. dollar, Euro, and Canadian dollar denominated liabilities) of approximately $80.3 million in Trinidad, which would produce a gain from a potential devaluation of Trinidad dollars. If, for example, a hypothetical 20% devaluation of the Trinidad dollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing these U.S. dollar denominated net monetary assets would be an approximately $16.1 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we use the official exchange rate published by the Central Bank of approximately $4.0 million. However,Trinidad and Tobago to measure the illiquidity situation remains inU.S. dollar equivalent of Trinidad dollar-based revenues, expenses, assets and liabilities and the Trinidad market,dollar equivalent of U.S. dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities.

While our balance of Trinidad dollars has been reduced significantly in fiscal 2022, we could face similar issueshave not yet converted all of our Trinidad dollars into U.S. dollars. In response to these liquidity challenges in sourcingTrinidad, we have been taking multiple actions, including but not limited to: raising sales prices on imported goods in Trinidad due to increased costs of conversion of Trinidad dollars to U.S. dollars duringand risks associated with continued illiquidity, shifting to local sources of goods where appropriate, and entering into financing arrangements such as the firstloan we obtained in December 2021 whereby we received $25 million in U.S. dollars and second quarterswill repay the balance in Trinidad dollars (using a conversion rate fixed upon initial disbursement) over the four-year life of fiscal year 2018, which may require us to limitthe loan. Additionally, we significantly limited shipments of goods from the U.S. to Trinidad during most of fiscal 2021 due to the illiquidity of the Trinidad dollar and further reduced our shipments in linethe last quarter of fiscal 2021 because of the government-imposed restrictions on sales of non-essential items during that period driven by the pandemic. We no longer limit our U.S imports; however, we continue to seek sourcing opportunities with local vendors and we are in the process of opening a package manufacturing plant in Trinidad in fiscal year 2023, which we expect will improve our ability to exchange Trinidad dollars for tradeablesource more tradable foreign currencies by exporting products to manage our exposure to any potential devaluation. other markets.

2127


Business Strategy

Our business strategy is to operate membership warehouse clubs in Latin America and the Caribbean.  We sell a limited number of high volume products and services across a broad range of categories to business and families at the lowest possible prices.  PriceSmart members pay an annual membership fee, and that fee, combined with volume purchasing and operating efficiencies throughout the supply chain, enable us to operate our business very efficiently with lower margins and prices than conventional retail stores and wholesale suppliers. 

While our traditional membership warehouse club strategy continues to work well in our markets, we recognize that technology is having an increasingly profound impact on shopping habits throughout the world.  We believe our business strategy needs to be broadened to respond to changes in shopping habits so our members will have the shopping experience they desire.

Our longer range strategic objective is to combine the traditional membership warehouse club “brick and mortar” business with online shopping to provide the best shopping experience possible for our members.

Current and Future Management Actions

Generally, our operating efficiencies, earnings and cash flow improve as sales increase.  Higher sales provide greater purchasing power which often translates into lower cost of merchandise from our suppliers and lower prices for our members.  Higher sales, coupled with continuous efforts to improve efficiencies through our distribution network and within our warehouse clubs, also give us the opportunity to leverage our operating costs and reduce prices for our members.

We seek to grow sales by increasing transaction size and shopping frequency of our members by providing high quality, differentiated merchandise at a good value.  We also grow sales by attracting new members and improving the capacity of our existing warehouse clubs to serve the growing membership base and level of sales in those locations through physical expansions of the building or adding additional parking or improving the flow of merchandise to and within the warehouse club. Sales growth is also achieved when we add new warehouse clubs with a corresponding increase in members in those markets that can support that growth.  Sales during fiscal year 2017 were positively impacted by the addition of a new warehouse club that opened in Chia, Colombia in September 2016, fiscal year 2017. Although we recognize that opening new warehouse club locations in certain existing markets can have adverse short-term implications for comparable store growth, as the new warehouse club will often attract sales from existing locations, each decision to add a location in an existing market is based on a long-term outlook.  Overall, for fiscal year 2017, net warehouse sales increased 3.2% when compared to fiscal year 2016. Finally, in the future we believe that technology supported online sales will constitute a significant opportunity to grow sales.

One of the distinguishing features of the warehouse club format is the role membership plays, both in terms of pricing and member loyalty.  Membership fees are considered a component of overall gross margin and therefore allow us to reduce merchandise prices.  In most of our markets, the annual membership fee is the equivalent of U.S. $35 for both business members and non-business “Diamond” members.  In Colombia, the membership fee has been 65,000 (COP) (including VAT) since our initial entrance into the Colombian market.  The Colombian peso (COP) was trading at approximately 2,000 COP to $1.00 US dollar at that time.  More recently, the Colombian peso has been trading at approximately 3,000 COP to $1.00 US dollar so that the converted membership price in U.S. dollars decreased from approximately U.S. $30 to approximately U.S. $20.  In February, we raised the membership fee in Colombia to 75,000 COP moving the converted membership price to approximately U.S. $25.  In addition to the standard warehouse club membership, we have offered in Costa Rica what we call Platinum membership since 2012 for $75.  A Platinum membership earns a 2% rebate on annual purchases up to a maximum $500 rebate per year. In September, fiscal year 2018, we introduced the Platinum membership in Panama and plan on adding a Platinum membership level in the Dominican Republic in the next few months. We are considering expanding Platinum membership to other PriceSmart markets and may do so during fiscal year 2018.

Logistics and distribution efficiencies are an important part of what allows us to deliver high quality merchandise at low prices to our members.  We acquire a significant amount of merchandise internationally, which we receive primarily at our Miami distribution centers.  In January 2017, we purchased a distribution center in Medley, Miami-Dade County, Florida, into which we transferred our Miami dry distribution center activities from a leased facility during the third quarter of fiscal year 2017.  This new distribution facility will increase our ability to efficiently receive, handle and distribute merchandise.We then ship the merchandise either directly to our warehouse clubs or to regional distribution centers located in some of our larger markets. Our ability to efficiently receive, handle and distribute merchandise to the point where our members put that merchandise into their shopping carts has a significant impact on our level of operating expenses and ultimately how low we can price our merchandise. We continue to explore ways to improve efficiency, reduce costs and ensure a good flow of merchandise to our warehouse clubs. As we continue to refine our logistics and distribution infrastructure, we are investing in regional distribution centers. We recently entered into a long-term lease for a 107,640 square foot distribution center in Costa Rica, with the expectation that this distribution center will improve the merchandise flow and in-stock conditions in our warehouse clubs, reduce merchandise costs and facilitate online sales to our members in Costa Rica.

22


Purchasing land and constructing warehouse clubs is generally our largest ongoing capital investment.  Securing land for warehouse club locations is challenging within our markets, especially in Colombia, because suitable sites at economically feasible prices are difficult to find.  While our preference is to own rather than lease real estate, we have entered into real estate leases in certain cases (most recently our Bogota, Colombia site) and will likely do so in the future.  Real estate ownership provides a number of advantages as compared to leasing, including lower operating expenses, flexibility to expand or otherwise enhance our buildings, long-term control over the use of the property and the residual value that the real estate may have in future years.  In order to secure warehouse club locations, we occasionally have purchased more land than is actually needed for the warehouse club facility.  To the extent that we acquire property in excess of what is needed for a particular warehouse club, we generally have looked to either sell or develop the excess property.  Excess land at Alajuela (Costa Rica) and Brisas (Panama) is being developed by joint ventures formed by us and the sellers of the property.  We are employing a similar development strategy for the excess land at the San Fernando, Trinidad and Arroyo Hondo, Dominican Republic locations where the properties are fully owned by us.  The profitable sale or development of real estate not required to operate a warehouse club is highly dependent on real estate market conditions.

We are currently engaged in the selection of a new global enterprise resource planning system (ERP) and evaluating other technology-related investments with the long-term objective of offering our members a seamless multi-channel experience. To oversee our efforts to identify and adopt new technologies that can help us better serve our members, our Board of Directors has approved a new sub-committee within our Board, the Innovation Committee.  The committee members include Board Chairman Robert Price as Chairman of the committee, our CEO Jose Luis Laparte and two other members of our Board.  The Board of Directors has designated an incremental $3.0 to $5.0 million of technology-related spending for fiscal year 2018 for evaluation and selection of the ERP vendor and to fund a newly established team to direct our technology investment and preopening spending to develop a new online business that we hope to launch during the summer of 2018. Substantially all of this spending for fiscal year 2018 will be recorded as expenses on the statement of income that will impact earnings during the upcoming fiscal year as we pursue these long-term initiatives, which will likely require further investments beyond the current fiscal year.

Financial highlights for the fourth quarter of fiscal year 20172022 included:

·

Net warehouse club sales increased 3.6% over the comparable prior year period. We ended the quarter with 39 warehouse clubs compared to 38 warehouse clubs at the end of the fourth quarter of fiscal year 2016. 

·

Comparable warehouse club sales (that is, sales in the warehouse clubs that have been open for greater than 13 1/2 calendar months) for the 13 weeks ended September 3, 2017 increased 1.9%.

·

Membership income for the fourth quarter of fiscal year 2017 increased 5.3% to $12.2 million.

·

Warehouse gross profits (net warehouse club sales less associated cost of goods sold) in the quarter increased 2.4%  over the prior-year period, and warehouse gross profits as a percent of net warehouse club sales were 14.6%, a decrease of 1 basis point (0.01%) from the same period last year. 

·

Operating income for the fourth quarter of fiscal year 2017 was $30.8 million, a decrease of $2.0 million compared to the fourth quarter of fiscal year 2016.

·

Our effective tax rate increased in the fourth quarter of fiscal year 2017 to 33.9% from 30.4% in the fourth quarter of fiscal year 2016. 

·

Net income for the fourth quarter of fiscal year 2017 was $19.8 million, or $0.64 per diluted share, compared to $22.3 million, or $0.74 per diluted share, in the fourth quarter of fiscal year 2016.

Total revenues increased 12.3% over the comparable prior year period.

Net merchandise sales increased 13.6% over the comparable prior year period. We ended the quarter with 50 warehouse clubs compared to 47 warehouse clubs at the end of the fourth quarter of fiscal year 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.9% versus the same three-month period in the prior year.

Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 14 weeks ended September 4, 2022 increased 9.2%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.7%.

Membership income for the fourth quarter of fiscal year 2022 increased 6.7% to $15.6 million over the comparable prior year period.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 11.1% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.5%, a decrease of 40 basis points (0.4%) from the same period in the prior year.

Operating income for the fourth quarter of fiscal year 2022 was $39.0 million, an increase of 20.0%, or $6.5 million, compared to the fourth quarter of fiscal year 2021.

We recorded a $1.3 million net currency loss from currency transactions in the fourth quarter of fiscal year 2022 compared to a $1.4 million net currency loss in the same period last year.

Our effective tax rate decreased in the fourth quarter of fiscal year 2022 to 34.2% from 35.5% in the fourth quarter of fiscal year 2021. The decrease in the effective tax rate is primarily related to the favorable impact from changes in income tax liabilities from uncertain tax positions.

Net income attributable to PriceSmart for the fourth quarter of fiscal year 2022 was $23.3 million, or $0.75 per diluted share, compared to $19.5 million, or $0.63 per diluted share, in the fourth quarter of fiscal year 2021.

Financial highlights for fiscal year 20172022 included:

·

Net warehouse club sales increased 3.2% over the comparable prior year period.  We ended the year with 39 warehouse clubs compared to 38 warehouse clubs at the end of the fiscal year 2016.  Comparable warehouse club sales (that is, sales in the warehouse clubs that have been open for greater than 13 1/2 calendar months) for the 52 weeks ended September 3, 2017 increased 1.5%.

·

Total revenues increased 12.3% over the prior year.

Net merchandise sales increased 13.8% over the prior year. We ended the year with 50 warehouse clubs compared to 47 warehouse clubs at the end of fiscal year 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.3%.

Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 53 weeks ended September 4, 2022 increased 10.4% compared to the 53 weeks ended September 5, 2021. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.2%.

Membership income for the fiscal year 2017 increased 4.3%  to  $47.7 million.

·

Warehouse gross profits (net warehouse club sales less associated cost of goods sold) increased 4.8% over the same prior year period and warehouse gross profits as a percent of net warehouse club sales were 14.5%, an increase of 23 basis points (0.23%) from the same period last year.

·

Operating income for fiscal year 2017 was $136.2 million, a decrease of $494,000 million compared to fiscal year 2016.

·

Currency exchange transactions in the current year resulted in a $1.2 million gain compared to an  $899,000 net loss from currency exchange transactions last year.

·

The effective tax rate for fiscal year 2017 is 31.7%, as compared to the effective tax rate for fiscal year 2016 of 32.6%. 

·

Net income for fiscal year 2017 was $90.7 million, or $2.98 per diluted share, compared to $88.7 million, or $2.92 per diluted share, in the prior year.

23


Financial highlights for fiscal year 2016 included:2022 increased 8.7% to $60.9 million.

Trailing 12 month membership renewal rate was 88.9%.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 9.4% over the prior year, and merchandise gross profits as a percent of net merchandise sales were 15.3%, a decrease of 70 basis points (0.7%) from the prior year.

Operating income for fiscal year 2022 was $167.1 million, an increase of 5.7% or $9.1 million compared to fiscal year 2021.

We recorded a $7.4 million net currency loss from currency transactions in the current year compared to a $5.4 million net loss in the prior year.

The effective tax rate for fiscal year 2022 was 33.2% as compared to the effective tax rate for fiscal year 2021 of 33.3%. The decrease is primarily driven by the effect of the change in foreign currency value and related adjustments.

Net income attributable to PriceSmart for fiscal year 2022 was $104.5 million, or $3.38 per diluted share, compared to $98.0 million, or $3.18 per diluted share, in the prior year.


·

Net warehouse club sales increased 3.7% over the comparable prior year period. 

·

Comparable warehouse club sales (that is, sales in the warehouse clubs that have been open for greater than 13 1/2 calendar months) for the 53 weeks ended September 4, 2016 decreased 0.8%.

28


·

Membership income for the fiscal year 2016 increased 4.8% to $45.8 million.

·

Warehouse gross profits (net warehouse club sales less associated cost of goods sold) increased 0.8% over the prior year period and warehouse gross profits as a percent of net warehouse club sales were 14.3%, a decrease of 40 basis points (0.40%) from the same period last year.

·

Operating income for fiscal year 2016 was $136.7 million, a decrease of $(9.6) million compared to fiscal year 2015.

·

We had a $(900,000) net loss from currency exchange transactions in the current year compared to a $(4.4) million net loss from currency exchange transactions last year.

·

The effective tax rate for fiscal year 2016 is 32.6%, as compared to the effective tax rate for fiscal year 2015 of 34.8%.  This reduction in the effective tax rate contributed approximately $0.06 per diluted share for the twelve-month period.

·

Net income for fiscal year 2016 was $88.7 million, or $2.92 per diluted share, compared to $89.1 million, or $2.95 per diluted share, in the prior year. 

Comparison of Fiscal Year 20172022 to 2016 and Fiscal Year 2016 to 20152021

The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2017, 2016,2022 and 20152021 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. For a comparison of the fiscal years ended August 31, 2021 and 2020, please see Part II. “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2021 filed with the SEC on October 21, 2021. Unless otherwise noted, all tables present U.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding. Our operations consist of four reportable segments: Central America, the Caribbean, Colombia and the United States. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, which are used by management and the Company's chief operating decision maker in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. From time to time, we revise the measurement of each segment's operating income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by our chief operating decision maker. When we do so, the previous period amounts and balances are reclassified to conform to the current period's presentation.

GrowthNet Merchandise Sales

We measure our growth primarily by the amount of the period-over-period growth in our net warehouse sales, our comparable warehouse club sales (which include the impact of e-commerce sales) and our membership income. At times, we make strategic investments that are focused on the long-term growth of the Company. These investments can impact near-term results; such as an opening of a new warehouse club in a market which can reduce reported comparable warehouse sales due to the cannibalization of sales from existing warehouse clubs; or negatively impact operating profit and net income, as fixed costs are added in advance of achieving full projected sales.

Net Warehouse Club Sales

The following tables indicate the net warehousemerchandise club sales in the reportable segments in which we operate and the percentage growth in net warehouse clubmerchandise sales by segment during fiscal years 2017, 20162022 and 2015.2021.

Years Ended

August 31, 2022

August 31, 2021

Amount

% of net
sales

Increase

from

prior year

Change

Amount

% of net
sales

Central America

$

2,336,500

59.2

%

$

271,947

13.2

%

$

2,064,553

59.6

%

Caribbean

1,139,323

28.9

150,855

15.3

988,468

28.5

Colombia

468,994

11.9

56,573

13.7

412,421

11.9

Net merchandise sales

$

3,944,817

100.0

%

$

479,375

13.8

%

$

3,465,442

100.0

%



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31, 2017

 

August 31, 2016



 

Amount

 

% of net
sales

 

Increase/
(decrease)
from
prior year

 

Change

 

Amount

 

% of net
sales

Central America

 

$

1,756,716 

 

60.4 

%

 

$

29,954 

 

1.7 

%

 

$

1,726,762 

 

61.2 

%

Caribbean

 

 

815,264 

 

28.0 

%

 

 

(12,842)

 

(1.6)

%

 

 

828,106 

 

29.4 

%

Colombia

 

 

338,082 

 

11.6 

%

 

 

72,210 

 

27.2 

%

 

 

265,872 

 

9.4 

%

Net warehouse club sales

 

$

2,910,062 

 

100.0 

%

 

$

89,322 

 

3.2 

%

 

$

2,820,740 

 

100.0 

%

24




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31, 2016

 

August 31, 2015



 

Amount

 

% of net
sales

 

Increase/
(decrease)
from
prior year

 

Change

 

Amount

 

% of net
sales

Central America

 

$

1,726,762 

 

61.2 

%

 

$

130,859 

 

8.2 

%

 

$

1,595,903 

 

58.6 

%

Caribbean

 

 

828,106 

 

29.4 

%

 

 

18,826 

 

2.3 

%

 

 

809,280 

 

29.7 

%

Colombia

 

 

265,872 

 

9.4 

%

 

 

(50,077)

 

(15.8)

%

 

 

315,949 

 

11.6 

%

Net warehouse club sales

 

$

2,820,740 

 

100.0 

%

 

$

99,608 

 

3.7 

%

 

$

2,721,132 

 

100.0 

%

Comparison of 2017 and 2016

Overall, net warehousemerchandise sales growth of 3.2%grew by 13.8% for fiscal year 20172022 compared to fiscal year 2016 resulted from2021, driven by a 2.8%10.4% increase in transactions and a 1.0%3.1% increase in average ticket. Transactions represent the total number of visits our Members make to our warehouse clubs plus the number of Click & Go™ curbside pickup and delivery service transactions. Average ticket represents the amount our Members spend on each visit or Click & Go™ order. We had 50 clubs in operation as of August 31, 2022 compared to 47 clubs as of August 31, 2021.

Net warehousemerchandise sales in our Central America segment increased 1.7% for13.2% during fiscal year 2017. General weakness in Costa Rica, our largest market in that2022. This increase had a 780 basis point (7.8%) positive impact on total net merchandise sales growth. All markets within this segment resulted in negative growth there of 2.6%.  All other Central American countries recorded positive growth in warehouseshowed increased net merchandise sales for the twelve-month period with Panama,ended August 31, 2022. We added one new club to the segment when compared to the comparable prior-year period. We opened our fifth warehouse club in Guatemala and Honduras all recordingin October 2021.

Net merchandise sales growth of between 4-5%. 

Ourin our Caribbean segment increased 15.3% during fiscal year 2022. This increase had a full-year440 basis point (4.4%) positive impact on total net merchandise sales declinegrowth. All of 1.6% driven largely byour markets in this segment had positive net merchandise sales decreases ingrowth. Sales for Trinidad our largest market in that segment. The difficult economic environment there continues to negatively impact consumer spending, and earlierwere particularly strong for the twelve months ended August 31, 2022 because sales in the year, we restricted shipmentscomparable fiscal second and third quarters of 2021 were adversely impacted by COVID-19 closures, government prohibitions on sales of most non-foods and non-essential items, and our decision to reduce imported merchandise due to the U.S. goods for a period of three months as a result of currency illiquiditydollar liquidity challenges, which improved in the market.last three quarters of fiscal 2022. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more information regarding the impact on us of the illiquidity of the Trinidad netdollar. We added one new club to the segment when compared to the comparable prior-year period. We opened our second warehouse club sales for fiscal year 2017 declined 4.8% compared to fiscal year 2016.  The Company is not currently limiting shipments to Trinidad, but illiquidity concerns remain, which may again cause us to restrict shipments in the future.Jamaica in April 2022.

29


Net warehousemerchandise sales in our Colombia segment reported growth withincreased 13.7% during fiscal year 2022. This increase had a 160 basis point (1.6%) positive impact on total net merchandise sales growth. The primary driver of the addition ofincreased sales for the year was due to the additional club added to the segment when compared to the comparable prior year period. We opened our new Chia club on September 1, 2016 contributing to an overall netninth warehouse club in Colombia in November 2021. For the three months ended August 31, 2022, net merchandise sales growth of 27.2% forslowed to 7.6% as measured in U.S. dollars compared to the twelve-month period.  Withsame quarter in the stabilization of theprior year, as currency exchange rate betweenfluctuations impacted sales negatively by 11.3%. Net merchandise sales growth decreased further to 1.8% in September 2022 (fiscal 2023) as measured in U.S. dollars compared to the Colombian peso andsame month in the prior year, as currency exchange rate fluctuations impacted sales negatively by 14.1% in September of fiscal year 2023 as the Colombia Peso exchange rate with the U.S. dollar overhas deteriorated significantly during the past eighteenseveral months.

The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and as a percentage of net merchandise sales for the year ended August 31, 2022.

Currency exchange rate fluctuations for the

Years Ended

August 31, 2022

Amount

% change

Central America

$

(48,135)

(2.3)

%

Caribbean

6,680

0.7

Colombia

(37,185)

(9.0)

Net merchandise sales

$

(78,640)

(2.3)

%

Overall, the effects of currency fluctuations within our markets had an approximately $78.6 million, or 230 basis point (2.3%), negative impact on net merchandise sales for the twelve-months ended August 31, 2022.

Currency fluctuations had a $48.1 million, or 230 basis point (2.3%), negative impact on net merchandise sales in our Central America segment for the twelve months we have seen an improvingended August 31, 2022. These currency fluctuations contributed approximately 140 basis points (1.4%) of negative impact on total net merchandise sales picture in all of our warehouse clubs in Colombia. This, coupled with our efforts to source high quality merchandise from local suppliers, resulted in a 15.2% increase in transactions in thefor fiscal year and average ticket growth of 10.4%.  During fiscal year 2016, the average exchange rate was 3,070 pesos to2022. The Costa Rica Colón depreciated significantly against the dollar and in the current fiscal year, the rate was 2,983. 

Comparison of 2016 and 2015

Net warehouse sales growth resulted from a 6.2% increase in transactions and a 2.4% decrease in the average sale.

Net warehouse sales growth in Central America was positively impacted by the openings of two new warehouse clubs, one in Panama (June 2015) and one in Nicaragua (November 2015).  All other Central American countries without additional warehouse clubs also recorded positive sales growth in fiscal year 2016 compared to fiscal year 2015.

The Caribbean segment had no new warehouse clubs opened in the comparable periods and recorded a 2.3% increase in net warehouse sales. A significant increase in the number of products subject to Value Added Taxes starting in February in Trinidad and currency devaluations in both Trinidad and the Dominican Republic (the Company’s two largest markets in the Caribbean segment) resulted in a negative sales growth in the second half of the fiscal yearas compared to the same period last year.a year ago, which was a significant contributing factor to the unfavorable currency fluctuations in this segment.

Net warehouseCurrency fluctuations had a $6.7 million, or 70 basis point (0.7%), positive impact on net merchandise sales in Colombia were significantly impacted duringour Caribbean segment for the twelve months ended August 31, 2022. These currency fluctuations contributed approximately 20 basis points (0.2%) positive impact on total net merchandise sales growth for the current fiscal year by the devaluation of the Colombian peso relative to the U.S. dollar.period. The strength of the U.S. dollar causes the price of imported merchandise to increase in Colombian pesos, which reduces sales volumes of those products.  In addition, net warehouse sales made in Colombian pesosDominican Republic market experienced currency appreciation when translated yielded 26% fewer U.S. dollars in the fiscal year compared to the year ago period.  Net warehousesame periods last year.

Currency fluctuations had a $37.2 million, or 900 basis point (9.0%), negative impact on net merchandise sales in localour Colombia segment for the twelve months ended August 31, 2022. These currency (COP)fluctuations contributed approximately 110 basis points (1.1%) of negative impact on total net merchandise sales for the current fiscal year 2016 grew 6.0%, reflecting the addition of three new warehouse clubs for fiscal year 2016 compared to fiscal year 2015 and a stabilizing currency exchange rate in the fourth fiscal quarter of fiscal year 2016.period.

25


Net Warehouse ClubMerchandise Sales by Category

The following table indicates the approximate percentage of net sales accounted for by each major category of items sold us during the fiscal years ended August 31, 2017, 20162022 and 2015. 2021.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Sundries (including health and beauty aids, tobacco, alcoholic beverages, soft drinks, cleaning and paper products and pet supplies)

 

27 

%

 

27 

%

 

26 

%

Food (including candy, snack foods, dry and fresh foods)

 

53 

%

 

53 

%

 

54 

%

Hardlines (including major appliances, small appliances,  electronics, hardware, office supplies, garden and patio, sporting goods, business machines and automotive supplies)

 

11 

%

 

11 

%

 

12 

%

Softlines (including apparel, domestics, cameras, jewelry, housewares, media, toys and home furnishings)

 

%

 

%

 

%

Other (including food court)

 

%

 

%

 

%



 

100 

%

 

100 

%

 

100 

%

Years Ended August 31,

2022

2021

Foods & Sundries

49

%

50

%

Fresh Foods

29

29

Hardlines

11

12

Softlines

6

5

Other Business

5

4

Net Merchandise Sales

100

%

100

%

Comparison of 2017 to 2016

The mix of sales by major category did not changechanged slightly. Foods & Sundries and Hardlines each decreased approximately 1%, while Softlines and Other Business each increased approximately 1% between fiscal year 20172022 and 2016. 

Comparison2021. Shifts in consumer preferences and in-club traffic increases as a result of 2016 to 2015

There was a slight shift in the mixlessening of sales by major category between fiscal year 2016 and 2015, with a slight decrease in food and hardlines comparedCOVID-19 restrictions contributed to the other categories. These categories were impacted more by price compression and the effectchanges in category mix.


30


Comparable Merchandise Sales

We report comparable warehouse club sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month and quarter that is used for financial reporting purposes. This approach equalizes the number of weekend days and weekdays in each period for improved sales comparison, as we experience higher warehouse club sales on the weekends. Approximately every five years, the Company uses a 53-week year and a six-week “August” to account for the fact that 52 weeks is only 364 days. For fiscal year 2016,2022, we used a 53-week year and a six-week “August.” Further, each of the warehouse clubs used in the calculations was open for at least 13 ½1/2 calendar months before its results for the current period were compared with its results for the prior period. For example,As a result, sales related to thetwo of our warehouse clubclubs opened during calendar year 2021 and one opened in Colombia on September 1, 2016April 2022 will not be used in the calculation of comparable sales until November 2017. Sales transacted through our e-commerce platform are included in our calculation ofthey have been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 47 warehouse sales.clubs for the fifty-three week period ended September 4, 2022.

The following tables indicate the comparable net warehouse clubmerchandise sales in the reportable segments in which we operate and the percentage growthchanges in net warehouse clubmerchandise sales by segment during fiscal years 2017the fifty-three-week period ended September 4, 2022, compared to the same fifty-three-week period of the prior year and 2016.the fifty-two-week period August 29, 2021 compared to the fifty-two-week period of the prior year.

Fifty-Three Weeks Ended

Fifty-Two Weeks Ended

September 4, 2022

August 29, 2021

% Increase
in comparable
net merchandise sales

% Increase
in comparable
net merchandise sales

Central America

10.4

%

8.8

%

Caribbean

12.7

1.4

Colombia

4.5

2.4

Consolidated comparable net merchandise sales

10.4

%

5.8

%



 

 

 

 

 

 



 

 

 

 

 

 



 

Years Ended



 

August 31, 2017

 

August 31, 2016



 

% Increase in comparable
net warehouse sales

 

% Increase in comparable
net warehouse sales

Central America

 

1.4 

%

 

1.6 

%

Caribbean

 

(1.2)

%

 

1.8 

%

Colombia

 

10.2 

%

 

(22.9)

%

Consolidated segments

 

1.5 

%

 

(0.8)

%

Comparison of 2017 to 2016

Comparable warehouse clubnet merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the 52-week53-week period ended September 3, 2017 grew 1.5%4, 2022 increased 10.4%.  Colombia recorded

Comparable net merchandise sales in our Central America segment increased 10.4% for the highest comparable warehouse club sales, despite some cannibalized sales resulting from53-week period ended September 4, 2022 compared to the opening53-week period ended September 5, 2021. This increase contributed approximately 620 basis points (6.2%) of the new warehouse clubincrease in Chia, Colombia which is not yet includedtotal comparable net merchandise sales.

For the 53 weeks ended September 4, 2022, strong performance in the calculationrelatively smaller markets of Guatemala, Nicaragua, Honduras, and El Salvador, along with our second largest market, Panama, contributed approximately 510 basis points (5.1%) of positive impact on the segment’s comparable net merchandise sales. This increase was combined with a 110 basis point (1.1%) positive impact on the segment’s comparable net merchandise sales from our largest market, Costa Rica. During the year, Costa Rica experienced foreign currency exchange headwinds, with the Costa Rica Colón devaluing versus the comparable prior year period.

Comparable net merchandise sales in our Caribbean segment increased 12.7% for the 53-week period ended September 4, 2022. This increase contributed approximately 370 basis points (3.7%) of positive impact in total comparable net merchandise sales.

Our Dominican Republic market continued its strong performance in the 53-week period, partially due to foreign currency exchange appreciation, with 19.6% of comparable sales. Often times, new warehouse clubs that we open are not far from existing warehouse clubs that are included in the calculation for comparable warehouse club sales as was the case in Colombia.  The new warehouse clubs attract new members from areas not previously served by us, but theygrowth. Trinidad also create the opportunity for some existing members,

26


particularly those who now find the new clubs closer to their homes, to shop at the new locations.  This transfer of sales from existing warehouse clubs that are included in the calculation of comparable warehouse club sales to new warehouse clubs that are not included in the calculation can have an adverse impact on reported comparable warehouse club sales.

The Caribbean segment experienced negativecontributed strong comparable net warehousemerchandise sales growth, with 12.4% increase for the 53-week period.

Comparable net merchandise sales in our Colombia segment increased 4.5% for the 53-week period ended September 4, 2022. This increase contributed approximately 50 basis points (0.5%) of the increase in total comparable net merchandise sales. The year-to-date increase is primarily due to year-over-year improvements in sales growth due to the economic downturncomparably improved COVID-19 situation.

The following table illustrates the impact that changes in Trinidad.  We expect to experienceforeign currency exchange rates had on our comparable net merchandise sales in dollars and as a continued softness inpercentage of comparable net merchandise sales for the Trinidad economy during fiscal year 2018.53-week period ended September 4, 2022.


31


Impact of Currency Exchange Rate Fluctuations for the

Fifty-Three Weeks Ended

September 4, 2022

Amount

% change

Central America

$

(49,133)

(2.4)

%

Caribbean

7,645

0.7

Colombia

(34,696)

(8.4)

Consolidated comparable net merchandise sales

$

(76,184)

(2.2)

%

Overall, the mix of currency fluctuations within our markets had an approximately $76.2 million, or 220 basis point (2.2%), negative impact on comparable net merchandise sales for the 53-week period ended September 4, 2022.

Currency fluctuations within our Central America segment experienced low single digit growth inaccounted for approximately 140 basis points (1.4%) of the negative impact on total comparable net merchandise sales for the 53-week period ended September 4, 2022. This is primarily due to the general weaknessresult of significant devaluation in the Costa Rica market. 

Comparison of 2016 to 2015

Comparable warehouse club sales for those warehouse clubs that were open for at least 13 ½ months for some or all ofColón against the 53 week period ending September 4, 2016 decreased 0.8%,U.S. dollar compared to the same period a year ago.

Currency fluctuations within our Caribbean segment accounted for approximately 20 basis points (0.2%) of positive impact on total comparable net merchandise sales for the 53-week period inended September 4, 2022. Our Dominican Republic market experienced currency appreciation, while Jamaica market experienced currency devaluation when compared to the priorsame period last year.  Comparable warehouse

Currency fluctuations within our Colombia segment accounted for approximately 100 basis points (1.0%) of negative impact on total comparable net merchandise sales were negatively impacted byfor the 53-week period ended September 4, 2022. This reflects the devaluation of the ColombianColombia peso fromwhen compared to the prior-year period.  Six warehouse clubs in Colombia are included in the calculation of comparable warehouse sales. Excluding those warehouse clubs, the 53-week comparable warehouse sales for the other 30 warehouse clubs open for at least 13 ½ months increased 1.7%. We openedsame period a new warehouse club west of Panama City, Panama in June 2015 and one in Managua, Nicaragua in November 2015.year ago.

Membership Income



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2017

 

2016



 

Amount

 

Increase/

(decrease)

from

prior year

 

% Change

 

Membership

income % to

net warehouse

club sales

 

Amount

Membership income - Central America

 

$

29,832 

 

$

1,264 

 

4.4 

%

 

1.7 

%

 

$

28,568 

Membership income - Caribbean

 

 

11,864 

 

 

250 

 

2.2 

 

 

1.5 

 

 

 

11,614 

Membership income - Colombia

 

 

6,047 

 

 

448 

 

8.0 

 

 

1.8 

 

 

 

5,599 

Membership income - Total

 

$

47,743 

 

$

1,962 

 

4.3 

%

 

1.6 

%

 

$

45,781 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of accounts - Central America

 

 

829,735 

 

 

29,307 

 

3.7 

%

 

 

 

 

 

800,428 

Number of accounts - Caribbean

 

 

391,411 

 

 

(1,800)

 

(0.5)

 

 

 

 

 

 

393,211 

Number of accounts - Colombia

 

 

321,693 

 

 

24,908 

 

8.4 

 

 

 

 

 

 

296,785 

Number of accounts - Total

 

 

1,542,839 

 

 

52,415 

 

3.5 

%

 

 

 

 

 

1,490,424 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2016

 

2015



 

Amount

 

Increase
(decrease)
from
prior year

 

% Change

 

Membership
income % to
net warehouse
club sales

 

Amount

Membership income - Central America

 

$

28,568 

 

$

2,373 

 

9.1 

%

 

1.7 

%

 

$

26,195 

Membership income - Caribbean

 

 

11,614 

 

 

574 

 

5.2 

 

 

1.4 

 

 

 

11,040 

Membership income - Colombia

 

 

5,599 

 

 

(839)

 

(13.0)

 

 

2.1 

 

 

 

6,438 

Membership income - Total

 

$

45,781 

 

$

2,108 

 

4.8 

%

 

1.6 

%

 

$

43,673 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of accounts - Central America

 

 

800,428 

 

 

45,097 

 

6.0 

%

 

 

 

 

 

755,331 

Number of accounts - Caribbean

 

 

393,211 

 

 

16,664 

 

4.4 

 

 

 

 

 

 

376,547 

Number of accounts - Colombia

 

 

296,785 

 

 

(57,522)

 

(16.2)

 

 

 

 

 

 

354,307 

Number of accounts - Total

 

 

1,490,424 

 

 

4,239 

 

0.3 

%

 

 

 

 

 

1,486,185 

Comparison of 2017 to 2016

Membership income is recognized ratably over the one-year life of the membership.

Years Ended

August 31,

August 31,

2022

2021

Amount

Increase

from

prior year

% Change

Membership
income % to
net merchandise
club sales

Amount

Membership income - Central America

$

36,009

$

2,860

8.6

%

1.5

%

$

33,149

Membership income - Caribbean

16,345

947

6.2

1.4

15,398

Membership income - Colombia

8,533

1,050

14.0

1.8

7,483

Membership income - Total

$

60,887

$

4,857

8.7

%

1.5

%

$

56,030

Number of accounts - Central America

951,829

47,252

5.2

%

904,577

Number of accounts - Caribbean

453,697

23,948

5.6

429,749

Number of accounts - Colombia

357,265

21,156

6.3

336,109

Number of accounts - Total

1,762,791

92,356

5.5

%

1,670,435

The number of Member accounts at the end of fiscal 2022 was 5.5% higher than the prior year period. Membership income increased 8.7% compared to the comparable prior-year period.

Membership income increased across all operating segments in the twelve months ended August 31, 2022. The consolidated increase in membership income primarily reflects a growth inis due to an increasing membership accounts for which income is recognized duringbase since the last twelve months. The average

27


number of member accounts during the fiscal year was 3.0% higher than the year before. The income recognized per average member account increased 1.5%. In February 2017, we increased the annual membership fee in Colombia by 15.4% to the equivalent of U.S. $25 (at the year-end exchange rate of 2,937 Colombian pesos per U.S. dollar), which had the effect of increasing the membership income per average membership account in Colombia by 5.1%.

The growth in membership accounts from the endstart of fiscal year 20162022. Since August 31, 2021, all segments have increased their membership base. Colombia had the largest increase in membership base in fiscal year 2022 with 6.3% growth, followed by the Caribbean with a 5.6% increase and Central America with a 5.2% increase. In fiscal year 2022, we opened a new club in each of Colombia, the Caribbean, and Central America.

We offer our Platinum Membership program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the end2% rebate as a reduction on net merchandise sales at the time of the current fiscal year in Colombia was primarily attributablesales transaction. Platinum Membership accounts were 7.4% of our total membership base as of August 31, 2022, an increase from 6.2% as of August 31, 2021. Platinum Members tend to the new warehouse club in Chia which opened on September 1, 2016.   The Company’shave higher renewal rates than our Diamond Members.

32


Our trailing twelve-month renewal rate was 88.9% and 89.6% for the periods ended August 31, 2022 and August 31, 2021, respectively. Approximately 13% and 16% of our membership sign-ups were completed using our online platform for the twelve-month period ended August 31, 2017 improved2022 and August 31, 2021, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.

Other Revenue

Other revenue consists primarily of non-merchandise revenue from freight and handling fees generated from the marketplace and casillero operations we sold in October 2021, income from the interest-generating portfolio of our co-branded credit cards, and rental income from operating leases where the Company is the lessor.

Years Ended

August 31, 2022

August 31, 2021

Amount

Increase (decrease) from

prior year

% Change

Amount

Non-merchandise revenue

$

3,307

$

(43,569)

(92.9)

%

$

46,876

Miscellaneous income

9,397

2,350

33.3

7,047

Rental income

2,468

(488)

(16.5)

2,956

Other revenue

$

15,172

$

(41,707)

(73.3)

%

$

56,879

Comparison of 2022 to 85%2021

The primary driver of the decrease in other revenue for the year ended August 31, 2022 was the sale of our Aeropost subsidiary and its marketplace and casillero operations on October 1, 2021. For additional information on the results of the disposition, refer to “Index to Consolidated Financial Statements: Notes to Consolidated Financial Statements, Note 2 – Summary of Significant Accounting Policies.” This decrease was partially offset by an increase from 80%our interest-generating portfolio from our co-branded credit cards for the year ended August 31, 2022.

Results of Operations

Results of Operations Consolidated

(Amounts in thousands, except percentages and number of warehouse clubs)

Years Ended

Results of Operations Consolidated

August 31, 2022

August 31, 2021

Net merchandise sales

Net merchandise sales

$

3,944,817

$

3,465,442

Total gross margin

$

604,755

$

552,953

Total gross margin percentage

15.3

%

16.0

%

Revenues

Total revenues

$

4,066,093

$

3,619,871

Percentage change from prior period

12.3

%

8.7

%

Comparable net merchandise sales

Total comparable net merchandise sales increase

10.4

%

5.8

%

Total revenue margin

Total revenue margin

$

681,148

$

644,533

Total revenue margin percentage

16.8

%

17.8

%

Selling, general and administrative

Selling, general and administrative

$

514,082

$

486,513

Selling, general and administrative percentage of total revenues

12.6

%

13.4

%

33


Years Ended

Results of Operations Consolidated

August 31, 2022

% of Total
Revenue

August 31, 2021

% of Total
Revenue

Operating income- by segment

Central America

$

171,119

4.2

%

$

151,933

4.2

%

Caribbean

79,022

1.9

74,769

2.1

Colombia

22,526

0.6

21,932

0.6

United States

23,364

0.6

12,687

0.4

Reconciling items (1)

(128,965)

(3.2)

(103,301)

(2.9)

Operating income - Total

$

167,066

4.1

%

$

158,020

4.4

%

Warehouse clubs

Warehouse clubs at period end

50

47

Warehouse club sales square feet at period end

2,484

2,336

(1)The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.

The following table summarizes the selling, general and administrative expense for the periods disclosed.

Years Ended

August 31, 2022

% of Total
Revenue

August 31, 2021

% of Total
Revenue

Selling, general and administrative detail:

Warehouse club and other operations

$

378,161

9.3

%

$

359,221

9.9

%

General and administrative

133,185

3.3

125,416

3.5

Pre-opening expenses

1,471

-

849

-

Loss on disposal of assets

1,265

-

1,027

-

Total Selling, general and administrative

$

514,082

12.6

%

$

486,513

13.4

%

Total gross margin is derived from our Revenue – Net merchandise sales less our Cost of goods sold – Net merchandise sales and represents our sales and cost of sales generated from the business activities of our warehouse clubs. We express our Total gross margin percentage as a percentage of our Net merchandise sales.

On a consolidated basis, total gross margin for the twelve months ended August 31, 2016. 

Comparison of 20162022, was 15.3%, 70 basis points (0.7%) lower than the comparable prior year period. This decrease was primarily due to 2015

The increase in membership income primarily reflects a growth in membership accounts for which income is recognized duringincreased markdowns versus the prior fiscal year 2016. The average numberperiod and a reduction in the premium we applied to our sales prices to offset our COVID-related operating costs. During 2021, while experiencing strong sales and projecting high demand for our long-lead time merchandise, we were also noting increases in costs of member accounts duringmerchandise. We proceeded to purchase merchandise at higher-than-normal volumes to secure good pricing and in-stock positions. That, combined with higher-than-normal freight and fuel costs, subsequent COVID-related Asia port closures and other supply-chain disruptions hampered the fiscal year was 7.6%expected cadence of inventory flow, resulting in, among other things, seasonal merchandise arriving too late for the applicable season. We also did not attain the levels of sales we projected for certain non-food categories. As a result, we took significantly higher than usual markdowns in the year before. The income recognized per average member account decreased 0.3%, which primarily reflectsthird quarter and incurred approximately 40 basis points (0.4%) of margin compression in the effect of the impact of devaluation in Colombia on the translation of membership fees in local currency to U.S. dollars. In Colombia, the membership is priced in Colombian pesos (COP). At the August 2016 exchange rate, a membership in Colombia yielded approximately $19fourth quarter compared to approximately $35 in most other countries.the prior year fourth quarter as we continued to sell through pockets of excess merchandise.

Total revenue margin is derived from Total revenues, which includes our Net merchandise sales, Membership income, Export sales, and Other revenue and income less our Cost of goods sold for net merchandise sales, Export sales, and Non-merchandise revenues. We ended the fiscal year with a renewal rateexpress our Total revenue margin as percentage of 80% for the twelve-month period ended August 31, 2016.Total revenues.

During fiscal year 2016, the Company experienced a net growth in membership accounts of 4,239 accounts, or 0.3%. Colombia’s membership accounts during the fiscal year declined 57,522, while the other countries grew by 61,761 accounts. The decrease in overall accounts in Colombia was due to the first anniversary date for a large number of accounts associated with the three warehouse clubs in Colombia that opened in October and November 2015 and the low renewal rate for those accounts.  The opening of these three warehouse clubs in fiscal year 2015 resulted in approximately 124,000 expiring accounts in October, November and December from the record number of new member sign-ups experienced at the opening of these clubs. As expected, we experienced a low renewal rate for those expiring accounts due to a historically low renewal rate for first year members across our markets, the distance of our warehouse clubs in Bogota and Medellin to where certain members live, and the impact of price increases on imported products due to the Colombian peso devaluation.  While we continue to see new member sign-ups in Colombia, and an improving renewal rate of current members in Colombia, the twelve-month renewal rate is impacted by those non-renewals earlier in the fiscal year.   The Company’s twelve-month renewal rate for the period ended August 31, 2016 declined to 80% from 86%Total revenue margin decreased 100 basis points (1.0%) for the twelve months ended August 31, 2015.  Excluding Colombia, the twelve-month renewal rate was 87% as of August 31, 2016, consistent with 87% in August 2015, November 2015, and February 2016. 

28


Results of Operations

Results of Operations Consolidated



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended

Results of Operations Consolidated

 

 

August 31, 2017

 

 

 

August 31, 2016

 

 

 

August 31, 2015

 

(Amounts in thousands, except percentages and number of
warehouse clubs)

 

 

 

 

 

 

 

 

 

 

 

 

Net warehouse club sales

 

$

2,910,062 

 

 

$

2,820,740 

 

 

$

2,721,132 

 

Warehouse club sales gross margin

 

$

422,916 

 

 

$

403,374 

 

 

$

400,058 

 

Warehouse club gross margin percentage

 

 

14.5 

%

 

 

14.3 

%

 

 

14.7 

%

Total revenues

 

$

2,996,628 

 

 

$

2,905,176 

 

 

$

2,802,603 

 

Percentage change from prior period

 

 

3.1 

%

 

 

3.7 

%

 

 

11.3 

%

Total comparable warehouse club sales increase (decrease)

 

 

1.5 

%

 

 

(0.8)

%

 

 

2.7 

%

Total gross margin

 

$

476,876 

 

 

$

455,550 

 

 

$

449,764 

 

Gross margin percentage to total revenues

 

 

15.9 

%

 

 

15.7 

%

 

 

16.0 

%

Selling, general and administrative

 

$

340,647 

 

 

$

318,827 

 

 

$

303,398 

 

Selling, general and administrative percentage of total revenues

 

 

11.4 

%

 

 

11.0 

%

 

 

10.8 

%

Operating income - Central America

 

$

134,826 

 

 

$

135,232 

 

 

$

129,555 

 

Operating income - Caribbean

 

$

47,190 

 

 

$

51,450 

 

 

$

48,856 

 

Operating income - Colombia

 

$

4,932 

 

 

$

(5,403)

(1)

 

$

(1,846)

 

Operating Income - United States

 

$

10,436 

 

 

$

10,970 

(2)

 

$

28,789 

 

Reconciling Items (3)

 

$

(61,155)

 

 

$

(55,526)

 

 

$

(58,988)

 

Operating income - Total

 

$

136,229 

 

 

$

136,723 

 

 

$

146,366 

 

Operating income as a percentage of total revenues

 

 

4.5 

%

 

 

4.7 

%

 

 

5.2 

%

Warehouse clubs at period end

 

 

39 

 

 

 

38 

 

 

 

37 

 

Warehouse club square feet at period end

 

 

2,926 

 

 

 

2,836 

 

 

 

2,671 

 

(1)

The decrease in operating income for the Colombia segment in fiscal year 2016 compared to fiscal year 2015 was primarily a result of a 26.0% average decrease in the value of the Colombian peso versus the U.S. dollar during fiscal year 2016.

(2)

The decrease in operating income for the United States Operations in fiscal year 2016 compared to fiscal year 2015 was primarily a result of the increase in operating expenses related to intercompany transactions with the Company’s Colombia subsidiary of approximately $10.9 million. 

(3)

Certain revenues, operating costs and inter-company charges included in the United States segment are not allocated to the segments within this presentation, as it is impractical to do so, and they appear as reconciling items to reflect the amount eliminated on consolidation of intersegment transactions.

Comparison of 2017 to 2016

Warehouse Club gross margin as a percent of net warehouse sales increased 23 basis points (0.23%) to 14.5% for the twelve months ended August 31, 20172022, compared to the same twelve monthprior-year period, a year ago due to increasedwhich is primarily the result of the sale on October 1, 2021 of our casillero and marketplace business, which had higher revenue margins in Colombia, resulting from improving market conditions and business performance.  Warehouse Clubthan our core operations, along with the lower total gross margins in Colombia increased 273margin percentage of 70 basis points (2.73%(0.7%).  Warehouse Club gross margins in Central America and the Caribbean were approximately equal to the same period a year ago.

34


Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, pre-opening expenses, and loss/(gain)loss on disposal of assets. In total, selling, general and administrative expenses increased $21.8by $27.6 million, or 5.7% year-over-year but decreased to 11.4%12.6% of salestotal revenues for fiscal year 2022 compared to 11.0%13.4% of sales intotal revenues for fiscal year 2016.  2021.

Warehouse club and other operations expenseexpenses decreased to 9.3% of total revenues for fiscal year 2022 compared to 9.9% for fiscal year 2021, primarily due to the elimination for most of fiscal year 2022 of operating expenses associated with our casillero and marketplace business due to the sale of Aeropost on October 1, 2021. The 50 basis point savings resulting from the Aeropost sale was 9.2% of sales compared 8.9% a year ago.  Low or negative comparablesupplemented by reduced warehouse club sales growth, particularlyand other operations expenses as a percentage of revenue in Trinidad andour Costa Rica contributedmarket, which decreased 10 basis points (0.1%) primarily due to an overall increasehigher sales volumes driving favorable leverage in warehouse expense as a percent of sales in Central Americaexpenses and the Caribbean.  Colombia haddevaluation of the Costa Rica Colón.

General and administrative expenses decreased to 3.3% of total revenues for the current year compared to 3.5% for the prior fiscal year. The 20 basis point (0.2%) decrease is primarily due to a 50 basis point (0.50%) improvement in warehouse club operations expense as a percent of sales compared to fiscal year 2016.  General and administrative expenses grew 8.8% to 2.4% of sales compared to a year ago at 2.2% of sales resulting from increased staffing in our buying department, information technology costs and costs associated with the relocation of an executive to our San Diego headquarters. Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses, which in fiscal year 2016 included the preopening expenses for Chia, Colombia and Masaya, Nicaragua.

Operating income of $136.2 million was $494,000 below last year.  Higher net warehouse sales and membership income and increased warehouse club gross margins resulted in a $10.3 million increase in operating profit in Colombia compared to a

29


year ago.  Operating income decreased $406,000 in Central America and $4.3 million in the Caribbean on the low or negative sales growth experienced in those segments.    

Comparison of 2016 to 2015

For the twelve months ended August 31, 2016, total gross margin as a percent of sales was 40 basis points (0.40%) lower than the twelve months ended August 31, 2015.  Total gross margin as a percent of total consolidated revenues  decreased 41 basis points (0.41%) in Colombiadecrease from the year ago period largely as a result of pricing actions we took during the year to provide value on imported goods to our members. Total gross margins as a percent of salesreduction in the non-Colombia markets were in aggregate 1 basis points (0.01%) higher.  This was largely due to increased margins in Central America segment offset by higher level of markdowns, reduced endcap activity and higher per unit distribution costs.

Selling, general and administrative expenses due to the sale of Aeropost. This decrease was partially offset by a 30 basis point (0.30%) increase from our continued investments to support our technology development, talent acquisition, and employee development. Given our strategic initiatives, we intend to continue to invest at comparable levels as a percentage of total revenue, or at higher levels under appropriate circumstances, especially in talent and technology, to enhance our competence and support our three drivers of growth.

Operating income in fiscal year 2022 increased 15to $167.1 million (4.1% of total revenue) compared to $158.0 million (4.4% of total revenue) for the same period last year. This reflects the decrease in total revenue margin of 100 basis points (0.15%(1.0%) year-over-year when compared to total revenues.  The Company incurred the expenses associated with five new warehouse clubs for all or a portion of fiscal year 2016 compared to fiscal year 2015.  The combination of lower first year sales and resulting higher expense ratio for new warehouse clubs compared to more mature clubs, and the cannibalization of sales from, partially offset by an existing nearby club without the proportionate decrease in expenses, resulted in an overall 780 basis point (0.07%(0.8%) increase in warehouse operations expense as a percent of net warehouse sales.  Additionally, added staffingdue to support the Company’s growth, most notably in the buying and information technology areas, and increased deferred compensation expense associated with stock awards granted in the first quarter, added $3.0 millionleveraging of selling, general and administrative expense in fiscal year 2016 compared to fiscal year 2015.expenses over the comparable prior-year period.

During the first and second quarters of fiscal year 2016, pre-opening expenses were related to the warehouse club opened in Managua, Nicaragua during November 2015, and during the third and fourth quarters, pre-opening expenses incurred were related to the new warehouse club opened in Chia, Colombia on September 1, 2016. This resulted in flat spending for both pre-opening and asset disposal costs, when compared to total revenue, year-over-year.

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

Twelve Months Ended

 

August 31,

 

August 31,

August 31,

August 31,

 

2017

 

2016

2022

2021

 

Amount

 

Increase/
(decrease)
from prior
year

 

Amount

Amount

Change

Amount

Interest expense on loans

 

$

5,636 

 

$

645 

 

$

4,991 

$

7,640 

$

1,804 

$

5,836 

Interest expense related to hedging activity

 

 

1,588 

 

 

(394)

 

 

1,982 

3,234 

(421)

3,655 

Capitalized interest

 

 

(447)

 

 

635 

 

 

(1,082)

Less: Capitalized interest

(1,263)

1,018 

(2,281)

Net interest expense

 

$

6,777 

 

$

886 

 

$

5,891 

$

9,611 

$

2,401 

$

7,210 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2016

 

2015



 

Amount

 

Increase/
(decrease)
from prior
year

 

Amount

Interest expense on loans

 

$

4,991 

 

$

187 

 

$

4,804 

Interest expense related to hedging activity

 

 

1,982 

 

 

(709)

 

 

2,691 

Capitalized interest

 

 

(1,082)

 

 

(27)

 

 

(1,055)

Net interest expense

 

$

5,891 

 

$

(549)

 

$

6,440 

InterestNet interest expense reflects borrowings by PriceSmart, Inc. and our wholly owned foreign subsidiaries to finance new land acquisition and construction for new warehouse clubs, warehouse club expansions and distribution centers, the capital requirements of warehouse club and other operations and ongoing working capital requirements.

Comparison of 2017 to 2016

Net interest expense increased for fiscal year 2017 increased from a year ago, with anthe twelve-month period ended August 31, 2022, primarily due to the increase in long-term debt, primarily to finance the acquisition of the distribution centerborrowings in Miami, Florida and an additional loan within our Trinidad subsidiary as part

30


Tablemarket to facilitate conversion of Contents

effortsTrinidad dollars to improve liquidity. Additionally,US dollars and a decrease in capitalized interest capitalized year-over-year, due to lower levels offrom fewer construction activities, also accounted for the increased interest expense.  These increases were partially offset by the decrease in interest expense related to hedging activity dueprojects compared to the retirement of loans and their related cross-currency interest rate hedges for our Colombia subsidiary.  prior year.

Comparison of 2016 to 2015Other Expense, net

Net interestOther expense, for the twelve-months ended August 31, 2016 decreased from the prior fiscal year due to a decrease in interest expense from hedging activity.  This was primarily related to the decrease in the volatility in interest rates for the interest rates related to the hedged loans.  This decrease was partially offset by an increase in interest expense related the net, increase of new loans for approximately $11.6 million year-on year.    

Other Income (Expense), net

Other income consists of currency gaingains or losslosses, as well as net benefit costs related to our defined benefit plans and proceeds from insurance reimbursements.other items considered to be non-operating in nature.



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2017

 

2016



 

Amount

 

Increase/ (decrease) from prior year

 

%Change

 

Amount

Other income (expense), net

 

$

1,482 

 

$

2,381 

 

(264.8)

%

 

$

(899)

Years Ended

August 31,

August 31,

2022

2021

Amount

Decrease
from
prior year

Amount

Other expense, net

$

(3,235)

$

2,368

$

(5,603)

35


Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2016

 

2015



 

Amount

 

Increase/ (decrease) from prior year

 

%Change

 

Amount

Other income (expense), net

 

$

(899)

 

$

3,489 

 

(79.5)

%

 

$

(4,388)

Monetary assets and liabilities denominated in currencies other than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gaingains (losses), including repatriation of funds, are recorded as currency gaingains or losses.

ReceiptsAdditionally, gains or losses from insurance reimbursements up totransactions denominated in currencies other than the amountfunctional currency of the losses recognized are considered recoveries. These recoveries are accounted for when they are probable of receipt. Insurance recoveries are not recognized prior to the recognition of the related cost. Anticipated proceeds in excess of the amount of loss recognized are consideredrespective entity also generate currency gains and are subject to gain contingency guidance. Anticipated proceeds in excess of a loss recognized in the financial statements are not recognized until all contingencies related to the insurance claim are resolved.or losses.

Comparison of 2017 to 2016

For the twelve-month period, we had atwelve-months ended August 31, 2022 the primary driver of Other expense, net gain associated with foreign currency transactions of approximately $1.2 million compared to an approximate $899,000 net loss in fiscal year 2016. This net gain resulted from the revaluation of net U.S. dollar assets in certain markets where the local functional currency devalued against the U.S. dollar, and from exchange transactions, net of any exchange reserve movements.  We also continue to incurwas higher transaction costs of $7.4 million associated with converting TTTrinidad dollars into available tradeable currencies, such as Euroseuros or Canadian dollars, before converting them to U.S. dollars, whichdollars. These expenses were partially offset the gains resulting from revaluations. While that situation continues in Trinidad, we have taken that additional cost into consideration in our pricing model.

During the fourth quarterby a gain of fiscal year 2017, we recorded income for approximately $241,000 due to an insurance recovery for losses recognized in fiscal year 2015.

31


Table of Contents

Comparison of 2016 to 2015

We had a net loss$2.7 million associated with foreign currency transactionsthe sale of approximately $899,000 for fiscal year 2016 compared to a net loss of approximately $4.4 million for fiscal year 2015. The improvement in fiscal year 2016 compared to 2015 is mostly related to Colombia where we took a number of actions to mitigate any large exposures to the Colombian peso, including increased capitalization of the Colombianour Aeropost subsidiary which allows for timely payments by the Colombia subsidiary for merchandise and fixed assets shipped by PriceSmart, Inc. to Colombia. We experienced increased volatility of currencies within our other markets that largely offset each other.on October 1, 2021.

Provision for Income Taxes

The tables below summarize the effective tax rate for the periods reported:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

Years Ended

 

August 31,

 

August 31,

August 31,

August 31,

 

2017

 

2016

2022

2021

 

Amount

 

Increase/

(decrease)

 from

prior year

 

Amount

Amount

Change

Amount

Current tax expense

 

$

44,865 

 

 

$

4,891 

 

$

39,974 

 

$

55,158

$

2,336

$

52,822

Net deferred tax provision (benefit)

 

 

(2,847)

 

 

 

(5,722)

 

 

2,875 

 

Net deferred tax benefit

(3,300)

553

(3,853)

Provision for income taxes

 

$

42,018 

 

 

$

(831)

 

$

42,849 

 

$

51,858

$

2,889

$

48,969

Effective tax rate

 

 

31.7 

%

 

 

 

 

 

32.6 

%

33.2

%

33.3

%



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,



 

2016

 

2015



 

Amount

 

Increase/

(decrease)

 from

prior year

 

Amount

Current tax expense

 

$

39,974 

 

 

$

(4,620)

 

$

44,594 

 

Net deferred tax provision (benefit)

 

 

2,875 

 

 

 

(97)

 

 

2,972 

 

Provision for income taxes

 

$

42,849 

 

 

$

(4,717)

 

$

47,566 

 

Effective tax rate

 

 

32.6 

%

 

 

 

 

 

34.8 

%

Comparison of 2017 to 2016

For fiscal year 2017,2022, the effective tax rate was 31.7%.33.2% compared to 33.3% for fiscal year 2021. The decrease in the effective rate versus the prior year was primarily attributable to the following factors:

1.

The favorable impact of 1.3% due predominantly to the non-recurrence in fiscal year 2017 of the adverse impact in the prior year from setting up a valuation allowance against the deferred tax assets of the Company’s Barbados subsidiary;

2.

A  decrease in fiscal year 2017 in the magnitude of an intercompany transaction between PriceSmart, Inc. and our Colombian subsidiary in support of PriceSmart’s ongoing market development and growth in Colombia compared to fiscal year 2016. Reduction to this intercompany transaction, year over year, resulted in a comparatively unfavorable impact on the effective tax rate of 0.9% due to less reductions to taxable income in the U.S. and less reciprocal increase in taxable income in our Colombia subsidiary in fiscal year 2017 compared to fiscal year 2016. This income did not generate income tax expense in Colombia, because the additional taxable income in Colombia was fully offset by the reversal of valuation allowances on accumulated net losses in that subsidiary. We expect the decrease of the favorable impact to the consolidated Company’s effective tax rate over the next several quarters to continue; and

3.

The comparably favorable impact of 1.4% resulting from improved financial results in the Company’s Colombia subsidiary for which no tax benefit was recognized, net of adjustment to valuation allowance.

32


Table of Contents

Comparison of 2016 to 2015

For fiscal year 2016, the effective tax rate was 32.6%.  The decrease in the effective rate versus the prior year was primarily attributable to an intercompany transaction between PriceSmart, Inc. and our Colombian subsidiary in support of PriceSmart’s ongoing market development and growth in Colombia.  This intercompany transaction resulted in a favorable impact onof 0.4% resulting from the effective tax rate of 3% due to reductions to taxable income in the U.S. and a resulting increase in taxable income in our Colombia subsidiary. This income did not generate income tax expense in Colombia, because the additional taxable income in Colombia was fully offset by the reversal of valuation allowances on accumulated net losses in that subsidiary.  We expect a similar favorable impact to the consolidated Company’s effective tax rate over the next several quarters.  Additionally, in comparison to the prior year, there was an offsetting unfavorable impact of 1.5% due to the establishment of a valuation allowance against the deferred tax assetseffect of the Company’s Barbados subsidiary. While the Company’s forecasts indicate profitability for the immediatechange in foreign currency value and foreseeable future, the existence of negative objective evidence from recent years established the need for a valuation allowance of approximately $2.0 million in order to reduce deferred tax assets to amounts expected to be realized.related adjustments.

Other Comprehensive Income (Loss)Loss



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Summary of Changes in Other Comprehensive Income (loss)



 

Years Ended



 

August 31,

 

August 31,

 

August 31,



 

2017

 

2016

 

2015



 

Amount

 

(Decrease)

from

prior year

 

% Change

 

Amount

 

(Decrease)
from
prior year

 

% Change

 

Amount

Foreign currency translation adjustments

 

$

(108,539)

 

$

(6,297)

 

6.2 

%

 

$

(102,242)

 

$

(1,702)

 

1.7 

%

 

$

(100,540)

Defined benefit pension plan

 

 

(442)

 

 

(127)

 

40.3 

%

 

 

(315)

 

 

(202)

 

178.8 

%

 

 

(113)

Derivative Instruments

 

 

(1,078)

 

 

316 

 

(22.7)

%

 

 

(1,394)

 

 

(535)

 

62.3 

%

 

 

(859)

Total

 

$

(110,059)

 

$

(6,108)

 

5.9 

%

 

$

(103,951)

 

$

(2,439)

 

2.4 

%

 

$

(101,512)

Comparison of 2017 to 2016

Other comprehensive income/(loss)loss for fiscal years 20172022 and 20162021 resulted primarily from foreign currency translation adjustments related to the assets and liabilities and the translation of the statements of income related to revenue, costs and expenses of our subsidiaries whose functional currency is not the U.S. dollar. When the functional currency in our international subsidiaries is the local currency and not U.S. dollars, the assets and liabilities of such 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 not affect net income until the sale or liquidation of the underlying investment. The reported other comprehensive income or loss reflects the unrealized increase or decrease in the value in U.S. dollars of the net assets of the subsidiaries as of the date of the balance sheet, which will vary from period to period as exchange rates fluctuate.

Other Comprehensive Loss

Years Ended

August 31,

August 31,

2022

2021

Amount

Change From Prior Year

% Change

Amount

Other comprehensive loss

$

(13,078)

$

(7,390)

(129.9)

%

$

(5,688)

Our other comprehensive loss of approximately $13.1 million for fiscal 2022 resulted primarily from the comprehensive loss of approximately $19.0 million from foreign currency translation adjustments related to assets and liabilities and the translation of revenue, costs and expenses on the statements of income of our subsidiaries whose functional currency is not the U.S. dollar. During fiscal year 2017,2022, the largest translation adjustments were related to the translationdevaluation of the local currencies against the U.S. dollar for our Colombia and Costa Rica subsidiaries, partially offset by the translation adjustment for the appreciation of the local currency against the U.S. dollar of our Dominican Republic and Nicaragua subsidiaries’ balance sheets and statementssubsidiary. These losses were offset by approximately $6.2 million related to unrealized gains on changes in the value of income that required us to record losses to comprehensive net income on translationour derivative obligations.

36


Table of approximately $6.8 million. Contents

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

Our operations have historically supplied us with a significant source of liquidity. We requiregenerate cash from operations primarily through net merchandise sales and membership fees. Cash used in operations generally consist of payments to our merchandise vendors, warehouse club and distribution center operating costs (including payroll, employee benefits and utilities), as well as payments for income taxes. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have generally been sufficient to fund our operating expenses and working capital requirements, includingoperations while allowing us to invest in activities that support the investment in merchandise inventories, acquisitionlong-term growth of land and construction of new warehouse clubs and distribution centers, expansion of existing warehouse clubs and distribution centers, acquisitions of fixtures and equipment, routine upgrades and maintenance of fixtures and equipment within existing warehouse clubs, investments in joint ventures in Panama and Costa Rica to own and operate commercial retail centers located adjacent to the new warehouse clubs, the purchase of treasury stock upon the vesting of restricted stock awards and payment of dividends to stockholders.  Our primary sources for funding these requirements are cash and cash equivalents on hand, cash generated fromour operations and bank borrowings.to pay dividends on our common stock. We evaluate our funding requirements on a regular basis whether we may need to borrow additional funds to cover any shortfall in our ability to generate sufficient cash from operations to meet our operating and capital requirements. As such, weWe may enter into or obtain additional loans and/or credit facilitiesconsider funding alternatives to provide additional liquidity whenif necessary. In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (TopicRefer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt” for additional information regarding our drawdown on our short-term facilities and long-term borrowings.

33


Table of Contents

230)—Restricted Cash. This ASU addresses the diversity in practice that exists regarding the classification and the presentation of changes in restricted cash on the statement of cash flows. The amendments in ASU No. 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts set forth on the statement of cash flows.  The Company early adopted this ASU, and has accordingly updated its liquidity analysis to reflect the change.

The following table summarizes the cash and cash equivalents held by our foreign subsidiaries and domestically (in thousands).  Repatriation of cash and cash equivalents held by foreign subsidiaries may require us to accrue and pay taxes. We have no plans at this time to repatriate cash through the payment of cash dividends by our foreign subsidiaries to our domestic operations and, therefore, have not accrued taxes that would be due from repatriation.

The following table summarizes the cash and cash equivalents, including restricted cash, held by our foreign subsidiaries and domestically (in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

August 31,

 

August 31,



 

2017

 

2016

Cash and cash equivalents held by foreign subsidiaries

 

$

139,270 

 

$

163,247 

Cash and cash equivalents held domestically

 

 

26,442 

 

 

39,469 

Total cash and cash equivalents

 

$

165,712 

 

$

202,716 

August 31,

August 31,

2022

2021

Amounts held by foreign subsidiaries

$

203,952

$

160,808

Amounts held domestically

47,421

54,671

Total cash and cash equivalents, including restricted cash

$

251,373

$

215,479

The following table summarizes the short-term investments held by our foreign subsidiaries and domestically (in thousands):

August 31,

August 31,

2022

2021

Amounts held by foreign subsidiaries

$

11,160

$

50,233

Amounts held domestically

Total short-term investments

$

11,160

$

50,233

As of August 31, 2022, there were no certificates of deposit with a maturity of over a year held by our foreign subsidiaries and domestically, while there were $1.5 million as of August 31, 2021.

From time to time, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through warehousemerchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products increasingor otherwise fund our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar.  Duringoperations. Since fiscal year 2017, and continuing into fiscal year 2018, we have experienced this situation in Trinidad (“TT”).  Weand have been and continueunable to worksource a sufficient level of tradeable currencies. We are working with our banks in Trinidad and government officials to source tradable currencies (including Euros and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this illiquidity condition is likely to continue. During partconvert all of the first half of fiscal year 2017, we limited shipments of merchandise to Trinidad from our distribution center in Miami to levels that generally aligned with our Trinidad subsidiary’s abilitydollars into tradeable currencies. We have and continue to source U.S. dollarstake additional actions in this respect. Refer to pay“Management’s Discussion & Analysis – Factors Affecting Our Business” for that merchandise.  This resulted in a reduced levelour quantitative analysis and discussion.

The following table summarizes our significant sources and uses of shipments, which negatively affected sales in the second quarter, particularly December, although by less than our initial estimate. These actions did not impact the level of merchandise we obtain locally in Trinidad.  Starting in the third quarter of fiscal year 2017, we were able to improve our sourcing of tradeable currencies, which, in addition to other steps we took, allowed for a more normalized flow of imported merchandise during the thirdcash and fourth fiscal quarters.  As of August 31, 2017, our Trinidad subsidiary had net U.S. dollar denominated assets of approximately $4.0 million. However, the illiquidity situation remains in the Trinidad market, and we could face similar issues in sourcing U.S. dollars during the first and second quarters of fiscal year 2018, which may require us to limit shipments from the U.S. to Trinidad in line with our ability to exchange Trinidad dollars for tradeable currencies to manage our exposure to any potential devaluation.cash equivalents:

Our cash flows are summarized as follows (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,

 

August 31,



 

2017

 

2016

 

2015

Net cash provided by (used in) operating activities

 

$

122,856 

 

$

141,531 

 

$

109,582 

Net cash provided by (used in) investing activities

 

 

(135,217)

 

 

(78,175)

 

 

(89,082)

Net cash provided by (used in) financing activities

 

 

(21,805)

 

 

(16,460)

 

 

(16,955)

Effect of exchange rates

 

 

(2,838)

 

 

(2,777)

 

 

(11,412)

Net increase (decrease) in cash and cash equivalents

 

$

(37,004)

 

$

44,119 

 

$

(7,867)

Years Ended

August 31,

August 31,

2022

2021

Change

Net cash provided by operating activities

$

121,829

$

127,166

$

(5,337)

Net cash used in investing activities

(74,756)

(116,721)

41,965

Net cash used in financing activities

(12,209)

(95,137)

82,928

Effect of exchange rates

1,030

(3,600)

4,630

Net increase (decrease) in cash and cash equivalents

$

35,894

$

(88,292)

$

124,186

3437


Table of Contents

Our

Net cash provided by operating activities provided cash for all periods presented as summarized below:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended

 

Increase/



 

August 31,

 

August 31,

 

August 31,

 

(Decrease)



 

2017

 

2016

 

2015

 

2017 to 2016

 

2016 to 2015

Net income

 

$

90,724 

 

$

88,723 

 

$

89,124 

 

$

2,001 

 

$

(401)

Adjustments to reconcile net income to net cash provided from (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

46,292 

 

 

39,794 

 

 

34,445 

 

 

6,498 

 

 

5,349 

(Gain) loss on sale of property and equipment

 

 

1,961 

 

 

1,162 

 

 

2,005 

 

 

799 

 

 

(843)

Deferred income taxes

 

 

(2,845)

 

 

2,875 

 

 

2,972 

 

 

(5,720)

 

 

(97)

Stock-based compensation expenses

 

 

9,524 

 

 

8,511 

 

 

4,763 

 

 

1,013 

 

 

3,748 

Other non-cash operating activities

 

 

 

 

(325)

 

 

(94)

 

 

326 

 

 

(231)

Proceeds from settlement of derivatives

 

 

 —

 

 

 —

 

 

8,543 

 

 

 —

 

 

(8,543)

Net non-cash related expenses

 

$

54,933 

 

$

52,017 

 

$

52,634 

 

$

2,916 

 

$

(617)

Net income from operating activities reconciled for non-cash operating activities

 

 

145,657 

 

 

140,740 

 

 

141,758 

 

 

4,917 

 

 

(1,018)

Changes in operating assets and liabilities not including merchandise inventories

 

 

5,238 

 

 

16,523 

 

 

8,616 

 

 

(11,285)

 

 

7,907 

Changes in merchandise inventories

 

 

(28,039)

 

 

(15,732)

 

 

(40,792)

 

 

(12,307)

 

 

25,060 

Net cash provided by (used in) operating activities

 

$

122,856 

 

$

141,531 

 

$

109,582 

 

$

(18,675)

 

$

31,949 

Net income from operating activities reconciled for non-cash operating activities increased approximately $4.9totaled $121.8 million and $127.2 million for the twelve-monthstwelve months ended August 31, 2017 over the same period last year.  This was primarily a result of a year-over-year increases2022 and 2021, respectively. The decrease in net income of approximately $2.0 million and a year-over-year increase in non-cash adjustments of  approximately $2.9 million.    The increase in non-cash adjustment wascash provided by operating activities is primarily the result of net changes in operating assets and liabilities. Specifically, changes in various current and non-current assets and current liabilities resulted in a $13.8 million use of cash for fiscal year 2022 compared to $13.1 million of cash provided by changes in the increase in depreciation and amortization due to the openingsame accounts in fiscal year 20172021. Most of a new warehouse clubthese changes in Colombia, a new distribution center in Miami and continued expansion of existing facilities combined with the normal ongoing additions to fixtures and equipment.  Additionally the non-cash related expenses also increased due to stock-based compensation expenses for approximately $1.0 million associated with stock awards granted in the first quarter.  These were offset by year-on-year decreases in non-cash adjustments related to the increase in deferred income taxes for approximately $5.7 million.  The increasefiscal year 2022 resulted from increases in deferred tax assets and the year-over-year in accrued payroll during the twelve months ended August 31, 2022 compared to the prior year. The net changes in operating assets and liabilities were partially offset by an increase in net income for the twelve months ended August 31, 2022 over the prior-year period and favorable changes in merchandise inventories and accounts payable. Inventory was primarily$464.4 million as of August 31, 2022, compared with $389.7 million at August 31, 2021. The increase in the inventory balance compared to the prior fiscal year is the result of the non-recurrence ofthree additional clubs, carrying higher than normal safety stock as a valuation allowance establishedprecaution against the net deferred tax assets of the Company’s Barbados subsidiary in fiscal year 2016; an increase in foreign tax credit generation related to our offshore warehouse club operations;supply chain disruption and a decrease in U.S. foreign tax credit utilization related to tax deduction timing.inflationary pressure on material inputs.

Net income from operating activities reconciled for non-cash operating activities decreased approximately $1.0 million for the twelve-months ended August 31, 2016 over the same period last year.  This was primarily a result of a year-over-year decrease in net income of approximately $400,000 and a year-on-year decrease in non-cash adjustments of approximately $617,000.  The decrease in non-cash adjustment was primarily the result of proceeds from settlements of derivatives recorded in fiscal year 2015 for approximately $8.5 million, with no proceeds being recorded during fiscal year 2016.  This decrease to net non-cash related expenses was partially offset by increases in depreciation expenses for approximately $5.3 million and increases in stock-based compensation expenses for approximately $3.7 million associated with stock awards granted in the first quarter of fiscal year 2016.  The increase in depreciation is due to new warehouse club investments and the continued ongoing capital improvements to existing warehouse clubs. 

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Table of Contents

Our use of cash in investing activities for the period presented is summarized below:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended

 

Increase/



 

August 31,

 

August 31,

 

August 31,

 

(Decrease)



 

2017

 

2016

 

2015

 

2017 to 2016

 

2016 to 2015

Land acquisitions

 

$

30,199 

 

$

3,161 

 

$

16,780 

 

$

27,038 

 

$

(13,619)

Deposits for land purchase option agreements

 

 

300 

 

 

442 

 

 

(1,095)

 

 

(142)

 

 

1,537 

Warehouse club expansion, construction, and land improvements

 

 

57,685 

 

 

33,064 

 

 

45,414 

 

 

24,621 

 

 

(12,350)

Acquisition of fixtures and equipment

 

 

47,410 

 

 

41,475 

 

 

26,991 

 

 

5,935 

 

 

14,484 

Proceeds from disposals of property and equipment

 

 

(377)

 

 

(86)

 

 

(368)

 

 

(291)

 

 

282 

Capital contribution to joint ventures

 

 

 —

 

 

119 

 

 

1,360 

 

 

(119)

 

 

(1,241)

Net cash flows used by (provided in) investing activities

 

$

135,217 

 

$

78,175 

 

$

89,082 

 

$

57,042 

 

$

(10,907)

Net cash used in investing activities increasedtotaled $74.8 million and $116.7 million, respectively, for the years ended August 31, 2022 and August 31, 2021. The decrease is primarily the result of a decrease in fiscal year 2017purchases of certificates of deposits compared to fiscal year 2016 by approximately $57.0 million.  This wasthe same twelve-month period a year-ago, primarily due to an increaseour being able to source more U.S. dollars in cashTrinidad. Refer to “Management’s Discussion and Analysis – Factors Affecting Our Business” for additional discussion of the current U.S. dollar illiquidity we are experiencing in that market. The decrease was partially offset by higher property and equipment expenditures relatedcompared to the acquisitionsame twelve-month period a year-ago to support growth of a distribution center in Medley, Miami-Dade County, Florida in January 2017, construction activities for a warehouse club in Santa Ana, Costa Rica that opened in  October 2017, construction activities for a warehouse club in the Santa Domingo, Dominican Republic that we plan to open in the spring of 2018 and construction activities for a warehouse club in Chia, Colombia that opened in September 2016.  The Company also used cash for the acquisition of land in Costa Rica and the Dominican Republic. An increase in overall warehouse club expansion activities, related to warehouse expansions in Guatemala, Honduras and El Salvador during fiscal year 2017 also increased year-over-year investing activities.our real estate footprint.

Net cash used in investingfinancing activities decreasedtotaled $12.2 million and $95.1 million for the twelve months ended August 31, 2022 and 2021, respectively. Our cash flows used for financing activities are used primarily to repay long-term and short-term borrowings use to fund our working capital needs, our warehouse club and distribution center acquisitions and expansions, and investments in fiscal year 2016 comparedtechnology to fiscal year 2015 by approximately $10.9support our omni-channel initiatives. The $82.9 million decrease in cash used in financing activities is primarily due to decreaseslower net repayments of short-term debt compared to the same twelve-month period a year-ago, when we were repaying short-term facilities accessed at the early stages of the COVID-19 pandemic and obtaining additional financing (primarily the $25 million loan in cash expended forTrinidad to address U.S. dollar liquidity challenges in that market).

The following table summarizes the purchase of land, the decrease in expenditures for warehouse club expansion,dividends declared and a lower level of construction and land improvement activitiespaid during fiscal year 2016. These decreasesyears 2022, 2021 and 2020 (amounts are per share):

First Payment

Second Payment

Declared

Amount

Record
Date

Date
Paid

Amount

Record
Date

Date
Paid

Amount

2/3/2022

$

0.86

2/15/2022

2/28/2022

$

0.43

8/15/2022

8/31/2022

$

0.43

2/4/2021

$

0.70

2/15/2021

2/26/2021

$

0.35

8/15/2021

8/31/2021

$

0.35

2/6/2020

$

0.70

2/15/2020

2/28/2020

$

0.35

8/15/2020

8/31/2020

$

0.35

Short-Term Borrowings and Long-Term Debt

Our financing strategy is to ensure liquidity and access to capital markets while minimizing our borrowing costs. The proceeds of these borrowings were partially offset by period-over-period increases in the acquisition of fixtures and equipment and depositsor will be used for land purchase option agreements. During fiscal year 2016, expendituresgeneral corporate purposes, which may include, among other things, funding for warehouse club expansions and for fixtures and equipment were associated with the construction of the completed warehouse club in Managua, Nicaragua that opened in November 2015 and construction activities of a warehouse club in Chia, Colombia, during fiscal year 2016. Net cash used in investing activities in fiscal year 2015 consisted of cash expended for the construction and completion of warehouse clubs in Bogota, Colombia ("Salitre"), Pereira, Colombia, and Medellin, Colombia and the additions of fixtures and equipment for these warehouse clubs. Additionally, we constructed a warehouse club in Panama during the first nine months of fiscal year 2015.  Acquisition of fixtures and equipment increased year-over-year by approximately $14.4 million. This was primarily due to the continued normal ongoingworking capital, capital expenditures, acquisitions, and repayment of existing debt. Refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt.” for the upgrade and replacement of equipment and building and leasehold improvements.further discussion.

As of August 31, 2017, we had commitments for capital expenditures for new warehouse club construction for approximately $7.9 million related to our building of warehouse clubs in Santa Ana, Costa Rica and Santo Domingo, Dominican Republic.  We expect to spend between $120.0 million and $140.0 million in capital expenditures for ongoing replacement of equipment, building/leasehold improvements, expansion projects on existing warehouse clubs and land acquisitions during fiscal year 2018.  Future capital expenditures will be dependent on the timing of future land purchases and/or warehouse club construction activity.

We have entered into land purchase option agreements within our subsidiaries that have not been recorded as a commitments, for which we have recorded deposits of approximately $600,000.  The land purchase option agreements can generally be canceled at our sole option with the deposits being fully refundable up and until all permits are issued.  We also entered into a land lease option in one of our markets, for which no deposits have been made. We do not have a timetable of when or if we will exercise these land purchase/lease options, due to the uncertainty related to the completion of our due diligence reviews.  Our due diligence reviews include evaluations of the legal status of the property, the zoning and permitting issues related to acquiring approval for the construction and operation of a warehouse club and any other issues related to the property itself that could render the property unsuitable or limit the property's economic viability as a warehouse club site.  If all of these purchase option agreements are exercised, the cash use for the acquisition of land would be approximately $20.8 million.  We may enter into additional land purchase option agreements in the future.

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Table of Contents

 In January 2017, the Company finalized its acquisition of a distribution center in Medley, Miami-Dade County, Florida, for a total purchase price of approximately $46.0 million and the Company transferred its Miami dry distribution center activities previously located in its leased facilities to this location.  This was completed during the third quarter of fiscal year 2017. The Company has terminated and intends to continue to terminate leases with respect to portions of the existing leased Miami distribution facilities or enter into sublease agreements for portions of the leased facilities.

Net cash provided by (used in) financing activities for the period presented is summarized below:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Years Ended

 

Increase/



 

August 31,

 

August 31,

 

August 31,

 

(Decrease)



 

2017

 

2016

 

2015

 

2017 to 2016

 

2016 to 2015

New bank loans offset by regularly scheduled payments on existing bank loans (loan activities)

 

$

31,638 

 

$

(2,155)

 

$

22,072 

(1)

$

33,793 

 

$

(24,227)

New short-term bank loans, offset by payments

 

 

(16,501)

 

 

9,613 

 

 

9,521 

 

 

(26,114)

 

 

92 

Repayment of long-term debt with cross-currency and/or  interest rate swaps

 

 

(13,333)

(2)

 

 —

 

 

(24,000)

(2)

 

(13,333)

 

 

24,000 

Cash dividend payments

 

 

(21,285)

 

 

(21,274)

 

 

(21,126)

 

 

(11)

 

 

(148)

Proceeds from exercise of stock options and the tax benefit related to stock-based compensation

 

 

869 

 

 

690 

 

 

1,255 

 

 

179 

 

 

(565)

Purchase of treasury stock related to vesting of restricted stock

 

 

(3,193)

 

 

(3,334)

 

 

(4,677)

 

 

141 

 

 

1,343 

Net cash (used in)/provided by financing activities

 

$

(21,805)

 

$

(16,460)

 

$

(16,955)

 

$

(5,345)

 

$

495 

(1)

New bank loans offset by establishment of certificates of deposit held against loans and regularly scheduled payments on existing bank loans.

(2)

Early pay down of long-term loans.

Net cash from long-term and short-term loan activities decreased approximately $5.7 million in fiscal year 2017 when compared to fiscal year 2016, with an overall increase in cash due to long-term and short-term loan activities for the year of approximately $1.8 million.  This increase in cash from long-term and short-term loan activities was primarily comprised of the addition of a new loan for approximately $35.7 million related to the acquisition of the Miami distribution center and a new loan within our Trinidad subsidiary for approximately $12.0 million.  These additional loan amounts were offset by regularly scheduled long-term loan payments of $16.1 million, additional net payments of approximately $16.5 million on short-term loans and the early pay down of a loan within our Panama subsidiary for approximately $13.3 million. 

Net cash provided by long-term and short-term loan activities decreased approximately $27.1 million in fiscal year 2016 over fiscal year 2015.  We received cash during fiscal year 2016 from short-term borrowings for approximately $28.9 million and cash from additional long-term loans entered into by our subsidies of approximately $14.4 million.  This increase in cash was offset by repayments of long-term loans of approximately $2.8 million and regularly scheduled loan payments of $13.7 million.  Additional payments for approximately $19.3 million on the short-term loans were recorded. This activity accounted for an overall increase in cash provided by long-term and short-term loan activities of approximately $7.5 million. 

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Table of Contents



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations

 

Payments due in:

Contractual obligations

 

Less than
1 Year

 

1 to 3
Years

 

4 to 5
Years

 

After
5 Years

 

Total

Long-term debt and interest(1)

 

$

18,358 

 

$

34,406 

 

$

20,907 

 

$

32,626 

 

$

106,297 

Operating leases(2)

 

 

11,596 

 

 

22,807 

 

 

18,509 

 

 

116,066 

 

 

168,978 

Additional capital contribution commitments to joint ventures(3)

 

 

884 

 

 

 

 

 

 

 

 

884 

Data recovery services(4)

 

 

372 

 

 

466 

 

 

 

 

 

 

838 

Distribution center services(5)

 

 

152 

 

 

304 

 

 

 

 

 

 

456 

Medley, Miami Dry Distribution Center Exit Obligation(6)

 

 

57 

 

 

 

 

 

 

 

 

57 

Warehouse club construction commitments (7)

 

 

7,891 

 

 

 

 

 

 

 

 

7,891 

Total

 

$

39,310 

 

$

57,983 

 

$

39,416 

 

$

148,692 

 

$

285,401 

(1)

Long-term debt includes debt with both fixed and variable interest rates. We have used rates as of August 31, 2017 to calculate future estimated payments related to the variable rate items.  For the portion of the loans subject to interest rate swaps and cross-currency interest rate swaps, we have used the fixed interest rate as set by the interest rate swaps.

(2)

Operating lease obligations have been reduced by approximately $928,000 to reflect the amounts net of sublease income.  Operating lease obligations include $4.9 million of lease payment obligations for the prior leased Miami distribution center.  For the purposes of calculating the minimum lease payments, no reduction was considered for the potential sub-lease income the Company could receive during the remaining lease term.  This potential sub-lease income was considered, however, for the purposes of calculating the exit obligation of $57,000 recorded on the balance sheet as of August 31, 2017.  Projected income from any executed sub-leases would be used to reduce the amount reported as minimum lease payments.

(3)

Amounts shown are the contractual capital contribution requirements for our investment in the joint ventures that we have agreed to make; however, the parties intend to seek alternate financing for these projects.  The parties may mutually agree on changes to the project, which could increase or decrease the amount of contributions each party is required to provide.

(4)

Amounts shown are the minimum payments under our off-site data recovery services agreement. 

(5)

Amounts shown are the minimum payments under distribution center service agreements for Mexico City.

(6)

In January 2017, the Company purchased a distribution center in Medley, Miami-Dade County, Florida. The Company transferred its Miami dry distribution center activities that were previously in a leased facility to the new facility, during the third quarter of fiscal year 2017. As part of this transaction, the Company has recorded an exit obligation related to the lease of the previous distribution center.  Some portions of the vacated previously leased space were subleased (and subsequently returned to the landlord) while the remainder remains available for sublease.  As part of the subleases the Company has agreed to execute and deliver to the landlord of the leased facility a letter of credit (“LOC”) in the amount of $500,000 which entitles the landlord to draw on the LOC based on a decreasing scale over four years, if certain conditions occur related to nonpayment by the new tenant.  Although this agreement is considered a guarantee, in measuring the fair value, the Company considers the risk and probability of default by the third party tenant as not likely nor probable, based on the Company’s review of the third party tenant’s financial position as well as the third party’s considerable capital investment into the leased facility.  Therefore, the Company has not recorded a liability for this guarantee, nor included a related commitment in the above chart.

(7)

The amounts shown represent contractual obligations for construction services not yet rendered.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on its financial condition or consolidated financial statements.

Repurchase of Equity Securities and Reissuance of Treasury Shares

At the vesting dates for restricted stock awards to our employees, we repurchase a portion of the shares that have vested at the prior day's closing price per share, with the funds used to pay the employees' minimum statutory tax withholding requirements related to the vesting of restricted stock awards. We do not have a stock repurchase program.

Shares of common stock repurchased by us are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in our consolidated balance sheets. We may reissue these treasury shares.  When treasury shares are reissued, we use the first in/first out (“FIFO”) cost method for determining cost of the reissued shares.  If the issuance price is higher than the cost, the excess of the issuance price over the cost is credited to additional paid-in capital (“APIC”).  If the issuance price is lower than the cost, the difference is first charged against any credit balance in APIC from treasury stock and the balance is charged to retained earnings.

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Table of Contents

The following table summarizes the shares repurchased during fiscal years 2017, 20162022, 2021 and 2015:2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

Years Ended

 

August 31,

 

August 31,

 

August 31,

August 31,

August 31,

August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Shares repurchased

 

 

38,634 

 

 

43,171 

 

 

52,396 

88,415

62,282 

56,503 

Cost of repurchase of shares (in thousands)

 

$

3,193 

 

$

3,334 

 

$

4,677 

$

6,259

$

5,542 

$

3,651 

We have reissued 8,300 treasury shares as part of our stock-based compensation programs.  However, as summarized below, we did not reissue anyprograms during fiscal 2022, 96,400 treasury shares during the fiscal years 2017, 2016year 2021 and 2015.

Dividends

The following table summarizes the dividends declared and paid234,400 treasury shares during fiscal years 2017, 2016 and 2015.2020. 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

First Payment

 

Second Payment

Declared

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

2/3/2017

  

$

0.70 

  

2/15/2017

  

2/28/2017

  

$

0.35 

  

8/15/2017

  

8/31/2017

  

$

0.35 

2/3/2016

  

$

0.70 

  

2/15/2016

  

2/29/2016

 

$

0.35 

  

8/15/2016

  

8/31/2016

 

$

0.35 

2/4/2015

 

$

0.70 

  

2/13/2015

  

2/27/2015

 

$

0.35 

  

8/14/2015

  

8/31/2015

 

$

0.35 

Critical Accounting Estimates

We anticipate the ongoing payment of semi-annual dividends

Our financial statements are prepared 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.

Financing Activities

Financing Activities

In August 2017, the Company’s Panama subsidiary paid off outstanding loan principal balance of U.S. $13.3 million under loan agreement entered intoaccordance with Scotiabank. The Company’s subsidiary also settled the interest rate swap that it had entered into with Scotiabank related to this loan.

On March 31, 2017, the Company's Trinidad subsidiary entered into a loan agreement with Citibank, N.A. The agreement provides for a US $12.0 million loan to be repaid in eight quarterly principal payments plus interest.  The interest rate is set at the 90 day LIBOR rate plus 3%.  The loan was funded on March 31, 2017.

On January 27, 2017 the Company entered into a 10-year real estate secured loan with MUFG Union Bank, N.A.  (“Union Bank”). The loan establishes a credit facility of up to 75% LTV of the acquired property at a variable interest rate of 30-day LIBOR plus 1.7% for a ten-year term, with monthly principal and interest payments, maturing in 2027. The monthly principal and interest payments begin in April 2019.  An initial loan amount of $35.7 million was funded on January 27, 2017.  The Company entered into an interest rate hedge on November 7, 2016 with Union Bank for $35.7 million, the notional amount.  The Company will receive variable 30-day LIBOR plus 1.7% and pay fixed (3.65%), with an effective date of March 1, 2017 and maturity date of March 1, 2027.

On May 31, 2016, the Company's Trinidad subsidiary entered into a loan agreement with First Caribbean International Bank (“FCIB”).  The agreement supplements the outstanding loan facility agreement between the same parties.  The amount outstanding under the original loan was approximately $2.8 million as of May 31, 2016.  The agreement provides for a U.S. $7.0 million loan to be repaid in 60 monthly principal payments plus interest, and balloon payment of $2.0 million due on the repayment date.  The interest rate is set at the 90 day LIBOR rate plus 2.75%.  The $7.0 million loan was funded and the pre-existing $2.8 million dollar loan was paid in full on June 8, 2016. 

On September 18, 2015, the Company's Costa Rica subsidiary entered into a loan agreement with Banco BAC San Jose S.A. The agreement establishes a credit facility for 3.955 billion Costa Rican Colones ("CRC") (approximately U.S. $7.4 million) with a fixed interest rate of 7.5% for the first two years, and a rate of 3.0% over the rate of interest used by individual commercial banks as a basis for their lending rates as published by the Central Bank of Costa Rica for the remainder of the term.  The loan term is for seven years with a twelve-month grace period on principal repayment.  Monthly interest is due beginning with the

39


Table of Contents

first month and monthly principal payments are due after the twelve-month grace period ends.  The loan was funded on September 30, 2015.

Derivatives

We are exposed to certain risks relating to our ongoing business operations.  One risk managed by us using derivative instruments is interest rate risk.  To manage interest rate exposure, we enter into hedging transactions (interest rate swaps) using derivative financial instruments.  The objective of entering into interest rate swaps is to eliminate the variability of cash flowsGAAP in the interest payments associated with variable-rate LIBOR loans over the life of the loans.  As changes in interest rates impact the future cash flow of interest payments, the hedges provide a synthetic offset to interest rate movements.

In addition, we are exposed to foreign currency and interest rate cash flow exposure related to non-functional currency long-term debt of two of our wholly owned subsidiaries.  To manage foreign currency and interest rate cash flow exposure, these subsidiaries enter into cross-currency interest rate swaps that convert their U.S. dollar denominated floating interest payments to functional currency fixed interest payments during the life of the hedging instrument.  As changes in foreign exchange and interest rates impact the future cash flow of interest payments, the hedges are intended to offset changes in cash flows attributable to interest rate and foreign exchange movements.

We are also exposed to foreign-currency exchange-rate fluctuations on U.S. dollar denominated liabilities within our international subsidiaries whose functional currency is other than the U.S. dollar.  We manage these fluctuations, in part, through the use of non-deliverable forward foreign-exchange contracts that are intended to offset changes in cash flow attributable to currency exchange movements.  The contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditures made by our international subsidiaries whose functional currency is other than the U.S. dollar.  We seek to mitigate foreign-currency exchange-rate risk with the use of these contracts and do not intend to engage in speculative transactions.  Currently, these contracts do not contain any credit-risk-related contingent features.  These contracts do not qualify for derivative hedge accounting.  The forward currency hedges are not effective cash flow hedges because the notional amount and maturity date of the forward contract does not coincide with the accounts payable balance and due dates.  The hedge ineffectiveness is measured by use of the “hypothetical derivative method,” and we record the changes in the fair value of the forward contract related to the re-measurement of the payable at spot exchange rates as exchange rate gains or losses.  The implied interest rate included within the forward contract is reflected in earnings as interest expense.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction is determined to be ineffective.  There were no such amounts for the periods reported herein.

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Table of Contents

The following table summarizes agreements for which we recorded cash flow hedge accounting transactions during the twelve months ended August 31, 2017:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary

 

Date
Entered
into

 

Derivative
Financial
Counter-
party

 

Derivative
Financial
Instruments

 

Initial
US$
Notional
Amount

 

Bank
US$
loan 
Held
with

 

Floating Leg
(swap
counter-party)

 

Fixed Rate
for PSMT
Subsidiary

 

Settlement
Dates

 

Effective
Period of swap

PriceSmart, Inc

 

7-Nov-16

 

MUFG Union Bank, N.A. ("Union Bank")

 

Interest rate swap

 

$

35,700,000 

 

Union Bank

 

Variable rate 1-month Libor plus 1.7%

 

3.65 

%

 

1st day of each month beginning on April 1, 2017

 

March 1, 2017 - March 1, 2027

Costa Rica

 

28-Aug-15

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

7,500,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 2.50%

 

7.65 

%

 

28th day of August, November, February, and May beginning on November 30, 2015

 

August 28, 2015 -
August 28, 2020

Honduras

 

24-Mar-15

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

8,500,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 3.25%

 

10.75 

%

 

24th day of March, June, September, and December beginning on June 24, 2015

 

March 24,2015 -
March 20, 2020

El Salvador

 

16-Dec-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

4,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.78 

%

 

29th day of each month beginning  on December 29, 2014

 

December 1, 2014 -
August 29, 2019

Colombia

 

10-Dec-14

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

15,000,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 2.8%

 

8.25 

%

 

4th day of March, June, Sept, Dec. beginning on March 4, 2015

 

December 4, 2014 -
December 3, 2019

Panama

 

9-Dec-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

10,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

5.16 

%

 

28th day of each month beginning December 29, 2014

 

November 28, 2014 -
November 29, 2019

Honduras

 

23-Oct-14

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

5,000,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 3.5%

 

11.6 

%

 

22nd day of January, April, July, and October beginning on January 22, 2015

 

October 22, 2014 -
October 22, 2017

Panama

 

1-Aug-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

5,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.89 

%

 

21st day of each month beginning on September 22, 2014

 

August 21, 2014 -
August 21, 2019

Panama

 

22-May-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

19,800,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.98 

%

 

4th day of each month beginning on June 4, 2014

 

Settled on

August 31, 2017

Panama

 

22-May-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

3,970,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.98 

%

 

4th day of each month beginning on June 4, 2014

 

May 5, 2014 -
April 4, 2019

We measure the fair value for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis during the reporting period.  We have designated the interest rate swaps and cross-currency interest rate swap agreements as hedging instruments and have accounted for them under hedge accounting rules.  Derivatives listed on the table below were designated as cash flow hedging instruments.  The table summarizes the effect of the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualify for derivative hedge accounting and its associated tax effect on accumulated other comprehensive (income) / loss (in thousands, except footnote data):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

August 31, 2017

 

August 31, 2016

Derivatives designated as cash flow hedging instruments

 

Balance Sheet
Location

 

Fair
Value

 

Net Tax
Effect

 

Net
OCI

 

Fair
Value

 

Net Tax
Effect

 

Net
OCI

Cross-currency interest rate swaps

 

Other non-current assets

 

$

2,547 

 

 

(950)

 

 

1,597 

 

$

3,224 

 

 

(1,248)

 

 

1,976 

Interest rate swaps

 

Other long-term liabilities

 

 

(231)

 

 

80 

 

 

(151)

 

 

(448)

 

 

115 

 

 

(333)

Cross-currency interest rate swaps

 

Other long-term liabilities

 

 

(451)

 

 

135 

 

 

(316)

 

 

(1,066)

 

 

320 

 

 

(746)

Net fair value of derivatives designated as hedging instruments

 

 

 

$

1,865 

 

$

(735)

 

$

1,130 

 

$

1,710 

 

$

(813)

 

$

897 

From time to time, we enter into non-deliverable forward exchange contracts.  These contracts are treated for accounting purposes as fair value contracts and do not qualify for derivative hedge accounting.  As of August 31, 2017 the Company did not have any open non-deliverable forward foreign-exchange contracts. 

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Table of Contents

The following table summarizes the fair value of foreign currency forward contracts that do not qualify for derivative hedge accounting (in thousands):

August 31, 2017

August 31, 2016

Derivatives designated as fair value hedging instruments

Balance Sheet
Location

Fair Value

Balance Sheet
Location

Fair Value

Foreign currency forward contracts

Other current assets

$

 —

Other current assets

$

34 

Foreign currency forward contracts

Other accrued expenses

 —

Other accrued expenses

(144)

Net fair value of derivatives designated as hedging instruments that do not qualify for hedge accounting

$

 —

$

(110)

Short-Term Borrowings and Long-Term Debt

Short-term borrowings consist of lines of credit which are secured by certain assets of the Company and its subsidiaries, which, in some cases, are guaranteed by the Company. The following table summarizes the balances of total facilities, facilities used and facilities available (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Facilities Used

 

 

 

 

 

 

 



 

Total Amount

 

Short-term

 

Letters of

 

Facilities

 

Weighted average

 



 

of Facilities

 

Borrowings

 

Credit

 

Available

 

interest rate

 

August 31, 2017

 

$

69,000 

 

$

 —

 

$

966 

 

$

68,034 

 

 —

%

 

August 31, 2016

 

$

65,000 

 

$

16,534 

 

$

9,224 

 

$

39,242 

 

10.1 

%

 

As of August 31, 2017 and 2016, the Company had approximately $40.0 million of short-term facilities in the U.S. that require compliance with certain quarterly financial covenants.  As of August 31, 2017 and 2016, the Company was in compliance with respect to these covenants.  Each of the facilities expires annually and is normally renewed.

The following table provides the changes in our long-term debt for the twelve months ended August 31, 2017:



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

Current
portion of
long-term debt

 

Long-term
debt (net of current portion)

 

Total

 

Balances as of August 31, 2016

 

$

14,565 

 

$

73,542 

 

$

88,107 (1)

Proceeds from long-term debt incurred during the period:

 

 

 

 

 

 

 

 

 

 

MUFG Union Bank

 

 

 —

 

 

35,700 

 

 

35,700 

 

Trinidad subsidiary

 

 

6,000 

 

 

6,000 

 

 

12,000 

 

Repayments of long-term debt:

 

 

 

 

 

 

 

 

 

 

Repayment of loan by Panama subsidiary

 

 

(2,000)

 

 

(11,333)

 

 

(13,333)

 

Regularly scheduled loan payments

 

 

(225)

 

 

(15,837)

 

 

(16,062)

 

Translation adjustments on foreign-currency debt of subsidiaries whose functional currency is not the U.S. dollar (2)

 

 

18 

 

 

(133)

 

 

(115)

 

Balances as of August 31, 2017

 

$

18,358 

 

$

87,939 

 

$

106,297 (3)

(1)

The carrying amount on non-cash assets assigned as collateral for this total was $102.4 million.  No cash assets were assigned as collateral for this total.  

(2)

These foreign currency translation adjustments are recorded within Other comprehensive income.

(3)

The carrying amount on non-cash assets assigned as collateral for this total was $128.4 million.  No cash assets were assigned as collateral for this total.

As of August 31, 2017, the Company had approximately $85.6 million of long-term loans in Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados and Colombia that require these subsidiaries to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios.  As of August 31, 2017, the Company was in compliance with all covenants or amended covenants.

As of August 31, 2016, the Company had approximately $76.0 million of long-term loans in Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados and Colombia that require these subsidiaries to comply with certain annual or quarterly

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financial covenants, which include debt service and leverage ratios.  As of August 31, 2016, the Company was in compliance with all covenants or amended covenants.

Critical Accounting Estimates

United States. The preparation of our consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require management to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Management continues to review its

We evaluate our accounting policies and evaluate itssignificant estimates on an ongoing basis, including those related to business acquisitions, contingencies and litigation, income taxes, value added taxes, and long-lived assets. We base our estimates on historical experience and on other assumptions that management believes to be reasonable under the present circumstances. Using different estimates could have a material impact on our financial condition and results of operations.

We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. For further information, refer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, Note 2 - Summary of Significant Accounting Policies.”

Income Taxes:Taxes

We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

As of August 31, 2017,2022, we evaluated our deferred tax assets and liabilities and determined that a valuation allowance was necessary for certain foreign deferred tax asset balances, primarily because of the existence of significant negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, indicating that certain net operating loss carry-forward periods are not sufficient to realize the related deferred tax assets. We also specifically considered whether foreign tax credit balances could be utilized in the foreseeable future in light of current and future U.S. tax liabilities. We have historically applied foreign tax credits, generated from taxes withheld on certain payments PriceSmart receives from our foreign subsidiaries, to reduce U.S. income tax liabilities. However, as an incidental result of U.S. tax reform, following the reduction of the U.S. corporate income tax rate from 35% to 21%, we expect foreign tax credits generated to exceed U.S. income tax liability for the foreseeable future. Therefore, for the twelve-month period ended August 31, 2022 and August 31, 2021, we have recorded valuation allowances of $11.8 million and $11.4 million against our foreign tax credits, respectively.

We and our subsidiaries are 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 us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax we pay.  Inpaid by us. We, in consultation with our tax advisors, we base our tax returns on interpretations that we believedbelieve to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal, state and foreign taxing authorities in the jurisdictions in which we or one offile our subsidiaries file tax returns. As part of these reviews, a taxing authority may disagree with respect to the incomeinterpretations we used to calculate our tax positions we have taken (“uncertain tax positions”)liability and therefore require us or one of our subsidiaries to pay additional taxes.

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Table of Contents

We accrue an amount for our estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has 50% or less than 50% likelihood of being sustained. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. There were no material changes in our uncertain income tax positions for the periodsperiod ended on August 31, 2017 and 2016.  During the fourth quarter of fiscal year 2017, one of the Company’s subsidiaries received assessments claiming $2.6 million of taxes, penalties and interest related to withholding taxes on certain charges for services rendered by the Company.  In addition, this subsidiary received assessments totaling $5.3 million for lack of deductibility of the underlying service charges due to the lack of withholding.  Based on the Company's interpretation of local law, rulings and jurisprudence (including Supreme Court precedents with respect to the deductibility assessment), the Company expects to prevail in both instances and has not recorded a provision for these assessments.2022.

We have not provided for U.S. deferred taxes on cumulative non-U.S. undistributed earnings as we deem such earnings to be indefinitely reinvested.  It is not practicable to determine the U.S. federal income tax liability that would be associated with the repatriation earnings because of the complexity of the computation.Tax Receivables

Tax Receivables: We pay Value Added Tax (“VAT”) or similar taxes, (“input VAT”), income taxes, and other taxes within the normal course of our business in most of the countries in which we operate related to the procurement of merchandise and/or services we acquiresacquire and/or on sales and taxable income. VAT is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is similar to, but operates somewhat differently than, sales tax paid in the United States. We alsogenerally collect VAT from our Members upon sale of goods and services and pay VAT to our vendors upon purchase of goods and services. Periodically, we submit VAT reports to governmental agencies and reconcile the VAT paid and VAT received. The net overpaid VAT may be refunded or similar taxes on behalf ofapplied to subsequent returns, and the government (“output VAT”) for merchandise and/or services we sell.  If the outputnet underpaid VAT exceeds the input VAT, then the difference ismust be remitted to the government, usually on a monthly basis.  Ifgovernment.

With respect to income taxes paid, if the input VAT exceedsestimated income taxes paid or withheld exceed the output VAT,actual income tax due this creates a VATan income tax receivable. In most countries where we operate, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit cardand debit cards directly to the government as advance payments of VAT and/or income tax. In the case of VAT, these procedures alter the natural offset of input and output VAT andThis collection mechanism generally leaveleaves us with a net VAT receivable,and/or income tax receivables, forcing us to process significant refund claims on a recurring basis.  With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due this creates an income tax receivable.  We

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Table of Contents

either request a refund of these tax receivables or apply the balance to expected future tax payments. These refund or offset processes can take anywhere from several months to several years to complete.

In mosttwo countries where the Company operates, the tax refund process is defined and structured with regular refunds or offsets.  However, as of August 31, 2017, in one country the government has alleged there is not a clearly defined process to allow the tax authorities to refund VAT receivables. As of August 31, 2016, there were three countries that lacked a clearly defined process; however, during the third and fourth quarters of 2017, two of these countries clarified the refund mechanism, which we are currently pursuing. The Company, together with our tax and legal advisers, is currently seeking clarification in courthave been changes in the country without a clearly defined process and expects to prevail. The balancemethod of the VAT receivable in the country with undefined refund mechanisms was approximately $1.2 million and $800,000 as of August 31, 2017 and August 31, 2016, respectively.  In another country incomputing minimum tax payments, under which the governments have sought to require the Company has warehouse clubs, beginning in fiscal year 2015, a new minimum income tax mechanism took effect, which requires us to pay taxes based on a percentage of sales rather than taxable income. As a result, we are makinghave made and may continue to make income tax payments substantially in excess of those we would expect to pay based on taxable income. The current rules (which we have challenged in court) do not clearly allow us to obtain a refund or offset this excessCompany had income tax against other taxes.  Asreceivables of August 31, 2017, the Company had deferred tax assets of approximately $2.0 million in this country.  Also, the Company had an income tax receivable balance of $4.3$11.0 million as of August 31, 20172022 and August 31, 2021, respectively, and deferred tax assets of $3.5 million and $3.3 million as of August 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to excess payments from fiscal year 2015 to 2017. We haverefunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe that it is more likely than not that we will ultimately succeedprevail in our refund requests,the related appeals and/appeals. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or court challenge on this matter.deferred tax assets.

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Table of Contents

Our policy for classification and presentation of VAT receivables, income tax receivables and other tax receivables is as follows:

·

Short-term VAT and Income tax receivables, recorded as Other current assets: This classification is used for any countries where our subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year.  We also classify as short-term any approved refunds or credit notes to the extent that we expect to receive the refund or use the credit notes within one year.

·

Long-term VAT and Income tax receivables, recorded as Other non-current assets:  This classification is used for amounts not approved for refund or credit in countries where our subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes.  An allowance is provided against VAT and income tax receivable balances in dispute when we do not expect to eventually prevail in its recovery.

Short-term VAT and Income tax receivables, recorded as Prepaid expenses and Other current assets: This classification is used for any countries where our subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. We also classify as short-term any approved refunds or credit notes to the extent that we expect to receive the refund or use the credit notes within one year.

Long-term VAT and Income tax receivables, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countries where our subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VAT and income tax receivable balances in dispute when we do not expect to eventually prevail in our recovery of such balances. We do not currently have any allowances provided against VAT and income tax receivables.

Long-lived Assets:

We periodically evaluate our long-lived assets for indicators of impairment. Indicators that an asset may be impaired are:

·

the asset's inability to continue to generate income from operations and positive cash flow in future periods;

·

loss of legal ownership or title to the asset;

·

significant changes in its strategic business objectives and utilization of the asset(s); and

·

the impact of significant negative industry or economic trends.

the asset's inability to continue to generate income from operations and positive cash flow in future periods;

loss of legal ownership or title to the asset;

significant changes in its strategic business objectives and utilization of the asset(s); and

the impact of significant negative industry or economic trends.

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, which in turn drives estimates of future cash flows from these assets. 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. NoWe did not record any impairment charges have been recorded during fiscal year 20172022 related to the loss of legal ownership or title to assets; significant changes in the Company's strategic business objectives or utilization of assets; or the impact of significant negative industry or economic trends. Loss/(gain)Loss on disposal of assets recorded during the years reported resulted from improvements to operations and normal preventive maintenance.

SeasonalityGoodwill

Goodwill is not amortized, but is evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of a certain asset may be impaired. Generally, this evaluation begins with a qualitative assessment to determine whether a quantitative impairment test is necessary. If we determine, after performing an assessment based on the qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, or that a fair value of the reporting unit substantially in excess of the carrying amount cannot be assured, then a quantitative impairment test would be performed. The quantitative test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. These evaluations are based on determining the fair value of a reporting unit or asset using a valuation method such as discounted cash flow or a relative, market-based approach. Historically, our reporting units have generated sufficient returns to recover the cost of our goodwill. Because of the nature of the factors used in these tests, if different conditions occur in future periods, future operating results could be materially impacted. For approximately $43.3 million of certain acquired goodwill, the fair value was greater than the carrying value; however, any deterioration in the fair value may result in an impairment charge. 

Seasonality and Quarterly Fluctuations

Historically, our merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, our operating results fluctuate quarter-to-quarter as a result of economic and political events in markets that we serve, the timing of holidays, weather, the timing of shipments, product mix, and currency effects on the cost of U.S.-sourced products which may make these products more or less expensive in local currencies and therefore more or less affordable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts.

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Table of Contents

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity price risk. These market risks arise in the normal course of business. We do not engage in speculative trading activities. To manage the risk arising from these exposures, we utilize interest rate swaps, cross-currency interest rate swaps, non-deliverable foreign currency forward contracts and loans denominated in foreign currencies. For a discussion of our accounting policies for derivative instruments and further disclosures, please seerefer to Part II. “Item 8. Financial Statements and Supplementary Data: Notes to Consolidated Financial Statements, - Note 1213 - Derivative Instruments and Hedging Activities.

Each market risk sensitivity analysis presented below is based on hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes. The effect of a change in a particular assumption is calculated without adjusting any other assumption. In reality, however, a change in one factor could cause a change in another factor, which may magnify or negate other sensitivities.

Interest Rate Risk

We are exposed to changes in interest rates as a result of our short-term borrowings and long-term debt borrowings. We have mitigated a portion of our interest rate risk by managing the mix of fixed and variable rate debt and by entering into interest rate swaps and cross-currency interest rate swaps to hedge interest rate risk. The notional amount, interest payment and maturity dates of the swap match the terms of the associated debt.

The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table represents the principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, including cross-currency interest rate swaps, the table represents the contractual cash flows and weighted-average interest rates by the contractual maturity date, unless otherwise noted. The notional amounts are used to calculate contractual cash flows to be exchanged under the contracts. The weighted-average variable rates are based upon prevailing market interest rates and the outstanding balances as of August 31, 2017.2022.

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Table of Contents

Annual maturities of long-term debt and derivatives are as follow (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Twelve Months Ended August 31,

 

Twelve Months Ended August 31,

 

(Amounts in thousands)

 

(Amounts in thousands)

 

2018

 

2019

 

2020

 

2021

 

2022

 

Thereafter

 

Total

 

2023

2024

2025

2026

2027

Thereafter

Total

Long-Term Debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-Term Debt (Unhedged):

Long-term debt with fixed interest rate

 

$

5,414 

 

 

$

4,987 

 

 

$

3,810 

 

 

$

11,248 

 

 

$

400 

 

 

$

 —

 

 

$

25,859 

 

(1) 

$

9,173 

$

10,269 

$

10,386 

$

7,245 

$

2,734 

$

6,000 

$

45,807 

(1) 

Weighted-average interest rate

 

 

8.48 

%

 

 

8.48 

%

 

 

8.69 

%

 

 

8.40 

%

 

 

8.00 

%

 

 

 —

%

 

 

8.49 

%

 

7.20 

%

7.20 

%

7.10 

%

7.10 

%

7.10 

%

7.00 

%

7.20 

%

Long-term debt with variable interest rate

 

$

12,943 

 

 

$

13,159 

 

 

$

16,700 

 

 

$

2,443 

 

 

$

2,566 

 

 

$

32,627 

 

 

$

80,438 

 

 

$

24,542 

$

8,519 

$

23,138 

$

8,251 

$

27,014 

$

$

91,464 

Weighted-average interest rate

 

 

4.39 

%

 

 

4.40 

%

 

 

3.63 

%

 

 

3.00 

%

 

 

3.00 

%

 

 

3.00 

%

 

 

3.59 

%

 

6.00 

%

5.60 

%

5.50 

%

4.30 

%

3.70 

%

%

5.40 

%

Total long-term debt

 

$

18,357 

 

 

$

18,146 

 

 

$

20,510 

 

 

$

13,691 

 

 

$

2,966 

 

 

$

32,627 

 

 

$

106,297 

 

(1) 

$

33,715 

$

18,788 

$

33,524 

$

15,496 

$

29,748 

$

6,000 

$

137,271 

(1) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable to fixed interest

 

$

3,200 

 

 

$

5,067 

 

 

$

6,626 

 

 

$

1,275 

 

 

$

1,275 

 

 

$

31,981 

 

 

$

49,424 

 

 

$

9,900 

$

1,275 

$

1,275 

$

1,275 

$

26,244 

$

$

39,969 

(2) 

Weighted-average pay rate

 

 

4.96 

%

 

 

4.97 

%

 

 

4.88 

%

 

 

3.65 

%

 

 

3.65 

%

 

 

3.65 

%

 

 

4.03 

%

 

5.69 

%

3.65 

%

3.65 

%

3.65 

%

3.65 

%

%

4.15 

%

Weighted-average receive rate

 

 

4.73 

%

 

 

4.73 

%

 

 

4.43 

%

 

 

3.01 

%

 

 

3.01 

%

 

 

3.01 

%

 

 

3.49 

%

 

5.04 

%

4.26 

%

4.26 

%

4.26 

%

4.26 

%

%

4.46 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cross-Currency Interest Rate Swaps:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Variable to fixed interest

 

$

4,100 

 

 

$

4,100 

 

 

$

10,100 

 

 

$

7,788 

 

 

$

 —

 

 

 

 —

 

 

$

26,088 

 

 

$

10,754 

$

3,329 

$

19,770 

$

$

$

33,853 

(2) 

Weighted-average pay rate

 

 

9.48 

%

 

 

9.48 

%

 

 

8.50 

%

 

 

9.26 

%

 

 

 —

%

 

 

 —

%

 

 

9.03 

%

 

9.18 

%

7.92 

%

7.92 

%

%

%

%

8.32 

%

Weighted-average receive rate

 

 

4.58 

%

 

 

4.58 

%

 

 

4.72 

%

 

 

4.20 

%

 

 

 —

%

 

 

 —

%

 

 

4.52 

%

 

5.74 

%

5.14 

%

5.20 

%

%

%

%

5.36 

%

Long-Term Debt Payments with Fixed Interest or Subject to Financial Derivatives:

Long-term debt with fixed interest rate or with variable to fixed interest rate swaps

$

29,827 

$

14,873 

$

31,431 

$

8,520 

$

28,978 

$

6,000 

$

119,629 

Portion of long-term debt with fixed interest rate or with variable to fixed interest rate swaps

88.5 

%

79.2 

%

93.8 

%

55.0 

%

97.4 

%

100.0 

%

87.1 

%

Portion of long-term debt with variable interest rates and no swaps

11.5 

%

20.8 

%

6.2 

%

45.0 

%

2.6 

%

%

12.9 

%

(1)

The Company has disclosed the future annual maturities of long-term debt, for which it has entered into cross-currency interest rate swaps, using the derivative obligation as of August 31, 2017 to estimate the future commitments. Therefore, the total annual commitments reflects these obligations, including the effect of the cross-currency interest rate swaps on the total-long term debt as disclosed on the consolidated balance sheet.

(1)The Company has disclosed the future annual maturities of long-term debt, for which it has entered into cross-currency interest rate swaps by using the derivative obligation as of August 31, 2022 to estimate the future commitments. Therefore, the total annual commitments reflects these obligations, including the effect of the cross-currency interest rate swaps on the total-long term debt as disclosed on the consolidated balance sheet.

(2)The derivative obligations of the interest rate swaps and cross-currency interest rate swaps are included in the Total long-term debt section of this table.

Foreign Currency Risk

We have foreign currency risks related to sales, operating expenses and financing transactions in currencies other than the U.S. dollar. As of August 31, 2017,2022, we had a total of 3950 consolidated warehouse clubs operating in 12 foreign countries and

45


Table of Contents

one U.S. territory, 3140 of which operate under currencies other than the U.S. dollar. Approximately 52%48.6% of our net warehousemerchandise sales are comprised of products we purchased in U.S. dollars andthat were sold in countries whose currencies were other than the U.S. dollar. Approximately 77%78.0% of our net warehousemerchandise sales are in markets whose functional currency is other than the U.S. dollar. We may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net warehousemerchandise sales denominated in foreign currencies.

Currency exchange rate changes either increase or decrease the cost of imported products that we purchase in U.S. dollars and price in local currency. Price changes can impact the demand for those products in the market. Currency exchange rates also affect the reported sales of the consolidated company when local currency-denominated sales are translated to U.S. dollars. In addition, we revalue all U.S. dollar denominated assets and liabilities within those markets that do not use the U.S. dollar as the functional currency. These assets and liabilities include, but are not limited to, excess cash permanently reinvested offshore and the value of items shipped from the U.S. to our foreign markets. The gain or loss associated with this revaluation, net of reserves, is recorded in other income (expense).

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Table of Contents

Foreign currencies in most of the countries where we operate have historically devalued against the U.S. dollar and are expected to continue to devalue. The following tables summarize by country, for those countries with functional currencies other than the U.S. dollar, the weakening of the countries' currency against the U.S. dollar (devaluation) or the strengthening of their currencies (revaluation):

 

 

 

 

 

 

 

 

 

 

 

 

 

Revaluation/(Devaluation)

Revaluation/(Devaluation)

 

Twelve Months Ended August 31,

Twelve Months Ended August 31,

 

2017

 

2016

2022

2021

Country

 

% Change

 

% Change

% Change

% Change

Colombia

 

(0.11)

%

 

5.39 

 %

(15.58)

%

(1.24)

 %

Costa Rica

 

(4.19)

%

 

(2.99)

 %

(5.25)

(4.63)

Dominican Republic

 

(3.52)

%

 

(2.04)

 %

6.87

2.51

Guatemala

 

3.47 

%

 

1.65 

 %

(0.11)

Honduras

 

(2.11)

%

 

(4.25)

 %

(2.37)

2.51

Jamaica

 

(1.59)

%

 

(8.27)

 %

0.40

(2.12)

Nicaragua

 

(5.00)

%

 

(5.00)

 %

(2.00)

(2.25)

Trinidad

 

(0.58)

%

 

(5.60)

 %

0.67

%

(0.45)

 %

We seek to manage foreign exchange risk by (1) adjusting prices on goods acquired in U.S. dollars on a periodic basis to maintain our target margins after taking into account changes in exchange rates; (2) obtaining local currency loans from banks within certain markets where it is economical to do so and where management believes the risk of devaluation and the level of U.S. dollar denominated liabilities warrants this action; (3) reducing the time between the acquisition of product in U.S. dollars and the settlement of that purchase in local currency; (4) maintaining a balance between assets held in local currency and in U.S. dollars; and (5) by entering into cross-currency interest rate swaps and forward currency derivatives. We have local-currency-denominated long-term loans in Costa Rica Trinidad and Tobago, Guatemala and Barbados; we have cross-currency interest rate swaps and forward currency derivatives in Costa Rica and Colombia;Guatemala; we have cross-currency interest rate swaps in HondurasColombia and Honduras; and we have interest rate swaps in Panama and El Salvador.in the United States. Turbulence in the currency markets can have a significant impact on the value of the foreign currencies within the countries in which we operate. We report the gains or losses associated with the revaluation of these monetary assets and liabilities on our Consolidated Statementsconsolidated statements of Incomeincome under the heading “Other income (expense), net.” Future volatility and uncertainties regarding the currencies in the countries that we operate in could have a material impact on our operations in future periods. However, there is no way to accurately forecast how currencies may trade in the future and, as a result, we cannot accurately project the impact of the change in rates on our future demand for imported products, reported sales, or financial results.

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Table of Contents

We are exposed to foreign exchange risks related to U.S. dollar-denominated and other foreign-denominated cash, cash equivalents and restricted cash, to U.S. dollar-denominated intercompany debt balances and to other U.S. dollar-denominated debt/asset balances (excluding U.S. dollar-denominated debt obligations for which we hedge a portion of the currency risk inherent in the interest and principal payments), within entities whose functional currency is not the U.S. dollar. As part of the adoption of the new leasing standard, we recorded several monetary liabilities on the consolidated balance sheet that are exposed to foreign exchange movements. These monetary liabilities arise from leases denominated in a currency that is not the functional currency of the Company’s local subsidiary. The monetary liability for these leases as of August 31, 2022 was $32.4 million. Due to the mix of foreign currency exchange rate fluctuations during fiscal 2022, the impact to the consolidated statements of income of revaluing this liability was immaterial.

The following table discloses the net effect on other income (expense)expense, net for these U.S. dollar-denominated and other foreign-denominated accounts relative to a hypothetical simultaneous currency devaluation in all the countries listed in the table above,revaluation based on balances as of August 31, 2017:2022 (in thousands) including the new lease-related monetary liabilities described above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overall weighted negative currency movement

 

Gains based on change in U.S. dollar denominated and other foreign denominated cash, cash equivalents and restricted cash balances (in thousands)

 

(Losses) based on change in U.S. dollar denominated inter-company balances (in thousands)

 

(Losses) based on change in U.S. dollar denominated other asset/liability balances, (in thousands)

 

Net gain (loss)

Losses based on change in U.S. dollar denominated and other foreign denominated cash, cash equivalents and restricted cash balances

Gains based on change in U.S. dollar denominated inter-company balances

Gains based on change in U.S. dollar denominated other asset/liability balances

Net Loss(1)

5%

 

$

2,655 

 

$

(2,369)

 

$

(879)

 

$

(593)

$

(4,380)

$

682

$

2,099

$

(1,599)

10%

 

$

5,310 

 

$

(4,737)

 

$

(1,758)

 

$

(1,185)

$

(8,760)

$

1,365

$

4,197

$

(3,198)

20%

 

$

10,621 

 

$

(9,475)

 

$

(3,515)

 

$

(2,369)

$

(17,519)

$

2,730

$

8,394

$

(6,395)

From time to time(1)Amounts are before consideration of income taxes.

44


Table of Contents

Information about the financial impact of foreign currency exchange rate fluctuations for the twelve months ended August 31, 2022 is disclosed in Part II. “Item 7. Management’s Discussion and Analysis – Other Expense, net.”

Examples of where we have experienced a lack of availability ofsignificant U.S. dollars in certain markets (U.S. dollar illiquidity).  This impedes our abilitynet asset positions subjecting us to convertexchange rate losses if the local currencies obtained through warehouse sales into U.S. dollars to settlecurrency strengthens against the U.S. dollar liabilities associated with our imported products.  During fiscal year 2017 and continuing into fiscal year 2018, we experienced this situation in Trinidad (“TT”).  We are limited in our ability to convert TT dollars that we generated through sales of merchandise into U.S. dollars to settle U.S. dollar liabilities, increasing our foreign exchange exposure to any devaluation of the TT dollar. We are working with our banks to source other tradable currencies (such as Euros and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this condition will continue and we plan to take steps to limit our exposure to a potential devaluation. During part of the first half of fiscal year 2017 we maintained shipments of merchandise to Trinidad from our distribution center in Miami at levels that generally aligned with our Trinidad, subsidiary’s ability to pay for the merchandise in U.S. dollars.  This resulted in a reduced levelNicaragua, and Costa Rica subsidiaries, with balances of shipments, which negatively affected sales in the second quarter, particularly December, although by less than our initial estimate. These actions did not impact the level of merchandise we obtain locally in Trinidad.  Starting in the third quarter of fiscal year 2017, we were able to improve our sourcing of tradeable currencies, which allowed for a more normalized flow of imported merchandise during the third$80.3 million, $23.2 million and fourth fiscal quarters.  Due to the actions taken by us,$13.3 million, respectively, as of August 31, 2017, our Trinidad subsidiary had net2022. Examples where we have significant U.S. dollar denominated assets of approximately $4.0 million. Howevernet liability positions subjecting us to exchange rate losses if the illiquidity situation remains inlocal currency weakens against the Trinidad market, and we expect to face similar issues in sourcing U.S. dollars during the first and second quarters of fiscal year 2018 to those we faced in the same quarters of fiscal year 2017. Going forward, we could again find ourselves in a net U.S. dollar denominated liability position that may require us to limit shipments from the U.S. to Trinidad in lineare our Honduras, Guatemala, and Dominican Republic subsidiaries, with our ability to exchange Trinidad dollars for tradeable currencies or to reduce our exposure to a potential devaluation.  If, for example, a hypothetical 20% devaluationbalances of the Trinidad currency occurred while we held levels$37.8 million, $22.5 million, and $15.9 million, respectively, as of net U.S. denominated liabilities similar to those at August 31, 2016 ($18.9 million), the net effect on other expense would be approximately $3.8 million. This may result in once again limiting shipments to our Trinidad subsidiary, causing it to run out of certain merchandise, from time to time, during fiscal year 2018.2022.

We are also exposed to foreign exchange risks related to local-currency-denominated cash and cash equivalents, to local-currency-denominated debt obligations, to local-currency-denominated current assets and liabilities and to local-currency-denominated long-term assets and liabilities within entities whose functional currency is not the U.S. dollar. The following table discloses the net effect on other comprehensive income (loss)loss for these local currency denominated accounts relative to hypothetical simultaneous currency devaluation in all the countries listed in the table above, based on balances as of August 31, 2017:2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overall weighted negative currency movement

 

Other comprehensive loss on the decline in local currency denominated cash and cash equivalents and restricted cash (in thousands)

 

Other comprehensive gain on the decline in foreign currency denominated debt obligations (in thousands)

 

Other comprehensive loss on the decline in all other foreign currency denominated current assets net of current liabilities (in thousands)

 

Other comprehensive loss on the decline in all other foreign currency denominated long-term assets net of long-term liabilities (in thousands)

Other comprehensive loss on the decline in local currency denominated cash and cash equivalents and restricted cash (in thousands)

Other comprehensive gain on the decline in foreign currency denominated debt obligations (in thousands)

Other comprehensive loss on the decline in all other foreign currency denominated current assets net of current liabilities (in thousands)

Other comprehensive loss on the decline in all other foreign currency denominated long-term assets net of long-term liabilities (in thousands)

5%

 

$

3,668 

 

$

(1,647)

 

$

9,529 

 

$

13,363 

$

2,678

$

(3,684)

$

5,152

$

28,910

10%

 

$

7,335 

 

$

(3,295)

 

$

19,057 

 

$

26,726 

$

5,356

$

(7,368)

$

10,305

$

57,820

20%

 

$

14,671 

 

$

(6,590)

 

$

38,115 

 

$

53,451 

$

10,713

$

(14,736)

$

20,610

$

115,639

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Table of Contents

In addition, we are exposed to foreign currency exchange rate fluctuations associated with our U.S. dollar-denominated debt obligations that we hedge. We hedge a portion of the currency risk inherent in the interest and principal payments associated with this debt through the use of cross-currency interest rate swaps. The terms of these swap agreements are commensurate with the underlying debt obligations. The aggregate fair value of these swaps was in a net asset position of approximately $1.3$12.9 million at August 31, 20172022 and approximately $1.2$1.8 million at August 31, 2016.2021. A hypothetical 10% increase in the currency exchange rates underlying these swaps from the market rates at August 31, 20172022 would have resulted in a further increase in the value of the swaps of approximately $654,000.$1.4 million. Conversely, a hypothetical 10% decrease in the currency exchange rates underlying these swaps from the market rates at August 31, 20172022 would have resulted in a net decrease in the value of the swaps of approximately of $574,000.$3.1 million.

WeFrom time to time, we use non-deliverable forward foreign exchange contracts primarily to address exposure to U.S. dollar merchandise inventory expenditures made by our international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts do not qualify for derivative hedge accounting. The market risk related to foreign currency forward contracts is measured by estimating the potential impact of a 10% change in the value of the U.S. dollar relative to the local currency exchange rates. The net increase or decrease in the fair value of these derivative instruments arewould be economically offset by the gains or losses on the underlying transactions.

Occasionally, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products. Since fiscal 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad to source tradeable currencies. We expect the illiquid market conditions in Trinidad to continue. Refer to Part II. “Item 7. Management’s Discussion & Analysis – Factors Affecting Our Business” for our quantitative analysis and discussion.

Commodity Price Risk

The increasing price of oil and certain commodities could have a negative effect on our operating costs and sales. Higher oil prices can negatively impact the economic growth of the countries in which we operate, thereby reducing the buying power of our members.Members. Higher oil prices can also increase our operating costs, particularly utilities and distributionmerchandise transportation expenses. Inflationary pressures on various commodities also may impact consumer spending. We do not currently seek to hedge commodity price risk.

45


Item 8. Financial Statements and Supplementary Data

See the list of financial statements filed with this report under Part IV —IV. Item 15 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

As of August 31, 2017,2022, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in its periodic reports with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The design of any disclosure controls and procedures also is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their evaluation, the principal executive officer and principal financial officer concluded that the Company'sCompany’s disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Annual Report on Form 10-K.

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Table of Contents

(b) Management'sManagement’s report on internal control over financial reportingreporting.

Internal control over financial reporting refers to the process designed by, or under the supervision of, the Company'sCompany’s principal executive officer and principal financial officer, and effected by its board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company'sCompany’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of the company'sCompany’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company'sCompany’s assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management is responsible for establishing and maintaining adequate internal control over the Company'sCompany’s financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision, and with the participation, of the Company'sCompany’s management, including its principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting. Management has used the 2013 framework set forth in the report entitled “Internal Control-Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of its internal control over financial reporting. Based on its evaluation, management has concluded that the Company'sCompany’s internal control over financial reporting was effective as of August 31, 2017,2022, the end of its most recent fiscal year.

Ernst & Young LLP, the Company's independent registered public accounting firm, has issued an attestation report on the effectiveness of the Company's internal control over financial reporting as of August 31, 2017,2022, as stated in their report which is included herein.

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Table of Contents

(c) Changes in internal control over financial reporting.

There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act), during the fiscal year ended August 31, 2017,2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibit 31.1 and 31.2 to this report.

4947


Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of PriceSmart, Inc.

Opinion on Internal Control over Financial Reporting

We have audited PriceSmart, Inc.’s internal control over financial reporting as of August 31, 2017,2022, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework) (the COSO criteria). In our opinion, PriceSmart, Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of August 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of PriceSmart, Inc. as of August 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended August 31, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated October 31, 2022, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, PriceSmart, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2017 consolidated financial statements of PriceSmart, Inc. and our report dated October 26, 2017 expressed an unqualified opinion thereon. 

/s/ Ernst & Young LLP

San Diego, California

October 26, 201731, 2022

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Table of Contents

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

50


Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

PriceSmart has adopted a code of conduct that applies to its principal executive officer, principal financial officer, principal accounting officer, controller, and to all of its other officers, directors, employees and agents. The code of conduct is available on PriceSmart's web site at www.pricesmart.comhttps://investors.pricesmart.com/investor/corporate-governance. PriceSmart intends to disclose on its website future amendments to, or waivers from, certain provisions of its code of conduct within four business days following the date of such amendment or waiver.

The additional information required by Item 10 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Election“Proposal 1: Election of Directors,” “Information Regarding Directors,” “Information Regarding the Board of Directors,” “Executive Officers of the Company” and “Compliance with“General – Section 16(a) of the Exchange Act.Beneficial Ownership Reporting Compliance.

ItemItem 11. Executive Compensation

The information required by Item 11 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Executive and Director Compensation.”

ItemItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

ItemItem 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Certain Transactions” and “Information Regarding the Board of Directors.”

ItemItem 14. Principal Accounting Fees and Services

Our independent registered public accounting firm is Ernst & Young LLP, San Diego, CA, Auditor Firm ID: 42.

The information required by Item 14 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Independent“Proposal 3: Ratification of Selection of Independent Registered Public Accounting Firm.”

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Documents filed as part of this report.

(1) Financial Statements:

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(2) List of financial statement schedules:

Schedule II – Valuation and Qualifying Accounts

Schedules not listed above have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.

(3) List of exhibits required by Item 601 of Regulation S-K. See part (b) below.

(b) The following exhibits are filed as a part of this report:

Exhibit

Number

Description

3.13.1(1)(1)

Amended and Restated Certificate of Incorporation of the Company.

3.23.2(5)(8)

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.

3.33.3(4)(7)

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.

3.43.4(11)(20)

Second Amended and Restated Bylaws of the Company

4.14.1(6)(9)

Specimen of Common Stock certificate.

10.14.2 (25)(12)**

FormDescription of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2001 Equity Participation Plan of PriceSmart, Inc.Registrant’s Securities.

10.210.1(15)(25)

ISDA 2002 Master Agreement between MUFG Union Bank, N.A. and PriceSmart, Inc. dated November 4, 2016.

10.310.2(9)(15)**

Form of Non-Qualified Stock Option Agreement (Director Option) under the 2002 Equity Participation Plan of PriceSmart, Inc.

10.4(13)

Loan Agreement between PSMT (Barbados) Inc. and Citicorp Merchant Bank Limited, dated September 1, 2009.

10.5(17)

Amendment to Loan Agreement dated August 28, 2014 made between PSMT (Barbados) Inc. and Citicorp Merchant Bank Limited.

10.6(17)

Promissory Note Amendment Agreement dated August 28, 2014 between PSMT (Barbados) Inc. and Citibank N.A.

10.7(16)

Loan Agreement dated March 31, 2014 between PriceSmart Panama, S.A. and The Bank of Nova Scotia.

10.810.3(10)(17)

Loan renewal agreement between The Bank of Nova Scotia and PSMT El Salvador, S.A. de C.V., executed August 27, 2014.

10.9(17)

Loan Agreement between The Bank of Nova Scotia and PriceSmart Panama, S.A. dated March 31, 2014.

52


10.10(18)

Term Loan between the Bank of Nova Scotia and PriceSmart Honduras S.A. de C.V. dated August 27, 2014.

10.1110.4(16)(18)

Promissory Note between PriceSmart Honduras S.A. de C.V. and Citibank, N.A. dated October 22, 2014.

10.12(19)

Promissory Note between PriceSmart Honduras, S.A. de C.V. and Citibank, N.A. dated March 24, 2015.

10.13(22)

Promissory Note $7.5M Prismar de Costa Rica, S.A. dated August 28, 2015.

10.14(23)

Promissory Note between Banco BAC San Jose, S.A. and Prismar de Costa Rica, S.A. for 3,955,125,000 colones dated September 18, 2015.

10.15(26)

Promissory Note between PriceSmart, Inc. and MUFG UNION BANK, N.A. for US $35.7 million, dated January 27, 2017.

10.1610.5(7)(27)

Promissory Note between PriceSmart Clubs (TT) Limited and Citibank, N.A. dated March 31, 2017.

10.17*

Promissory Note between PriceSmart, Inc. and MUFG Union Bank, N.A. dated November 10, 2016.

10.18(21)**

Employment Agreement between the Company and John M. Heffner, dated September 1, 2015.

10.19(2)**

Form of Indemnity Agreement.

10.20(10)

Shareholders’ Agreement between Pricsmarlandco, S.A. and JB Enterprises Inc. dated September 29, 2008.

10.2110.6(7)(10)

Shareholders’ Agreement between Fundacion Tempus Fugit and PriceSmart Panama, S.A. dated September 24, 2008.

10.2210.7(3)(4)

Trademark Agreement between the Company and Associated Wholesale Grocers, Inc., dated August 1, 1999.

10.2310.8(2)(3)

Master Agreement between the Company and Payless ShoeSource (BVI) Holdings, Ltd., dated November 27, 2000.

10.24(21)10.9(12)**

Employment Agreement between the Company and William Naylon, dated as of September 1, 2015.

10.25(21)**

Employment Agreement between the Company and John Hildebrandt, dated September 1, 2015.

10.26(5)**

2001 Equity Participation Plan of PriceSmart, Inc.

10.27(21)**

Employment Agreement between the Company and Brud Drachman, dated September 1, 2015.

10.2810.10(10)(6)**

2002 Equity Participation Plan of PriceSmart, Inc.

10.29(21)**

Employment Agreement between the Company and Jose Luis Laparte dated as of September 1, 2015.

10.30(11)

Loan Agreement entered into between PriceSmart Honduras, S.A. de C.V. and ScotiaBank El Salvador S.A., dated January 12, 2010.

10.31(17)

Collective Agreement by and between Oilfields Workers' Trade Union and PriceSmart Clubs (TT) Ltd. entered into December 1, 2012.

10.32(14)10.11(8)**

2013 Equity Incentive Award Plan of PriceSmart, Inc., as amended and restated

50


Table of Contents

10.33(14)10.12(8)**

Form of Restricted Stock Grant Notice and Restricted Stock Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. (for awards prior to July 16, 2019).

10.34(14)10.13(8)**

Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. for Employees of Foreign Subsidiaries.Subsidiaries (for awards prior to July 16, 2019).

10.35(14)10.14(19)**

Form of Performance Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. (for awards prior to July 16, 2019).

10.15(22)**

Form of Restricted Stock Grant Notice and Restricted Stock Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. (for awards on or after July 16, 2019).

10.16(22)**

Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. for Employees of Foreign Subsidiaries (for awards on or after July 16, 2019).

10.17(22)**

Form of Performance Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2013 Equity Incentive Award Plan of PriceSmart, Inc. (for awards on or after July 16, 2019).

10.18(8)**

Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Non-Employee Directors under the 2013 Equity Incentive Award Plan of PriceSmart, Inc.

10.36(23)10.19(13)**

Employment Agreement between the Company and Frank R. Diaz dated November 1, 2015.

10.37(21)10.20(12)**

Employment Agreement between the Company and Rodrigo Calvo dated September 1, 2015.

10.38(24)10.21(14)**

Employment Agreement between the PriceSmart Panama, S.A. and Jesus Von Chong dated November 1, 2015.

10.39(24)10.22(14)**

Employment Agreement between the Company and Francisco Velasco dated July 14, 2016.

10.4010.23(17)*** **

Employment Agreement between the Company and Laura Santana dated March 1, 2017.

21.110.24(18)*

Promissory Note between PriceSmart Honduras, S.A. de C.V. and Citibank, N.A. dated February 26, 2017.

10.25(19)**

Employment Agreement between the Company and Ana Luisa Bianchi dated August 1, 2018.

10.26(21)***

Form of Indemnification Agreement.

10.27(20)**

Employment Agreement dated March 4, 2019 between Sherry S. Bahrambeygui and the Company.

10.28(23)**

Employment Agreement dated April 1, 2020 between Michael McCleary and the Company.

10.29(24)

Credit Agreement between PriceSmart Colombia S.A.S and Citibank, N.A. dated December 2, 2019.

10.30(24)

Credit Agreement between PriceSmart Colombia S.A.S. and Citibank, N.A. date November 25, 2019.

10.31(24)

Loan Agreement between PriceSmart Guatemala, Sociedad Anonima and Banco Industrial, Sociedad Anonima, dated November 20, 2019.

10.32(25)**

Employment Agreement between the Company and Juan Ignacio Biehl dated March 15, 2018 (including amendments dated June 14, 2018, July 26, 2019, and September 1, 2020).

10.33*(26)

Second Amended and Restated Loan Facility Agreement between PriceSmart Realty (TT) LTD and FirstCaribbean International Bank (Trinidad & Tobago) Limited, dated August 27, 2021.

10.34(27)**

Amended and Restated Employment Agreement date September 1, 2021 between Nicolas Maslowski and the Company.

10.35(28)**

Separation Agreement and Waiver and Release of Claims dated February 22, 2022 between William J. Naylon and the Company.

10.36(29)

Citibank Credit Agreement dated February 18, 2022

10.37(30)**

Amended and Restated Employment Agreement dated May 1, 2022 between John Hildebrandt and the Company

10.38(30)**

Employment Agreement dated May 1, 2022, between Christopher Souhrada and the Company.

21.1*

Subsidiaries of the Company.

23.123.1**

Consent of Independent Registered Public Accounting Firm.

31.131.1**

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.231.2**

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.132.1*#*#

Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.232.2*#*#

Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

53


Table of Contents

*

*

Filed herewith as an exhibit.

**

Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

51


Table of Contents

#

These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc. whether made before or after the date hereof, regardless of any general incorporation language in such filing.

(1)

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.

(2)

Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed with the Commission on August 1, 1997.

(3)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001.

(4)

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999.

(5)

Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 7, 2001 for the Company's 2002 Annual Meeting of Stockholders filed with the Commission on December 10, 2001.

(6)

Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 11, 2002 for the Company's 2003 Annual Meeting of Stockholders filed with the Commission on December 11, 2002.

(7)

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 filed with the Commission on November 24, 2004.

(8)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004. 

(9)

Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on December 2, 2004.

(10)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended November 30, 2008 filed with the Commission on January 14, 2009.

(11)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010 filed with the Commission on April 9, 2010.

(12)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2012 filed with the Commission on July 9, 2012.

(13)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2012 filed with the Commission on January 9, 2013.

(14)

Incorporated by reference to the Company's Registration Statement on Form S-8 filed April 4, 2013.

(15)

Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 2013 filed with the Commission on October 30, 2013.

(16)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2014 filed with the Commission on July 10, 2014.

(17)

Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 2014 filed with the Commission on October 30, 2014.

(18)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2014 filed with the Commission on January 8, 2015.

(19)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2015 filed with the Commission on July 9, 2015.

(20)

Incorporated by reference to the Company’s Form 8-K Filed with the Commission on July 17, 2015.

(21)

Incorporated by reference to the Company’s Form 8-K filed with the Commission on September 2, 2015.

(22)

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2015 filed with the Commission on October 29, 2015.

(23)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2015 filed with the Commission on January 7, 2016.

(24)

Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2016 filed with the Commission on October 27, 2016.

(25)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2016 filed with the Commission on January 5, 2017.

(26)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2017 filed with the Commission on April 6, 2017.

(27)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2017 filed with the Commission on July 5, 2017.

(1)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.

(2)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001.

(3)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999.

(4)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 filed with the Commission on November 24, 2004.

(5)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004.

(6)Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on December 2, 2004.

(7)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended November 30, 2008 filed with the Commission on January 14, 2009.

(8)Incorporated by reference to the Company's Registration Statement on Form S-8 filed April 4, 2013.

(9)Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2014 filed with the Commission on July 10, 2014.

(10)Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended August 31, 2014 filed with the Commission on October 30, 2014.

(11)Incorporated by reference to the Company’s Form 8-K Filed with the Commission on July 17, 2015.

(12)Incorporated by reference to the Company’s Form 8-K filed with the Commission on September 2, 2015.

(13)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2015 filed with the Commission on January 7, 2016.

(14)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2016 filed with the Commission on October 27, 2016.

(15)Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2016 filed with the Commission on January 5, 2017.

(16)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2017 filed with the Commission on April 6, 2017.

(17)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2017 filed with the Commission on October 26, 2017.

(18)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2018 filed with the Commission on April 5, 2018.

(19)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2018 filed with the Commission on October 25, 2018.

(20)Incorporated by reference to the Company’s Form 8-K/A filed with the Commission on March 7, 2019.

(21)Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2019 filed with the Commission on October 29, 2019.

(22)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2019 filed with the Commission on January 9, 2020.

(23)Incorporated by reference to the Company’s Form 8-K filed with the Commission on April 7, 2020.

(24)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2020 filed with the Commission on April 8, 2020.

(25)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2020 filed with the Commission on January 7, 2021.

(26)Incorporated by reference to the Company’s Quarterly Report on Form 10-K for the year ended August 31, 2021 filed with the Commission on October 21, 2021.

(27)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 filed with the Commission on January 6, 2022.

(28)Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on February 28, 2022.

(29)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2022 filed with the Commission on April 7, 2022.

(30)Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2022 filed with the Commission on July 11, 2022.

Item 16. Form 10-K Summary

None.

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Item 16. Form 10-K Summary

None

55


Table of Contents

SCHEDULE II

PRICESMART, INC.

VALUATION AND QUALIFYING ACCOUNTS

(amounts in thousands)

Balance at

Charged to

Balance at

Beginning

Costs and

End of

of Period

Expenses

Deductions

Period

Allowance for doubtful accounts:

Year ended August 31, 2020

$

144

$

155

$

(152)

$

147

Year ended August 31, 2021

$

147

$

93

$

(146)

$

94

Year ended August 31, 2022

$

94

$

89

$

(80)

$

103



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Balance at

 

Charged to

 

 

 

 

Balance at



 

Beginning

 

Costs and

 

 

 

 

End of



 

of Period

 

Expenses

 

Deductions

 

Period

Allowance for doubtful accounts:

 

 

 

 

 

 

 

 

 

 

 

 

Year ended August 31, 2015

 

$

 —

 

$

10 

 

$

(10)

 

$

 —

Year ended August 31, 2016

 

$

 —

 

$

25 

 

$

(18)

 

$

Year ended August 31, 2017

 

$

 

$

 

$

(9)

 

$

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SIGNATURES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PRICESMART, INC.

Date:

October 26, 201731, 2022

By:

/s/ JOSE LUIS LAPARTESHERRY S. BAHRAMBEYGUI

Jose Luis LaparteSherry S. Bahrambeygui

Director, Chief Executive Officer and President

(Principal Executive Officer)

Date:

October 26, 201731, 2022

By:

/s/ JOHN M. HEFFNERMICHAEL L. MCCLEARY

John M. HeffnerMichael L. McCleary

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Principal Accounting Officer)


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POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Sherry S. Bahrambeygui and Michael L. McCleary, and each of them singly, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

Signature

Title

Date

/s/ SHERRY S. BAHRAMBEYGUI

/s/  JOSE LUIS LAPARTE

Director, Chief Executive Officer and President
Director

(Principal Executive Officer)

October 26, 201731, 2022

Jose Luis LaparteSherry S. Bahrambeygui

/s/ JOHN M. HEFFNERMICHAEL L. MCCLEARY

Executive Vice President and Chief Financial Officer 
(Principal Financial Officer and 
Principal Accounting Officer)

October 26, 201731, 2022

John M. HeffnerMichael L. McCleary

/s/ ROBERT E. PRICE

Chairman of the Board

October 26, 201731, 2022

Robert E. Price

/s/ SHERRY S. BAHRAMBEYGUIDAVID R. SNYDER

Vice Chair of the Board

October 26, 201731, 2022

Sherry S. BahrambeyguiDavid R. Snyder

/s/ MITCHELL G. LYNNJEFFREY R. FISHER

Director

October 26, 201731, 2022

Mitchell G. LynnJeffrey R. Fisher

/s/ GONZALO BARRUTIETAGORDON H. HANSON

Director

October 26, 201731, 2022

Gonzalo BarrutietaGordon H. Hanson

/s/ BEATRIZ V. INFANTE

Director

October 31, 2022

Beatriz V. Infante

/s/ LEON C. JANKS

Director

October 26, 201731, 2022

Leon C. Janks

/s/ PATRICIA MÁRQUEZ

Director

October 31, 2022

Patricia Márquez

/s/ DAVID N. PRICE

Director

October 31, 2022

David N. Price

/s/ EDGAR ZURCHER

Director

October 26, 201731, 2022

Edgar Zurcher

/s/  GORDON H. HANSON

Director

October 26, 2017

Gordon H. Hanson

/s/  PIERRE MIGNAULT

Director

October 26, 2017

Pierre Mignault

/s/  GARY M. MALINO

Director

October 26, 2017

Gary M. Malino

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PRICESMART, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm(PCAOB ID: 42)

F-2F-2

Consolidated Balance Sheets as of August 31, 20172022 and 20162021

F-3F-4

Consolidated Statements of Income for each of the three years in the period ended August 31, 20172022

F-5F-6

Consolidated Statements of Comprehensive Income for each of the three years in the period ended August 31, 20172022

F-6F-7

Consolidated Statements of Stockholders' Equity for each of the three years in the period ended August 31, 20172022

F-7F-8

Consolidated Statements of Cash Flows for each of the three years in the period ended August 31, 20172022

F-8F-9

Notes to Consolidated Financial Statements

F-10F-11


F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of PriceSmart, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of PriceSmart, Inc. (the Company) as of August 31, 20172022 and 2016, and2021, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 2017. Our audits also included2022 and the related notes and financial statement schedule listed in the Index at Item 15(a), (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PriceSmart, Inc.the Company at August 31, 20172022 and 2016,2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2017,2022, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), PriceSmart Inc.’sthe Company's internal control over financial reporting as of August 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated October 26, 2017,31, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

F-2


Table of Contents

Tax receivables and contingencies

Description of the Matter

As discussed in Note 2 and in Note 10 to the consolidated financial statements, the Company pays Value Added Tax (“VAT”) or similar indirect taxes, income taxes, and other taxes within the normal course of the Company’s business in the United States and numerous foreign jurisdictions. The different interpretations of sometimes complex tax regulations create uncertainty and necessitate the use of significant judgment in the determination of the Company’s income tax liabilities and the recoverability of both income tax and VAT receivables. As of August 31, 2022, the Company had $6.3 million accrued for potential income and other tax liabilities and had income tax and VAT receivables of $32.1 million and $36.4 million, respectively.

Auditing the measurement of the Company’s income and VAT receivables and contingencies was challenging because the evaluation of the various tax positions can be complex, highly judgmental and based on international tax laws, interpretations and legal rulings, which can vary significantly between the countries in which the Company has operations.

How We Addressed the

Matter in Our Audit

We tested controls, including key management review controls, over the Company’s process to assess the technical merits of its income and other tax receivables and contingencies, including management’s process to measure the benefit of its income tax positions and evaluate the recoverability of the receivables. For example, we tested controls over management’s review of the uncertain tax positions and the significant assumptions surrounding more-likely-than-not conclusions, as well as controls over management’s review of the tax receivables and the significant assumptions surrounding the recoverability of such assets.

We involved our international tax professionals to assist in our assessment of the technical merits of certain of the Company’s income tax positions and the Company’s understanding and documentation of the respective international laws and regulations related to recoverability of income and other tax receivables. Depending on the nature of the specific tax position and, as applicable, developments with the relevant tax authorities, our procedures included obtaining and reviewing the Company’s correspondence with such tax authorities and evaluating income tax opinions or other third-party advice obtained by the Company. We used our knowledge of and experience with the application of international and other tax laws by the relevant income tax authorities to evaluate the Company’s accounting for its tax contingencies and receivables. We evaluated developments in the applicable regulatory environments to assess potential effects on the Company’s positions. We considered the Company’s historical experiences with the different taxing authorities and their historical results in evaluating and concluding on the likely impact of different tax cases. In this manner, we analyzed the Company’s assumptions used to determine the amounts of income tax benefits to recognize and the recoverability of the tax receivables. We also tested the data used by the Company in determining these amounts by comparing inputs to internal data and testing the accuracy of the calculations.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1997.

San Diego, California

October 26, 201731, 2022

F-23


Table of Contents

PRICESMART, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

 

 

 

 

 

 

 

 

 

August 31,

August 31,

 

2017

 

2016

2022

2021

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

Cash and cash equivalents

 

$

162,434 

 

$

199,522 

$

237,710

$

202,060

Short-term restricted cash

 

460 

 

518 

3,013

3,647

Receivables, net of allowance for doubtful accounts of $7 as of August 31, 2017 and $7 as of August 31, 2016, respectively

 

6,460 

 

7,464 

Short-term investments

11,160

50,233

Receivables, net of allowance for doubtful accounts of $103 as of August 31, 2022 and $94 as of August 31, 2021, respectively

13,391

12,359

Merchandise inventories

 

 

310,946 

 

 

282,907 

464,411

389,711

Prepaid expenses and other current assets

 

 

30,070 

 

 

22,143 

Prepaid expenses and other current assets (includes $2,761 and $0 as of August 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments)

43,894

39,194

Total current assets

 

 

510,370 

 

 

512,554 

773,579

697,204

Long-term restricted cash

 

2,818 

 

2,676 

10,650

9,772

Property and equipment, net

 

557,829 

 

473,045 

757,241

730,204

Operating lease right-of-use assets, net

111,810

123,655

Goodwill

 

35,642 

 

35,637 

43,303

45,095

Other intangibles, net

765

7,762

Deferred tax assets

 

15,412 

 

12,258 

28,355

24,225

Other non-current assets (includes $2,547 and $3,224 as of August 31, 2017 and August 31, 2016, respectively, for the fair value of derivative instruments)

 

 

44,678 

 

 

49,798 

Other non-current assets (includes $11,884 and $2,464 as of August 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments)

72,163

57,329

Investment in unconsolidated affiliates

 

 

10,765 

 

 

10,767 

10,534

10,544

Total Assets

 

$

1,177,514 

 

$

1,096,735 

$

1,808,400

$

1,705,790

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

Short-term borrowings

 

$

 —

 

$

16,534 

$

10,608

$

Accounts payable

 

272,248 

 

267,173 

408,407

388,791

Accrued salaries and benefits

 

19,151 

 

19,606 

44,097

41,896

Deferred membership income

 

22,100 

 

20,920 

Deferred income

29,228

26,898

Income taxes payable

 

5,044 

 

4,226 

7,243

8,310

Other accrued expenses (includes $0 and $110 as of August 31, 2017 and August 31, 2016, respectively, for the fair value of foreign currency forward contracts)

 

 

26,483 

 

 

24,880 

Other accrued expenses and other current liabilities (includes $82 and $0 as of August 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments)

38,667

39,736

Operating lease liabilities, current portion

7,491

8,526

Long-term debt, current portion

 

 

18,358 

 

 

14,565 

33,715

19,395

Total current liabilities

 

 

363,384 

 

 

367,904 

579,456

533,552

Deferred tax liability

 

1,812 

 

1,760 

2,165

1,568

Long-term portion of deferred rent

 

8,914 

 

8,961 

Long-term income taxes payable, net of current portion

 

909 

 

970 

5,215

4,160

Long-term operating lease liabilities

118,496

129,256

Long-term debt, net of current portion

 

 

87,939 

 

 

73,542 

103,556

110,110

Other long-term liabilities (includes $682 and $1,514 for the fair value of derivative instruments and $5,051 and $4,013 for post employment plans as of August 31, 2017 and August 31, 2016, respectively)

 

 

5,789 

 

 

5,527 

Other long-term liabilities (includes $0 and $3,010 for the fair value of derivative instruments and $8,440 and $7,380 for post-employment plans as of August 31, 2022 and August 31, 2021, respectively)

8,439

10,930

Total Liabilities

 

 

468,747 

 

 

458,664 

817,327

789,576

F-34


Table of Contents



 

 

 

 

 

 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Common stock $0.0001 par value, 45,000,000 shares authorized; 31,275,727 and 31,237,658 shares issued and 30,400,742 and 30,401,307 shares outstanding (net of treasury shares) as of August 31, 2017 and August 31, 2016, respectively

 

 

 

 

Additional paid-in capital

 

 

422,762 

 

 

412,369 

Tax benefit from stock-based compensation

 

 

11,486 

 

 

11,321 

Accumulated other comprehensive loss

 

 

(110,059)

 

 

(103,951)

Retained earnings

 

 

420,499 

 

 

351,060 

Less: treasury stock at cost, 874,985 and 836,531 shares as of August 31, 2017 and August 31, 2016, respectively

 

 

(35,924)

 

 

(32,731)

Total Equity

 

 

708,767 

 

 

638,071 

Total Liabilities and Equity

 

$

1,177,514 

 

$

1,096,735 

Stockholders' Equity:

Common stock $0.0001 par value, 45,000,000 shares authorized; 31,697,590 and 31,467,971 shares issued and 30,904,826 and 30,755,308 shares outstanding (net of treasury shares) as of August 31, 2022 and August 31, 2021, respectively

3

3

Additional paid-in capital

481,406

465,015

Accumulated other comprehensive loss

(195,586)

(182,508)

Retained earnings

736,894

658,919

Less: treasury stock at cost, 792,764 shares as of August 31, 2022 and 712,663 shares as of August 31, 2021

(31,644)

(26,084)

Total stockholders' equity attributable to PriceSmart, Inc. stockholders

991,073

915,345

Noncontrolling interest in consolidated subsidiaries

869

Total stockholders' equity

991,073

916,214

Total Liabilities and Equity

$

1,808,400

$

1,705,790

See accompanying notes.

F-45


Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

Years Ended August 31,

2022

2021

2020

Revenues:

Net merchandise sales

$

3,944,817

$

3,465,442

$

3,191,762

Export sales

45,217

41,520

34,374

Membership income

60,887

56,030

54,501

Other revenue and income

15,172

56,879

48,551

Total revenues

4,066,093

3,619,871

3,329,188

Operating expenses:

Cost of goods sold:

Net merchandise sales

3,340,062

2,912,489

2,723,942

Export sales

43,074

39,513

32,676

Non-merchandise

1,809

23,336

18,160

Selling, general and administrative:

Warehouse club and other operations

378,161

359,221

323,178

General and administrative

133,185

125,416

106,776

Pre-opening expenses

1,471

849

1,545

Loss on disposal of assets

1,265

1,027

443

Total operating expenses

3,899,027

3,461,851

3,206,720

Operating income

167,066

158,020

122,468

Other expense:

Interest income

2,201

1,979

2,031

Interest expense

(9,611)

(7,210)

(7,625)

Other expense, net

(3,235)

(5,603)

(834)

Total other expense

(10,645)

(10,834)

(6,428)

Income before provision for income taxes and
loss of unconsolidated affiliates

156,421

147,186

116,040

Provision for income taxes

(51,858)

(48,969)

(37,764)

Loss of unconsolidated affiliates

(10)

(58)

(95)

Net income

104,553

98,159

78,181

Less: net income attributable to noncontrolling interest

(19)

(196)

(72)

Net income attributable to PriceSmart, Inc.

$

104,534

$

97,963

$

78,109

Net income attributable to PriceSmart, Inc. per share available for distribution:

Basic

$

3.38

$

3.18

$

2.55

Diluted

$

3.38

$

3.18

$

2.55

Shares used in per share computations:

Basic

30,591

30,403

30,259

Diluted

30,600

30,403

30,259

Dividends per share

$

0.86

$

0.70

$

0.70



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

 

 

Net warehouse club sales

 

$

2,910,062 

 

$

2,820,740 

 

$

2,721,132 

Export sales

 

 

34,244 

 

 

33,813 

 

 

33,279 

Membership income

 

 

47,743 

 

 

45,781 

 

 

43,673 

Other income

 

 

4,579 

 

 

4,842 

 

 

4,519 

Total revenues

 

 

2,996,628 

 

 

2,905,176 

 

 

2,802,603 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of goods sold:

 

 

 

 

 

 

 

 

 

Net warehouse club

 

 

2,487,146 

 

 

2,417,366 

 

 

2,321,074 

Export

 

 

32,606 

 

 

32,260 

 

 

31,765 

Selling, general and administrative:

 

 

 

 

 

 

 

 

 

Warehouse club operations

 

 

268,629 

 

 

252,130 

 

 

241,285 

General and administrative

 

 

70,013 

 

 

64,344 

 

 

56,371 

Pre-opening expenses

 

 

44 

 

 

1,191 

 

 

3,737 

Loss/(gain) on disposal of assets

 

 

1,961 

 

 

1,162 

 

 

2,005 

Total operating expenses

 

 

2,860,399 

 

 

2,768,453 

 

 

2,656,237 

Operating income

 

 

136,229 

 

 

136,723 

 

 

146,366 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,809 

 

 

1,307 

 

 

1,058 

Interest expense

 

 

(6,777)

 

 

(5,891)

 

 

(6,440)

Other income (expense), net

 

 

1,482 

 

 

(899)

 

 

(4,388)

Total other income (expense)

 

 

(3,486)

 

 

(5,483)

 

 

(9,770)

Income before provision for income taxes and
income (loss) of unconsolidated affiliates

 

 

132,743 

 

 

131,240 

 

 

136,596 

Provision for income taxes

 

 

(42,018)

 

 

(42,849)

 

 

(47,566)

Income (loss) of unconsolidated affiliates

 

 

(1)

 

 

332 

 

 

94 

Net income

 

$

90,724 

 

 

88,723 

 

 

89,124 

Net income per share available for distribution:

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

Diluted net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

Shares used in per share computations:

 

 

 

 

 

 

 

 

 

Basic

 

 

30,020 

 

 

29,928 

 

 

29,848 

Diluted

 

 

30,023 

 

 

29,933 

 

 

29,855 

Dividends per share

 

$

0.70 

 

$

0.70 

 

$

0.70 

See accompanying notes.

F-56


Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTSSTATEMENTS OF COMPREHENSIVE INCOME

(AMOUNTS IN THOUSANDS)

Years Ended August 31,

2022

2021

2020

Net income

$

104,553

$

98,159

$

78,181

Less: net income attributable to noncontrolling interest

(19)

(196)

(72)

Net income attributable to PriceSmart, Inc.

$

104,534

$

97,963

$

78,109

Other Comprehensive Income, net of tax:

Foreign currency translation adjustments (1)

(19,034)

(7,837)

(29,413)

Defined benefit pension plan:

Net loss arising during period

(341)

(230)

(79)

Amortization of prior service cost and actuarial gains included in net periodic pensions cost

127

127

93

Total defined benefit pension plan

(214)

(103)

14

Derivative instruments: (2)

Unrealized losses on change in derivative

obligations

(4,021)

(140)

(490)

Unrealized gains/(losses) on change in
fair value of interest rate swaps

10,191

2,392

(5,313)

Amounts reclassified from accumulated other comprehensive income to other expense, net for settlement of derivatives

2,721

Total derivative instruments

6,170

2,252

(3,082)

Other comprehensive loss

(13,078)

(5,688)

(32,481)

Comprehensive income

91,456

92,275

45,628

Less: comprehensive income attributable to noncontrolling interest

3

117

114

Comprehensive income attributable to PriceSmart, Inc. stockholders

$

91,453

$

92,158

$

45,514



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Net income

 

$

90,724 

 

$

88,723 

 

$

89,124 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1)

 

$

(6,297)

 

$

(1,702)

 

$

(50,130)

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

Net gain (loss) arising during period

 

 

(166)

 

 

(182)

 

 

65 

Amortization of prior service cost and actuarial gains included in net periodic pensions cost

 

 

39 

 

 

(20)

 

 

(291)

Total defined benefit pension plan

 

 

(127)

 

 

(202)

 

 

(226)

Derivative instruments: (2)

 

 

 

 

 

 

 

 

 

Unrealized gains/(losses) on change in
derivative obligations

 

 

81 

 

 

1,826 

 

 

(2,598)

Unrealized gains/(losses) on change in
fair value of interest rate swaps

 

 

254 

 

 

(2,361)

 

 

828 

Amounts reclassified from accumulated other comprehensive income (loss) to other income (expense), for settlement of derivatives

 

 

(19)

 

 

 —

 

 

(100)

Total derivative instruments

 

 

316 

 

 

(535)

 

 

(1,870)

Other comprehensive income (loss)

 

 

(6,108)

 

 

(2,439)

 

 

(52,226)

Comprehensive income

 

$

84,616 

 

$

86,284 

 

$

36,898 

(1)

Translation adjustments arising in translating the financial statements of a foreign entity have no effect on the income taxes of that foreign entity.  They may, however, affect: (a) the amount, measured in the parent entity's reporting currency, of withholding taxes assessed on dividends paid to the parent entity and (b) the amount of taxes assessed on the parent entity by the government of its country.  The Company has determined that the reinvestment of earnings of its foreign subsidiaries are indefinite because of the long-term nature of the Company's foreign investment plans.  Therefore, deferred taxes are not provided for on translation adjustments related to non-remitted earnings of the Company's foreign subsidiaries.

(2)

See Note 12 - Derivative Instruments and Hedging Activities.

(1)Translation adjustments arising in translating the financial statements of a foreign entity have no effect on the income taxes of that foreign entity. They may, however, affect: (a) the amount, measured in the parent entity's reporting currency, of withholding taxes assessed on dividends paid to the parent entity and (b) the amount of taxes assessed on the parent entity by the government of its country. The Company has determined that the reinvestment of earnings of its foreign subsidiaries are indefinite because of the long-term nature of the Company's foreign investment plans. Therefore, deferred taxes are not provided for on translation adjustments related to non-remitted earnings of the Company's foreign subsidiaries.

(2)Refer to “Note 13 - Derivative Instruments and Hedging Activities.”

See accompanying notes.

F-67


Table of Contents

PRICESMART, INC.

CONSOLIDATEDCONSOLIDATED STATEMENTS OF EQUITY

(AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

Tax Benefit

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Accumulated

Stockholders'

 

 

 

 

 

 

Additional

 

From

 

Other

 

 

 

 

 

 

 

 

 

 

 

Additional

Other

Equity

 

Common Stock

 

Paid-in

 

Stock Based

 

Comprehensive

 

Retained

 

Treasury Stock

 

Total

Common Stock

Paid-in

Comprehensive

Retained

Treasury Stock

Attributable to

Noncontrolling

Total

 

Shares

 

Amount

 

Capital

 

Compensation

 

Income(Loss)

 

Earnings

 

Shares

 

Amount

 

Equity

Shares

Amount

Capital

Loss

Earnings

Shares

Amount

PriceSmart, Inc.

Interest

Equity

Balance at August 31, 2014

 

30,951 

 

$

 

$

397,150 

 

$

9,505 

 

$

(49,286)

 

$

215,613 

 

741 

 

$

(24,720)

 

$

548,265 

Balance at August 31, 2019

31,461 

$

$

454,570 

$

(144,339)

$

525,804 

924 

$

(38,687)

$

797,351 

$

928 

$

798,279 

Purchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

52 

 

 

(4,677)

 

 

(4,677)

57 

(3,651)

(3,651)

(3,651)

Issuance of restricted stock

 

33 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Issuance of treasury stock

(234)

(13,932)

(234)

13,932 

Issuance of restricted stock award

222 

Forfeiture of restricted stock awards

 

(9)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

(31)

Exercise of stock options

 

 

 

 —

 

 

49 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

49 

Stock-based compensation

 

 —

 

 

 —

 

 

5,969 

 

 

1,206 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7,175 

13,817 

13,817 

13,817 

Dividend paid to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,126)

 

 —

 

 

 —

 

 

(21,126)

(21,426)

(21,426)

(101)

(21,527)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

89,124 

 

 —

 

 

 —

 

 

89,124 

78,109 

78,109 

72 

78,181 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(52,226)

 

 

 —

 

 —

 

 

 —

 

 

(52,226)

(32,481)

(32,481)

114 

(32,367)

Balance at August 31, 2015

 

30,978 

 

$

 

$

403,168 

 

$

10,711 

 

$

(101,512)

 

$

283,611 

 

793 

 

$

(29,397)

 

$

566,584 

Balance at August 31, 2020

31,418 

$

$

454,455 

$

(176,820)

$

582,487 

747 

$

(28,406)

$

831,719 

$

1,013 

$

832,732 

Purchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

43 

 

 

(3,334)

 

 

(3,334)

62 

(5,542)

$

(5,542)

(5,542)

Issuance of treasury stock

(96)

(7,864)

(96)

7,864 

Issuance of restricted stock award

 

256 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

154 

Exercise of stock options

 

 

 

 —

 

 

80 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

80 

Forfeiture of restricted stock awards

(8)

Stock-based compensation

 

 —

 

 

 —

 

 

9,121 

 

 

610 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

9,731 

18,424 

18,424 

18,424 

Dividend paid to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,274)

 

 —

 

 

 —

 

 

(21,274)

(21,531)

(21,531)

(457)

(21,988)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

88,723 

 

 —

 

 

 —

 

 

88,723 

97,963 

97,963 

196 

98,159 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,439)

 

 

 —

 

 —

 

 

 —

 

 

(2,439)

(5,688)

(5,688)

117 

(5,571)

Balance at August 31, 2016

 

31,238 

 

$

 

$

412,369 

 

$

11,321 

 

$

(103,951)

 

$

351,060 

 

836 

 

$

(32,731)

 

$

638,071 

Balance at August 31, 2021

31,468 

$

$

465,015 

$

(182,508)

$

658,919 

713 

$

(26,084)

$

915,345 

$

869 

$

916,214 

Purchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

39 

 

 

(3,193)

 

 

(3,193)

88 

(6,259)

(6,259)

(6,259)

Issuance of treasury stock

(8)

(699)

(8)

699 

Issuance of restricted stock award

 

63 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

247 

Forfeiture of restricted stock awards

 

(37)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

(9)

Exercise of stock options

 

12 

 

 

 —

 

 

704 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

704 

Stock-based compensation

 

 —

 

 

 —

 

 

9,689 

 

 

165 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

9,854 

16,803 

16,803

16,803 

Dividend paid to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,285)

 

 —

 

 

 —

 

 

(21,285)

(26,559)

(26,559)

(26,559)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

90,724 

 

 —

 

 

 —

 

 

90,724 

104,534

104,534

19 

104,553

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,108)

 

 

 —

 

 —

 

 

 —

 

 

(6,108)

(13,078)

(13,078)

(13,075)

Balance at August 31, 2017

 

31,276 

 

$

 

$

422,762 

 

$

11,486 

 

$

(110,059)

 

$

420,499 

 

875 

 

$

(35,924)

 

$

708,767 

Sale of Aeropost stock

287

287

(891)

(604)

Balance at August 31, 2022

31,698 

$

$

481,406 

$

(195,586)

$

736,894

793 

$

(31,644)

$

991,073

$

$

991,073

See accompanying notes.

F-78


Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTSSTATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31,

Years Ended August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

90,724 

 

$

88,723 

 

$

89,124 

$

104,553

$

98,159

$

78,181

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

46,292 

 

39,794 

 

34,445 

67,868

64,983

61,225

Allowance for doubtful accounts

 

 —

 

 

 —

63

(53)

3

(Gain)/loss on sale of property and equipment

 

1,961 

 

1,162 

 

2,005 

Loss on sale of property and equipment

1,265

1,027

443

Deferred income taxes

 

(2,845)

 

2,875 

 

2,972 

(3,300)

(3,853)

(3,405)

Excess tax benefit on stock-based compensation

 

(165)

 

(610)

 

(1,206)

Equity in (gains) losses of unconsolidated affiliates

 

 

(332)

 

(94)

Equity in losses of unconsolidated affiliates

10

58

95

Stock-based compensation

 

9,689 

 

9,121 

 

5,969 

16,803

18,424

13,817

Proceeds from the settlement of derivatives

 

 —

 

 —

 

8,543 

Change in operating assets and liabilities:

 

 

 

 

 

 

Receivables, prepaid expenses and other current assets, accrued salaries and benefits, deferred membership income and other accruals

 

1,894 

 

(6,679)

 

(7,807)

Receivables, prepaid expenses and other current assets, non-current assets, accrued salaries and benefits, deferred membership income and other accruals

(13,785)

13,097

(3,040)

Merchandise inventories

 

 

(28,039)

 

 

(15,732)

 

 

(40,792)

(74,706)

(80,202)

21,764

Accounts payable

 

 

3,344 

 

 

23,202 

 

 

16,423 

23,058

15,526

90,185

Net cash provided by (used in) operating activities

 

 

122,856 

 

 

141,531 

 

 

109,582 

Net cash provided by operating activities

121,829

127,166

259,268

Investing Activities:

 

 

 

 

 

 

Additions to property and equipment

 

(135,294)

 

(77,700)

 

(89,185)

(120,660)

(113,174)

(100,320)

Deposits for land purchase option agreements

 

(300)

 

(442)

 

1,095 

Purchases of short-term investments

(22,469)

(69,460)

(49,629)

Proceeds from settlements of short-term investments

61,733

65,528

20,182

Purchases of long-term investments

(1,478)

(1,485)

Proceeds from settlements of long-term investments

1,488

1,478

Proceeds from disposal of property and equipment

 

 

377 

 

 

86 

 

 

368 

193

385

40

Capital contributions to joint ventures

 

 

 —

 

 

(119)

 

 

(1,360)

Net cash provided by (used in) investing activities

 

 

(135,217)

 

 

(78,175)

 

 

(89,082)

Proceeds from the disposal of Aeropost, net of divested cash

4,959

Net cash used in investing activities

(74,756)

(116,721)

(131,212)

Financing Activities:

 

 

 

 

 

 

Proceeds from long-term bank borrowings

 

47,700 

 

14,370 

 

52,977 

30,633

17,565

57,882

Repayment of long-term bank borrowings

 

(29,395)

 

(16,525)

 

(30,905)

(22,697)

(19,993)

(15,164)

Proceeds from short-term bank borrowings

 

678 

 

28,927 

 

51,664 

23,829

271,014

Repayment of short-term bank borrowings

 

(17,179)

 

(19,314)

 

(42,143)

(11,156)

(64,983)

(212,919)

Repayment of long-term debt with cross-currency interest rate swaps

 

 —

 

 —

 

(24,000)

Cash dividend payments

 

(21,285)

 

(21,274)

 

(21,126)

(26,559)

(21,988)

(21,527)

Excess tax benefit on stock-based compensation

 

165 

 

610 

 

1,206 

Purchase of treasury stock

 

 

(3,193)

 

 

(3,334)

 

 

(4,677)

Proceeds from exercise of stock options

 

 

704 

 

 

80 

 

 

49 

Net cash provided by (used in) financing activities

 

 

(21,805)

 

 

(16,460)

 

 

(16,955)

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,838)

 

 

(2,777)

 

 

(11,412)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(37,004)

 

 

44,119 

 

 

(7,867)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

202,716 

 

 

158,597 

 

 

166,464 

Cash, cash equivalents, and restricted cash at end of period

 

$

165,712 

 

$

202,716 

 

$

158,597 

Purchase of treasury stock for tax withholding on stock compensation

(6,259)

(5,542)

(3,651)

Other financing activities

(196)

(72)

Net cash used in financing activities

(12,209)

(95,137)

75,563

Effect of exchange rate changes on cash and cash equivalents and restricted cash

1,030

(3,600)

(6,084)

Net increase (decrease) in cash, cash equivalents

35,894

(88,292)

197,535

Cash, cash equivalents and restricted cash at beginning of period

215,479

303,771

106,236

Cash, cash equivalents and restricted cash at end of period

$

251,373

$

215,479

$

303,771

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Supplemental disclosure of noncash investing activities:

Capital expenditures accrued, but not yet paid

$

3,129

$

3,497

$

10,563

Cash paid during the period for:

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

5,915 

 

$

4,903 

 

$

6,093 

Interest

$

9,392

$

7,774

$

6,877

Income taxes

 

$

48,530 

 

$

51,238 

 

$

44,174 

$

67,143

$

58,571

$

50,814

F-89


Table of Contents

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the statement of cash flows:

Years Ended August 31,

2022

2021

2020

Cash and cash equivalents

$

237,710

$

202,060

$

299,481

Short-term restricted cash

3,013

3,647

185

Long-term restricted cash

10,650

9,772

4,105

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows

$

251,373

$

215,479

$

303,771



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Cash and cash equivalents

 

$

162,434 

 

$

199,522 

 

$

157,072 

Short-term restricted cash

 

 

460 

 

 

518 

 

 

61 

Long-term restricted cash

 

 

2,818 

 

 

2,676 

 

 

1,464 

Total Cash, Cash equivalents, and restricted cash shown in statement of cash flows

 

$

165,712 

 

$

202,716 

 

$

158,597 

See accompanying notes.

F-910


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“PriceSmart,” the “Company,” or "we") business consists primarily of international membership shopping warehouse clubs similar to, but typically smaller in size than, warehouse clubs in the United States. As of August 31, 2017,2022, the Company had 39 consolidated50 warehouse clubs in operation in 12 countries and one U.S. territory (seven(nine in Colombia; sixeight in Costa Rica; seven in Panama; five in Panama;the Dominican Republicand Guatemala, four in Trinidad; three each in Guatemala, Honduras and the Dominican Republic;Honduras; two each in El Salvador, Jamaica, and Nicaragua; and one each in Aruba, Barbados,  Jamaica, and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies). The Company openedplans to open a new warehouse club in Chia, Colombia in September 2016, fiscal year 2017, bringing the total of warehouse clubs operating in Colombia to seven.  The Company opened a new warehouse club in Managua, Nicaragua in November 2015, fiscal year 2016, bringing the total of warehouse clubs operating in Nicaragua to two. In February 2017 the Company acquired land in Santa Ana, Costa Rica upon which the Company opened a new warehouse club on October 5, 2017. This new warehouse club brings the number of PriceSmart warehouse clubs operating in Costa Rica to seven.  In June 2017, the Company acquired land in Santo Domingo, Dominican Republic. The Company is currently building a warehouse club on this site that the Company expects to openSan Miguel, El Salvador in the spring of calendar year 2018. This2023 and a warehouse club in Medellín, Colombia in the summer of 2023. Once these two new clubs are open, the Company will bringoperate 52 warehouse clubs. Our operating segments are the number of PriceSmart warehouse clubs operating in Dominican Republic to four.

The Company continues to explore other potential sites for future warehouse clubs inUnited States, Central America, the Caribbean, and Colombia.

PriceSmart continues to invest in technology and talent to support the following three major drivers of growth:

1. Expand Real Estate Footprint with New Clubs and Distribution Facilities;

2. Increase Membership Value; and

3. Drive Incremental Sales via PriceSmart.com and Enhanced Online, Digital and Technological Capabilities.

Basis of Presentation - The consolidated financial statements have been prepared in accordance with the instructions to Form 10-K for annual financial reporting pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and U.S. generally accepted accounting principles.principles (“GAAP”) for annual financial information. The consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. IntercompanyInter-company transactions between the Company and its subsidiaries have been eliminated in consolidation.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated financial statements of the Company included herein include the assets, liabilities and results of operations of the Company’s wholly owned subsidiaries, subsidiaries in which it has a controlling interest, and the investmentsCompany’s joint ventures for which the Company has determined that it is the primary beneficiary. The Company’s net income excludes income attributable to noncontrolling interests. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The consolidated financial statements also include the Company's investment in, and operating resultsthe Company's share of the income (loss) of, joint ventures recorded under the equity method. All significant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared by the Company 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 periods presented.    As of August 31, 2017, all

The Company determines whether any of the joint ventures in which it has made investments is a Variable Interest Entity (“VIE”) at the start of each new venture and if a reconsideration event has occurred. At this time, the Company also considers whether it must consolidate a VIE and/or disclose information about its involvement in a VIE. A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) and is determined to be the primary beneficiary. If the Company determines that it is not the primary beneficiary of the VIE, then the Company records its investment in, and the Company's subsidiaries were wholly owned.  Additionally,share of the income (loss) of, joint ventures recorded under the equity method. Due to the nature of the joint ventures that the Company participates in and the continued commitments for additional financing, the Company determined these joint ventures are VIEs.

In the case of the Company's ownership interest in real estate development joint ventures, both parties to each joint venture share all rights, obligations and the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. As a result, 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. Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment.


F-11


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company's ownership interest in real estate development joint ventures the Company has recorded under the equity method as of August 31, 2017 is2022 are listed below:

Real Estate Development Joint Ventures

Countries

Ownership

Basis of
Presentation

GolfPark Plaza, S.A.

Panama

50.0 

%

50.0

%

Equity(1)

Price Plaza Alajuela PPA, S.A.

Costa Rica

50.0 

%

50.0

%

Equity(1)

(1)

Joint venture interests are recorded as investment in unconsolidated affiliates on the consolidated balance sheets.

(1)Joint venture interests are recorded as investment in unconsolidated affiliates on the consolidated balance sheets.

Disposals, Acquisitions and Related Items – From March 2018 through September 2021, we operated a cross border package forwarding (casillero) and online marketplace business under the “Aeropost” banner in 38 countries in Latin America and the Caribbean. PriceSmart acquired Aeropost in 2018 to leverage Aeropost’s technology and its management’s experience in developing software and systems for e-commerce and logistics to advance PriceSmart’s development of an omni-channel shopping experience for its Members. In October 2021, PriceSmart sold the legacy casillero and marketplace operations, which were not core to our main objectives. PriceSmart retained key Aeropost personnel and technology in the transaction, with which we believe we can continue to grow our omni-channel business. This technology and talent have helped us combine our brick-and-mortar operations with online capabilities, supported by a more sophisticated distribution system. These online capabilities and the enhanced distribution system provide us with the potential to expand our geographic coverage, reach more Members in more ways, increase efficiencies, reduce costs and provide Members with greater value.

The Company disposed of its entire ownership in Aeropost to an unrelated third party. However, as part of the consideration of the sale, Aeropost will provide $2.0 million of logistical services to the Company as needed for 36 months. The Company recorded a pre-tax gain from the sale of Aeropost of $2.7 million in the first quarter of fiscal year 2022 in other income (expense), net in the consolidated statements of income.

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. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. Actual results could differ from those estimates.estimates and assumptions.

Variable Interest Entities –The Company reviews and determines at the start of each arrangement, or subsequently if a reconsideration event occurs, whether any of its investments in joint ventures constitute a Variable Interest Entity (“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, S.A. and Plaza Price Alajuela PPA, S.A. 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 The Company considers as cash and cash equivalents representall cash and short-termon deposit, highly liquid investments with maturitiesa maturity of three months or less when purchasedat the date of purchase and proceeds due from credit and debit card transactions which are generally settled within a few daysin the process of the underlying transaction.settlement.

F-10


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted Cash The changes in restricted cash are disclosed within the consolidated statement of cash flows based on the nature of the restriction. The following table summarizes the restricted cash reported by the Company (in thousands):



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

August 31,

 

 

August 31,



 

2017

 

 

2016

Short-term restricted cash:

 

 

 

 

 

 

 

Restricted cash for land purchase option agreements

 

$

300 

 

 

$

442 

Other short-term restricted cash

 

 

160 

 

 

 

76 

Total short-term restricted cash

 

$

460 

 

 

$

518 



 

 

 

 

 

 

 

Long-term restricted cash:

 

 

 

 

 

 

 

Other long-term restricted cash (1)

 

$

2,818 

 

 

$

2,676 

Total long-term restricted cash

 

$

2,818 

 

 

$

2,676 

Total restricted cash

 

$

3,278 

 

 

$

3,194 

August 31,

August 31,

2022

2021

Short-term restricted cash

$

3,013

$

3,647

Long-term restricted cash

10,650

9,772

Total restricted cash(1)

$

13,663

$

13,419

(1)

Other long-term restricted cash consists mainly of cash deposits held within banking institutions in compliance with federal regulatory requirements in Costa Rica and Panama.

(1)Restricted cash consists mainly of cash deposits held within banking institutions in compliance with federal regulatory requirements in Costa Rica and Panama. In addition, the Company is required to maintain a certificate of deposit and/or security deposits of Trinidad dollars, of approximately $8.4 million, as measured in U.S. dollars, with a few of its lenders as compensating balances for several U.S. dollar denominated loans payable over several years. These certificates of deposit will be reduced annually commensurate with the loan balances.

Short-Term Investments – The Company considers as short-term investments certificates of deposit and similar time-based deposits with financial institutions with maturities over three months and up to one year.

Long-Term Investments – The Company considers as long-term investments certificates of deposit and similar time-based deposits with financial institutions with maturities over one year.

F-12


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and Other Intangibles, net – Goodwill and other intangibles totaled $44.1 million as of August 31, 2022 and $52.9 million as of August 31, 2021. The Company reviews reported goodwill and other intangibles at the reporting unit level for impairment. The Company tests goodwill for impairment at least annually or when events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In connection with the Aeropost disposal, we retained the intellectual property associated with our PriceSmart.com business. However, in conjunction with this disposal, we wrote off $1.7 million of goodwill, $4.4 million of intangibles related to the Aeropost trademark, and $1.0 million of intangibles related to the developed technology of Aeropost directly associated with Aeropost’s legacy marketplace and casillero business. The $2.7 million net pre-tax gain recorded during the first fiscal quarter of 2022 for the sale of Aeropost is net of these write offs of goodwill and intangible assets.

The changes in the carrying amount of goodwill for the year ended August 31, 2022 are as follows (in thousands):

Amount

Goodwill at August 31, 2021

$

45,095

Goodwill written off

(1,714)

Foreign currency exchange rate changes

(78)

Goodwill at August 31, 2022

$

43,303

Amount

Other intangibles at August 31, 2021

$

7,762

Trade Name written off

(4,375)

Development Technology written off

(1,009)

Amortization

(1,613)

Net other intangibles at August 31, 2022

$

765

Total goodwill and other intangibles, net at August 31, 2022

$

44,068

The table below shows our estimated amortization of intangibles for fiscal year 2023 (in thousands):

Twelve Months Ended August 31,

Amount

2023

$

765

Total

$

765

Tax Receivables The Company pays Value Added Tax (“VAT”) or similar taxes, (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services itthe Company acquires and/or on sales and taxable income. VAT is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is similar to, but operates somewhat differently than, sales tax paid in the United States. The Company alsogenerally collects VAT from its Members upon sale of goods and services and pays VAT to its vendors upon purchase of goods and services. Periodically, the Company submits VAT reports to governmental agencies and reconciles the VAT paid and VAT received. The net overpaid VAT may be refunded or similar taxes on behalf ofapplied to subsequent returns, and the government (“output VAT”) for merchandise and/or services it sells.  If the outputnet underpaid VAT exceeds the input VAT, then the difference ismust be remitted to the government, usually on a monthly basis.  If the input VAT exceeds the output VAT, this creates a VAT receivable.  In most countries where the Company operates, the governments have implemented additional collection procedures, such as requiring credit and debit card processors to remit a portion of sales processed via credit and debit card directly to the government as advance payments of VAT and/or income tax.  In the case of VAT, these procedures alter the natural offset of input and output VAT and generally leave the Company with a net VAT receivable, forcing the Company to process significant refund claims on a recurring basis.government. With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due this creates an income tax receivable. TheIn most countries where the Company either requestsoperates, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a refundportion of thesesales processed via credit and debit cards directly to the government as advance payments of VAT and/or income tax. This collection mechanism generally leaves the Company with net VAT and/or income tax receivables, or appliesforcing the balanceCompany to expected future tax payments.  process significant refund claims on a recurring basis.These refund or offset processes can take anywhere from several months to several years to complete.

In mosttwo countries, where the Company operates, the tax refund process is defined and structured with regular refunds or offsets.  However, as of August 31, 2017, in one country the government has alleged there is not a clearly defined process to allow the tax authorities to refund VAT receivables. As of August 31, 2016, there were three countries that lacked a clearly defined process; however, during the third and fourth quarters of 2017, two of these countries clarified the refund mechanism, which we are currently pursuing. The Company, together with our tax and legal advisers, is currently seeking clarification in courthave been changes in the remaining country without a clearly defined process and expects to prevail. The balancemethod of the VAT receivable in the country with undefined refund mechanisms was approximately $1.2 million and $800,000 as of August 31, 2017 and August 31, 2016, respectively.  In another country incomputing minimum tax payments, under which the Company operates warehouse clubs, a new minimum income tax mechanism took effect in fiscal year 2015, which requiresgovernments have sought to require the Company to pay taxes based on a percentage of sales rather than taxable income. As a result, the Company is makinghas made and may continue to make income tax payments substantially in excess of those it would expect to pay based on taxable income. The current rules (which the Company has challenged in court) do not clearly allow the Companyrelated to obtain a refund or to offset this excessrefunds of income tax against other taxes. As of August 31, 2017, thereceivables in these countries are either unclear or complex. The Company had deferred tax assets of approximately $2.0 million in this country. Also, the Company had an income tax receivable balancereceivables of $4.3$11.0 million as of August 31, 2017 related to excess payments from fiscal years 2015 to 2017. The Company has not placed any type of allowance on the recoverability of these tax receivables or2022 and August 31, 2021, respectively, and deferred tax assets because the Company believes that it is more likely than not that it will ultimately succeedof $3.5 million and $3.3 million as of August 31, 2022 and August 31, 2021, respectively, in its refund requests, related appeals and/or court challenge on this matter.these countries.

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Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company'sCompany’s policy for classification and presentation of VAT receivables, income tax receivables and other tax receivables is as follows:

·

Short-term VAT and income tax receivables, recorded as Other current assets: This classification is used for any countries where the Company's subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year.  The Company also classifies as short-term any approved refunds or credit notes to the extent that the Company expects to receive the refund or use the credit notes within one year.

F-11


Table of ContentsShort-term VAT and Income tax receivables, recorded as Prepaid expenses and other current assets: This classification is used for any countries where the Company’s subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. The Company also classifies as short-term any approved refunds or credit notes to the extent that the Company expects to receive the refund or use the credit notes within one year.

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Long-term VAT and Income tax receivables, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countries where the Company’s subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VAT and income tax receivable balances in dispute when the Company does not expect to eventually prevail in its recovery. The Company does not currently have any allowances provided against VAT and income tax receivables.

·

Long-term VAT and income tax receivables, recorded as Other non-current assets:  This classification is used for amounts not approved for refund or credit in countries where the Company's subsidiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes.  An allowance is provided against VAT and income tax receivable balances in dispute when the Company does not expect to eventually prevail in its recovery. The Company does not currently have any allowances provided against VAT and income tax receivables.

The following table summarizes the VAT receivables reported by the Company (in thousands):

August 31,

August 31,

2022

2021

Prepaid expenses and other current assets

$

3,890

$

3,173

Other non-current assets

32,460

28,437

Total amount of VAT receivables reported

$

36,350

$

31,610



 

 

 

 

 

 



 

 

 

 

 

 



 

August 31,

 

August 31,



 

2017

 

2016

Prepaid expenses and other current assets

 

$

6,650 

 

$

1,635 

Other non-current assets

 

 

24,904 

 

 

32,502 

Total amount of VAT receivable reported

 

$

31,554 

 

$

34,137 

The following table summarizes the income tax receivables reported by the Company (in thousands):

 

 

 

 

 

 

 

 

 

August 31,

 

August 31,

August 31,

August 31,

 

2017

 

2016

2022

2021

Prepaid expenses and other current assets

 

$

6,403 

 

$

6,402 

$

12,077

$

11,491

Other non-current assets

 

 

10,492 

 

 

10,376 

19,985

18,872

Total amount of income tax receivable reported

 

$

16,895 

 

$

16,778 

Total amount of income tax receivables reported

$

32,062

$

30,363

Lease Accounting – Certain The Company’s leases are operating leases for warehouse clubs and non-warehouse club facilities such as corporate headquarters, regional offices, and regional distribution centers. The Company determines if an arrangement is a lease and classifies it as either a finance or operating lease at lease inception. Operating leases are included in Operating lease right-of-use assets, net; Operating lease liabilities, current portion; and Long-term operating lease liabilities on the consolidated balance sheets. The Company does not have finance leases.

Operating lease liabilities are recognized at commencement date based on the present value of the Company's operatingfuture minimum lease payments over the lease term. The Company’s leases wheregenerally do not have a readily determinable implicit rate; therefore, the Company uses a collateralized incremental borrowing rate at the commencement date in determining the present value of future payments. The incremental borrowing rate is based on a yield curve derived from publicly traded bond offerings for companies with credit characteristics that approximate the lessee (see "Revenue Recognition Policy"Company's market risk profile.

In addition, we adjust the incremental borrowing rate for jurisdictional risk derived from quoted interest rates from financial institutions to reflect the cost of borrowing in the Company’s local markets. The Company’s lease terms may include options to purchase, extend or terminate the lease, which are recognized when it is reasonably certain that the Company will exercise that option. The Company does not combine lease and non-lease components.

The Company measures Right-of-use (“ROU”) assets based on the corresponding lease liabilities, adjusted for any initial direct costs and prepaid lease payments made to the lessor accounting) providebefore or at the commencement date (net of lease incentives). The lease expense for minimum annuallease payments that increaseis recognized on a straight-line basis over the lifelease term. Variable lease payments are not included in the calculation of the lease. The aggregate minimum annual payments are expensed on the straight-line basis beginning when the Company takes possession of the propertyROU asset and extending over the term of the related lease including renewal options when the exercise of the optionliability and are recognized as this lease expense is reasonably assured as an economic penalty may be incurred if the option is not exercised.incurred. The amount by which straight-line rent exceeds actualCompany’s variable 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” and lessor-paid tenant improvements. In additionpayments generally relate to the minimum annual payments, in certain locations, amounts the Company pays for additional contingent rent based on a contractually stipulated percentage of sales.

F-14


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or market.net realizable value. The Company provides for estimated inventory losses and obsolescence between physical inventory countsbased on the basis of a percentage of sales. The provision is adjusted periodicallyevery reporting period to reflect the trend of actual physical inventory and cycle count results, with physical inventories occurring primarily in the second and fourth fiscal quarters.results. In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.

Stock Based Compensation – The Company offersutilizes three types of equity awards: stock options (“options”), restricted stock awards (“RSAs”) and, restricted stock unitunits (“RSUs”) and performance-based restricted stock units (“PSUs”). Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model. Compensation related to RSAs, RSUs and RSUsPSUs is based on the fair market value at the time of grant with the application of an estimated forfeiture rate.grant. The Company recognizes the compensation cost related to these awardsRSAs and RSUs over the requisite service period as determined by the grant, amortized ratably or on a straight linestraight-line basis over the life of the grant. The Company utilizes “modified grant-date accounting”also recognizes compensation cost for true-ups due toPSUs over the performance period of each tranche, adjusting this cost based on the probability that performance metrics will be achieved. When an award is forfeited, any previously recorded expense is then reversed.

The Company accounts for actual forfeitures at the vesting dates.as they occur. The Company records the tax savings resulting from tax deductions in excess of expense for stock-based compensation as additional paid-in capital and the tax deficiency resulting from stock-based compensation in excess of the related tax deduction as a reduction in paid-in capital, based on the Tax Law Ordering method.income tax expense or benefit. In addition, the Company reflects the tax savings (deficiency) resulting from the taxation of stock-based compensation as a financingan operating cash flow in its consolidated statement of cash flows, rather than as  an operating cash flow.flows.

RSAs are outstanding shares of common stock and have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding shares of common stock. Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock. However, all outstanding RSUs have accompanying

dividend equivalents, requiring payment to the employees and directors with unvested RSUs of amounts equal to the dividend they would have received had the shares of common stock underlying the RSUs been actually issued and outstanding. Payments of dividend equivalents to employees are recorded as compensation expense.

PSUs, similar to RSUs, are awarded with dividend equivalents, provided that such amounts become payable only if the performance metric is achieved. At the time the Compensation Committee confirms the performance metric has been achieved, the corresponding dividend equivalents are paid on the PSUs.

F-12


TableTreasury Stock – Shares of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Exit or Disposal Cost Obligations –In January 2017,common stock repurchased by the Company purchased a distribution centerare recorded at cost as treasury stock and result in Medley, Miami-Dade County, Florida.the reduction of stockholders’ equity in the Company’s consolidated balance sheets. The Company transferred its Miami dry distribution center activities that were previously in a leased facility to the new facility during the third quarter of fiscal year 2017. Asmay reissue these treasury shares as part of this transaction,its stock-based compensation programs. When treasury shares are reissued, the Company has recorded an exit obligation related touses the leasefirst in/first out (“FIFO”) cost method for determining cost of the previous distribution center. The obligation consistsreissued shares. If the issuance price is higher than the cost, the excess of the costs associated with the exit or disposal activity measured initially at its fair value as of May 1, 2017, the date on which the obligation was incurred. These costs are primarily comprised of the costs to terminate the operating lease and other associated costs, including costs to consolidate or close facilities, net of any potential sub-lease income the Company could receive during the remaining lease term. In periods subsequent to initial measurement, changes to the exit obligation, including any changes resulting from a revision to either the timing or the amount of estimated cash flowsissuance price over the remaining lease period,cost is measured usingcredited to additional paid-in capital (“APIC”). If the credit-adjusted risk-free rate that was usedissuance price is lower than the cost, the difference is first charged against any credit balance in APIC from treasury stock and the balance is charged to measure the initial obligation.retained earnings. During the third quarter of fiscal year 2017, the Company initially recorded an obligation related to this exit activity for approximately $496,000 within other long-term liabilities. The Company’s exit obligation recorded as of August 31, 2017 is approximately $57,000. Exit costs of approximately $1.4 million were recorded to net warehouse club cost of goods sold for the twelve months ended August 31, 2017.2022, the Company reissued approximately 8,300 treasury shares.

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 consolidated financial statements on a recurring or nonrecurring basis. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

The Company has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring and revaluing 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 revalued at the balance sheet dates, on a recurring basis, consisted of cash flow hedges (interest rate swaps and cross-currency interest rate swaps) and forward foreign exchange contracts. In addition, the Company utilizes Level 2 inputs in determining the fair value of long-term debt. The Company has elected not to revalue long-term debt because this debt will be settled at the carrying value and not at the fair market value.  The Company did not make any significant transfers in and out of Level 1 and Level 2 fair value tiers during the periods reported on herein.

NonfinancialNon-financial assets and liabilities are revalued and recognized at fair value subsequent to initial recognition when there is evidence of impairment. For the periods reported, no impairment of such nonfinancialnon-financial assets was recorded.

F-15


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The disclosure of fair value of certain financial assets and liabilities recorded at cost is as follows:

Cash and cash equivalents: The carrying value approximates fair value due to the short maturity of these instruments.

Short-term restricted cash: The carrying value approximates fair value due to the short maturity of these instruments.

Short-term investments: Short-term investments consists of certificates of deposit and similar time-based deposits with financial institutions with maturity dates over three months and up to twelve months. The carrying value approximates fair value due to the maturity of the underlying certificates of deposit within the normal operating cycle of the Company.

Long-term investments: Long-term investments consists of certificates of deposit and similar time-based deposits with financial institutions with maturity dates over one year. The carrying value approximates fair value due to the maturity of the underlying certificates of deposit.

Long-term restricted cash: Long-term restricted cash primarily consists of auto renewable 3-12 month certificates of deposit with maturity dates of over a year, which are held as collateral against our long-term debt. The carrying value approximates fair value due to the maturity of the underlying certificates of deposit within the normal operating cycledeposit.

Accounts receivable:Receivables consist primarily of credit card receivables and receivables from vendors and are stated net of allowances for credit losses. The determination of the Company.allowance for credit losses is based on the Company’s assessment of collectability along with the consideration of current and expected market conditions that could impact collectability.

Accounts receivable:Short-term VAT and Income tax receivables: The carrying value approximates fair value due to the short maturity of these accounts.

Short-term VAT and Income tax receivables:  The carrying value approximates fair value due to the short maturity of these accounts.

Long-term VAT and income tax receivables: The fair value of long-term receivables would normally be measured using a discounted cash flow analysis based on the current market interest rates for similar types of financial instruments, with an estimate of the time these receivables are expected to be outstanding. The Company is not able to provide an estimate as to the time these receivables owed to the Company by various government agencies are expected to be outstanding; therefore, the Company has not presented a fair value on the long-term VAT and income tax receivables.

Short-term debt: The carrying value approximates fair value due to the short maturity of these instruments.

F-13


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-term debt: The fair value of debt is generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments. These inputs are not quoted prices in active markets but they are either directly or indirectly observable; therefore, they are classified as Level 2 inputs. The carrying value and fair value of the Company’s debt as of August 31, 20172022 and August 31, 20162021 is as follows (in thousands):

August 31, 2022

August 31, 2021

Carrying
Value

Fair
Value(1)

Carrying
Value

Fair

Value(1)

Long-term debt, including current portion

$

137,271

136,479

129,505

119,646



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

August 31, 2017

 

August 31, 2016



 

Carrying
Value

 

Fair
Value(1)

 

Carrying
Value

 

Fair
Value

Long-term debt, including current portion

 

$

106,297 

 

$

102,911 

 

$

88,107 

 

$

85,654 

(1)

The Company has disclosed the fair value of long-term debt, including debt for which it has entered into cross-currency interest rate swaps, using the derivative obligation as of August 31, 2017 to estimate the fair value of long-term debt, which includes the effects that the cross-currency interest rate swaps have had on the fair value of long-term debt.

(1)The Company has disclosed the fair value of long-term debt, including debt for which it has entered into cross-currency interest rate swaps, using the derivative obligation as of August 31, 2022 to estimate the fair value of long-term debt, which includes the effects that the cross-currency interest rate swaps have had on the fair value of long-term debt.

Derivative

Derivatives Instruments and Hedging Activities – The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest rates and currency exchange rates. In using derivative financial instruments for the purpose of hedging the Company’s exposure to interest rates and currency exchange rate risks, the contractual terms of a hedged instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria (effective hedge) are recorded using hedge accounting. If a derivative financial instrument is an effective hedge, changes in the fair value of the instrument will be offsetreported in accumulated other comprehensive income (loss)loss until the hedged item completes its contractual term.  If any portion of the hedge is deemed ineffective, the change in fair value of the hedged assets or liabilities will be immediately recognized in earnings during the period. Instruments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of the change.

F-16


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company did not change valuation techniques utilized in the fair value measurement of assets and liabilities presented on the Company’s consolidated balance sheets from previous practice during the reporting period. The Company seeks to manage counterparty risk associated with these contracts by limiting transactions to counterparties with which the Company has an established banking relationship. There can be no assurance, however, that this practice effectively mitigates counterparty risk.

Cash Flow Instruments. The Company is a party to receive floating interest rate, pay fixed-rate interest rate swaps to hedge the interest rate risk of certain U.S. dollar denominated debt within its international subsidiaries. The swaps are designated as cash flow hedges of interest expense risk. These instruments are considered effective hedges and are recorded using hedge accounting. The Company is also a party to receive variable interest rate, pay fixed interest rate cross-currency interest rate swaps to hedge the interest rate and currency exposure associated with the expected payments of principal and interest of U.S. denominated debt within its international subsidiaries whose functional currency is other than the U.SU.S. dollar. The swaps are designated as cash flow hedges of the currency risk and interest-rate risk related to payments on the U.S. denominated debt. These instruments are also considered to be effective hedges and are recorded using hedge accounting. Under cash flow hedging, the effective portion of the fair valueentire gain or loss of the derivative, calculated as the net present value of the future cash flows, is deferredreported on the consolidated balance sheets in accumulated other comprehensive loss. If any portion of an interest rate swap is determined to be an ineffective hedge, the gains or losses from changes in fair 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 12Refer to “Note 13 - Derivative Instruments and Hedging ActivitiesActivities” for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of August 31, 20172022 and August 31, 2016.2021.

Fair Value Instruments. The Company is exposed to foreign-currencyforeign currency exchange rate fluctuations in the normal course of business. This includes exposure to foreign-currencyforeign currency exchange rate fluctuations on U.S. dollar-denominateddollar denominated liabilities within the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non-deliverable forward foreign-exchange contracts that are intended to offset changes in cash flows attributable to currency exchange movements. The contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts are treated for accounting purposes as fair value instruments and do not qualify for derivative hedge accounting, and as such the Company does not apply derivative hedge accounting to record these transactions. As a result, these contracts are valued at fair value with unrealized gains or losses reported in earnings during the period of the change. The Company seeks to mitigate foreign-currencyforeign currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contracts do not contain any credit-risk-related contingent features and are limited to less than one year in duration. See Note 12 - Derivative Instruments and Hedging Activities for information on the fair value of open, unsettled forward foreign-exchange contracts as of August 31, 2017 and August 31, 2016.

F-14


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes financial assets and liabilities measured and recorded at fair value on a recurring basis in the Company’s consolidated balance sheet as of August 31, 2017 and August 31, 2016 (in thousands) for derivatives that qualify for hedge accounting:



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Quoted Prices

in Active

Markets for

Identical

Assets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

Assets and Liabilities as of August 31, 2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Other non-current assets – (Cross-currency interest rate swaps)

 

$

 —

 

$

2,547 

 

$

 —

 

$

2,547 

Other long-term liabilities – (Interest rate swaps)

 

 

 —

 

 

(231)

 

 

 —

 

 

(231)

Other long-term liabilities – (Cross-currency interest rate swaps)

 

 

 —

 

 

(451)

 

 

 —

 

 

(451)

Total

 

$

 —

 

$

1,865 

 

$

 —

 

$

1,865 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Quoted Prices

in Active

Markets for

Identical

Assets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

 

Assets and Liabilities as of August 31, 2016

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

Other non-current assets – (Cross-currency interest rate swaps)

 

$

 —

 

$

3,224 

 

$

 —

 

$

3,224 

Other long-term liabilities – (Interest rate swaps)

 

 

 —

 

 

(448)

 

 

 —

 

 

(448)

Other long-term liabilities – (Cross-currency interest rate swaps)

 

 

 —

 

 

(1,066)

 

 

 —

 

 

(1,066)

Total

 

$

 —

 

$

1,710 

 

$

 —

 

$

1,710 

Goodwill – The table below presents goodwill resulting from certain business combinations as of August 31, 2017 and August 31, 2016 (in thousands).  The change in goodwill is a result of foreign exchange translation losses.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

August 31,

 

August 31,

 

 

 



 

2017

 

2016

 

Change

Goodwill

 

$

35,642 

 

$

35,637 

 

$

The Company reviews goodwill at the reporting unit for impairment. The Company first reviews qualitative factors for each reporting unit in determining if an annual goodwill test is required. If the Company's review of qualitative factors indicates a requirement for a test of goodwill impairment, because it is more likely than not that an impairment of goodwill may exist, the Company then will assess whether the carrying amount of a reporting unit is greater than the estimated fair value. If the carrying amount of a reporting unit is greater than zero and its estimated fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If either the carrying amount of the reporting unit is not greater than zero or if the carrying amount of the entity exceeds its estimated fair value, the Company performs a second test to determine whether goodwill has been impaired and to calculate the amount of that impairment. The Company was not required to perform the second step for any reporting units in 2017 or 2016.

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.  Membership refunds are prorated over the remaining term of the membership; accordingly, no refund reserve is required to be established for the periods presented.  The Company recognizesaccounting policies and presents revenue-producing transactions on a net of value added/sales tax basis. 

The Company began offering Platinum memberships in Costa Rica during fiscal year 2013, which provide members with a2%rebate on most items, up to an annual maximum of$500.  Platinum members can apply this rebate to future purchases at the warehouse club at the end of the annual membership period.  The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction.  Accordingly, the Company has reduced warehouse sales and has accrued a liability within other accrued expenses.  The rebate is issued annually to Platinum members on March 1 and expires August 31.  Any rebate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

amount not redeemed by August 31 is recognized as breakage revenue.  The Company periodically reviews expired unused rebates outstanding, and the expired unused rebates are recognized as Revenues: Other income on the consolidated statements of income.The Company has determined that breakage revenue is insignificant; therefore, it records 100% of the Platinum membership liability at the time of sale, rather than estimating breakage. In September of fiscal year 2018, we introduced the Platinum membership in Panama and plan on adding a Platinum membership level in the Dominican Republic in the next few months. We are considering expanding Platinum membership to other PriceSmart markets and may do so during fiscal year 2018.

The Company recognizes gift certificate sales revenue when the certificates are redeemed. The outstanding gift certificates are reflected as other accrued expenses in the consolidated balance sheets. These gift certificates generally have a one-year stated expiration date from the date of issuance. However, the absence of a large volume of transactions for gift certificates impairs the Company's ability to make a reasonable estimate of the redemption levels for gift certificates; therefore, the Company assumes a 100% redemption rate prior to expiration of the gift certificate. The Company periodically reviews unredeemed outstanding gift certificates, and the gift certificates that have expired are recognized as Revenues: Other income on the consolidated statements of income.

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 recognizeddisclosures such as the contingent rent becomes due perdisclosure of disaggregated revenues are described in “Note 3 – Revenue Recognition.”

Gain Contingencies and Recoveries – A gain contingency is an existing condition, situation, or set of circumstances involving uncertainty as to a possible gain that will ultimately be resolved when one or more future events occur or fail to occur. During the individual lease agreements.

Insurance Reimbursements –Receiptsordinary course of our business, gain contingencies arise when we have the opportunity to recover costs or damages we incur from insurance reimbursements up to the amount of the losses recognized are considered recoveries. These recoveries are accounted for when they are probable of receipt. Insurance recoveries are not recognized prior to the recognition of the related cost.carriers or other third parties. Anticipated proceeds in excess of the amount of loss recognized are considered gains and are subject to gain contingency guidance.contingent gains. Anticipated proceeds in excess of a loss recognized in the financial statements are not recognized until all contingencies related to the insurance claimcollectability, timing and amount are resolved.realizable.

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.sold, net merchandise sales. The Company also includes in cost of goods sold, net merchandise sales the external and internal distribution and handling costs for supplying merchandise, raw materials and supplies to the warehouse clubs.clubs, and, when applicable, costs of shipping to Members. 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 the Company's distribution facilities and payroll and other direct costs for in-storein-club demonstrations.

For export sales, the Company includes the cost of merchandise and external and internal distribution and handling costs for supplying merchandise in cost of goods sold, exports.

For the marketplace and casillero operations, the Company includes the costs of external and internal shipping, handling and other direct costs incurred to provide delivery, insurance and customs processing services in cost of goods sold, non-merchandise.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Vendor consideration consists primarily of volume rebates, time-limited product promotions, cooperative marketing efforts, digital advertising, slotting fees, demonstration reimbursements and prompt payment discounts. Volume rebates thatand time-limited promotions are not threshold based are incorporated intorecognized on a systematic and rational allocation of the unit cost of merchandise reducing the inventory cost and cost of goods sold. Volume rebates that are threshold based are recordedcash consideration as a reduction to cost of goods sold when the Company achieves established purchase levels thatprogresses toward earning the rebate, provided the amounts to be earned are confirmedprobable and reasonably estimable. Cooperative marketing efforts and digital advertising are related to consideration received by the vendor in writing or upon receipt of funds. 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 reclassified as a reduction to inventory, if significant. Product promotions are generally linked to coupons that provide for reimbursement to the Company from vendor rebatesvendors for non-distinct online advertising services on the product being promoted.Company’s website and social media platforms. Slotting fees are related to consideration received by the Company from vendors for preferential "end cap" placement of the vendor's products within the warehouse club. Demonstration reimbursements are related to consideration received by the Company from vendors for the in storein-club promotion of the vendors' products. The Company records the reduction in cost of goods sold on a transactional basis for these programs. 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 reclassified as a reduction to inventory, if significant. 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 effect recorded 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 alland package forwarding operations. These costs include payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense, building and equipment depreciation, and bank, and credit card processing fees.fees, and amortization of intangibles. Also included in selling, general and administrative expenses are the payroll and related costs for the Company'sCompany’s U.S. and regional management and purchasing and management centers.

Pre-Opening Costs – The Company expenses pre-opening costs (the costs of start-up activities, including organization costs and rent) for new warehouse clubs 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

impairment factors exist, requiring an adjustment of these assets to their then-current fair value. Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges.

Loss Contingencies and Litigation – The Company records and reserves 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. If one or both criteria for accrual are not met, but there is at least a reasonable possibility that a material loss will occur, the Company does not record and reserve for a loss contingency but describes the contingency within a note and provides detail, when possible, of the estimated potential loss or range of loss. If an estimate cannot be made, a statement to that effect is made.

Foreign Currency Translation – The assets and liabilities of the Company’s foreign operations are translated to U.S. dollars when the functional currency in the Company’s international subsidiaries is the local currency and 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.

The following table discloses the net effect of translation into the reporting currency on other comprehensive loss for these local currency denominated accounts for the years ended August 31, 2022, 2021 and 2020:

Years Ended August 31,

2022

2021

2020

Effect on other comprehensive loss due to foreign currency restatement

$

(19,034)

$

(7,837)

$

(29,413)

Monetary assets and liabilities denominated in currencies other than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gains (losses), including transactions recorded involving these monetary assets and liabilities, are recorded as Other income (expense) in the consolidated statements of income. The following table summarizes the amounts recorded for the twelve month periods ending August 31, 2017,  2016, and 2015 (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Currency gain (loss)

 

$

1,241 

 

$

(899)

 

$

(4,388)

Years Ended August 31,

2022

2021

2020

Currency Loss

$

(7,414)

$

(5,395)

$

(1,370)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income Taxes – The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributedattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.

The Company and its subsidiaries areis 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 foreign taxing authorities in the jurisdictions in which the Company or one offiles its subsidiaries files tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken byinterpretations the Company (“uncertainused to calculate its tax positions”)liability and therefore require the Company or one of its subsidiaries to pay additional taxes.

The Company accrues an amount for its estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has a 50% or less than 50% likelihood of being sustained. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the consolidated financial statements as appropriate.  There were no material changes in the Company's uncertain income tax positions for the periods ended on August 31, 2017 and August 31, 2016. See Note 9 – for income tax details.

The Company has not provided for U.S. deferred taxes on cumulative non-U.S. undistributed earnings as such earnings are deemed by the Company to be indefinitely reinvested. It is not practicable to determine the U.S. federal income tax liability that would be associated with such earnings because of the complexity of the computation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent Accounting Pronouncements – Not Yet Adopted

FASB ASC 815740 ASU 2017-12 Derivatives and Hedging - Targeted Improvements to2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Hedging ActivitiesIncome Taxes

TheIn December 2019, the FASB has issued Accounting Standards Update (ASU)ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to2019-12, Simplifying the Accounting for Hedging Activities, which aimsIncome Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.consistent application. The amendments in this ASU better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.

Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. The amendments in this ASU are effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods.2020. Early adoption is permitted. The Company will evaluateadopted ASU No. 2019-12 on September 1, 2021, the impact adoptionfirst quarter of fiscal year 2022. Adoption of this guidance maydid not have a material impact on the Company’s consolidated financial statements.

FASB ASC 715 ASU 2017-09 -Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting

The FASB has issued Accounting Standards Update (ASU) No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which seeks to provide clarity, reduce diversity in practice, and reduce cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, regardingThere were no other new accounting standards that had a change to the terms or conditions of a share-based payment award.  This ASU provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity is to account for the effects of a modification, unless all of the following are satisfied: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or as a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate thematerial impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC 715 ASU 2017-07-Compensation—Retirement Benefits (Topic 715) —Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715) — Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU is designed to improve guidance related to the presentation of defined benefit costs in the income statement. In particular, ASU 2017-07 requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employeesstatements during the period. The amendments in this ASU aretwelve-month period ended August 31, 2022, and there were no other new accounting standards or pronouncements that were issued but not yet effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the impact adoptionas of this guidance may have on the Company’s consolidated financial statements.

FASB ASC 350 ASU 2017-04-Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understandingAugust 31, 2022 that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Additionally, ASU 2017-04 requires any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual periods beginning after December 15, 2019. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC 740 ASU 2016-16-Income Taxes (Topic 740)—Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740)—Intra-Entity Transfers of Assets Other Than Inventory. Currently, U.S. GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.

The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC 230 ASU 2016-15-Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses stakeholders’ concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and Other Topics. In particular, ASU No. 2016-15 addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.

The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The amendments in this ASU should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company will evaluate the impact adoption of this guidance may have on the Company's consolidated financial statements.

FASB ASC 718 ASU 2016-09 - Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting

In March 2016, the FASB issued new guidance on stock compensation intended to simplify accounting for share-based payment transactions. The guidance will change accounting for income taxes, forfeitures, and minimum statutory tax withholding requirements. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company plans to adopt this guidance at the beginning of its first quarter of fiscal year 2018.    

·

The Company has evaluated the amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and will apply this approach prospectively. Under the treasury method for calculating earnings per share, the excess tax benefit/deficiencies will no longer be used to determine the diluted net income per share.  The Company determined that the adoption of this guidance will not have a material effect on the result of operations and the calculation of earnings per share.  The Company has used the two-step method for the diluted net income per share calculation over the last several years.

·

The Company has evaluated the amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement and will apply this approach retrospectively. The Company determined that the adoption of this guidance will not have a material effect on the consolidated statements of cash flows.

·

The Company has evaluated the amendments related to the timing of when excess tax benefits are recognized, the effect of minimum statutory withholding requirements, forfeitures, and intrinsic value and will apply this methodology using a modified retrospective transition method. The Company has elected to eliminate recording a forfeiture rate on the expense recorded.  The elimination of the forfeiture rate requires recording a cumulative-effect adjustment by reducing retained earnings and increasing Additional Paid in Capital, at the beginning of the year of adoption, which is September 1, 2017, for the service periods already incurred for unvested shares. 

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FASB ASC 842 ASU 2016-02 -Leases (Topic 842): Amendments to the FASB Accounting Standards Codification

In February 2016, the FASB issued guidance codified in ASC 842, Leases, which supersedes the guidance in ASC 840, Leases.  ASC 842 will be effective for the Company on September 1, 2019, and the Company expects to apply the transition practical expedients allowed by the standard.  Note 11 – “Leases” provides details on the Company’s current lease arrangements.  While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect will be to require recording right-of-use assets and corresponding lease obligations for current operating leases.  The Company expects the adoption of this guidance to have a material impact on its consolidated financial statements.


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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 3 – REVENUE RECOGNITION

The Company uses the five-step model to recognize revenue according to Accounting Standards Codification (ASC) Topic 606, “Revenue Recognition from Contracts with Customers.” The five steps are:

Identify the contract with the customer;

Identity the performance obligation(s);

Determine the transaction price;

Allocate the transaction price to each performance obligation if multiple obligations exist; and

Recognize the revenue as the performance obligations are satisfied.

Performance Obligations

The Company identifies each distinct performance obligation to transfer goods (or bundle of goods) or services. The Company recognizes revenue when (or as) it satisfies a performance obligation by transferring control of the goods or services to the customer.

Net Merchandise Sales. The Company recognizes merchandise sales revenue, net of sales taxes, on transactions where the Company has determined that it is the principal in the sale of merchandise. These transactions may include shipping commitments and/or shipping revenue if the transaction involves delivery to the customer.

Non-merchandise Sales. Until the disposal of Aeropost in the first quarter of fiscal 2022, the Company recognized non-merchandise revenue, net of sales taxes, on transactions where the Company had determined that it was the agent in the transaction. These transactions primarily consisted of contracts the Company entered into with its customers to provide delivery, insurance and customs processing services for products its customers purchased online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplace site. Revenue was recognized when the Company’s performance obligations were completed (that is when delivery of the items have been made to the destination point) and was recorded in “non-merchandise revenue” on the consolidated statements of income. Prepayment for orders for which the Company had not fulfilled its performance obligation were recorded as deferred income. Additionally, the Company recorded revenue at the net amounts retained, i.e., the amount paid by the customer less amounts remitted to the respective merchandise vendors, as the Company was acting as an agent and was not the principal in the sale of those goods being purchased from the vendors by the Company’s customers.

Membership Fee Revenue. 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. Our membership policy allows for Members to cancel their membership in the first 60 days and receive a full refund. After the 60 day period, membership refunds are prorated over the remaining term of the membership. The Company has significant experience with membership refund patterns and expects membership refunds will not be material. Therefore, no refund reserve was required for the periods presented. Membership fee revenue is included in membership income in the Company's consolidated statements of income. The deferred membership fee is included in deferred income in the Company's consolidated balance sheets, but notsheets.

Platinum Points Reward Programs. The Company currently offers Platinum Memberships in all of its thirteen countries. The annual fee for a Platinum Membership is approximately $75. The Platinum Membership provides Members with a 2% rebate on most items, up to an annual maximum of $500. The rebate is issued annually to Platinum Members on March 1 and expires August 31. Platinum Members can apply this rebate to future purchases at the warehouse club during the redemption period. The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction. Accordingly, the Company has reduced net merchandise sales and has accrued a liability within other accrued expenses and other current liabilities, platinum rewards. The Company has determined that breakage revenue is 5% of the awards issued; therefore, it records 95% of the Platinum Membership liability at the time of sale. Annually, the Company reviews for expired unused rebates outstanding, and the expired unused rebates are recognized as “Other revenue and income” on the consolidated statements of income.


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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Co-branded Credit Card Points Reward Programs. Most of the Company’s subsidiaries have points reward programs related to co-branded credit cards. These points reward programs provide incremental points that can be used at a future time to acquire merchandise within the Company’s warehouse clubs. This results in two performance obligations, the first performance obligation being the initial sale of the merchandise or services purchased with the co-branded credit card and the second performance obligation being the future use of the points rewards to purchase merchandise or services. As a result, upon the initial sale, the Company allocates the transaction price to each performance obligation with the amount allocated to the future use points rewards recorded as a contract liability within other accrued expenses and other current liabilities on the consolidated balance sheet. The portion of the selling price allocated to the reward points is recognized as Net merchandise sales when the points are used or when the points expire. The Company reviews on an annual basis expired points rewards outstanding, and the expired rewards are recognized as Net merchandise sales on the consolidated statements of income or cash flows.within markets where the co-branded credit card agreement allows for such treatment.

FASB ASC 330 ASU 2015-11 -Inventory (Topic 330): Simplifying the MeasurementGift Cards. Members’ purchases of Inventory

In July 2015, the FASB issued guidance that will require an entitygift cards to measure in-scope inventorybe utilized at the lower of costCompany's warehouse clubs are not recognized as sales until the card is redeemed and net realizable value.  Net realizable value is the estimated selling pricescustomer purchases merchandise using the gift card. The outstanding gift cards are reflected as other accrued expenses and other current liabilities in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to entities, like the Company, that measure inventory value using the average cost method.  The amendments in this ASU more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.

The amendment in this ASU is effective on a prospective basis for public entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  Early application is permitted as of the beginning of an interim or annual reporting period.  The Company determined that the adoption of this guidance will notconsolidated balance sheets. These gift cards generally have a material effect on the Company's consolidated financial statements.

FASB ASC 606 ASU 2014-09 - Revenueone-year stated expiration date from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance on the recognition of revenue from contracts with customers. The guidance combines the requirements for reporting revenue and requires disclosures sufficient to describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from these contracts. Transition is permitted either retrospectively or as a cumulative effect adjustment as of the date of adoption. The new standard is effectiveissuance and are generally redeemed prior to expiration. However, the absence of a large volume of transactions for fiscal years and interim periods within those years beginning after December 15, 2017.gift cards impairs the Company's ability to make a reasonable estimate of the redemption levels for gift cards; therefore, the Company assumes a 100% redemption rate prior to expiration of the gift card. The Company plansperiodically reviews unredeemed outstanding gift cards, and the gift cards that have expired are recognized as “Other revenue and income” on the consolidated statements of income.

Co-branded Credit Card Revenue Sharing Agreements. As part of the co-branded credit card agreements that the Company has entered into with financial institutions within its markets, the Company often enters into revenue sharing agreements. As part of these agreements, in some countries, the Company receives a portion of the interest income generated from the average outstanding balances on the co-branded credit cards from these financial institutions (“interest generating portfolio” or “IGP”). The Company recognizes its portion of interest received as revenue during the period it is earned. The Company has determined that this revenue should be recognized as “Other revenue and income” on the consolidated statements of income.

Determining the Transaction Price

The transaction price is the amount of consideration the Company expects to adopt this guidance atreceive under the beginning of its first quarter of fiscal year 2019.arrangement. The Company is evaluatingrequired to estimate variable consideration (if any) and to factor that estimate into the impactdetermination of adoptionthe transaction price. The Company may offer sales incentives to customers, including discounts. For retail transactions, the Company has significant experience with returns and refund patterns and relied on this experience in its determination that expected returns are not material; therefore, returns are not factored when determining the transaction price.

Discounts given to customers are usually in the form of this guidancecoupons and instant markdowns and are recognized as redeemed and recorded in contra revenue accounts, as they are part of the transaction price of the merchandise sale. Manufacturer coupons that are available for redemption at all retailers are not recorded as a reduction to the sale price of merchandise. Manufacturer coupons or discounts that are specific to the Company are recorded as a reduction to the cost of sales.

Agent Relationships

The Company evaluates the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, in determining whether it is appropriate in these arrangements to record the gross amount of merchandise sales and related costs, or the net amount earned as commissions. When the Company is considered the principal in a transaction, revenue is recorded gross; otherwise, revenue is recorded on all potentially significanta net basis. The Company's Non-merchandise Sales revenues are recorded on a net basis.

Significant Judgments

For arrangements that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation on a relative standalone selling price basis. During fiscal year 2022, there were no revenue transactions that will be impacted byrequired significant judgement.

Incremental costs to obtain contracts are not material to the new standard on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.Company.


Recent Accounting Pronouncements Adopted

FASB ASC 230 ASU 2016-18-Statement of Cash Flows(Topic 230)—Restricted Cash

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)—Restricted Cash. This ASU addresses the diversity in practice that exists regarding the classification and the presentation of changes in restricted cash on the statement of cash flows.

The amendments in ASU No. 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts set forth on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years and will be applied using a retrospective transition method to each period presented.  The Company early adopted this ASU as of August 31, 2017. The adoption of this ASU impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.

FASB ASC 740 ASU 2015-17 -Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued amended guidance eliminating the requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet.  Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent.

The amendment in this ASU is effective on a prospective or retrospective basis for public entities for fiscal years and interim periods within those annual periods beginning after December 15, 2016.  Early adoption is allowed.  The Company

F-2021


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

retrospectively adopted this amended guidance during

Policy Elections

In addition to those previously disclosed, the second quarter of fiscal year 2016Company has made the following accounting policy elections and now presents all deferredpractical expedients:

Taxes - The Company excludes from the transaction price any taxes as either long-term assets or long-term liabilities. The Company’s fiscal year 2016 Annual Report on Form 10-Kcollected from customers that are remitted to taxing authorities.

Shipping and Quarterly Reports on Form 10-Q presented the restatement of quarterly and annual periods for fiscal year 2015 to reflect the impact to the Consolidated Balance Sheets. 

FASB ASC 350 ASU 2015-05Handling Charges - Customers Accounting for Fees Paid in a Cloud Computing Arrangement

In April 2015, the FASB issued amended guidance about whether a cloud computing arrangement includes a software license.  If a cloud computing arrangement includes a software license, thenCharges that are incurred after the customer should accountobtains control of goods are deemed costs required to complete our performance obligation. Therefore, the Company considers the act of shipping after the customer obtains control of goods to not be a separate performance obligation. These shipping and handling costs are classified as “Costs of goods sold” in the consolidated statements of income because they are incurred to fulfill a revenue obligation.

Time Value of Money - The Company's payment terms are less than one year from the transfer of goods. Therefore, the Company does not adjust promised amounts of consideration for the software license elementeffects of the arrangement consistent with the acquisitiontime value of other software licenses.  If a cloud computing arrangement does not include a software license, the customer should account for the arrangementmoney.

Contract Performance Liabilities

Contract performance liabilities as a service contract.result of transactions with customers primarily consist of deferred membership income, other deferred income, deferred gift card revenue, Platinum points programs, and liabilities related to co-branded credit card points rewards programs that are included in deferred income and other accrued expenses and other current liabilities in the Company’s consolidated balance sheets. The amendments do not change the accounting for a customer’s accounting for service contracts.

The amendments in this ASU are effective for public entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption was permitted.  An entity was able to adopt the amendments either: (1) prospectively to all arrangements entered into or materially modified after the effective date; or (2) retrospectively.  The Company adopted this amended guidancefollowing table provides these contract balances from transactions with customers as of September 1, 2016.  Adoptionthe dates listed (in thousands):

Contract Liabilities

August 31,

2022

August 31,

2021

Deferred membership income

$

28,000

$

25,951

Other contract performance liabilities

$

10,473

$

7,871

Disaggregated Revenues

In the following table, net merchandise sales are disaggregated by merchandise category (in thousands):

Years Ended

August 31,
2022

August 31,
2021

August 31,
2020

Foods & Sundries

$

1,947,734

$

1,736,509

$

1,656,682

Fresh Foods

1,145,920

1,003,694

912,325

Hardlines

443,311

409,644

345,051

Softlines

227,371

175,505

147,085

Other Business

180,481

140,090

130,619

Net Merchandise Sales

$

3,944,817

$

3,465,442

$

3,191,762


F-22


Table of this guidance did not generate a change in accounting principle, changes in financial statement line items, or the requirement to prospectively or retrospectively adopt a method of transition.Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 34 – PROPERTY AND EQUIPMENT

Property and equipment are stated at historical cost. The historical cost of acquiring an asset includes the costs incurred to bring it to the condition and location necessary for its intended use. 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 three3 to 15 years and that of certain components of building improvements and buildings from 10 to 2540 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 where management believes it is reasonably assuredcertain that the renewal option in the underlying lease will be exercised because 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.

Property and equipment consist of the following (in thousands):

August 31,

August 31,

2022

2021

Land

$

224,278

$

216,703

Building and improvements

592,749

533,802

Fixtures and equipment

343,859

315,391

Construction in progress

42,602

68,835

Total property and equipment, historical cost

1,203,488

1,134,731

Less: accumulated depreciation

(446,247)

(404,527)

Property and equipment, net

$

757,241

$

730,204



 

 

 

 

 

 



 

 

 

 

 

 



 

August 31,

 

August 31,



 

2017

 

2016

Land

 

$

161,579 

 

$

131,896 

Building and improvements

 

 

382,236 

 

 

305,420 

Fixtures and equipment

 

 

198,147 

 

 

186,409 

Construction in progress

 

 

40,224 

 

 

46,861 

Total property and equipment, historical cost

 

 

782,186 

 

 

670,586 

Less: accumulated depreciation

 

 

(224,357)

 

 

(197,541)

Property and equipment, net

 

$

557,829 

 

$

473,045 

Depreciation and amortization expense (in thousands):

Years Ended August 31,

2022

2021

2020

Depreciation expense, Property and equipment

$

66,255

$

62,579

$

58,815

Amortization expense, Intangible assets

1,613

2,404

2,410

Total depreciation and amortization expense

$

67,868

$

64,983

$

61,225



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Depreciation and amortization expense

 

$

46,292 

 

$

39,794 

 

$

34,445 

The Company capitalizes interest on expenditures for qualifying assets over a period that covers the duration of the activities required to get the asset ready for its intended use, provided that expenditures for the asset have been made and interest cost is being incurred. Interest capitalization continues as long as those activities and the incurrence of interest cost continue. The amount capitalized in an accounting period is determined by applying the Company’s consolidated capitalization rate (average interest rate) to the average amount of accumulated expenditures for the qualifying asset, for each country, during the period. The capitalization rates are based on the interest rates applicable to borrowings outstanding during the period.

Total interest capitalized (in thousands):

Balance as of

August 31,

August 31,

2022

2021

Total interest capitalized

$

12,934

$

13,175

Total interest capitalized (in thousands):

Years Ended August 31,

2022

2021

2020

Interest capitalized

$

1,263 

$

2,282 

$

2,190 

F-2123


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Total interest capitalized (in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

Balance as of



 

August 31,

 

August 31,



 

2017

 

2016

Total interest capitalized

 

$

8,262 

 

$

7,380 

Total interest capitalized (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Interest capitalized

 

$

447 

 

$

1,082 

 

$

1,055 

A summary of asset disposal activity for fiscal years 2017, 20162022, 2021 and 20152020 is as follows (in thousands):

Historical
Cost

Accumulated
Depreciation

Proceeds from

disposal

Loss

recognized

Fiscal Year 2022

$

12,785

$

11,327

$

193

$

(1,265)

Fiscal Year 2021

$

10,946

$

9,534

$

385

$

(1,027)

Fiscal Year 2020

$

5,115

$

4,640

$

32

$

(443)



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Historical
Cost

 

Accumulated
Depreciation

 

Proceeds from
disposal

 

Gain/(Loss)
recognized

Fiscal Year 2017

 

$

19,774 

 

$

17,436 

 

$

377 

 

$

(1,961)

Fiscal Year 2016

 

$

7,578 

 

$

6,330 

 

$

86 

 

$

(1,162)

Fiscal Year 2015

 

$

11,740 

 

$

9,367 

 

$

368 

 

$

(2,005)

The Company constructed a new warehouse club on land acquired in May 2015 in Chia, Colombia that opened in September 2016, fiscal year 2017, bringing the total of warehouse clubs operating in Colombia to seven. On December 4, 2015 the Company signed an option to acquire two properties and then swap them for 59,353 square feet of land adjacent to the Company’s San Pedro Sula warehouse club in Honduras.  The parcels of land exchanged are all undeveloped contiguous land parcels that make them similar in all respects.  The transaction was completely nonmonetary in nature, and the transaction did not generate any gain recognition.  The accounting basis of the new property equals $1.9 million (the net book value of the real estate exchanged).  The Company exercised this option and completed the swap during May 2016. The Company will use the acquired land to expand the parking lot for the San Pedro Sula warehouse club. In January 2017, the Company finalized its acquisition of a distribution center in Medley, Miami-Dade County, Florida, for a total purchase price of approximately $46.0 million. The Company transferred its Miami dry distribution center activities previously located in its leased facilities to this new facility.  This was completed during the third quarter of fiscal year 2017.

The Company also recorded within accounts payable and other accrued expenses approximately $612,000$2.2 million and $3.1$0.9 million, respectively, as of August 31, 20172022 and $476,000$1.2 million and $1.5$2.3 million, respectively, as of August 31, 20162021 of liabilities related to the acquisition and/or construction of property and equipment.

NOTE 45 – EARNINGS PER SHARE

The Company presents basic net income per share using the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders and that determines basic net income per share 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. A participating security is defined as a security that may participate in undistributed earnings with common stock. The Company’s capital structure includes securities that participate with common stock on a one-for-one basis for distribution of dividends. These are the restricted stock awards and(“RSAs”), restricted stock units authorized within(“RSUs”) and performance stock units (“PSUs”) issued pursuant to the 2013 Equity Incentive Award Plan.Plan, provided that the Company does not include PSUs as participating securities until the performance conditions have been met. RSAs are outstanding shares of common stock and have the same cash dividend and voting rights as other shares of common stock. Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock. However, all outstanding RSUs have accompanying dividend equivalents, requiring payment to the employees and directors with unvested RSUs of amounts equal to the dividend they would have received had the shares of common stock underlying the RSUs been actually issued and outstanding. PSUs, similar to RSUs, are awarded with dividend equivalents, provided that such amounts become payable only if the performance metric is achieved. At the time the Compensation Committee confirms the performance metric has been achieved, the corresponding dividend equivalents are paid on the PSUs. The Company determines the diluted net income per share by using the more dilutive of the two class-method or the treasury stock method and by including the basic weighted average of outstanding performance stock optionsunits in the calculation of diluted net income per share under the two-class method and including all potential common shares assumed issued in the calculation of diluted net income per share under the treasury stock method.

F-22


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table sets forth the computation of net income per share attributable to PriceSmart for the twelve months ended August 31, 2017,  20162022, 2021 and 20152020 (in thousands, except per share amounts):

Years Ended August 31,

2022

2021

2020

Net income attributable to PriceSmart, Inc.

$

104,534

$

97,963

$

78,109

Less: Allocation of income to unvested stockholders

(1,245)

(1,282)

(842)

Net income attributable to PriceSmart, Inc. available for distribution

$

103,289

$

96,681

$

77,267

Basic weighted average shares outstanding

30,591

30,403

30,259

Add dilutive effect of performance stock units (two-class method)

9

Diluted average shares outstanding

30,600

30,403

30,259

Basic net income per share

$

3.38

$

3.18

$

2.55

Diluted net income per share

$

3.38

$

3.18

$

2.55




 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Net income

 

$

90,724 

 

$

88,723 

 

$

89,124 

Less: Allocation of income to unvested stockholders

 

 

(1,321)

 

 

(1,431)

 

 

(1,137)

Net earnings available to common stockholders

 

$

89,403 

 

$

87,292 

 

$

87,987 

Basic weighted average shares outstanding

 

 

30,020 

 

 

29,928 

 

 

29,848 

Add dilutive effect of stock options (two-class method)

 

 

 

 

 

 

Diluted average shares outstanding

 

 

30,023 

 

 

29,933 

 

 

29,855 

Basic net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

Diluted net income per share

 

$

2.98 

 

$

2.92 

 

$

2.95 

F-24


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 56 – STOCKHOLDERS’ EQUITY

Dividends

The following table summarizes the dividends declared and paid during fiscal years 2017,  20162022, 2021 and 2015. 2020:

First Payment

Second Payment

Declared

Amount

Record
Date

Date
Paid

Amount

Record
Date

Date
Paid

Amount

2/3/2022

$

0.86

2/15/2022

2/28/2022

$

0.43

8/15/2022

8/31/2022

$

0.43

2/4/2021

$

0.70

2/15/2021

2/26/2021

$

0.35

8/15/2021

8/31/2021

$

0.35

2/6/2020

$

0.70

2/15/2020

2/28/2020

$

0.35

8/15/2020

8/31/2020

$

0.35



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

First Payment

 

Second Payment

Declared

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

 

Record
Date

 

Date
Paid

 

Amount

2/3/2017

  

$

0.70 

  

2/15/2017

  

2/28/2017

  

$

0.35 

  

8/15/2017

  

8/31/2017

  

$

0.35 

2/3/2016

  

$

0.70 

  

2/15/2016

  

2/29/2016

 

$

0.35 

  

8/15/2016

  

8/31/2016

 

$

0.35 

2/4/2015

 

$

0.70 

 

2/13/2015

 

2/27/2015

 

$

0.35 

 

8/14/2015

 

8/31/2015

 

$

0.35 

The Company anticipates the ongoing payment of semi-annual dividends in subsequent periods, although the actual declaration of future dividends, if any, 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.requirements, taking into account the uncertainty surrounding the ongoing effects of the COVID-19 pandemic on our results of operations and cash flows.

F-23


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive Income and Accumulated Other Comprehensive Loss

The following table discloses the changes in each component of other comprehensive income (loss),loss, net of tax (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

(Amounts in thousands and net of income taxes)

 

Foreign
currency
translation
adjustments

 

Defined
benefit
pension
plans

 

Derivative
Instruments

 

Total

Balances as of August 31, 2014

 

$

(50,410)

 

$

113 

 

$

1,011 

 

$

(49,286)

Other comprehensive income (loss)

 

 

(50,130)

 

 

65 

 

 

(1,770)

(1)

 

(51,835)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

 —

 

 

(291)

(2)

 

(100)

(1)(3)

 

(391)

Balances as of August 31, 2015

 

$

(100,540)

 

$

(113)

 

$

(859)

 

$

(101,512)

Other comprehensive income (loss)

 

 

(1,702)

 

 

(182)

 

 

(535)

(1)

 

(2,419)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

 —

 

 

(20)

(2)

 

 —

(1)(3)

 

(20)

Balances as of August 31, 2016

 

$

(102,242)

 

$

(315)

 

$

(1,394)

 

$

(103,951)

Other comprehensive income (loss)

 

 

(6,297)

 

 

(166)

 

 

316 

(1)

 

(6,147)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

 —

 

 

39 

(2)

 

 —

(1)(3)

 

39 

Balances as of August 31, 2017

 

$

(108,539)

 

$

(442)

 

$

(1,078)

 

$

(110,059)

Attributable to

Noncontrolling

PriceSmart

Interests

Total

Ending balance, August 31, 2019

$

(144,339)

$

20

$

(144,319)

Foreign currency translation adjustments

(29,413)

114

(29,299)

Defined benefit pension plans (1)

(79)

(79)

Derivative Instruments (2)

(5,803)

(5,803)

Amounts reclassified from accumulated other comprehensive loss

2,814

2,814

Ending balance, August 31, 2020

$

(176,820)

$

134

$

(176,686)

Foreign currency translation adjustments

(7,837)

117

(7,720)

Defined benefit pension plans (1)

(230)

(230)

Derivative Instruments (2)

2,252

2,252

Amounts reclassified from accumulated other comprehensive loss

127

127

Ending balance, August 31, 2021

$

(182,508)

$

251

$

(182,257)

Foreign currency translation adjustments

(19,034)

3

(19,031)

Defined benefit pension plans (1)

(341)

(341)

Derivative Instruments (2)

6,170

6,170

Amounts reclassified from accumulated other comprehensive loss

127

127

Sale of Aeropost

(254)

(254)

Ending balance, August 31, 2022

$

(195,586)

$

$

(195,586)

(1)Amounts reclassified from accumulated other comprehensive loss related to the minimum pension liability are included in warehouse club and other operations in the Company's Consolidated Statements of Income.

(2)Refer to “Note 13 - Derivative Instruments and Hedging Activities.”

(1)

See Note 12 – “Derivative Instruments and Hedging Activities.”

(2)

Amounts reclassified from accumulated other comprehensive income (loss) related to the minimum pension liability are included in warehouse club operations in the Company's consolidated statements of income.

F-25


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(3)

Amounts reclassified from accumulated other comprehensive income (loss) for settlement of derivative instruments are included in other income (expense), net in the Company's consolidated statements of income.

Retained Earnings Not Available for Distribution

The following table summarizes retained earnings designated as legal reserves of various subsidiaries whichthat cannot be distributed as dividends to PriceSmart, Inc. according to applicable statutory regulations (in thousands):



 

 

 

 

 

 



 

 

 

 

 

 



 

August 31,

 

August 31,



 

2017

 

2016

Retained earnings not available for distribution

 

$

6,459 

 

$

5,926 

August 31,

August 31,

2022

2021

Retained earnings not available for distribution

$

8,648

$

8,022

NOTE 67 – POST EMPLOYMENT PLANS

Defined Contribution Plans

PriceSmart offers a defined contribution 401(k) retirement plan to its U.S. employees, including warehouse club employees in the U.S. Virgin Islands, which auto-enrolls employees in the plan immediately on the first day of employment. The Company makes nondiscretionary contributions to the 401(k) plan with a 4% “Company Contribution” based on the employee’s salary regardless of the employee’s own contributions to the plan up to the IRS maximum allowed. Effective January 1, 2016, theThe Company also makes incremental nondiscretionary contributions to the 401(k) plan to the non-officer employees thatwho defer up to 2% of their salary. Employer contributions to the 401(k) plan for the Company's U.S. employees were $1.8$2.9 million, $1.7$2.6 million and $1.3$2.2 million during fiscal years 2017,  20162022, 2021 and 2015,2020, respectively.

PriceSmart also offers and/or is implementing defined contribution retirement plans in mostmany of its subsidiaries. The Company makes nondiscretionary contributions to these plans based on the employee’s salary, regardless of the employee’s own contributions to the plan, up to the maximum allowed. The expenses associated with the plans for the Company’s non-U.S. employees were $3.1$3.6 million, $3.1$3.0 million and $1.8$3.1 million during fiscal years 2017, 2016,2022, 2021 and 2015,2020, respectively.

F-24


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Defined Benefit Plans

The Company's subsidiaries located in three countries are parties tohave unfunded post-employment benefit plans (defined benefit plans), in which the subsidiary is required to pay a specified benefit upon retirement, voluntary departure or death of the employee. The amount of the benefit is predetermined by a formula based on the employee's earnings history, tenure of service and age. Because the obligation to provide benefits arises as employees render the services necessary to earn the benefits pursuant to the terms of the plan, the Company recognizes the cost of providing the benefits over the projected employee service periods. These payments are only due if an employee reaches certain thresholds, such as tenure and/or age. Therefore, these plans are treated as defined benefit plans. For these defined benefit plans, the Company has engaged actuaries to assist with estimating the current costs associated with these future benefits. The liabilities for these unfunded plans are recorded as non-current liabilities.

The following table summarizes the amount of the funding obligation and the line items in which it is recorded on the consolidated balance sheets as of August 31, 20172022 and 20162021 and consolidated statements of income for the fiscal years ended August 31, 2017,20162022,2021 and 20152020 (in thousands):

Other Long-Term
Liability

Accumulated Other
Comprehensive Loss

Operating Expenses

August 31,

Year Ended August 31,

2022

2021

2022

2021

2022

2021

2020

Start of period

$

(2,298)

$

(1,805)

$

897

$

747

$

$

$

Service cost

(205)

(184)

315

229

177

Interest cost

(129)

(104)

129

104

101

Prior service cost (including amortization)

(36)

(55)

36

55

55

Actuarial gains/(losses)

(344)

(205)

344

205

92

72

38

Totals

$

(2,976)

$

(2,298)

$

1,205

$

897

(1) 

$

572

$

460

$

371

(1)The Company has recorded a deferred tax asset of $377,000 and $282,000 as of August 31, 2022 and 2021, respectively, relating to the unrealized expense on defined benefit plans. The Company also recorded accumulated other comprehensive loss, net of tax, for $(829,000) and $(615,000) as of August 31, 2022 and 2021, respectively.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Other Long-Term
Liability

 

Accumulated Other
Comprehensive Loss

 

 

Operating Expenses



 

August 31,

 

 

Year Ended August 31,



 

2017

 

2016

 

2017

 

2016

 

 

2017

 

2016

 

2015

Start of period

 

$

(882)

 

$

(807)

 

$

465 

 

$

172 

 

 

$

 —

 

$

 —

 

$

 —

Service cost

 

 

88 

 

 

234 

 

 

 —

 

 

 —

 

 

 

119 

 

 

35 

 

 

192 

Interest cost

 

 

(80)

 

 

(51)

 

 

 —

 

 

 —

 

 

 

80 

 

 

52 

 

 

21 

Prior service cost (amortization)

 

 

 

 

 

 —

 

 

(55)

 

 

35 

 

 

 

55 

 

 

56 

 

 

(232)

Actuarial gains/(losses)

 

 

(196)

 

 

(258)

 

 

240 

 

 

258 

 

 

 

(45)

 

 

(87)

 

 

(91)

Totals

 

$

(1,070)

 

$

(882)

 

$

650 

 

$

465 

(1) 

 

$

209 

 

$

56 

 

$

(110)

F-26


(1)

The Company has recorded a deferred tax (liability)/asset of $208,000 and $150,000 as of August 31, 2017 and 2016, respectively, relating to the unrealized expense on defined benefit plans. The Company also recorded accumulated other comprehensive income (loss), net of tax, for $(442,000) and $(315,000) as of August 31, 2017 and 2016, respectively.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The valuation assumptions used to calculate the liability for the defined benefit plans differ based on the country where the plan applies. These assumptions are summarized as follows:

 

 

 

 

 

 

 

 

 

Year Ended August 31,

Year Ended August 31,

Valuation Assumptions:

 

2017

 

2016

2022

2021

Discount rate

 

3.5%  to 10.5%

 

3.5%  to 10.8%

3.5% to 6.4%

3.5% to 7.5%

Future salary escalation

 

3.0%  to  5.0%

 

3.0%  to  5.5%

3.0% to 4.5%

3.0% to 4.0%

Percentage of employees assumed to withdraw from Company without a benefit (“turnover”)

 

3.9%  to 19.5%

 

4.0%  to 19.5%

6.7% to 15.0%

8.3% to 15.0%

Percentage of employees assumed to withdraw from Company with a benefit (“disability”)

 

0.5%  to  6.0%

 

0.5%  to 11.4%

0.5% to 6.6%

0.5% to 6.6%

For the fiscal year ending August 31, 2018,2023, the Company expects to recognize, as components of net periodic benefit cost, the following amounts currently recorded in accumulated other comprehensive incomeloss (in thousands):

Prior service cost

Expected Recognition$

26

Actuarial gain/loss

Year Ended August 31,

152

2018

Prior service cost$

178

$

55 

Actuarial gain/loss

31 

$

86 

F-25


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Post-Employment Benefit Plans

Some of the Company’s subsidiaries are parties to funded and unfunded post-employment benefit plans based on services that the employees have rendered. These plans require the Company to pay a specified benefit on retirement, voluntary departure or death of the employee, or monthly payments to an external fund manager. The amount of these payments is predetermined by a formula based on the employee's earnings history and tenure of service. Because the obligation to provide benefits arises as employees render the services necessary to earn the benefits pursuant to the terms of the plan, the cost associated with providing the benefits is recognized as the employee provides those services. The employees' rights to receive payment on these plans are not dependent on their reaching certain thresholds like age or tenure. Therefore, these plans are not treated as defined benefit plans. For these post-employment benefit plans, the Company has accrued liabilities that are recorded as accrued salaries and benefits and other long-term liabilities.

The following table summarizes the amounts recorded on the balance sheet and amounts expensed on the consolidated statements of income (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Accrued Salaries
and Benefits

 

Other Long-Term
Liability

 

Restricted Cash

Held (1)

 

Operating Expenses



 

Years Ended August 31,



 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2017

 

2016

 

2015

Other Post-

Employment Plans

 

$

425 

 

$

358 

 

$

2,720 

 

$

2,395 

 

$

2,493 

 

$

2,188 

 

$

1,017 

 

$

1,026 

 

$

1,722 

Accrued Salaries
and Benefits

Other Long-Term
Liability

Restricted Cash

Held (1)

Operating Expenses

Years Ended August 31,

2022

2021

2022

2021

2022

2021

2022

2021

2020

Other Post Employment Plans

$

522

$

544

$

4,567

$

4,352

$

4,382

$

3,909

$

1,423

$

1,447

$

1,250

(1)

With some locations, local statutes require the applicable Company subsidiary to deposit cash in its own name with designated fund managers. The funds earn interest which the Company recognizes as interest income.

(1)With some locations, local statutes require the applicable Company subsidiary to deposit cash in its own name with designated fund managers. The funds earn interest, which the Company recognizes as interest income.


F-27


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 78 – STOCK BASED COMPENSATION

Stock Based CompensationThe Company utilizes three types of equity awards offered by the Company are stock options (“options”),awards: restricted stock awards (“RSAs”) and, restricted stock units (“RSUs”) and performance based restricted stock units (“PSUs”). Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model. Compensation related to RSAs and RSUs is based on the fair market value at the timeRefer “Note 2 - Summary of grant with the application of an estimated forfeiture rate.  The Company recognizes the compensation cost related to these awards over the requisite service period as determined by the grant, amortized ratably or on a straight line basis over the life of the grant.  The Company utilizes “modified grant-date accounting” for true-ups due to actual forfeitures at the vesting dates.  The Company records the tax savings resulting from tax deductions in excess of expense for stock-based compensation as additional paid-in capital and the tax deficiency resulting from stock-based compensation in excess of the related tax deduction as a reduction in paid-in capital, based on the Tax Law Ordering method.  In addition, the Company reflects the tax savings (deficiency) resulting from the taxation of stock-based compensation as a financing cash flow in its consolidated statement of cash flows, rather than as operating cash flows.Significant Accounting Policies.”

RSAs have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding shares of common stock.  Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock.  However, all outstanding RSUs have accompanying dividend equivalents, requiring payment to the employees and directors with unvested RSUs of amounts equal to the dividend they would have received had the shares of common stock underlying the RSUs been actually issued and outstanding.  Payments of dividend equivalents to employees and directors are recorded as compensation expense and as director fees, respectively.

The Company adopted the 2013 Equity Incentive Award Plan (the "2013 Plan") for the benefit of its eligible employees, consultants and non-employee directors on January 22, 2013. The 2013 Plan provides for awards covering up to (1) 600,0001.1 million shares of common stock plus (2) the number of shares that remained available for issuance as of January 22, 2013 under three equity participation plans previously maintained by the Company. The 2013 plan was amended in fiscal year 2021 to increase the number of shares of Common Stock available for the grant of awards by 500,000 shares. The number of shares reserved for issuance under the 2013 Plan increases during the term of the plan by the number of shares relating to awards outstanding under the 2013 Plan or any of the prior plans that expire, or are forfeited, terminated, canceled or repurchased, or are settled in cash in lieu of shares. However,

F-26


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

in no event will more than an aggregate of 1,233,8972,031,818 shares of the Company’s common stock be issued under the 2013 Plan.

The following table summarizes the shares authorized and shares available for future grants:



 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

 

Shares available to grant



 

Shares authorized for issuance as of August 31, 2017

 

August 31,

 

August 31,



 

(including shares originally authorized for issuance under prior plans)

 

2017

 

2016

2013 Plan

 

944,905 

 

 

637,822 

 

 

615,889 

Shares available to grant

Shares authorized for issuance as of August 31, 2022

August 31,

August 31,

(including shares originally authorized for issuance under prior plans)

2022

2021

2013 Plan

1,567,923

549,319

705,924

The following table summarizes the components of the stock-based compensation expense for the twelve-month periods ended August 31, 2017,  20162022, 2021 and 20152020 (in thousands), which are included in general and administrative expense and warehouse club and other operations in the consolidated statements of income:

Years Ended August 31,

2022

2021

2020

Restricted stock awards

$

9,378

$

11,010

$

8,747

Restricted stock units

3,519

3,939

3,011

Performance-based restricted stock units

3,906

3,475

2,059

Stock-based compensation expense

$

16,803

$

18,424

$

13,817



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Options granted to directors

 

$

18 

 

$

72 

 

$

86 

Restricted stock awards

 

 

7,301 

 

 

7,103 

 

 

4,599 

Restricted stock units

 

 

2,370 

 

 

1,946 

 

 

1,284 

Stock-based compensation expense

 

$

9,689 

 

$

9,121 

 

$

5,969 

The following tables summarize other information related to stock-based compensation:

Balance as of

August 31,

August 31,

August 31,

2022

2021

2020

Remaining unrecognized compensation cost (in thousands)

$

18,478

$

16,349

$

21,720

Weighted average period of time over which this cost will be recognized (years)

2

2

3



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Balance as of



 

August 31,

 

August 31,

 

August 31,



 

2017

 

2016

 

2015

Remaining unrecognized compensation cost (in thousands)

 

$

26,382 

 

$

32,380 

 

$

18,421 

Weighted average period of time over which this cost will be recognized (years)

 

 

 

 

 

 

Years Ended August 31,

2022

2021

2020

Excess tax benefit (deficiency) on stock-based compensation (in thousands)

$

(2,259)

$

(778)

$

(936)



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,

 

August 31,



 

2017

 

2016

 

2015

Excess tax benefit (deficiency) on stock-based compensation (in thousands)

 

$

165 

 

$

610 

 

$

1,206 

The Company began issuing restricted stock awards in fiscal year 2006 and restricted stock units in fiscal year 2008.  The restricted stock awards and units generally vest fromover a one-year to ten-yearthree-year period and the unvested portion of the award is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed.

F-28


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted stock awards, restricted stock units, and performance-based restricted stock units activity for the twelve-months ended August 31, 2017,  20162022, 2021 and 20152020 was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

Years Ended

 

August 31,

 

August 31,

 

August 31,

August 31,

August 31,

August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Grants outstanding at beginning of period

 

 

509,880 

 

 

366,021 

 

 

488,416 

375,622

415,869

362,826

Granted

 

56,724 

 

276,530 

 

36,382 

261,204

166,160

266,759

Forfeited

 

 

(40,023)

 

 

(1,372)

 

 

(10,738)

(16,184)

(12,436)

(43,198)

Vested

 

 

(122,213)

 

 

(131,299)

 

 

(148,039)

(258,820)

(193,971)

(170,518)

Grants outstanding at end of period

 

 

404,368 

 

 

509,880 

 

 

366,021 

361,822

375,622

415,869

F-27


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the weighted average per share grant date fair value for restricted stock awards, restricted stock units, and performance based restricted stock units for fiscal years 2017,  20162022, 2021 and 2015:2020:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,

 

August 31,

Weighted Average Grant Date Fair Value

 

2017

 

2016

 

2015

Restricted stock awards and units granted

 

$

87.43 

 

$

84.69 

 

$

88.40 

Restricted stock awards and units vested

 

$

77.85 

 

$

71.19 

 

$

45.20 

Restricted stock awards and units forfeited

 

$

77.19 

 

$

 —

 

$

65.67 

Years Ended

August 31,

August 31,

August 31,

Weighted Average Grant Date Fair Value

2022

2021

2020

RSAs, RSUs, and PSUs granted

$

76.85

$

79.02

$

64.57

RSAs, RSUs, and PSUs vested

$

72.69

$

70.03

$

72.82

RSAs, RSUs, and PSUs forfeited

$

69.70

$

70.56

$

76.81

The following table summarizes the total fair market value of restricted stock awards, restricted stock units, and performance based restricted stock units vested for the period (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended



 

August 31,

 

August 31,

 

August 31,



 

2017

 

2016

 

2015

Total fair market value of restricted stock awards and units vested (in thousands)

 

$

10,135 

 

$

10,139 

 

$

13,192 

Years Ended

August 31,

August 31,

August 31,

2022

2021

2020

Total fair market value of restricted stock awards and units vested (in thousands)

$

18,422

$

17,478

$

10,914

At the vesting dates offor restricted stock awards to employees, the Company repurchases a portion of the shares that have vested at the prior day's closing price per share, with the funds used to pay the employees' minimum statutory tax withholding requirements.requirements related to the vesting of restricted stock awards. The Company expects to continue this practice going forward. The Company does not have a stock repurchase program.

Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in the Company’s consolidated balance sheets. The Company may reissue these treasury shares.

The following table summarizes this activitythe shares repurchased during the period:fiscal years 2022, 2021 and 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended

Years Ended

 

August 31,

 

August 31,

 

August 31,

August 31,

August 31,

August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Shares repurchased

 

 

38,634 

 

 

43,171 

 

 

52,396 

88,415

62,282

56,503

Cost of repurchase of shares (in thousands)

 

$

3,193 

 

$

3,334 

 

$

4,677 

$

6,259

$

5,542

$

3,651

The Company reissues treasury shares as part of its stock-based compensation programs. There have been not been any reissuances ofThe following table summarizes the treasury shares reissued during fiscal years 2017, 2016 and 2015, respectively. the period:

Due to the substantial shift from the use

Years Ended

August 31,

August 31,

August 31,

2022

2021

2020

Reissued treasury shares

8,314

96,400

234,370

F-29


Table of stock options to restricted stock awards and units, the Company believes stock option activity is no longer significant and that any further disclosure on options is not necessary.Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 89 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, the Company and its subsidiaries are subject to legal proceedings, claims and litigation arising in the ordinary course of business related to the Company’s operations and property ownership. The Company evaluates such matters on a case by case basis, and vigorously contests any such legal proceedings or claims which the Company believes are without merit. The Company believes that the final disposition of these matters will not have a material adverse effect on its financial position, results of operations or liquidity. It is possible, however, that the Company's results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to such matters.

The Company establishes an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjusts the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimable. If it is at least a reasonable possibility that a material loss will occur, the Company will provide disclosure regarding the contingency.  The Company believes

On August 5, 2022, PriceSmart received notice from Click USA Inc. and Aeropost, Inc. alleging that PriceSmart had breached certain provisions of a Stock Purchase Agreement between PriceSmart and Click USA, Inc. dated October 1, 2021, concerning the final dispositionsale of Aeropost, Inc. to Click USA Inc. In this notice, Click USA Inc. and Aeropost, Inc. allege that PriceSmart made inaccurate or incomplete representations and warranties relating to Aeropost, Inc.’s cyber security and the condition of its IT systems in connection with the sale. Click USA Inc. and Aeropost, Inc. further asserted that, in or around April 2022, Aeropost, Inc. suffered cyberattacks, and they seek to hold PriceSmart liable for some amount of damages due to alleged losses directly relating to the cyber-attacks as well as due to possible third-party claims as a result of the pending legal proceedings,cyber-attacks. The notice suggested that aggregate losses attributable to these losses and future claims could exceed $3,000,000. Per the express terms of the agreement, the maximum amount of all losses for which PriceSmart may be liable for claims arising out of allegations concerning the above-referenced representations and litigation willwarranties is $4,000,000. PriceSmart intends to vigorously defend itself and, as such, we have concluded that a loss related to this matter is not probable and any potential loss is not reasonably estimable; therefore, we have not accrued a material adverse effect on its financial position, results of operations or liquidity. It is possible, however, that the Company's future results of operationsliability for a particular quarter or fiscal year could be impacted by changes in circumstances relating to such matters.this matter.

Taxes

F-28


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Taxes

The Company is required to file federal and state 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 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 interpretations the Company used to calculate its tax liability and therefore require the Company to pay additional taxes.

The Company accrues an amount for its estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has a 50% or less than 50% likelihood of being sustained (see Note 9(refer to “Note 10 - Income Taxes for additional information)information”).

In evaluating the exposure associated with various non-income tax filing positions, the Company accrues for probable and estimable exposures for non-income tax related tax contingencies. As of August 31, 20172022 and 2016,2021, the Company has recorded within other accrued expenses a total of $3.4$1.1 million and $4.0$1.8 million, respectively, for various non-income tax related tax contingencies.

While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of litigation, in estimating probable additional income tax liability taking into account uncertain tax positions and in evaluating the probable additional tax associated with various non-income tax filing positions. As such, the Company is unable to make a reasonable estimate of the sensitivity to change of estimates affecting its recorded liabilities. As additional information becomes available, the Company assesses the potential liability and revises its estimates as appropriate.

F-30


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other Commitments

The Company is committed under non-cancelable operating leases for the rental of facilities and land (see land. Refer to “Note 11 “Leases”)12 – Leases”.

In January 2017, the Company purchased a distribution center in Medley, Miami-Dade County, Florida.  The Company transferred its Miami dry distribution center activities that were previously in the leased facility to the new facility during the third quarter of fiscal year 2017.  Some portions of the vacated previously leased space were subleased (and subsequently returned to the landlord) while the remainder remains available for sublease.  As part of the subleases the Company has agreed to execute and deliver to the landlord of the leased facility a letter of credit (“LOC”) in the amount of $500,000 which entitles the landlord to draw on the LOC based on a decreasing scale over four years, if certain conditions occur related to nonpayment by the new tenant.  Although this agreement is considered a guarantee, in measuring the fair value, the Company considers the risk and probability of default by the third party tenant as not likely nor probable, based on the Company’s review of the third party tenant’s financial position as well as the third party’s considerable capital investment into the leased facility.  Therefore, the Company has not recorded a liability for this guarantee. 

The Company is also committed to non-cancelable construction servicesservice obligations for various warehouse club developments and expansions. As of August 31, 2017,2022 and August 31, 2021, the Company had approximately $7.9$16.5 million and $16.2 million, respectively, in contractual obligations for construction services not yet rendered.


F-31


Table of Contents

ThePRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

From time to time, the Company has entered into general land purchase and land purchase option agreements. The Company’s land purchase agreements that haveare typically subject to various conditions, including, but not been recorded as commitments, for whichlimited to, the ability to obtain necessary governmental permits or approvals. A deposit under an agreement is typically returned to the Company if all permits or approvals are not obtained. Generally, the Company has recorded within restricted cash andthe right to cancel any of its agreements to purchase land without cause by forfeiture of some or all of the deposits approximately $600,000.  Theit has made pursuant to the agreement. As of August 31, 2022, the Company had entered into four land purchase option agreements can be canceled atthat (three for new warehouse clubs and one for a new produce distribution center), if completed, would result in the sole optionuse of the Company.  The Company does not have a timetable of when or if it will exercise these land purchase options, dueapproximately $13.5 million in cash.

Refer to the uncertainty related to the completion of the Company's due diligence reviews. The Company's due diligence reviews include evaluations of the legal status of each property, the zoning and permitting issues related to acquiring approval for the construction and operation of a warehouse club and any other issues related to the property itself that could render the property unsuitable or limit the property's economic viability as a warehouse club site. If the purchase option agreements are exercised, the cash use would be approximately $20.8 million.

See Note 14 – “Unconsolidated15 - Unconsolidated Affiliates” for a description of additional capital contributions that may be required in connection with joint ventures to develop commercial centers adjacent to PriceSmart warehouse clubs in Panama and Costa Rica.

F-2932


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company contracts for distribution center services in Mexico.  The contract for this distribution center's services expires on August 31, 2020, with the applicable fees and rates to be reviewed at the beginning of each calendar year.  Future minimum service commitments related to this contract through the end of the contract term are approximately $456,000.

NOTE 910 – INCOME TAXES

Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates includes the following components (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31,

Years Ended August 31,

 

2017

 

2016

 

2015

2022

2021

2020

United States

 

$

24,773 

 

$

25,533 

 

$

41,694 

$

55,667

$

33,818

$

24,771

Foreign

 

 

107,970 

 

 

105,707 

 

 

94,902 

100,754

113,368

91,269

Income from continuing operations before provision for income taxes and loss of unconsolidated affiliates

 

$

132,743 

 

$

131,240 

 

$

136,596 

$

156,421

$

147,186

$

116,040

Significant components of the income tax provision are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31,

Years Ended August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Current:

 

 

 

 

 

 

 

 

 

U.S.

 

$

12,185 

 

$

9,269 

 

$

10,918 

Foreign

 

 

32,680 

 

 

30,705 

 

 

33,676 

U.S. tax expense

$

20,824

$

16,904

$

10,046

Foreign tax expense

34,334

35,918

31,122

Total

 

$

44,865 

 

$

39,974 

 

$

44,594 

$

55,158

$

52,822

$

41,168

Deferred:

 

 

 

 

 

 

 

 

 

U.S.

 

$

(2,584)

 

$

832 

 

$

3,941 

Foreign

 

 

(1,750)

 

 

(82)

 

 

(3,100)

Valuation allowance charge

 

 

1,487 

 

 

2,125 

 

 

2,131 

U.S. tax benefit

$

(11,894)

$

(10,212)

$

(5,945)

U.S. valuation allowance change

11,823

9,777

5,570

Foreign tax benefit

(3,259)

(3,125)

(3,157)

Foreign valuation allowance change

30

(293)

128

Total

 

$

(2,847)

 

$

2,875 

 

$

2,972 

$

(3,300)

$

(3,853)

$

(3,404)

Provision for income taxes

 

$

42,018 

 

$

42,849 

 

$

47,566 

$

51,858

$

48,969

$

37,764

The reconciliation of income tax computed at the Federal statutory tax rate to the provision for income taxes is as follows (in percentages):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31,

Years Ended August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Federal tax provision at statutory rates

 

35.0 

%

 

35.0 

%

 

35.0 

%

21.0

%

21.0

%

21.0

%

State taxes, net of federal benefit

 

0.3 

 

 

0.2 

 

 

0.4 

 

0.2

0.1

0.1

Differences in foreign tax rates

 

(5.2)

 

 

(5.6)

 

 

(4.2)

 

7.1

6.9

9.7

Permanent items and other adjustments

 

1.5 

 

 

2.0 

 

 

2.3 

 

(2.6)

(2.2)

(4.4)

Increase in foreign valuation allowance

 

0.1 

 

 

1.0 

 

 

1.3 

 

Increase in valuation allowance

7.5

7.5

6.1

Provision for income taxes

 

31.7 

%

 

32.6 

%

 

34.8 

%

33.2

%

33.3

%

32.5

%

F-3033


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Significant components of the Company’s deferred tax assets as of August 31, 20172022 and 20162021 are shown below (in thousands):

 

 

 

 

 

 

 

 

 

August 31,

August 31,

 

2017

 

2016

2022

2021

Deferred tax assets:

 

 

 

 

 

 

U.S. net operating loss carryforward

 

$

1,684 

 

$

3,226 

$

$

2,866

Foreign tax credits

 

3,794 

 

185 

32,322

22,420

Deferred compensation

 

1,633 

 

1,706 

1,782

2,334

U.S. timing differences and alternative minimum tax credits

 

3,042 

 

2,846 

U.S. timing differences

7,746

3,759

Foreign net operating losses

 

10,247 

 

13,414 

5,026

5,051

Foreign timing differences:

 

 

 

 

Accrued expenses and other timing differences

 

3,871 

 

3,807 

9,937

7,636

Depreciation and amortization

 

 

9,514 

 

 

8,923 

13,019

10,498

Deferred income

 

 

4,037 

 

 

3,606 

7,749

6,422

Gross deferred tax assets

 

 

37,822 

 

 

37,713 

77,581

60,986

U.S. deferred tax liabilities (depreciation and other timing differences)

 

(3,646)

 

(3,944)

(2,273)

(4,083)

Foreign deferred tax liabilities netted against deferred tax assets

 

(4,744)

 

(8,848)

(8,697)

(5,753)

U.S. valuation allowance

 

 

(488)

 

 

(652)

(33,824)

(22,523)

Foreign valuation allowance

 

 

(13,532)

 

 

(12,011)

(4,432)

(4,402)

Net deferred tax assets

 

$

15,412 

 

$

12,258 

$

28,355

$

24,225

As of August 31, 2017 and 2016, the Company had net deferred tax liabilities of $1.8 million at the end of each period, arising from timing differences in certain subsidiaries.

For fiscal year 2017,2022, the effective tax rate was 31.7%33.2%. The decrease in the effective rate versus the prior year was primarily attributable to the following factors:

(i) Decrease in fiscal year 2017 in the magnitude of an intercompany transaction between PriceSmart, Inc. and our Colombian subsidiary in support of PriceSmart’s ongoing market development and growth in Colombia compared to fiscal year 2016.  Reduction to this intercompany transaction, year over year, resulted in a comparatively unfavorable impact on the effective tax rate of 0.9% due to less reductions to taxable income in the U.S. and less reciprocal increase in taxable income in our Colombia subsidiary in fiscal year 2017 compared to fiscal year 2016. This income did not generate income tax expense in Colombia, because the additional taxable income in Colombia was fully offset by the reversal of valuation allowances on accumulated net losses in that subsidiary.  The Company expects the decrease of the favorable impact to the consolidated Company’s effective tax rate over the next several quarters to continue;    

(ii)  The comparably favorable impact of 1.4%0.4% resulting from improved financial results in the Company’s Colombia subsidiary for which no tax benefit was recognized, net of adjustment to valuation allowance and;  

(iii) The favorable impact of 1.3% due predominantly to the non-recurrenceeffect of the impact from setting up a valuation allowance against the deferred tax assets of the Company’s Barbados subsidiarychange in the prior year.foreign currency value and related adjustments.

For fiscal year 2017,2022, management concluded that a valuation allowance continues to be necessary for certain U.S. and foreign deferred tax assets primarily because of the existence of negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carryforward periods are not sufficient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and also considered the potential risks associated with its business. Additionally, while the Company continues to forecast profitability for its Barbados subsidiary for the immediate and foreseeable future, in fiscal year 2016, due to the existence of negative objective evidence from recent years, the Company established a valuation allowance of approximately $2.0 million to reduce deferred tax assets to amounts expected to be realized.The Company had net foreign deferred tax assets of $9.4$22.6 million and $8.9$19.5 million as of August 31, 20172022 and 2016,2021, respectively.

The Company had U.S. federal and state tax NOLs at August 31, 2017 of approximately $3.4 million and $5.5 million, respectively. The federal and state NOLs generally expire during periods ranging from 2017 through 2027, unless previously utilized. In calculating the tax provision and assessing the likelihood that the Company will be able to utilize the deferred tax

F-31


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

assets, the Company considered and weighed all of the evidence, both positive and negative, and both objective and subjective. The Company factored in the inherent risk of forecasting revenue and expenses over an extended period of time and considered the potential risks associated with its business. Using the Company's U.S. income from continuing operations and projections of future taxable income in the U.S., the Company was able to determine that there was sufficient positive evidence to support the conclusion that it was more likely than not that the Company would be able to realize substantially all of its U.S. NOLs by generating sufficient taxable income during the carry-forward period. However, the Company maintains a valuation allowance on substantially all of its state NOLs due to the adoption of single sales factor apportionment in California, which significantly reduces taxable income in that state.

The Company has determined that due to a deemed change of ownership (as defined in Section 382 of the Internal Revenue Code) in October 2004, there will be annual limitations in the amount of U.S. taxable income of approximately $3.5 million that may be offset by NOLs. The Company does not believe this will impact the recoverability of these NOLs.

The Company does not provide for income taxes which would be payable if undistributed earnings of its foreign subsidiaries were remitted to the U.S., because the Company considers these earnings to be permanently reinvested as management has no plans to repatriate undistributed earnings and profits of foreign affiliates. As of August 31, 20172022 and 2016,2021 the undistributed earnings of these foreign subsidiaries are approximately $544.6$335.5 million and $472.5$254.5 million, respectively. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes and withholding taxes payable to the foreign countries, but would also be able to offset unrecognized foreign tax credits.  Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.

The Company accrues for the estimated additional amount of taxes for uncertain income tax positions if the likelihood of sustaining the tax position does not meet the more-likely-than-not-standard for recognition of tax benefits. These positions are recorded as unrecognized tax benefits.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31,

Years Ended August 31,

 

2017

 

2016

 

2015

2022

2021

2020

Balance at beginning of fiscal year

 

$

7,754 

 

$

8,159 

 

$

8,786 

$

3,911

$

4,573

$

6,490

Gross increase - tax positions in prior period

264

135

464

Gross decrease - tax positions in prior period

(306)

Additions based on tax positions related to the current year

 

36 

 

 —

 

 —

1,356

333

186

Settlements

 

 

(65)

 

 

 —

 

 

 —

Expiration of the statute of limitations for the assessment of taxes

 

 

(31)

 

 

(405)

 

 

(627)

(490)

(824)

(2,567)

Balance at end of fiscal year

 

$

7,694 

 

$

7,754 

 

$

8,159 

$

5,041

$

3,911

$

4,573

As of August 31, 2017,2022, the liability for income taxes associated with uncertainunrecognized tax benefits was $7.7$5.0 million and can be reduced by $7.0$1.5 million of tax benefits associated with timing adjustments that are recorded as deferred tax assets and liabilities. The total $5.0 million unrecognized tax benefit includes $400,000 of associated timing adjustments. The net amount of $700,000,$4.6 million would, if recognized, would favorably affect the Company's financial statements and favorably affect the Company's effective income tax rate.

F-34


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recognizes interest and/or penalties related to unrecognized tax benefits in income tax expense. As of August 31, 2022 and 2021, the Company had accrued an additional $1.5 million and $1.6 million, respectively, for the payment of interest and penalties related to the above-mentioned unrecognized tax benefits.

The Company expects changes in the amount of unrecognized tax benefits in the next 12 months as the result of a lapse in various statutes of limitations. The lapse of statutes of limitations in the twelve-month period ending August 31, 20182022 could result in a total income tax benefit amounting up to $26,000.$800,000.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense. As of August 31, 2017 and 2016, the Company had accrued $214,000 and $370,000, respectively, for the payment of interest and penalties (before income tax benefit).

The Company has various appeals pending before tax courts in its subsidiaries' jurisdictions. Any possible settlement could increase or decrease earnings but is not expected to be significant. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. One of the Company’s subsidiaries received assessments claiming $2.6 million of taxes, penalties and interest related to withholding taxes on certain charges for services rendered by the Company.

In addition, this subsidiary received assessments totaling $5.3 million for lack of deductibility of the underlying service charges due to the lack of withholding.  Based on a review of the Company's tax advisers' interpretation of local law, rulings and jurisprudence (including Supreme Court precedents with respect to the deductibility assessment),two countries where the Company expects to prevail in both instances and has not recorded a provision for these assessments. However, the Company had to submit these amounts as advanced payments to the government while it appeals.    

F-32


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In another country in which the Company has warehouse clubs, beginning in fiscal year 2015, a newoperates, minimum income tax mechanism took effect, which requiresrules require the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company is making income tax payments substantially in excess of those it would expect to pay based on taxable income. The current rules (which the Company has challenged in court) do not clearly allow the Company to obtain a refund or to offset this excesshad income tax against other taxes.  Asreceivables of August 31, 2017, the Company had deferred tax assets of approximately $2.0 million in this country.  Also, the Company had an income tax receivable balance of $4.3$11.0 million as of August 31, 20172022 and August 31, 2021, respectively, and deferred tax assets of $3.5 million and $3.3 million as of August 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to excess payments from fiscal years 2015 and 2017.  Therefunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund request and/or court challenge on this matter.requests.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state 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

Tax Jurisdiction

Fiscal Years Subject to Audit

U.S. federal

2000 to 2005, 2007, 20142011* to 2017*, 2018 to the present

California (U.S.) (state return)

2005 and 20132018 to the present

Florida(U.S.Florida (U.S.) (state return)

20142011* to 2018*, 2019 to the present

Aruba

20122017 to the present

Barbados

20112016 to the present

Costa Rica

2011 to 2012, 2015 to 2016, 2018 to the present

Colombia

2012 and 20142016 to the present

Dominican Republic

2011 to 2012, and 20142016, 2019 to the present

El Salvador

2009 to 2010 and 20142019 to the present

Guatemala

2009, 2012 to 2013, 2017 the present

Honduras

2017 to the present

HondurasJamaica

20122016 to the present

JamaicaMexico

20112017 to the present

MexicoNicaragua

20122018 to the present

NicaraguaPanama

20132018 to the present

PanamaTrinidad

20142016 to the present

Trinidad

2011 to the present

U.S. Virgin Islands

2001 to the present

Spain

20132019 to the present

Chile

2019* to the present

*Aeropost only

Generally for U.S. federal and U.S. Virgin Islands tax reporting purposes, the statute of limitations is three years from the date of filing of the income tax return. If and to the extent the tax year resulted in a taxable loss, the statute is extended to three years from the filing date of the income tax return in which the carryforward tax loss was used to offset taxable income in the carryforward year. Given the historical losses in these jurisdictions and the Section 382 change in control limitations on the use of the tax loss carryforwards, there is uncertainty and significant variation as to when a tax year is no longer subject to audit.


F-35


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 1011 – DEBT

Short-term borrowings consist of unsecured lines of credit which are secured by certain assets of the Company and its subsidiaries, which, in some cases, are guaranteed by the Company.credit. The following table summarizes the balances of total facilities, facilities used and facilities available (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Facilities Used

 

 

 

 

 

 

 



 

Total Amount

 

Short-term

 

Letters of

 

Facilities

 

Weighted average

 



 

of Facilities

 

Borrowings

 

Credit

 

Available

 

interest rate

 

August 31, 2017

 

$

69,000 

 

$

 —

 

$

966 

 

$

68,034 

 

 —

%

 

August 31, 2016

 

$

65,000 

 

$

16,534 

 

$

9,224 

 

$

39,242 

 

10.1 

%

 

Facilities Used

Total Amount

Short-term

Letters of

Facilities

Weighted average

of Facilities

Borrowings

Credit

Available

interest rate

August 31, 2022 - Committed

$

75,000

73

74,927

%

August 31, 2022 - Uncommitted

91,000

10,608

80,392

5.3

August 31, 2022 - Total

$

166,000

$

10,608

$

73

$

155,319

5.3

%

August 31, 2021 - Committed

$

40,000

97

39,903

%

August 31, 2021 - Uncommitted

91,000

91,000

August 31, 2021 - Total

$

131,000

$

$

97

$

130,903

%

As of August 31, 20172022 and August 31, 2016, the Company had approximately $40.0 million of short-term facilities in the U.S. that require compliance with certain quarterly financial covenants.  As of August 31, 2017 and August 31, 2016, 2021, the Company was in compliance with respectall covenants or amended covenants for each of its short-term facility agreements. These facilities generally expire annually or bi-annually and are normally renewed. One of these facilities is a committed credit agreement with one bank for $75.0 million. In exchange for the bank’s commitment to these covenants.  Eachfund any drawdowns the Company requests, the Company pays an annual commitment fee of 0.25%, payable quarterly, on any unused portion of this facility. Additionally, the Company has uncommitted facilities in most of the facilities expires annually andcountries where it operates, with drawdown requests subject to approval by the individual banks each time a drawdown is normally renewed.requested.

F-33


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides the changes in long-term debt for the twelve months ended August 31, 2017:2022:

(Amounts in thousands)

Current
portion of
long-term debt

Long-term
debt (net of current portion)

Total

Balances as of August 31, 2020

$

19,437

$

112,610

$

132,047

(1)

Proceeds from long-term debt received during the period:

Trinidad subsidiary

2,736

14,829

17,565

Repayments of long-term debt:

(5,168)

(14,825)

(19,993)

Reclassifications of long-term debt due in the next 12 months

2,368

(2,368)

Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar (3)

22

(136)

(114)

Balances as of August 31, 2021

19,395

110,110

129,505

(2)

Proceeds from long-term debt received during the period:

Guatemala subsidiary

4,204

4,204

Trinidad subsidiary

4,924

21,505

26,429

Total proceeds from long-term debt received during the period

4,924

25,709

30,633

Repayments of long-term debt:

(8,110)

(14,587)

(22,697)

Reclassifications of long-term debt due in the next 12 months

17,618

(17,618)

Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar (3)

(112)

(58)

(170)

Balances as of August 31, 2022

$

33,715

$

103,556

$

137,271

(4)



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

(Amounts in thousands)

 

Current
portion of
long-term debt

 

Long-term
debt (net of current portion)

 

Total

 

Balances as of August 31, 2016

 

$

14,565 

 

$

73,542 

 

$

88,107 

(1)

Proceeds from long-term debt incurred during the period:

 

 

 

 

 

 

 

 

 

 

MUFG Union Bank

 

 

 —

 

 

35,700 

 

 

35,700 

 

Trinidad subsidiary

 

 

6,000 

 

 

6,000 

 

 

12,000 

 

Repayments of long-term debt:

 

 

 

 

 

 

 

 

 

 

Repayment of loan by Panama subsidiary

 

 

(2,000)

 

 

(11,333)

 

 

(13,333)

 

Regularly scheduled loan payments

 

 

(225)

 

 

(15,837)

 

 

(16,062)

 

Translation adjustments on foreign-currency debt of subsidiaries whose functional currency is not the U.S. dollar (2)

 

 

18 

 

 

(133)

 

 

(115)

 

Balances as of August 31, 2017

 

$

18,358 

 

$

87,939 

 

$

106,297 

(3)

(1)

The carrying amount on non-cash assets assigned as collateral for these loans was $102.4 million.  No cash assets were assigned as collateral for these loans.

(2)

These foreign currency translation adjustments are recorded within Other comprehensive income. 

(3)

The carrying amount on non-cash assets assigned as collateral for these loans was $128.4 million.  No cash assets were assigned as collateral for these loans as of August 31, 2017. 

(1)The carrying amount on non-cash assets assigned as collateral for these loans was $158.6 million. No cash assets were assigned as collateral for these loans.

In August 2017, the Company’s Panama subsidiary paid off the outstanding principal balance of U.S. $13.3 million(2)The carrying amount on a loan agreement entered into with Scotiabank. The Company’s subsidiary also settled the interest rate swap that it had entered into with Scotiabank related to this loan.

On March 31, 2017, the Company's Trinidad subsidiary entered into a loan agreement with Citibank, N.A. The agreement providesnon-cash assets assigned as collateral for a $12.0 million loan to be repaid in eight quarterly principal payments plus interest. The interest rate is set at the 90 day LIBOR rate plus 3%. The loanthese loans was funded on March 31, 2017.

In January 2017, the Company finalized its acquisition of a distribution center in Medley, Miami-Dade County, Florida for a total purchase price of approximately $46.0$153.5 million. The Company transferred its Miami distribution center activities previously located in leased facilities to the new distribution center during the third quarter of fiscal year 2017. To finance the acquisition of this property, the Company entered into a 10-year real estate secured loan with MUFG Union Bank, N.A. (“Union Bank”)carrying amount on cash assets assigned as collateral for $35.7 million in January 2017. This loan has a variable interest rate of 30-day LIBOR plus 1.7%, with monthly principal and interest payments maturing in 2027. these loans was $7.0 million.

(3)These foreign currency translation adjustments are recorded within other comprehensive loss.

(4)The monthly principal and interest payments begin in April 2019.carrying amount on non-cash assets assigned as collateral for these loans was $155.6 million. The Company also entered into an interest rate hedge with Union Bankcarrying amount on cash assets assigned as collateral for $35.7 million, the notional amount. Under the hedge, the Company will receive variable interest equal to 30-day LIBOR plus 1.7% and pay fixed interest at a rate of 3.65%, with an effective date of March 1, 2017 and maturity date of March 1, 2027.  these loans was $5.3 million.

F-3436


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides a summary of the long-term loans entered into by the Company:



 

 

 

 

 

 



 

 

 

 

 

 



 

August 31,

 

August 31,



 

2017

 

2016

Loans entered into by the Company's subsidiaries with a balloon payment due at the end of the loan term and with non-cash assets assigned as collateral and with/without established debt covenants

 

$

18,200 

 

$

21,945 

Loans entered into by the Company's subsidiaries for which the subsidiary has entered into an interest rate swap with non-cash assets assigned as collateral and with/without established debt covenants

 

 

49,424 

 

 

32,258 

Loans entered into by the Company's subsidiaries with non-cash assets assigned as collateral and with/without established debt covenants

 

 

17,585 

 

 

9,717 

Loans entered into by the Company's subsidiaries for which the subsidiary has entered into a cross-currency interest rate swap with non-cash assets assigned as collateral and with/without established debt covenants

 

 

21,088 

 

 

24,187 

Total long-term debt

 

 

106,297 

 

 

88,107 

Less: current portion

 

 

18,358 

 

 

14,565 

Long-term debt, net of current portion

 

$

87,939 

 

$

73,542 

August 31,

August 31,

2022

2021

Loans entered into by the Company's subsidiaries for which the subsidiary has entered into a cross-currency interest rate swap with non-cash assets and/or cash or cash equivalents assigned as collateral and with/without established debt covenants

$

33,853

$

38,531

Loans entered into by the Company's subsidiaries for which the subsidiary has entered into an interest rate swap with non-cash assets and/or cash or cash equivalents assigned as collateral and with/without established debt covenants

39,969

42,744

Unswapped loans entered into by the Company's subsidiaries with non-cash assets and/or cash or cash equivalents assigned as collateral and with/without established debt covenants

63,449

48,230

Total long-term debt

137,271

129,505

Less: current portion

33,715

19,395

Long-term debt, net of current portion

$

103,556

$

110,110

As of August 31, 2017,2022 and August 31, 2021, the Company had approximately $85.6$110.7 million and $103.4 million, respectively, of long-term loans in Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados and Colombiaseveral foreign subsidiaries that require these subsidiaries to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios. As of August 31, 2017, theThe Company was in compliance with all covenants or amended covenants.

As ofcovenants for both periods. The net increase in long-term debt during the twelve months ended August 31, 2016,2022 is primarily attributable to a loan entered into by the Company had approximately $76.0Company’s Trinidad subsidiary, whereby it received $25.0 million of long-term loansin U.S. dollars, which it will pay back in Trinidad Panama, El Salvador, Honduras, Costa Rica, Barbados, and Colombia that require these subsidiaries to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios.  Asdollars (using a conversion rate fixed upon initial disbursement) over the four year life of August 31, 2016, the Company was in compliance with all covenants or amended covenants.loan.

Annual maturities of long-term debt are as follows (in thousands):



 

 

 



 

 

 

Years Ended August 31,

 

Amount

2018

 

$

18,358 

2019

 

 

16,279 

2020

 

 

18,127 

2021

 

 

17,941 

2022

 

 

2,966 

Thereafter

 

 

32,626 

Total

 

$

106,297 

Twelve Months Ended August 31,

Amount

2023

$

33,715

2024

18,788

2025

33,524

2026

15,496

2027

29,748

Thereafter

6,000

Total

$

137,271

NOTE 12 – LEASES

In accordance with ASC 842, the Company determines if an arrangement is a lease at inception or modification of a contract and classifies each lease as either operating or finance lease at commencement. The Company only reassesses lease classification subsequent to commencement upon a change to the expected lease term or the contract being modified. As of August 31, 2022, the Company only has operating leases for its clubs, distribution centers, office space, and land. Operating leases, net of accumulated amortization, are included in operating lease right of use (“ROU”) assets, and current and non-current operating lease liabilities, on the Company’s consolidated balance sheets. Lease expense for operating leases is included in selling, general and administrative expense on the Company’s consolidated statements of income. Leases with an initial term of twelve months or less are not recorded on the Company’s consolidated balance sheet.

The Company is generally obligated for the cost of property taxes, insurance, and maintenance relating to its leases, which are often variable lease payments. Such costs are included in selling, general and administrative expense in the consolidated statements of income.

Certain of the Company's lease agreements provide for lease payments based on future sales volumes at the leased location, or include rental payments adjusted periodically for inflation or based on an index, which are not measurable at the inception of the lease. The Company expenses such variable amounts in the period incurred, which is the period in which it becomes probable that the specified target that triggers the variable lease payments will be achieved. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

F-3537


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 11 – LEASES

ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the reasonably certain lease term. The operating lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option or if an economic penalty may be incurred if the option is not exercised. The initial lease term of the Company’s operating leases range from two years to 30 years.

Where the Company's leases do not provide an implicit rate, a collateralized incremental borrowing rate ("IBR") is used to determine the present value of lease payments. The IBR is based on a yield curve derived by publicly traded bond offerings for companies with similar credit characteristics that approximate the Company's market risk profile. In addition, we adjust the IBR for jurisdictional risk derived from quoted interest rates from financial institutions to reflect the cost of borrowing in the Company’s local markets.

The following table is a summary of the Company’s components of total lease costs for fiscal year 2022 and 2021 (in thousands):

Years Ended August 31,

2022

2021

Operating lease cost

$

15,632

$

17,724

Short-term lease cost

49

167

Variable lease cost

4,376

4,410

Sublease income

(180)

(891)

Total lease costs

$

19,877

$

21,410

The weighted average remaining lease term and weighted average discount rate for operating leases as of August 31, 2022 and August 31, 2021 were as follows:

Years Ended August 31,

2022

2021

Weighted average remaining lease term in years

18.3

18.3

Weighted average discount rate percentage

6.7%

6.7%

Supplemental cash flow information related to leases under which the Company is the lessee was as follows (amounts in thousands):

Years Ended August 31,

2022

2021

Operating cash flows paid for operating leases

$

14,885

$

16,420

The Company is committed under non-cancelable operating leases for the rental of facilities and land. These leases expire or become subject to renewal between December 31, 2017 and January 29, 2044.

As of August 31, 2017, the Company’s warehouse clubs occupied a total of approximately 2,925,731 square feet of which 522,131 square feet were on leased property. The following is a summary of the warehouse clubs and Company facilities located on leased property:

Approximate

Remaining

Square

Current Lease

Option(s)

Location

Facility Type

Date Opened

Footage

Expiration Date

to Extend

Salitre, Colombia

Warehouse Club

October 29, 2014

98,566 

January 29, 2044

20 years

Via Brazil, Panama

Warehouse Club

December 4, 1997

68,696 

October 31, 2026

10 years

Miraflores, Guatemala

Warehouse Club

April 8, 1999

68,977 

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

December 1, 2012

12,517 

November 30, 2025

3 years

Chaguanas, Trinidad

Employee Parking

May 1, 2009

4,944 

April 30, 2024

none

Chaguanas, Trinidad

Container Parking

April 1, 2010

65,340 

March 31, 2025

none

Jamaica

Storage and
Distribution Facility

September 1, 2012

17,000 

July 14, 2019

2 years

Santo Domingo,
Dominican Republic

Central Offices

June 1, 2010

2,002 

January 14, 2021

5 years

Bogota, Colombia

Central Offices

October 21, 2010

9,707 

December 31, 2017

none

San Diego, CA (1)

Corporate Headquarters

April 1, 2004

45,826 

May 31, 2026

5 years

Miami, FL(2)

Dry Distribution Facility

March 1, 2008

206,041 

July 31, 2021

none

Miami, FL

Cold Distribution Facility

August 1, 2016

100,295 

December 31, 2027

none

Panama

Central Offices

November 4, 2014

17,975 

December 12, 2028

15 years

Costa Rica

Storage and
Distribution Facility

January 28, 2013

37,674 

January 27, 2019

3 years

Costa Rica (3)

Distribution Facility and Parking Lot

March 26, 2018

233,794 

March 25, 2038

10 years

Panama

Distribution Facility 

August 14, 2017

4,874 

August 13, 2020

2 years

Trinidad(4)

Storage and
Distribution Facility

August 18, 2014

17,110 

August 17, 2017

none

(1)

On October 31, 2016, the contract to sub-lease 2,799 square feet of space to a third party expired.  The Company has since occupied all 2,799 square feet of space as an expansion to its Corporate Headquarters and included the additional square feet in the table above.

(2)

In January 2017, the Company purchased a distribution center in Medley, Miami-Dade County, Florida.  The Company transferred its Miami dry distribution center activities that were previously in the leased facility to the new facility during the third quarter of fiscal year 2017.  Some portions of the vacated space were subleased (and subsequently returned to the landlord) while the remainder remains available for sublease. 

(3)

In June 2017, the Company executed a contract to acquire 233,794 square feet of space for a regional distribution center and parking lot. Delivery date is expected to be March 26, 2018 and June 26, 2018, respectively. 

(4)

Although the Company’s lease agreement for the Trinidad storage and distribution facility expired on August 17, 2017, the Company continues to occupy the space as an agreement for a one-year renewal has been reached with the landlord, pending execution of the contract.  The Company has also included this one-year lease as part of the minimum lease commitments.    

F-36


Table of Contents

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 fiscal years 2017,  2016 and 2015 (in thousands):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Minimum rental payments

 

$

11,223 

 

$

9,986 

 

$

10,074 

Deferred rent accruals

 

 

(80)

 

 

1,363 

 

 

1,355 

Total straight line rent expense

 

 

11,143 

 

 

11,349 

 

 

11,429 

Contingent rental payments

 

 

3,320 

 

 

3,208 

 

 

3,137 

Common area maintenance expense

 

 

1,174 

 

 

1,369 

 

 

1,321 

Rental expense

 

$

15,637 

 

$

15,926 

 

$

15,887 

Future minimum lease commitments for facilities under these leases with an initial term in excess of one year are as follows (in thousands):



 

 

 

 



 

 

 

 



 

Leased

 

Years Ended August 31,

 

Locations(1)

 

2018

 

$

11,596 

 

2019

 

 

11,715 

 

2020

 

 

11,093 

 

2021

 

 

9,615 

 

2022

 

 

8,894 

 

Thereafter

 

 

116,066 

 

Total

 

$

168,979 

(2)(3)

Leased

Years Ended August 31,

Locations

2023

$

14,936

2024

14,040

2025

14,012

2026

12,508

2027

10,314

Thereafter

161,563

Total future lease payments

227,373

Less imputed interest

(101,386)

Total operating lease liabilities

$

125,987

(1)

Operating lease obligations have been reduced by approximately $928,000 to reflect sub-lease income. Certain obligations under leasing arrangements are collateralized by the underlying asset being leased.

(2)

As of August 31, 2016, total future minimum lease commitments were $120.9 million.  The increase during fiscal year 2017 is primarily related to the extension of an existing lease within the Company’s Guatemala subsidiary for its Pradera location.  The subsidiary signed an extension on November 25, 2016, extending the lease termination date from May 31, 2021 to November 30, 2043. The lease extension included the real property at this location currently used by the Company and added additional square footage in the same shopping center to the lease. This has effectively provided the Company with possession of substantially all of the real property available at that location. The Company plans to expand and upgrade the current warehouse club and parking areas and to improve access into and out from the location.

(3)

Future minimum lease payments include $3.2 million of lease payment obligations for the prior leased Miami distribution center.  For the purposes of calculating the minimum lease payments, no reduction was considered for the potential sub-lease income the Company could receive during the remaining lease term.  This potential sub-lease income was considered, however, for the purposes of calculating the exit obligation of $57,000 recorded on the balance sheet as of August 31, 2017.  Projected income for any executed sub-leases would be used to reduce the amount reported as minimum lease payments.

The following table summarizes the components of rental income recorded for operating leases for fiscal years 2017,  2016 and 2015 (in thousands): 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Minimum rental receipts

 

$

2,654 

 

$

2,735 

 

$

2,873 

Deferred rent accruals

 

 

(17)

 

 

56 

 

 

47 

Total straight line rent income

 

 

2,637 

 

 

2,791 

 

 

2,920 

Contingent rental receipts

 

 

121 

 

 

112 

 

 

86 

Common maintenance area income

 

 

141 

 

 

151 

 

 

148 

Rental income

 

$

2,899 

 

$

3,054 

 

$

3,154 

F-3738


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company is the landlord for rental of land and/or building space for properties it owns. The following is a schedule of future minimum rental income on non-cancelable operating leases with an initial term in excess of one year from owned property as of August 31, 2017 (in thousands):



 

 

 



 

 

 

Years Ended August 31,

 

Amount

2018

 

$

2,427 

2019

 

 

2,103 

2020

 

 

1,835 

2021

 

 

1,562 

2022

 

 

941 

Thereafter

 

 

4,407 

Total

 

$

13,275 

NOTE 1213 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to interest rate risk relating to its ongoing business operations. To manage interest rate exposure, the Company enters into hedge transactions (interest rate swaps) using derivative financial instruments. The objective of entering into interest rate swaps is to eliminate the variability of cash flows in the LIBOR interest payments associated with variable-rate loans over the life of the loans. As changes in interest rates impact the future cash flow of interest payments, the hedges provide a synthetic offset to interest rate movements.

In addition, the Company is exposed to foreign currency and interest rate cash flow exposure related to a non-functional currency long-term debt held by variousof two of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposures,exposure, the Company’s subsidiaries enterentered into cross-currency interest rate swaps that convert itstheir U.S. dollar denominated floating interest payments to functional currency fixed interest payments during the life of the hedging instrument. As changes in foreign exchange and interest rates impact the future cash flow of interest payments, the hedge ishedges are intended to offset changes in cash flows attributable to interest rate and foreign exchange movements.

These derivative instruments (cash flow hedging instruments) are designated and qualify as cash flow hedges, with the effective portion of theentire gain or loss on the derivative reported as a component of other comprehensive income (loss)loss. Amounts are deferred in other comprehensive loss and reclassified into earnings in the same period or periods during whichincome statement line item that is used to present the earnings effect of the hedged transaction is determined to be ineffective.  There were no such amounts recorded for ineffectiveness foritem when the periods reported herein related to the interest rate or cross-currency interest rate swaps of long-term debt.hedged item affects earnings.

The Company is exposed to foreign-currency exchange-rate fluctuations in the normal course of business, including foreign-currency exchange-rate fluctuations on U.S. dollar denominated liabilities within its international subsidiaries whose functional currency is other than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non-deliverable forward foreign-exchange contracts (NDFs) that are intended to offset changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts do not qualify for derivative hedge accounting. The Company seeks to mitigate foreign-currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contracts do not contain any credit-risk-related contingent features.

Currently, these contracts do not qualify for derivative hedge accounting. The Company seeks to mitigate foreign-currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contracts do not contain any credit-risk-related contingent features.

Cash Flow Hedges

As of August 31, 2017,2022, all of the Company’s interest rate swap and cross-currency interest rate swap derivative financial instruments are designated and qualify as cash flow hedges. The Company formally documents the hedging relationships for its derivative instruments that qualify for hedge accounting.

F-3839


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes agreements for which the Company has recorded cash flow hedge accounting transactions during the twelve months endedas of August 31, 2017:  2022:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary

 

Date
Entered
into

 

Derivative
Financial
Counter-
party

 

Derivative
Financial
Instruments

 

Initial
US$
Notional
Amount

 

Bank
US$
loan 
Held
with

 

Floating Leg
(swap
counter-party)

 

Fixed Rate
for PSMT
Subsidiary

 

Settlement
Dates

 

Effective
Period of swap

PriceSmart, Inc

 

7-Nov-16

 

MUFG Union Bank, N.A. ("Union Bank")

 

Interest rate swap

 

$

35,700,000 

 

Union Bank

 

Variable rate 1-month Libor plus 1.7%

 

3.65 

%

 

1st day of each month beginning on April 1, 2017

 

March 1, 2017 - March 1, 2027

Costa Rica

 

28-Aug-15

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

7,500,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 2.50%

 

7.65 

%

 

28th day of August, November, February, and May beginning on November 30, 2015

 

August 28, 2015 -
August 28, 2020

Honduras

 

24-Mar-15

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

8,500,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 3.25%

 

10.75 

%

 

24th day of March, June, September, and December beginning on June 24, 2015

 

March 24,2015 -
March 20, 2020

El Salvador

 

16-Dec-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

4,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.78 

%

 

29th day of each month beginning  on December 29, 2014

 

December 1, 2014 -
August 29, 2019

Colombia

 

10-Dec-14

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

15,000,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 2.8%

 

8.25 

%

 

4th day of March, June, Sept, Dec. beginning on March 4, 2015

 

December 4, 2014 -
December 3, 2019

Panama

 

9-Dec-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

10,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

5.16 

%

 

28th day of each month beginning December 29, 2014

 

November 28, 2014 -
November 29, 2019

Honduras

 

23-Oct-14

 

Citibank, N.A. ("Citi")

 

Cross currency interest rate swap

 

$

5,000,000 

 

Citibank, N.A.

 

Variable rate 3-month Libor plus 3.5%

 

11.6 

%

 

22nd day of January, April, July, and October beginning on January 22, 2015

 

October 22, 2014 -
October 22, 2017

Panama

 

1-Aug-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

5,000,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.89 

%

 

21st day of each month beginning on September 22, 2014

 

August 21, 2014 -
August 21, 2019

Panama

 

22-May-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

19,800,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.98 

%

 

4th day of each month beginning on June 4, 2014

 

Settled on
August 31, 2017

Panama

 

22-May-14

 

Bank of Nova Scotia ("Scotiabank")

 

Interest rate swap

 

$

3,970,000 

 

Bank of Nova Scotia

 

Variable rate 30-day Libor plus 3.5%

 

4.98 

%

 

4th day of each month beginning on June 4, 2014

 

May 5, 2014 -
April 4, 2019

Entity

Date
Entered
into

Derivative
Financial
Counter-
party

Derivative
Financial
Instruments

Initial
US$
Notional
Amount

Bank
US$
loan 
Held
with

Floating Leg
(swap
counter-party)

Fixed Rate
for PSMT
Subsidiary

Settlement
Dates

Effective
Period of swap

Colombia subsidiary

3-May-22

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

10,000,000

PriceSmart, Inc.

3.00%

9.04

%

3rd day of each May, August, November and February, beginning on August 3, 2022

May 3, 2022 -
May 3, 2027

Colombia subsidiary

17-Nov-21

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

10,000,000

PriceSmart, Inc.

3.00%

8.40

%

17th day of each February, May, August, and November, beginning on February 17, 2022

November 17, 2021 -
November 18, 2024

Colombia subsidiary

3-Dec-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

7,875,000

Citibank, N.A.

Variable rate 3-month Libor plus 2.45%

7.87

%

3rd day of each December, March, June, and September, beginning on March 3, 2020

December 3, 2019 -
December 3, 2024

Colombia subsidiary

27-Nov-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

25,000,000

Citibank, N.A.

Variable rate 3-month Libor plus 2.45%

7.93

%

27th day of each November, February, May and August beginning February 27, 2020

November 27, 2019 -
November 27, 2024

Colombia subsidiary

24-Sep-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

12,500,000

PriceSmart, Inc.

Variable rate 3-month Libor plus 2.50%

7.09

%

24th day of each December, March, June and September beginning December 24, 2019

September 24, 2019 -
September 26, 2022

Panama subsidiary

25-Jun-18

Bank of Nova Scotia ("Scotiabank")

Interest rate swap

$

14,625,000

Bank of Nova Scotia

Variable rate 3-month Libor plus 3.0%

5.99

%

23rd day of each month beginning on July 23, 2018

June 25, 2018 -
March 23, 2023

Honduras subsidiary

26-Feb-18

Citibank, N.A. ("Citi")

Cross currency interest rate swap

$

13,500,000

Citibank, N.A.

Variable rate 3-month Libor plus 3.00%

9.75

%

29th day of May, August, November and February beginning May 29, 2018

February 26, 2018 -
February 24, 2023

PriceSmart, Inc.

7-Nov-16

MUFG Union Bank, N.A. ("Union Bank")

Interest rate swap

$

35,700,000

Union Bank

Variable rate 1-month Libor plus 1.7%

3.65

%

1st day of each month beginning on April 1, 2017

March 1, 2017 -
March 1, 2027

For the twelve-month periods ended August 31, 2017,  20162022, 2021 and 2015,2020 the Company included the gain or loss on the hedged items (that is, variable-rate borrowings) in the same line item—interest expense—as the offsetting gain or loss on the related interest rate swaps as follows (in thousands):

Income Statement Classification

Interest
expense on
borrowings(1)

Cost of
swaps(2)

Total

Interest expense for the year ended August 31, 2022

$

2,577

$

3,234

$

5,811

Interest expense for the year ended August 31, 2021

$

2,619

$

3,655

$

6,274

Interest expense for the year ended August 31, 2020

$

4,045

$

2,416

$

6,461

(1)This amount is representative of the interest expense recognized on the underlying hedged transactions.

(2)This amount is representative of the interest expense recognized on the interest rate swaps and cross currency swaps designated as cash flow hedging instruments.



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Income Statement Classification

 

Interest
expense on
borrowings(1)

 

Cost of
swaps (2)

 

Total

Interest expense for the year ended August 31, 2017

 

$

3,605 

 

$

1,588 

 

$

5,193 

Interest expense for the year ended August 31, 2016

 

$

3,087 

 

$

1,982 

 

$

5,069 

Interest expense for the year ended August 31, 2015

 

$

2,205 

 

$

2,827 

 

$

5,032 

(1)

This amount is representative of the interest expense recognized on the underlying hedged transactions.

(2)

This amount is representative of the interest expense recognized on the interest rate swaps designated as cash flow hedging instruments.

F-3940


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total notional balance of the Company’s pay-fixed/receive-variable interest rate swaps and cross-currency interest rate swaps was as follows (in thousands):

Notional Amount as of

August 31,

August 31,

 Floating Rate Payer (Swap Counterparty)

2022

2021

Union Bank

$

31,344

$

32,619

Citibank N.A.

66,353

51,032

Scotiabank

8,625

10,125

Total

$

106,322

$

93,776



 

 

 

 

 

 



 

 

 

 

 

 



 

Notional Amount as of



 

August 31,

 

August 31,

 Floating Rate Payer (Swap Counterparty)

 

2017

 

2016

Union Bank

 

$

35,700 

 

 

 —

Citibank N.A.

 

 

26,088 

 

$

30,188 

Scotiabank

 

 

13,724 

 

 

32,258 

Total

 

$

75,512 

 

$

62,446 

Derivatives listed on the table below were designated as cash flow hedging instruments. The following table summarizes the effect of the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualify for derivative hedge accounting and its associated tax effect on accumulated other comprehensive (income)/loss (in thousands, except footnote data)thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

August 31, 2017

 

August 31, 2016

August 31, 2022

August 31, 2021

Derivatives designated as cash flow hedging instruments

 

Balance Sheet
Location

 

Fair
Value

 

Net Tax
Effect

 

Net
OCI

 

Fair
Value

 

Net Tax
Effect

 

Net
OCI

Balance Sheet
Classification

Fair
Value

Net Tax
Effect

Net
OCI

Fair
Value

Net Tax
Effect

Net
OCI

Cross-currency interest rate swaps

 

Other non-current assets

 

$

2,547 

 

 

(950)

 

 

1,597 

 

$

3,224 

 

 

(1,248)

 

 

1,976 

Other current assets

$

2,736

$

(348)

$

2,388

$

$

$

Cross-currency interest rate swaps

Other non-current assets

10,289

(4,559)

5,730

2,464

(741)

1,723

Cross-currency interest rate swaps

Other current liabilities

(82)

25

(57)

Interest rate swaps

Other non-current assets

1,596

(6)

1,590

Interest rate swaps

 

Other long-term liabilities

 

 

(231)

 

 

80 

 

 

(151)

 

 

(448)

 

 

115 

 

 

(333)

Other long-term liabilities

(2,305)

535

(1,770)

Cross-currency interest rate swaps

 

Other long-term liabilities

 

 

(451)

 

 

135 

 

 

(316)

 

 

(1,066)

 

 

320 

 

 

(746)

Other long-term liabilities

(705)

212

(493)

Net fair value of derivatives designated as hedging instruments

 

 

 

$

1,865 

 

$

(735)

 

$

1,130 

 

$

1,710 

 

$

(813)

 

$

897 

$

14,539

$

(4,888)

$

9,651

$

(546)

$

6

$

(540)

Fair Value Instruments

TheFrom time to time the Company has enteredenters into non-deliverable forward foreign-exchange contracts. These contracts are treated for accounting purposes as fair value contracts and do not qualify for derivative hedge accounting. The use of non-deliverable forward foreign-exchange contracts is intended to offset changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically hedge exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar.

F-41


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the non-deliverable forward foreign exchange contracts that are open as of August 31, 2022:

Subsidiary

Dates
entered into

Financial
Derivative
(Counterparty)

Derivative
Financial
Instrument

Notional
Amount
(in thousands)

Settlement

Date

Effective Period
of Forward

Colombia

30-Aug-22

Scotiabank Colpatria, S.A.

Forward foreign
‎exchange contracts (USD)

$

1,500

11-Jan-23

August 30, 2022 - January 11, 2023

Colombia

17-Aug-22

Scotiabank Colpatria, S.A.

Forward foreign
‎exchange contracts (USD)

$

1,500

30-Dec-22

August 17, 2022 - December 30, 2022

Forward derivative gains and (losses) on non-deliverable forward foreign-exchange contracts are included in Other income (expense), net in the consolidated statements of income in the period of change, but the amounts were immaterial for the twelve months ended August 31 2022, 2021, and 2020.

Other Instruments

Other derivatives not designated as hedging instruments consist primarily of written call options in which the Company receives a premium that it uses to reduce the costs associated with its hedging activities. As of August 31, 20172022, the Company didhas settled its outstanding call options and does not have any open non-deliverable forward foreign-exchange contracts.other contracts not designated as hedging instruments.

For the twelve-month periods ended August 31, 2017,  20162022, 2021, and 2015,2020, the Company included in its consolidated statements of income the forwardloss of its other non-designated derivative (gain) or loss on the non-deliverable forward foreign-exchange contracts as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31

Years, Ended August 31

Income Statement Classification

 

2017

 

2016

 

2015

2022

2021

2020

Other income (expense), net

 

$

(387)

 

$

(166)

 

$

6,533 

Other expense, net

$

$

$

(912)

For derivatives that do not qualify for hedge accounting, there were no significant related assets or liabilities recorded on the consolidated balance sheet at August 31, 2017 or 2016.

NOTE 1314 – RELATED-PARTY TRANSACTIONS

Use of Private Plane:  From time to time members of the Company’s management use private planes owned in part by La Jolla Aviation, Inc. to travel to business meetings in Latin America and the Caribbean.  La Jolla Aviation, Inc. is solely owned by The Robert and Allison Price Trust, and Robert Price the Company's Chairman of the Board, is a Director and Officer of La Jolla Aviation, Inc.  The Company has reimbursed La Jolla Aviation for such travel at the hourly rate of the Company's private aircraft for such travel.The Company incurred expenses of approximately $182,000 and $225,000 for the years ended August 31, 2016 and 2015, respectively, for these services. The Company did not use these services during the twelve months ended August 31, 2017.

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Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Relationship with Aseprismar: Aseprismar is a PriceSmart employee association located in Costa Rica that purchases discarded packaging materials received by the Company from incoming shipments of merchandise. The Company recorded approximately $128,000,  $123,000 and $157,000 in other income from the sale of packaging materials to Aseprismar for the years ended August 31, 2017,  2016 and 2015, respectively. In addition, the Company also contracts with Aseprismar for freight transportation between the Company's Costa Rica warehouse clubs. The Company incurred approximately $66,000,  $80,000 and $35,000 for freight expense with Aseprismar for the years ended August 2017,  2016 and 2015.

Relationship with Francisco Velasco: Francisco Velasco is the Executive Vice President, General Counsel, Secretary and Chief Ethics and Compliance Officer for the Company.  As part of his employment agreement dated July 2016, the Company purchased his home in Chicago, IL, in July based on its appraised value for approximately $625,000. The Company also leased the property back to Francisco Velasco for $2,500 a month until he relocated to San Diego, CA.  The Company also reimbursed Francisco Velasco for the monthly lease payments. For the year ended August 31, 2016, the Company charged and then reimbursed approximately $2,500. There were no charges or reimbursements made during the year ended August 31, 2017.  The Company intends to sell this property.

Relationships with Edgar Zurcher: Edgar Zurcher is a director of the Company.  Mr. Zurcher is a partner in a law firm that the Company utilizes in certain legal matters. The Company incurred approximately $82,000,  $26,000 and $18,000 in legal expenses with this firm for the years ended August 31, 2017,  2016 and 2015, respectively. Mr. Zurcher is also a director of a company that owns 40% of Payless ShoeSource Holdings, Ltd., which rents retail space from the Company. The Company recorded approximately $927,000, $1.4 million, and $1.5 million in rental income for this space during the year ended August 31, 2017 and $1.4 million for each of the fiscal years ended 20162022, 2021 and 20152020. Additionally, Mr. Zurcher is a director of Molinos de Costa Rica S.A. The Company paid approximately $636,000,  $502,000 and $496,000$1.1 million for products purchased from this entity during the years ended August 31, 2017,  2016 and 2015, respectively.  Also, Mr. Zurcher is a directorfor each of Roma Prince S.A. PriceSmart purchased products from this entity for approximately  $1.1 million, $1.2 million and $1.3 million for the years ended August 31, 2017, 2016 and 2015, respectively.

Relationship with Gonzalo Barrutieta: Gonzalo Barrutieta is a director of the Company. Mr. Barrutieta is also a member of the Board of Directors of Office Depot Mexico, S.A. de C.V., which operates OD Panama, S.A. ("ODP"), which rents retail space from the Company. The Company has recorded approximately $277,000, $272,000 and $266,000 in rental income and common area maintenance charges for this space during the years ended August 31, 2017,  2016 and 2015, respectively. In addition, on December 11, 2015, the Company's joint venture Golf Park Plaza, S.A. ("GPP") transferred final ownership of land to ODP, following its execution of the related purchase option.  The deed was recorded with the relevant agencies in Panama during February 2016.  ODP had on July 15, 2011 (fiscal year 2011), entered into a 30 year operating lease, with an option to buy, for approximately 26,000 square feet of land owned by GPP.  The option to purchase the land had a three-year limit beginning in April 2013.  As part of this transaction, ODP: (i) made an initial deposit to GPP in the sum of approximately $545,000 at the time of signing the agreement; (ii) paid a second deposit of approximately $436,000 at the time its building was completed and its store opened to the public; (iii) paid monthly rent per the lease clause of the agreement which the Company recognized on a straight line basis; and (iv) contracted to pay an additional $109,000, less rental payments of $39,000 previously applied per the lease clause, when ODP exercised its option to purchase the land. GPP recorded rental income of approximately $1,000 and $106,000, during the fiscal years ended August 31, 20162022, 2021 and 2015,2020, respectively.  GPP recorded a gain, net of tax, on the sale of the land of approximately $851,000 during February 2016. 

Relationships with Price Family Charitable Organizations: During the years ended August 31, 2017,  20162022, 2021 and 2015,2020, the Company sold approximately $393,000,  $427,000$438,000, $1.6 million, and $371,000,$525,000, respectively, of supplies to Price Philanthropies Foundation. Robert Price, Chairman of the Company's Board of Directors, is the Chairman of the Board and President of the Price Philanthropies Foundation and Price Charities.Foundation. Sherry S. Bahrambeygui, a director and the Chief Executive Officer of the Company, and Vice Chairserves as an independent director of the Board serves as Executive Vice President, Secretary and Vice Chairman of the Boards of Price Charities, fka San Diego Revitalization Corp., and Price Philanthropies Foundation. The Company also participated initially with Price Charities, a charitable non-profit public benefit corporation, in a charitable program known as “Aprender y Crecer” ("Learn and Grow”) by allowing PriceSmart members to donate money in the warehouse clubs to that program.  Beginning January 1, 2015, the Aprender y Crecer program was transferred from Price Charities to Price Philanthropies Foundation. Since 2015, the Company has participated with Price Philanthropies and selected vendors where the vendors channel donations through the Company based on a percentage of sales of their products within the warehouse clubs. The Company collaborated with Price Charities, Price Philanthropies Foundation and local charitable groups to use these donations to acquire and deliver supplies to schools in the communities surrounding PriceSmart clubs. Vendors send their donations to PriceSmart, which records them as a liability for donations received. The liability for donations received, but not yet applied to the purchase of school supplies was approximately $102,000 and $139,000 as of August 31, 2017 and 2016, respectively.  

Relationships with Mitchell G. Lynn: Mr. Lynn has beenJeffrey R. Fisher, a director of the Company, since November 2011. Mr. Lynn isserves as the founder, limited partnerChief Financial Officer and as a general partnerindependent director of CRI 2000, LP, dba Combined Resources International ("CRI"), which designs,the Board of the Price Philanthropies Foundation. David Price, a director, and Vice President – Omnichannel Initiatives & Social and Environmental Responsibility of the Company, serves as an independent director of the Board of the Price Philanthropies Foundation.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

develops and manufactures consumer products for domestic and international wholesale distribution, primarily through warehouse clubs. The Company paid approximately $437,000, $625,000 and $353,000 for products purchased from this entity during the years ended August 31, 2017,  2016 and 2015, respectively. Mr. Lynn is also a founder, limited partner and a general partner of ECR4Kids, LP ("ECR") which designs, manufactures and sells educational/children's products to wholesale dealers. The Company paid approximately $8,000,  $3,000 and $31,000 for products purchased from this entity during the years ended August 31, 2017,  2016 and 2015, respectively. Mr. Lynn is also associated with Procuro, Inc., which is a services company that specializes in Cold Chain Management solutions. Mr. Lynn owns less than one percent of the issued and outstanding Procuro, Inc. shares and cannot significantly influence Procuro, Inc. The Company paid to Procuro, Inc. approximately $71,000,  $95,000 and $76,000 for products purchased from this entity during the years ended August 31, 2017,  2016 and 2015, respectively.

Relationship with Golf Park Plaza, S.A.: Golf Park Plaza, S.A. is a real estate joint venture located in Panama, entered into by the Company in 2008 (see Note 1415 - Unconsolidated Affiliate). On December 12, 2013, the Company entered into a lease agreement for approximately 17,976 square feet (1,670 square meters) of land with Golf Park Plaza, S.A. upon which the Company constructed its central offices in Panama. The lease term is for 15 years with three options to renew for five years each at the Company's discretion. On July 14, 2017, the Company entered into a lease agreement for approximately 2,992 square feet (278 square meters) of a building with Golf Park Plaza, S.A. for warehouse storage space. The monthly leaseagreement was recently renewed for an additional five years during fiscal year 2022. Combined, the Company recognized $149,000 in rent expense is approximately $8,800. Forfor the twelve monthsfiscal year ended August 31, 2017,  20162022 and 2015, the Company recognized$149,800 in rent expense of $105,700 for this lease for each suchof the fiscal year.

Relationships with Pierre Mignault: Pierre Mignault was elected to the Board of Directors, effective August 1, 2015. Mr. Mignault has been a consultant for the Company since September 2009, serving as an independent sourcing agent with Canadian suppliers. In his role as an independent sourcing agent, Mr. Mignault received commissions of $224,000,  $208,000 and $154,000 from certain vendors related to the sale of product to the Company in fiscal years 2017, 2016 and 2015, respectively. In his role as consultant for the Company, he earned $60,000 in each year for the twelve months ended August 31, 2017,  20162021 and 2015. August 31, 2020.

NOTE 1415 – UNCONSOLIDATED AFFILIATES

The Company determines whether any of the joint ventures in which it has made investments is a Variable Interest Entity (“VIE”) at the start of each new venture and if a reconsideration event has occurred. At this time, the Company also considers whether it must consolidate a VIE and/or disclose information about its involvement in a VIE. A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests)the power to direct the VIE’s activities that willmost significantly impact the VIE’s economic performance and has the obligation to absorb a majoritylosses of the VIE's expected losses,VIE or the right to receive a majority ofbenefits from the VIE's expected residual returns, or both.  A reporting entity must considerVIE that could potentially be significant to the rights and obligations conveyed by its variable interests and the relationship of its variable interests with variable interests held by other parties to determine whether its variable interests will absorb a majority of a VIE's expected losses, receive a majority of the VIE's expected residual returns, or both.VIE. The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE.

In 2008, the Company entered into real estate joint ventures to jointly own and operate separate commercial retail centers adjacent to warehouse clubs in Panama (Golf Park(GolfPark Plaza, S.A.) and Costa Rica (Plaza(Price Plaza Alajuela PPA, S.A.). Due to the initial nature of the joint ventures and the continued commitments for additional financing, the Company determined these joint ventures are VIEs. Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance is shared equally by both parties within each joint venture, 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. Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment.

On December 12, 2013, the Company entered into a lease agreement for approximately 17,976 square feet (1,670 square meters) of land with Golf Park Plaza, S.A. upon which the Company constructed its central offices in Panama. Construction of the offices was completed in October 2014. The lease term is for 15 years with three options to renew for five years each at the Company's discretion. On July 14, 2017, the Company entered into a lease agreement for approximately 2,992 square feet (278 square meters) of a building with Golf Park Plaza, S.A. for warehouse storage space. The agreement was recently renewed for an additional five years during fiscal year 2022. Combined, the Company recognized $105,700$149,000 in rent expense for the fiscal yearsyear ended August 31, 2017, 20162022, and 2015.

On December 11, 2015, the Company's joint venture Golf Park Plaza, S.A. ("GPP") transferred final ownership$149,800 in rent expense for each of land to OD Panama, S.A. ("ODP"), which is operated by Office Depot Mexico, S.A. de C.V., following its execution of the related purchase option.  The deed was recorded with the relevant agencies in Panama during February 2016.  ODP had on July 15, 2011 (fiscal year 2011), entered into a 30 year operating lease, with an option to buy, for approximately 26,000 square feet of land owned by GPP.  The option to purchase the land had a three-year limit beginning in April 2013.  As part of this transaction, ODP: (i) made an initial deposit to GPP in the sum of approximately $545,000 at the time of signing the agreement; (ii) paid a second deposit of approximately $436,000 at the time its building was completed and its store opened to the public; (iii) paid monthly

F-42


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

rent per the lease clause of the agreement which the Company recognized on a straight line basis; and (iv) contracted to pay an additional $109,000, less rental payments of $39,000 previously applied per the lease clause, when ODP exercised its option to purchase the land.  ODP opened its store in April of 2013.  GPP recorded rental income on a straight line basis for approximately $106,000,  $72,000 and $12,000 during the fiscal years ended August 31, 2015, 20142021 and 2013, respectively.  During fiscal year 2016 GPP recorded rental income for approximately $1,000.  GPP recorded a gain, net of tax, on the sale of the land for approximately $851,000 during February 2016.  Gonzalo Barrutieta, who is a director of the Company, is also a member of the Board of Directors of Office Depot Mexico, S.A. de C.V., which operates ODP.August 31, 2020.

The table below summarizes the Company’s interest in these VIEs and the Company’s maximum exposure to loss as a result of its involvement with these VIEs as of August 31, 20172022 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entity

 

%
Ownership

 

Initial
Investment

 

Additional
Investments

 

Net
(Loss)/Income
Inception to
Date

 

Company’s
Variable
Interest
in Entity

 

Commitment
to Future
Additional
Investments(1)

 

Company's
Maximum
Exposure
to Loss in
Entity(2)

%
Ownership

Initial
Investment

Additional
Investments

Net Income (Loss)

Inception to

Date

Company’s
Variable
Interest
in Entity

Commitment
to Future
Additional
Investments(1)

Company's
Maximum
Exposure
to Loss in
Entity(2)

GolfPark Plaza, S.A.

 

50 

%

 

$

4,616 

 

$

2,402 

 

$

294 

 

$

7,312 

 

$

99 

 

$

7,411 

50

%

$

4,616

$

2,402

$

(72)

$

6,946

$

99

$

7,045

Price Plaza Alajuela, S.A.

 

50 

%

 

 

2,193 

 

 

1,236 

 

 

24 

 

 

3,453 

 

 

785 

 

 

4,238 

Price Plaza Alajuela PPA, S.A.

50

%

2,193

1,236

159

3,588

785

4,373

Total

 

 

 

 

$

6,809 

 

$

3,638 

 

$

318 

 

$

10,765 

 

$

884 

 

$

11,649 

$

6,809

$

3,638

$

87

$

10,534

$

884

$

11,418

(1)The parties intend to seek alternate financing for the project, which could reduce the amount of investments each party would be required to provide. The parties may mutually agree on changes to the project, which could increase or decrease the amount of contributions each party is required to provide.

(2)The maximum exposure is determined by adding the Company’s variable interest in the entity and any explicit or implicit arrangements that could require the Company to provide additional financial support.

(1)

The parties intend to seek alternate financing for the project, which could reduce the amount of investments each party would be required to provide.  The parties may mutually agree on changes to the project, which could increase or decrease the amount of contributions each party is required to provide.

F-43

(2)

The maximum exposure is determined by adding the Company’s variable interest in the entity and any explicit or implicit arrangements that could require the Company to provide additional financial support.


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The summarized financial information of the unconsolidated affiliates is as follows (in thousands):

 

 

 

 

 

 

 

 

 

August 31,

 

August 31,

August 31,

August 31,

 

2017

 

2016

2022

2021

Current assets

 

$

1,221 

 

$

663 

$

1,839

$

1,728

Noncurrent assets

 

$

11,207 

 

$

11,752 

$

10,109

$

10,253

Current liabilities

 

$

226 

 

$

219 

$

175

$

151

Noncurrent liabilities

 

$

26 

 

$

16 

$

8

$

8



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Years Ended August 31,



 

2017

 

2016

 

2015

Net income (loss)

 

$

(1)

 

$

332 

 

$

94 

Years Ended August 31,

2022

2021

2020

PriceSmart’s share of the net loss of unconsolidated affiliates

$

(10)

$

(58)

$

(95)

NOTE 1516 – SEGMENTS

The Company and its subsidiaries are principally engaged in the international operation of membership shopping in 3950 warehouse clubs located in 13 countries/territories12 countries and one U.S. territory that are located in Central America, the Caribbean and Colombia. In addition, the Company operates distribution centers and corporate offices in the United States. The Company has aggregated its warehouse clubs, distribution centers and corporate offices into reportable segments. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, used by management and the Company's chief operating decision maker in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. Certain revenues, operating costs and inter-company charges included in the United States segment are not allocated to the segments within this presentation, as it is impractical to do so, and they appear as reconciling items to reflect the amount eliminated on consolidation of intersegment transactions. From time to time, the Company revises the measurement of each segment's operating income and net income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by the Company's chief operating decision maker. When the Company does so, the previous period amounts and balances are reclassified to conform to the current period's presentation.

F-44


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarize by segment certain revenues, operating costs and balance sheet items (in thousands):

United
States
Operations

Central
American
Operations

Caribbean
Operations(1)

Colombia Operations

Reconciling
Items(2)

Total

Year Ended August 31, 2022

Revenue from external customers

$

48,716 

$

2,382,163 

$

1,156,607 

$

478,607 

$

$

4,066,093 

Intersegment revenues

1,492,648 

22,119 

5,857 

3,600 

(1,524,224)

Depreciation, Property and equipment

4,719 

34,155 

17,061 

10,320 

66,255 

Amortization, Intangibles

1,613 

1,613 

Operating income (loss)

23,364 

171,119 

79,022 

22,526 

(128,965)

167,066 

Interest income from external sources

147 

1,115 

863 

76 

2,201 

Interest income from intersegment sources

1,789 

1,954 

255 

(3,998)

Interest expense from external sources

1,225 

3,107 

2,163 

3,116 

9,611 

Interest expense from intersegment sources

27 

1,187 

1,821 

899 

(3,934)

Provision for income taxes

19,629 

23,396 

8,106 

727 

51,858 

Net income attributable to PriceSmart, Inc.

8,292 

144,159 

62,799 

18,268 

(128,984)

104,534 

Long-lived assets (other than deferred tax assets)

70,978 

498,204 

218,021 

175,194 

962,397 

Intangibles, net

765 

765 

Goodwill

8,981 

24,250 

10,072 

43,303 

Investment in unconsolidated affiliates

10,534 

10,534 

Total assets

230,411 

867,898 

474,411 

235,680 

1,808,400 

Capital expenditures, net

5,119 

46,959 

36,610 

33,654 

122,342 

Year Ended August 31, 2021

Revenue from external customers

$

88,397 

$

2,105,856 

$

1,004,793 

$

420,825 

$

$

3,619,871 

Intersegment revenues

1,280,236 

17,861 

5,087 

3,869 

(1,307,053)

Depreciation, Property and equipment

6,970 

31,319 

15,432 

8,858 

62,579 

Amortization, Intangibles

2,404 

2,404 

Operating income (loss)

12,687 

151,933 

74,769 

21,932 

(103,301)

158,020 

Interest income from external sources

13 

878 

985 

103 

1,979 

Interest income from intersegment sources

2,130 

2,393 

483 

(5,006)

Interest expense from external sources

1,606 

2,831 

427 

2,346 

7,210 

Interest expense from intersegment sources

34 

1,286 

2,647 

298 

(4,265)

Provision for income taxes

15,919 

22,661 

8,006 

2,383 

48,969 

Net income (loss) attributable to PriceSmart, Inc.

(4,777)

127,879 

61,025 

17,333 

(103,497)

97,963 

Long-lived assets (other than deferred tax assets)

79,404 

490,099 

197,030 

164,970 

931,503 

Intangibles, net

7,762 

7,762 

Goodwill

10,695 

24,332 

10,068 

45,095 

Investment in unconsolidated affiliates

10,544 

10,544 

Total assets

246,896 

795,940 

434,428 

228,526 

1,705,790 

Capital expenditures, net

9,061 

45,524 

23,342 

28,181 

106,108 

Year Ended August 31, 2020

Revenue from external customers

$

73,703 

$

1,895,857 

$

993,657 

$

365,971 

$

$

3,329,188 

Intersegment revenues

1,148,004 

16,524 

4,909 

2,723 

(1,172,160)

Depreciation, Property and equipment

6,888 

29,312 

15,441 

7,174 

58,815 

Amortization, Intangibles

2,410 

2,410 

Operating income (loss)

3,873 

125,351 

57,217 

18,071 

(82,044)

122,468 

Interest income from external sources

612 

749 

663 

2,031 

Interest income from intersegment sources

2,065 

2,566 

431 

(5,062)

Interest expense from external sources

1,890 

3,425 

310 

2,000 

7,625 

Interest expense from intersegment sources

39 

1,547 

2,258 

561 

(4,405)

Provision for income taxes

10,106 

20,001 

6,416 

1,241 

37,764 

Net income (loss) attributable to PriceSmart, Inc.

(7,578)

103,697 

50,553 

13,554 

(82,117)

78,109 

Long-lived assets (other than deferred tax assets)

81,008 

475,744 

177,166 

146,862 

880,780 

Intangibles, net

10,166 

10,166 

Goodwill

10,696 

24,418 

10,092 

45,206 

Investment in unconsolidated affiliates

10,602 

10,602 

Total assets

272,190 

741,523 

395,244 

247,868 

1,656,825 

Capital expenditures, net

6,072 

48,150 

14,460 

35,565 

104,247 

F-43


Table(1)Management considers its club in the U.S. Virgin Islands to be part of Contentsits Caribbean operations.

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

United
States
Operations

 

Central
American
Operations

 

Caribbean
Operations

 

Colombia Operations

 

Reconciling
Items(1)

 

Total

Years Ended August 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

34,244 

 

$

1,789,889 

 

$

827,920 

 

$

344,575 

 

$

 —

 

$

2,996,628 

Intersegment revenues

 

 

1,138,526 

 

 

 —

 

 

4,796 

 

 

110 

 

 

(1,143,432)

 

 

 —

Depreciation and amortization

 

 

6,653 

 

 

20,252 

 

 

10,205 

 

 

9,182 

 

 

 —

 

 

46,292 

Operating income (loss)

 

 

10,436 

 

 

134,826 

 

 

47,190 

 

 

4,932 

 

 

(61,155)

 

 

136,229 

Interest income from external sources

 

 

13 

 

 

914 

 

 

740 

 

 

142 

 

 

 —

 

 

1,809 

Interest income from intersegment sources

 

 

739 

 

 

882 

 

 

546 

 

 

 —

 

 

(2,167)

 

 

 —

Interest expense from external sources

 

 

762 

 

 

4,127 

 

 

548 

 

 

1,340 

 

 

 —

 

 

6,777 

Interest expense from intersegment sources

 

 

42 

 

 

1,106 

 

 

990 

 

 

34 

 

 

(2,172)

 

 

 —

Provision for income taxes

 

 

9,560 

 

 

23,368 

 

 

7,654 

 

 

1,436 

 

 

 —

 

 

42,018 

Net income (loss)

 

 

3,893 

 

 

107,797 

 

 

38,403 

 

 

1,786 

 

 

(61,155)

 

 

90,724 

Long-lived assets (other than deferred tax assets)

 

 

70,353 

 

 

296,915 

 

 

122,616 

 

 

126,206 

 

 

 —

 

 

616,090 

Goodwill

 

 

 —

 

 

31,118 

 

 

4,524 

 

 

 —

 

 

 —

 

 

35,642 

Investment in unconsolidated affiliates

 

 

 —

 

 

10,765 

 

 

 —

 

 

 —

 

 

 —

 

 

10,765 

Total assets

 

 

147,650 

 

 

544,683 

 

 

303,234 

 

 

181,947 

 

 

 —

 

 

1,177,514 

Capital expenditures, net

 

 

56,229 

 

 

50,977 

 

 

26,586 

 

 

3,232 

 

 

 —

 

 

137,024 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

33,885 

 

$

1,758,853 

 

$

840,648 

 

$

271,790 

 

$

 —

 

$

2,905,176 

Intersegment revenues

 

 

1,086,677 

 

 

 —

 

 

5,941 

 

 

 —

 

 

(1,092,618)

 

 

 —

Depreciation and amortization

 

 

4,775 

 

 

18,673 

 

 

9,907 

 

 

6,439 

 

 

 —

 

 

39,794 

Operating income (loss)

 

 

10,970 

(2)

 

135,232 

 

 

51,450 

 

 

(5,403)

 

 

(55,526)

 

 

136,723 

Interest income from external sources

 

 

25 

 

 

802 

 

 

381 

 

 

99 

 

 

 —

 

 

1,307 

Interest income from intersegment sources

 

 

2,519 

 

 

944 

 

 

554 

 

 

 —

 

 

(4,017)

 

 

 —

Interest expense from external sources

 

 

 —

 

 

4,823 

 

 

547 

 

 

521 

 

 

 —

 

 

5,891 

Interest expense from intersegment sources

 

 

61 

 

 

2,059 

 

 

1,854 

 

 

49 

 

 

(4,023)

 

 

 —

Provision for income taxes

 

 

10,047 

 

 

23,227 

 

 

8,697 

 

 

878 

 

 

 —

 

 

42,849 

Net income (loss)

 

 

935 

(2)

 

107,396 

 

 

43,114 

 

 

(7,196)

 

 

(55,526)

 

 

88,723 

Long-lived assets (other than deferred tax assets)

 

 

19,222 

 

 

271,039 

 

 

108,426 

 

 

137,599 

 

 

 —

 

 

536,286 

Goodwill

 

 

 —

 

 

31,091 

 

 

4,546 

 

 

 —

 

 

 

 

 

35,637 

Investment in unconsolidated affiliates

 

 

 —

 

 

10,767 

 

 

 —

 

 

 —

 

 

 —

 

 

10,767 

Total assets

 

 

100,744 

 

 

515,478 

 

 

287,088 

 

 

193,425 

 

 

 —

 

 

1,096,735 

Capital expenditures, net

 

 

8,617 

 

 

29,375 

 

 

11,402 

 

 

30,300 

 

 

 —

 

 

79,694 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended August 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

$

33,320 

 

$

1,625,567 

 

$

821,047 

 

$

322,669 

 

$

 —

 

$

2,802,603 

Intersegment revenues

 

 

1,107,592 

 

 

 —

 

 

5,626 

 

 

 —

 

 

(1,113,218)

 

 

 —

Depreciation and amortization

 

 

2,733 

 

 

15,115 

 

 

9,605 

 

 

6,992 

 

 

 —

 

 

34,445 

Operating income (loss)

 

 

28,789 

 

 

129,555 

 

 

48,856 

 

 

(1,846)

 

 

(58,988)

 

 

146,366 

Interest income from external sources

 

 

79 

 

 

811 

 

 

114 

 

 

54 

 

 

 —

 

 

1,058 

Interest income from intersegment sources

 

 

3,142 

 

 

282 

 

 

556 

 

 

 —

 

 

(3,980)

 

 

 —

Interest expense from external sources

 

 

 

 

4,147 

 

 

607 

 

 

1,681 

 

 

 —

 

 

6,440 

Interest expense from intersegment sources

 

 

126 

 

 

1,204 

 

 

1,966 

 

 

684 

 

 

(3,980)

 

 

 —

Provision for income taxes

 

 

15,548 

 

 

24,618 

 

 

6,787 

 

 

613 

 

 

 —

 

 

47,566 

Net income (loss)

 

 

13,551 

 

 

101,190 

 

 

41,130 

 

 

(7,759)

 

 

(58,988)

 

 

89,124 

Long-lived assets (other than deferred tax assets)

 

 

15,391 

 

 

255,576 

 

 

107,746 

 

 

105,290 

 

 

 —

 

 

484,003 

Goodwill

 

 

 —

 

 

31,211 

 

 

4,660 

 

 

 —

 

 

 —

 

 

35,871 

Investment in unconsolidated affiliates

 

 

 —

 

 

10,317 

 

 

 —

 

 

 —

 

 

 —

 

 

10,317 

Total assets

 

 

89,133 

 

 

491,155 

 

 

239,272 

 

 

171,664 

 

 

 —

 

 

991,224 

Capital expenditures, net

 

 

1,655 

 

 

54,735 

 

 

10,619 

 

 

24,172 

 

 

 —

 

 

91,181 

F-44


Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(1) (2)The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.

(2)The decrease in operating income and net income for the United States Operations in fiscal year 2016 compared to fiscal year 2015 was primarily a result

F-45


Table of the increase in operating expenses related to intercompany transactions with the Company’s Colombia subsidiary of approximately $10.9 million.  This activity results in reductions to taxable income in the U.S. that lowered the provision for income taxes by approximately $3.9 million. Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 1617 – SUBSEQUENT EVENTS

The Company has evaluated all events subsequent to the balance sheet date of August 31, 20172022 through the date of issuance of these consolidated financial statements and has determined that, except as set forth below, there are no subsequent events that require disclosure.

Non-deliverable forward foreign-exchange contracts

TheOn September 26, 2022, the Company’s Colombia subsidiary has entered into five forward exchange contracts fora fixed-to-fixed cross-currency interest rate swap on an existing U.S. Dollar-denominated loan wherein the Company will pay interest of 10.35% on 56.0 billion Colombian pesos and receive interest of 3.00% on $12.5 million U.S. dollars. The swap is designated as a cash flow hedge.

On October 3, 2022, the Company’s Guatemala subsidiary received a disbursement of 97.5 million Guatemalan quetzals, or approximately $5.0$12.4 million with settlement dates of November and December 2017.in U.S. dollars, on a loan originally entered into in October 2021.

NOTE 17 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly financial information for fiscal years 2017,  2016 and 2015 is as follows (in thousands, except per share data):



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended,

 

Year Ended,

Fiscal Year 2017

 

Nov 30, 2016

 

Feb 28, 2017

 

May 31, 2017

 

Aug 31, 2017

 

Aug 31, 2017

Total net warehouse club and export sales

 

$

726,813 

 

$

780,445 

 

$

717,174 

 

$

719,874 

 

$

2,944,306 

Total cost of goods sold

 

$

618,671 

 

$

667,563 

 

$

617,598 

 

$

615,920 

 

$

2,519,752 

Net income

 

$

24,869 

 

$

27,219 

 

$

18,838 

 

$

19,798 

 

$

90,724 

Basic net income per share

 

$

0.82 

 

$

0.90 

 

$

0.62 

 

$

0.64 

 

$

2.98 

Diluted net income per share

 

$

0.82 

 

$

0.90 

 

$

0.62 

 

$

0.64 

 

$

2.98 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended,

 

Year Ended,

Fiscal Year 2016

 

Nov 30, 2015

 

Feb 29, 2016

 

May 31, 2016

 

Aug 31, 2016

 

Aug 31, 2016

Total net warehouse club and export sales

 

$

699,063 

 

$

765,536 

 

$

691,638 

 

$

698,316 

 

$

2,854,553 

Total cost of goods sold

 

$

598,015 

 

$

657,725 

 

$

597,242 

 

$

596,644 

 

$

2,449,626 

Net income

 

$

23,672 

 

$

25,942 

 

$

16,837 

 

$

22,272 

 

$

88,723 

Basic net income per share

 

$

0.78 

 

$

0.85 

 

$

0.55 

 

$

0.74 

 

$

2.92 

Diluted net income per share

 

$

0.78 

 

$

0.85 

 

$

0.55 

 

$

0.74 

 

$

2.92 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended,

 

Year Ended,

Fiscal Year 2015

 

Nov 30, 2014

 

Feb 28, 2015

 

May 31, 2015

 

Aug 31, 2015

 

Aug 31, 2015

Total net warehouse club and export sales

 

$

644,846 

 

$

738,349 

 

$

684,780 

 

$

686,436 

 

$

2,754,411 

Total cost of goods sold

 

$

547,055 

 

$

631,810 

 

$

587,860 

 

$

586,114 

 

$

2,352,839 

Net income

 

$

20,647 

 

$

24,835 

 

$

21,195 

 

$

22,447 

 

$

89,124 

Basic net income per share

 

$

0.68 

 

$

0.82 

 

$

0.70 

 

$

0.75 

 

$

2.95 

Diluted net income per share

 

$

0.68 

 

$

0.82 

 

$

0.70 

 

$

0.75 

 

$

2.95 

F-4546


Table of Contents

ADDITIONAL INFORMATION

Corporate Offices

9740 Scranton Road

San Diego, CA 92121

(858) 404-8800

Stock Exchange Listing

NASDAQ Global Select Market

Stock Symbol: PSMT

Annual Meeting

Wednesday, January 24, 2018Friday, February 3, 2023 at 10:00 AM

PriceSmart, Inc. Corporate Headquarters

9740 Scranton Road

San Diego, CA 92121

Transfer Agent

Computershare Shareowner Services LLCInc.

480 Washington Blvd.462 South 4th Street, Suite 1600

Jersey City, NJ 07310Louisville, KY, 40202

Telephone: (888) 867-6003

TDD for Hearing Impaired: (800) 952-9245490-1493

Outside U.S.: (201) 680-6578

Independent Registered Public Accounting Firm

Ernst & Young U.S. LLP

4370 La Jolla Village4365 Executive Drive, Suite 5001600

San Diego, CA 9212292121

PriceSmart's annual reports to the Securities and Exchange Commission on Form 10-K and any quarterly reports on Form 10-Q, as amended, will be provided free of charge upon written request to Investor Relations, PriceSmart, Inc., 9740 Scranton Road., San Diego, CA 92121. Internet users can access PriceSmart's web site at http://www.pricesmart.com.www.investors.pricesmart.com.

F-4647