UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~November 30, 2017~~May 31, 2020


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

For the transition period from _______ to

COMMISSION FILE NUMBER 0-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)

Delaware

33-0628530

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~9740 Scranton Road, San Diego, CA~~


9740 Scranton Road, San Diego, CA		92121
(Address of principal executive offices)		(Zip Code)

~~(Address of principal executive offices)~~

(858) 404-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	PSMT	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.


Yes ☒x	No ☐¨

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 ☒x	No ☐¨

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. (Check one):


Large accelerated filer ☒x		Accelerated filer ☐¨
Non-accelerated filer ¨		Smaller Reporting Company ☐¨
~~Non-accelerated filer ☐ (Do not check if a 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes ☐¨	No ☒x

The registrant had ~~30,403,542~~30,648,990 shares of its common stock, par value $0.0001 per share, outstanding at ~~December 31, 2017.~~June 30, 2020.

PRICESMART, INC.

INDEX TO FORM 10-Q


		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	1
	CONSOLIDATED BALANCE SHEETS AS OF ~~NOVEMBER 30, 2017~~MAY 31, 2020 (UNAUDITED) AND AUGUST 31, ~~2017~~2019	2
	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2020 AND ~~2016~~2019 - UNAUDITED	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2020 AND ~~2016~~2019 - UNAUDITED	5
	CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2020 AND ~~2016~~2019 - UNAUDITED	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~THREE~~NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2020 AND ~~2016~~2019 - UNAUDITED	7 8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED	8 9
ITEM 22..	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29 35
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50 58
ITEM 4.	CONTROLS AND PROCEDURES	51 59
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	52 60
ITEM 1A.	RISK FACTORS	52 60
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52 60
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	52 61
ITEM 4.	MINE SAFETY DISCLOSURES	52 61
ITEM 5.	OTHER INFORMATION	52 61
ITEM 6.	EXHIBITS	53 62

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PriceSmart, Inc.’s (“PriceSmart,” “we” or the “Company”) unaudited consolidated balance sheet as of ~~November 30, 2017~~May 31, 2020 and the consolidated balance sheet as of August 31, ~~2017,~~2019, the unaudited consolidated statements of income for the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016,~~2019, the unaudited consolidated statements of comprehensive income for the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016,~~2019, the unaudited consolidated statements of equity for the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016,~~2019, and the unaudited consolidated statements of cash flows for the ~~three~~nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016,~~2019 are included herein. Also included herein are the notes to the unaudited consolidated financial statements.

‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)



	November 30,				May 31,
	2017		August 31,		2020		August 31,
	(Unaudited)		2017		(Unaudited)		2019
ASSETS
Current Assets:
Cash and cash equivalents	$	129,183	$	162,434	$	261,788	$	102,653
Short-term restricted cash		373		460		240		54
Receivables, net of allowance for doubtful accounts of $6 as of November 30, 2017 and $7 as of August 31, 2017, respectively.		6,602		6,460
Short-term investments						40,042		17,045
Receivables, net of allowance for doubtful accounts of $126 as of May 31, 2020 and $144 as of August 31, 2019, respectively						10,886		9,872
Merchandise inventories		372,413		310,946		268,762		331,273
Prepaid expenses and other current assets (includes $71 and $0 as of November 30, 2017 and August 31, 2017, respectively, for the fair value of foreign currency forward contracts)		36,168		30,070
Prepaid expenses and other current assets (includes $0 and $2,736 as of May 31, 2020 and August 31, 2019, respectively, for the fair value of derivative instruments)						24,736		30,999
Total current assets		544,739		510,370		606,454		491,896
Long-term restricted cash		2,986		2,818		3,996		3,529
Property and equipment, net		567,038		557,829		700,388		671,151
Operating lease right-of-use assets, net						121,802		—
Goodwill		35,578		35,642		45,316		46,101
Other intangibles, net						10,772		12,576
Deferred tax assets		15,200		15,412		21,178		15,474
Other non-current assets (includes $3,278 and $2,547 as of November 30, 2017 and August 31, 2017, respectively, for the fair value of derivative instruments)		46,506		44,678
Other non-current assets (includes $428 and $0 as of May 31, 2020 and August 31, 2019, respectively, for the fair value of derivative instruments)						53,965		44,987
Investment in unconsolidated affiliates		10,781		10,765		10,618		10,697
Total Assets	$	1,222,828	$	1,177,514	$	1,574,489	$	1,296,411
LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings	$	2,483	$	—	$	70,886	$	7,540
Accounts payable		297,371		272,248		283,045		286,219
Accrued salaries and benefits		19,250		19,151		28,017		25,401
Deferred membership income		22,234		22,100
Deferred income						24,154		25,340
Income taxes payable		5,217		5,044		9,613		4,637
Other accrued expenses		28,253		26,483
Other accrued expenses and other current liabilities (includes $30 and $0 as of May 31, 2020 and August 31, 2019, respectively, for the fair value of derivative instruments)						35,622		32,442
Operating lease liabilities, current portion						8,409		—
Dividends payable						10,719		—
Long-term debt, current portion		18,257		18,358		22,784		25,875
Total current liabilities		393,065		363,384		493,249		407,454
Deferred tax liability		1,647		1,812		1,489		2,015
Long-term portion of deferred rent		8,838		8,914		—		11,198
Long-term income taxes payable, net of current portion		898		909		4,865		5,069
Long-term operating lease liabilities						126,275		—
Long-term debt, net of current portion		80,340		87,939		117,045		63,711
Other long-term liabilities (includes $346 and $682 for the fair value of derivative instruments and $5,335 and $5,051 for post employment plans as of November 30, 2017 and August 31, 2017, respectively)		5,731		5,789
Other long-term liabilities (includes $5,567 and $2,910 for the fair value of derivative instruments and $6,099 and $5,421 for post-employment plans as of May 31, 2020 and August 31, 2019, respectively)						11,963		8,685
Total Liabilities		490,519		468,747		754,886		498,132

‎

Table of Contents



Stockholders' Equity:
Common stock $0.0001 par value, 45,000,000 shares authorized; 31,425,075 and 31,461,359 shares issued and 30,648,990 and 30,538,788 shares outstanding (net of treasury shares) as of May 31, 2020 and August 31, 2019, respectively		3		3
Additional paid-in capital		444,403		443,084
Tax benefit from stock-based compensation		11,486		11,486
Accumulated other comprehensive loss		(168,019)		(144,339)
Retained earnings		562,408		525,804
Less: treasury stock at cost, 776,085 shares as of May 31, 2020 and 924,332 shares as of August 31, 2019		(31,615)		(38,687)
Total stockholders' equity attributable to PriceSmart, Inc. stockholders		818,666		797,351
Noncontrolling interest in consolidated subsidiaries		937		928
Total stockholders' equity		819,603		798,279
Total Liabilities and Equity	$	1,574,489	$	1,296,411

Equity:

Common stock $0.0001 par value, 45,000,000 shares authorized; 31,278,595 and 31,275,727 shares issued and 30,403,610 and 30,400,742 shares outstanding (net of treasury shares) as of November 30, 2017 and August 31, 2017, respectively

3

3
Additional paid-in capital

424,856

422,395
Tax benefit from stock-based compensation

11,486

11,486
Accumulated other comprehensive loss

(111,468)

(110,059)
Retained earnings

443,356

420,866
Less: treasury stock at cost, 874,985 shares as of both November 30, 2017 and August 31, 2017

(35,924)

(35,924)
Total Equity

732,309

708,767
Total Liabilities and Equity

$
1,222,828

$
1,177,514

See accompanying notes.
‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED—AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)



	Three Months Ended				Three Months Ended				Nine Months Ended
	November 30,		November 30,		May 31,		May 31,		May 31,		May 31,
	2017		2016		2020		2019		2020		2019
Revenues:
Net warehouse club sales	$	745,401	$	716,079
Net merchandise sales					$	768,368	$	755,009	$	2,418,822	$	2,322,742
Export sales		8,147		10,734		8,321		8,281		25,029		23,314
Membership income		12,375		11,710		13,525		13,132		41,364		38,717
Other income		1,149		1,049
Other revenue and income						9,717		12,134		33,392		37,845
Total revenues		767,072		739,572		799,931		788,556		2,518,607		2,422,618
Operating expenses:
Cost of goods sold:
Net warehouse club		637,236		608,490
Export		7,749		10,181
Net merchandise sales						661,258		649,894		2,067,416		1,996,595
Export sales						7,995		7,872		24,044		22,136
Non-merchandise						3,503		4,121		12,416		13,194
Selling, general and administrative:
Warehouse club operations		69,502		65,426
Warehouse club and other operations						78,431		78,231		241,826		228,161
General and administrative		18,830		16,802		24,408		24,532		77,910		76,835
Pre-opening expenses		430		(113)		257		1,647		1,254		1,759
Loss/(gain) on disposal of assets		159		407
Loss on disposal of assets						112		262		251		735
Total operating expenses		733,906		701,193		775,964		766,559		2,425,117		2,339,415
Operating income		33,166		38,379		23,967		21,997		93,490		83,203
Other income (expense):
Interest income		400		502		554		310		1,433		1,124
Interest expense		(1,255)		(1,654)		(2,564)		(915)		(5,116)		(2,949)
Other income (expense), net		278		(928)		(1,564)		159		(1,826)		(2,032)
Total other income (expense)		(577)		(2,080)
Income before provision for income taxes and income (loss) of unconsolidated affiliates		32,589		36,299
Total other expense						(3,574)		(446)		(5,509)		(3,857)
Income before provision for income taxes and ‎loss of unconsolidated affiliates						20,393		21,551		87,981		79,346
Provision for income taxes		(10,115)		(11,437)		(7,744)		(7,478)		(29,849)		(26,721)
Income (loss) of unconsolidated affiliates		16		7
Loss of unconsolidated affiliates						(16)		(4)		(79)		(48)
Net income	$	22,490	$	24,869		12,633		14,069		58,053		52,577
Net income per share available for distribution:
Basic net income per share	$	0.74	$	0.82
Diluted net income per share	$	0.74	$	0.82
Less: net (income) loss attributable to noncontrolling interest						72		27		(20)		(59)
Net income attributable to PriceSmart, Inc.					$	12,705	$	14,096	$	58,033	$	52,518
Net income attributable to PriceSmart, Inc. per share available for distribution:
Basic					$	0.41	$	0.46	$	1.90	$	1.73
Diluted					$	0.41	$	0.46	$	1.90	$	1.73
Shares used in per share computations:
Basic		30,078		29,982		30,271		30,198		30,268		30,192
Diluted		30,079		29,987		30,275		30,205		30,273		30,202
Dividends per share	$	—	$	—	$	—	$	—	$	0.70	$	0.70

See accompanying notes.
‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED—AMOUNTS IN THOUSANDS)



	Three Months Ended				Three Months Ended				Nine Months Ended
	November 30,		November 30,		May 31,		May 31,		May 31,		May 31,
	2017		2016		2020		2019		2020		2019
Net income	$	22,490	$	24,869	$	12,633	$	14,069	$	58,053	$	52,577
Less: net (income) loss attributable to noncontrolling interest						72		27		(20)		(59)
Net income attributable to PriceSmart, Inc.					$	12,705	$	14,096	$	58,033	$	52,518

Other Comprehensive Income, net of tax:
Foreign currency translation adjustments (1)	$	(2,026)	$	(10,866)		(12,874)		(9,697)		(19,981)		(17,972)
Defined benefit pension plan:
Net gain arising during period						22		42		109		129
Amortization of prior service cost and actuarial gains included in net periodic pensions cost		30		(7)		(19)		(19)		(56)		(56)
Total defined benefit pension plan		30		(7)		3		23		53		73
Derivative instruments: (2)
Unrealized gains/(losses) on change in fair value of interest rate swaps		587		492
Unrealized losses on change in derivative obligations						(1,471)		(267)		(208)		(337)
Unrealized losses on change in fair value of interest rate swaps						(1,104)		(1,118)		(6,295)		(1,716)
Amounts reclassified from accumulated other comprehensive income (loss) to other expense, net for settlement of derivatives						—		—		2,751		—
Total derivative instruments		587		492		(2,575)		(1,385)		(3,752)		(2,053)
Other comprehensive income (loss)		(1,409)		(10,381)
Comprehensive income	$	21,081	$	14,488
Other comprehensive loss						(15,446)		(11,059)		(23,680)		(19,952)
Comprehensive income (loss)						(2,741)		3,037		34,353		32,566
Less: comprehensive income attributable to noncontrolling interest						35		59		90		80
Comprehensive income (loss) attributable to PriceSmart, Inc. to stockholders					$	(2,776)	$	2,978	$	34,263	$	32,486

⁽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 7 - 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⁾See Note 8 - Derivative Instruments and Hedging Activities.

See accompanying notes.

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED—AMOUNTS IN THOUSANDS)


																	Three Months Ended
						Tax Benefit		Accumulated																								Total
				Additional		From		Other														Tax Benefit		Accumulated								Stockholders'
	Common Stock			Paid-in		Stock Based		Comprehensive		Retained		Treasury Stock			Total					Additional		From		Other								Equity
	Shares	Amount		Capital		Compensation		Income(Loss)		Earnings		Shares	Amount		Equity		Common Stock			Paid-in		Stock Based		Comprehensive		Retained		Treasury Stock				Attributable to		Noncontrolling	Total
Balance at August 31, 2016	31,238	$	3	$	412,369	$	11,321	$	(103,951)	$	351,060	836	$	(32,731)	$	638,071
																	Shares	Amount		Capital		Compensation		Loss		Earnings		Shares	Amount			PriceSmart, Inc.		Interest	Equity
Balance at February 28, 2019																	31,447	$	3	$	442,273	$	11,486	$	(130,109)	$	491,031	951	$	(41,524)	$	773,160	$	430	$	773,590
Purchase of treasury stock																	—		—		—		—		—		—	12		(728)		(728)		—		(728)
Issuance of treasury stock																	(63)		—		(5,024)		—		—		—	(63)		5,024		—		—		—
Issuance of restricted stock award	5		—		—		—		—		—	—		—		—	79		—		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards																	(23)		—		—		—		—		—	—		—		—		—		—
Exercise of stock options																	—		—		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		2,442		—		—		—	—		—		2,442	—		—		3,124		—		—		—	—		—		3,124		—		3,124
Dividend paid to stockholders																	—		—		—		—		—		—	—		—		—		—		—
Dividend payable to stockholders																	—		—		—		—		—		—	—		—		—		—		—
Net income	—		—		—		—		—		24,869	—		—		24,869	—		—		—		—		—		14,096	—		—		14,096		(27)		14,069
Other comprehensive income (loss)	—		—		—		—		(10,381)		—	—		—		(10,381)	—		—		—		—		(11,059)		—	—		—		(11,059)		59		(11,000)
Balance at November 30, 2016	31,243	$	3	$	414,811	$	11,321	$	(114,332)	$	375,929	836	$	(32,731)	$	655,001
Balance at May 31, 2019																	31,440	$	3	$	440,373	$	11,486	$	(141,168)	$	505,127	900	$	(37,228)	$	778,593	$	462	$	779,055

Balance at August 31, 2017	31,276	$	3	$	422,395	$	11,486	$	(110,059)	$	420,866	875	$	(35,924)	$	708,767
Balance at February 29, 2020																	31,451	$	3	$	441,372	$	11,486	$	(152,573)	$	549,703	852	$	(32,098)	$	817,893	$	974	$	818,867
Purchase of treasury stock																	—		—		—		—		—		—	4		(204)		(204)		—		(204)
Issuance of treasury stock																	(80)		—		(687)		—		—		—	(80)		687		—		—		—
Issuance of restricted stock award	3		—		—		—		—		—	—		—		—	57		—		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards																	(3)		—		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		2,461		—		—		—	—		—		2,461	—		—		3,718		—		—		—	—		—		3,718		—		3,718
Dividend paid to stockholders																	—		—		—		—		—		—	—		—		—		—		—
Dividend payable to stockholders																	—		—		—		—		—		—	—		—		—		—		—
Net income	—		—		—		—		—		22,490	—		—		22,490	—		—		—		—		—		12,705	—		—		12,705		(72)		12,633
Other comprehensive income (loss)	—		—		—		—		(1,409)		—	—		—		(1,409)	—		—		—		—		(15,446)		—	—		—		(15,446)		35		(15,411)
Balance at November 30, 2017	31,279	$	3	$	424,856	$	11,486	$	(111,468)	$	443,356	875	$	(35,924)	$	732,309
Balance at May 31, 2020																	31,425	$	3	$	444,403	$	11,486	$	(168,019)	$	562,408	776	$	(31,615)	$	818,666	$	937	$	819,603

See accompanying notes.

‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED—AMOUNTS IN THOUSANDS)


	Nine Months Ended
																Total
						Tax Benefit		Accumulated								Stockholders'
				Additional		From		Other								Equity
	Common Stock			Paid-in		Stock Based		Comprehensive		Retained		Treasury Stock				Attributable to		Noncontrolling	Total
	Shares	Amount		Capital		Compensation		Income (Loss)		Earnings		Shares	Amount			PriceSmart, Inc.		Interest	Equity
Balance at August 31, 2018	31,373	$	3	$	432,882	$	11,486	$	(121,216)	$	473,954	912	$	(39,107)	$	758,002	$	636	$	758,638
Purchase of treasury stock	—		—		—		—		—		—	51		(3,145)		(3,145)		—		(3,145)
Issuance of treasury stock	(63)		—		(5,024)		—		—		—	(63)		5,024		—		—		—
Issuance of restricted stock award	155		—		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards	(25)		—		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		12,515		—		—		—	—		—		12,515		—		12,515
Dividend paid to stockholders	—		—		—		—		—		(10,673)	—		—		(10,673)		(313)		(10,986)
Dividend payable to stockholders	—		—		—		—		—		(10,672)	—		—		(10,672)		—		(10,672)
Net income	—		—		—		—		—		52,518	—		—		52,518		59		52,577
Other comprehensive income (loss)	—		—		—		—		(19,952)		—	—		—		(19,952)		80		(19,872)
Balance at May 31, 2019	31,440	$	3	$	440,373	$	11,486	$	(141,168)	$	505,127	900	$	(37,228)	$	778,593	$	462	$	779,055

Balance at August 31,2019	31,461	$	3	$	443,084	$	11,486	$	(144,339)	$	525,804	924	$	(38,687)	$	797,351	$	928	$	798,279
Purchase of treasury stock	—		—		—		—		—		—	26		(1,585)		(1,585)		—		(1,585)
Issuance of treasury stock	(174)		—		(8,657)		—		—		—	(174)		8,657		—		—		—
Issuance of restricted stock award	166		—		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards	(28)		—		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		9,976		—		—		—	—		—		9,976		—		9,976
Dividend paid to stockholders	—		—		—		—		—		(10,710)	—		—		(10,710)		(101)		(10,811)
Dividend payable to stockholders	—		—		—		—		—		(10,719)	—		—		(10,719)		—		(10,719)
Net income	—		—		—		—		—		58,033	—		—		58,033		20		58,053
Other comprehensive income (loss)	—		—		—		—		(23,680)		—	—		—		(23,680)		90		(23,590)
Balance at May 31, 2020	31,425	$	3	$	444,403	$	11,486	$	(168,019)	$	562,408	776	$	(31,615)	$	818,666	$	937	$	819,603

See accompanying notes.

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PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—AMOUNTS IN THOUSANDS)



	Three Months Ended				Nine Months Ended
	November 30,		November 30,		May 31,		May 31,
	2017		2016		2020		2019
Operating Activities:
Net income	$	22,490	$	24,869	$	58,053	$	52,577
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,237		11,117		44,867		40,365
Allowance for doubtful accounts		(1)		7		(18)		68
(Gain)/loss on sale of property and equipment		159		407
Loss on sale of property and equipment						251		735
Deferred income taxes		(349)		984		(4,079)		(2,737)
Equity in (gains) losses of unconsolidated affiliates		(16)		(7)
Equity in losses of unconsolidated affiliates						79		48
Stock-based compensation		2,461		2,442		9,976		12,515
Change in operating assets and liabilities:
Receivables, prepaid expenses and other current assets, non-current assets, accrued salaries and benefits, deferred membership income and other accruals		(7,049)		(6,516)		(157)		1,668
Merchandise inventories		(61,467)		(44,082)		62,511		(5,699)
Accounts payable		21,372		12,894		2,647		13,412
Net cash provided by (used in) operating activities		(10,163)		2,115
Net cash provided by operating activities						174,130		112,952
Investing Activities:
Additions to property and equipment		(19,752)		(16,973)		(89,713)		(86,409)
Deposits for land purchase option agreements		—		(500)
Purchases of short-term investments						(31,711)		(14,204)
Proceeds from settlements of short-term investments						8,891		29,485
Purchases of long-term investments						(1,489)		—
Proceeds from disposal of property and equipment		20		108		44		157
Net cash provided by (used in) investing activities		(19,732)		(17,365)
Net cash used in investing activities						(113,978)		(70,971)
Financing Activities:
Proceeds from long-term bank borrowings						57,820		—
Repayment of long-term bank borrowings		(7,554)		(3,688)		(7,542)		(9,509)
Proceeds from short-term bank borrowings		16,954		681		271,014		5,180
Repayment of short-term bank borrowings		(14,696)		(4,155)		(207,368)		(3,028)
Cash dividend payments						(10,811)		(10,986)
Purchase of treasury stock for tax withholding on stock compensation						(1,585)		(3,145)
Other financing activities						(20)		(59)
Net cash provided by (used in) financing activities		(5,296)		(7,162)		101,508		(21,547)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		2,021		(1,650)		(1,872)		(3,365)
Net increase (decrease) in cash, cash equivalents and restricted cash		(33,170)		(24,062)
Net increase in cash, cash equivalents						159,788		17,069
Cash, cash equivalents and restricted cash at beginning of period		165,712		202,716		106,236		96,914
Cash, cash equivalents and restricted cash at end of period	$	132,542	$	178,654	$	266,024	$	113,983

Supplemental disclosure of noncash investing activities:
Capital expenditures accrued, but not yet paid					$	7,975	$	3,628
Dividends declared but not yet paid						10,719		10,672

The following table provides a breakdown of cash and cash equivalents, and restricted cash reported within the statement of cash flows:


	Three Months Ended				Nine Months Ended
	November 30,		November 30,		May 31,		May 31,
	2017		2016		2020		2019
Cash and cash equivalents	$	129,183	$	175,402	$	261,788	$	106,445
Short-term restricted cash		373		517		240		4,136
Long-term restricted cash		2,986		2,735	$	3,996	$	3,402
Total cash and cash equivalents, and restricted cash shown in the statement of cash flows	$	132,542	$	178,654
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows					$	266,024	$	113,983

See accompanying notes.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~November 30, 2017~~May 31, 2020

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“~~PriceSmart”~~PriceSmart,” the “Company,” or ~~the “Company”~~"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 ~~November 30, 2017,~~May 31, 2020, the Company had ~~40 consolidated~~45 warehouse clubs in operation in 12 countries and ~~one~~1 U.S. territory ~~(seven~~(7 each in Colombia, Costa Rica, and ~~Costa Rica; five~~Panama; 5 in ~~Panama; four in Trinidad; three each in Guatemala,~~ the Dominican Republic, 4 each in Trinidad and Guatemala; 3 in Honduras; ~~two~~2 each in El Salvador and Nicaragua; and ~~one~~1 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). On June 17, 2020, the Company opened its 46^th warehouse club and 8h club in Costa Rica, located in the city of Liberia, in the Guanacaste region. The Company ~~opened a new~~also expects to open its third warehouse club in ~~Santa Ana, Costa Rica~~the greater metropolitan area of Bogota, its 8h in ~~October 2017, bringing~~Colombia, during its second fiscal quarter of 2021.

PriceSmart continues to invest in technology to increase efficiencies and to enhance the ~~total warehouse clubs operating in Costa Rica to seven.~~member experience by enabling omni-channel capabilities, including e-commerce online shopping and services. During the third quarter of Fiscal 2020, the Company launched its online order and curbside pickup service, which provides for contactless shopping, called Click & Go™. In June ~~2017,~~2020, this service was operational in all 13 PriceSmart markets and substantially all clubs. PriceSmart also operates a legacy business (casillero and marketplace) under the ~~Company acquired land~~“Aeropost” banner in ~~Santo Domingo, Dominican Republic. The Company is currently building a warehouse club on this site~~38 countries in Latin America and ~~expects to open in the spring of calendar year 2018. This will bring the number of PriceSmart warehouse clubs operating in Dominican Republic to four.~~

~~The Company continues to explore other potential sites for future warehouse clubs in Central America,~~ the Caribbean, ~~and Colombia.~~many of which overlap with markets where we operate warehouse clubs.

Basis of Presentation – The interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The novel coronavirus (COVID-19) pandemic has severely impacted the economies of the U.S. and the countries where the Company operates. The Company has assessed the impact that COVID-19 has had on our estimates, assumptions and accounting policies and made additional disclosures, if and as necessary.

Effective September 1, 2019, we adopted the requirements of Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" (ASC 842) using the modified retrospective approach, under which financial results reported in prior periods were not restated. As a result, the consolidated balance sheet as of May 31, 2020 is not comparable, in this respect, with that as of August 31, 2019.

These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017~~2019 (the ~~“2017~~“2019 Form 10-K”). The interim consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. Inter-company transactions between the Company and its subsidiaries have been eliminated in consolidation.

~~Reclassifications to consolidated statement of cash flows recorded during fiscal year 2018 for fiscal year 2017~~ – Accounting Standards Update (ASU) 2016-18 - The amendments in ASU 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.

Additionally, the Company adopted Accounting Standards Update (ASU) 2016-09, effective as of September 1, 2017. The Company made certain elections and changes to account for share-based payments to employees according to the new standard as follows:

~~Accounting for policy election to recognize forfeitures as they occur~~ –The Company made a policy election to recognize forfeitures as they occur. Accordingly, the Company applied the modified retrospective transition method, with a cumulative-effect adjustment to prior-year (August 31, 2017) retained earnings. Therefore, the Company recorded an increase to prior-year retained earnings and a decrease to additional paid-in capital of $367,000 in each case.

August 31, 2017
balance sheet line item
as previously reported

Amount
reclassified

August 31, 2017
balance sheet line item
as currently reported
Retained earnings

$
420,499

$
367

$
420,866
Additional paid-in capital

$
422,762

$
(367)

$
422,395

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

~~Presentation of excess tax benefits and employee taxes paid on the statement of cash flows~~

According to ASU 2016-09, the cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation should be classified as a financing activity on the statement of cash flows, and the full retrospective transition method should be applied. The Company already classifies cash paid for tax withholdings as a financing activity; thus, the adoption did not change the Company’s classification for this activity. However, the Company will change the naming convention from “Purchase of treasury stock” to “Purchase of treasury stock for tax withholding on stock compensation” in the statement of cash flows. There were no such transactions for the three months ended November 30, 2017 and 2016.

Furthermore, the new standard requires the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The Company has adopted and implemented this change, retrospectively, for the three months ended November 30, 2017 and 2016; however, no such transactions have occurred during these periods.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The interim 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 Company’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 the 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 interim 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. The results for interim periods are not necessarily indicative of the results for the ~~full~~ year. As of November 30, 2017, all of the Company's subsidiaries were wholly owned. Additionally, the Company's ownership interest in real estate development joint ventures as of November 30, 2017 is listed below:



~~Real Estate Development Joint Ventures~~	~~Countries~~	~~Ownership~~		~~Basis of~~ ~~Presentation~~
~~GolfPark Plaza, S.A.~~	~~Panama~~	~~50.0~~	%	~~Equity(1)~~
~~Price Plaza Alajuela PPA, S.A.~~	~~Costa Rica~~	~~50.0~~	%	~~Equity(1)~~

⁽¹⁾

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

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 will absorb a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both. A reporting entity must consider 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. The reporting entity that consolidates a VIEit is ~~called~~not the primary beneficiary of ~~that VIE.~~

the VIE, then the Company records its investment in, and the Company's share of the income (loss) of, joint ventures recorded under the equity method. Due to the ~~initial~~ 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. ~~Since~~

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 athe VIE that most significantly impact the VIE's economic ~~performance is shared equally by both parties within each joint venture,~~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. The Company's ownership interest in real estate development joint ventures the Company has recorded under the equity method as of May 31, 2020 are listed below:



Real Estate Development Joint Ventures	Countries	Ownership		Basis of ‎Presentation
GolfPark Plaza, S.A.	Panama	50.0	%	Equity⁽¹⁾
Price Plaza Alajuela PPA, S.A.	Costa Rica	50.0	%	Equity⁽¹⁾

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

The Company has determined that for its ownership interest in store-front joint ventures within its marketplace and casillero business, the Company has the power to direct the activities that most significantly impact the economic performance of these VIEs. Therefore, the Company has determined that it is the primary beneficiary of these VIEs and has consolidated these entities within its consolidated financial statements. The Company's ownership interest in store-front joint ventures for which the Company has consolidated their financial statements as of May 31, 2020 are listed below:


Marketplace and Casillero Store-front Joint Ventures	Countries	Ownership		Basis of ‎Presentation
Guatemala	Guatemala	60.0	%	Consolidated
Tortola	British Virgin Islands	50.0	%	Consolidated
Trinidad	Trinidad	50.0	%	Consolidated

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 interim consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents – The Company considers as cash and cash equivalents all cash on deposit, highly liquid investments with a maturity of three months or less at the date of purchase and proceeds due from credit and debit card transactions in the process of settlement.

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):


	May 31,		August 31,
	2020		2019
Short-term restricted cash	$	240	$	54
Long-term restricted cash ⁽¹⁾		3,996		3,529
Total restricted cash	$	4,236	$	3,583

⁽¹⁾Long-term restricted cash consists mainly of cash deposits held within banking institutions in compliance with federal regulatory requirements in Costa Rica and Panama.

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.

Goodwill and Other Intangibles, net – Goodwill and other intangibles totaled $56.1 million as of May 31, 2020 and $58.7 million as of August 31, 2019. The Company reviews reported goodwill and other intangibles at the cash-generating 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.

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~~the Company’s business in most of the countries in which itthe Company operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, then the difference is 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~~us with a net VAT receivable, forcing ~~the Company~~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. The Company either requests a refund of these tax receivables or applies the balance to expected future tax payments. These refund or offset processes can take anywhere from several months to several years to complete.

In most countries where the Company operates, ~~the tax refund process is~~there are defined and structured ~~with regular~~processes to recover VAT receivables via refunds or offsets. However, ~~as of November 30, 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 fiscal year 2017, two of these countries clarified the refund mechanism, which we are currently pursuing. The Company, together with its tax and legal advisers, is currently seeking clarification in court in the remaining country without a clearly defined refund process, ~~and expects~~the Company is actively engaged with the local government to ~~prevail. The balance of the~~recover VAT ~~receivable in the country with undefined refund mechanisms was approximately $2.2~~receivables totaling $6.2 million and ~~$1.2~~$5.1 million as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, respectively. In ~~another country in which the Company operates warehouse clubs, a new~~two other countries, minimum income tax ~~mechanism took effect in fiscal year 2015, which requires~~rules 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 excess~~had income tax ~~against other taxes. As~~receivables of ~~November 30, 2017~~$9.8 million and ~~August 31, 2017, the Company had~~$7.8 million and deferred tax assets of ~~approximately $2.0 million in this country. Also, the Company had an income tax receivable balance of $5.3~~$2.8 million and ~~$4.3~~$2.7 million as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, respectively, in these countries. While the rules related to ~~excess payments from fiscal years 2015 to 2017. The~~refunds 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, related appeals and/or court challenge on this matter.~~requests.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The ~~Company's~~Company’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.

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.

Short-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.

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):



	November 30,		August 31,		May 31,		August 31,
	2017		2017		2020		2019
Prepaid expenses and other current assets	$	9,998	$	6,650	$	724	$	1,639
Other non-current assets		22,954		24,904		25,235		22,691
Total amount of VAT receivables reported	$	32,952	$	31,554	$	25,959	$	24,330

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s variable lease payments generally relate to amounts the Company pays for additional contingent rent based on a contractually stipulated percentage of sales.

In April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Question-and-Answer (“Q&A”) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under the new lease standard, which the Company adopted on September 1, 2019. The Company has elected to apply the temporary practical expedient and not treat changes to certain leases due to the effects of COVID-19 as modifications. The Company has recorded accruals for rent payment deferrals.

Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or net realizable value. The Company provides for estimated inventory losses and obsolescence between physical inventory counts on the basis of a percentage of sales. The provision is adjusted periodically to reflect the trend of actual physical inventory count results, with physical inventories occurring primarily in the second and fourth fiscal quarters. In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.

Stock Based Compensation– The Company utilizes ~~three~~3 types of equity awards: ~~stock options (“options”),~~ restricted stock awards (“RSAs”) ~~and~~, restricted stock units (“RSUs”)~~. The Company adopted ASU 2016-09 – Compensation - Stock Compensation (Topic 718) on September 1, 2017, see Note 1 – Company Overview~~ and ~~Basis of Presentation for more information on the implementation. Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model.~~performance-based restricted stock units (“PSUs”). Compensation related to RSAs, RSUs and ~~RSUs~~PSUs is based on the fair market value at the time of grant. The Company recognizes the compensation cost related to ~~these awards~~RSAs and RSUs over the requisite service period as determined by the grant, amortized ratably or on a ~~straight line~~straight-line basis over the life of the grant. ~~As a result~~The Company also recognizes compensation cost for PSUs over the performance period of ~~adoption of ASU 2016-09,~~each tranche, adjusting this cost based on the probability that performance metrics will be achieved. If the Company ~~currently~~determines that an award is unlikely to vest, any previously recorded expense is then reversed.

The Company accounts for actual forfeitures as they occur. The Company records the tax savings resulting from tax deductions in excess of expense for stock-based compensation and the tax deficiency resulting from stock-based compensation in excess of the related tax deduction as income tax expense or ~~benefit, based on ASU 2016-09.~~benefit. In addition, the Company reflects the tax savings (deficiency) resulting from the taxation of stock-based compensation as an operating cash flow in its consolidated statement of cash 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.

~~Exit or Disposal Cost Obligations~~ 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 accrued dividend equivalents are paid on the PSUs.

Treasury Stock– ~~In January 2017,~~Shares of common stock repurchased by the Company ~~purchased a distribution center~~are 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. As~~may 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 to~~uses the ~~lease~~first in/first out (“FIFO”) cost method for determining cost of the ~~previous distribution center. The obligation consists~~reissued shares. If the issuance price is higher than the cost, the excess of the ~~costs associated with~~issuance price over the ~~exit or disposal activity measured initially at its fair value as of~~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. During the nine months ended 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 income31, 2020, 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 flows over the remaining lease period, is measured using the credit-adjusted risk-free rate that was used to measure the initial obligation. During the third quarter of fiscal year 2017, the Company initially recorded an obligation related to this exit activity forreissued approximately $496,000 within other long-term liabilities. The Company’s exit obligation recorded as of August 31, 2017 was approximately $57,000. The Company’s exit obligation recorded as of November 30, 2017 was approximately $50,000. 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. Exit costs of approximately $338,000 were recorded to net warehouse club cost of goods sold for the three months ended November 30, 2017.174,000 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.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

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 did not make any significant transfers in and out of Level 1 and Level 2 fair value tiers during the periods reported on herein.

Non-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, no0 impairment of such non-financial assets was recorded.

The Company’s current and long-term financial assets and liabilities have fair values that approximate their carrying values. The Company’s long-term financial liabilities consist of long-term debt, which is recorded on the balance sheet at issuance price and adjusted for any applicable unamortized discounts or premiums and debt issuance costs. There have been no significant changes in fair market value of the Company’s current and long-term financial assets, and there have been no material changes to the valuation techniques utilized in the fair value measurement of assets and liabilities as disclosed in the Company’s ~~2017~~2019 Annual Report on Form 10-K.

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 and currency exchange rates. In using derivative financial instruments for the purpose of hedging the Company’s exposure to interest 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 ~~offset~~reported 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. 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.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 value~~entire gain or loss of the derivative, calculated as the net present value of the future cash flows, is ~~deferred~~reported 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 78 - Derivative Instruments and Hedging Activities for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017.~~2019.

Fair Value Instruments. The Company is exposed to ~~foreign-currency~~foreign currency exchange rate fluctuations in the normal course of business. This includes exposure to ~~foreign-currency~~foreign currency exchange rate fluctuations on U.S. dollar 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

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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-currency~~foreign currency exchange-rate risk with the use of these contracts and

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~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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 7 - Derivative Instruments and Hedging Activities for information on~~

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. For derivative instruments not designated as hedging instruments, the Company recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of ~~open, unsettled forward foreign-exchange contracts~~the hedged item, in Other expense, net in the consolidated statements of income in the period of change.

Revenue Recognition – The accounting policies and other disclosures such as the disclosure of ~~November 30, 2017 and August 31, 2017.~~disaggregated revenues are described in Note 3 – Revenue Recognition.

Insurance Reimbursements –Receipts 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. Anticipated proceeds in excess of the amount of loss recognized are considered 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.

Self-Insurance –AsThe Company changed health insurance providers and is no longer self-insured as of October 1, ~~2017, PriceSmart, Inc. became self-insured~~2019.

Cost of Goods Sold – The Company includes the cost of merchandise, food service and bakery raw materials in cost of goods 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 ~~its employee medical health benefits~~supplying merchandise, raw materials and ~~in doing so~~supplies to the warehouse 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-club demonstrations.

For export sales, the Company ~~has assumed~~includes the ~~financial risk~~cost of merchandise and external and internal distribution and handling costs for ~~providing health care benefits~~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 ~~its employees.~~provide delivery, insurance and customs processing services in cost of goods sold, non-merchandise.

Vendor consideration consists primarily of volume rebates, time-limited product promotions, slotting fees, demonstration reimbursements and prompt payment discounts. Volume rebates that are not threshold based are incorporated into the unit cost of merchandise reducing the inventory cost and cost of goods sold. Volume rebates that are threshold based are recorded as a reduction to cost of goods sold when the Company achieves established purchase levels that are confirmed 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. 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-club promotion of the vendors' products. The Company ~~contracted~~records the reduction in cost of goods sold on a transactional basis for these programs. Prompt payment discounts are taken in substantially all cases and therefore are applied directly to reduce the acquisition cost of the related inventory, with ~~Cigna Health~~the resulting effect recorded to cost of goods sold when the inventory is sold.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Selling, General and ~~Life Insurance Company (“CHLIC”), a third party administrator, to process claims on its behalf under an~~ Administrative ~~Services Only (ASO) agreement.~~ – Selling, general and administrative costs are comprised primarily of expenses associated with operating warehouse clubs and freight forwarding operations. These costs include payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense, building and equipment depreciation, bank, credit card processing fees, and amortization of intangibles. Also included in selling, general and administrative expenses are the payroll and related costs for the Company’s U.S. and regional management and purchasing centers.

Pre-Opening Costs – The Company ~~has elected to purchase “Stop Loss Insurance” to cover the risk in excess~~expenses pre-opening costs (the costs of ~~certain dollar limits.~~start-up activities, including organization costs and rent) for new warehouse clubs as incurred.

Contingencies and Litigation – The Company ~~establishes~~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 ~~estimated~~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 ~~for its insurance program based on available comparable claims data, trends and projected ultimate costs of claims. This accrual~~are not met, but there is based on estimates prepared with the assistance of outside actuaries and the ultimate cost of these claims may vary from initial estimates and established accrual. The actuaries periodically update their estimates andat least a reasonable possibility that a material loss will occur, the Company ~~records such adjustments in~~does not record and reserve for a loss contingency but describes the ~~period in which such determination~~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. ~~The accrued obligation for this self-insurance program is included in “Accrued salaries and benefits” in the consolidated balance sheets and is $574,000 as of November 30, 2017.~~

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 three and nine months ended May 31, 2020 and 2019:


	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,			May 31,
	2020		2019		2020			2019
Effect on other comprehensive loss due to foreign currency translation	$	(12,874)	$	(9,697)	$	(19,981)	$	(17,972)

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 three months ended November 30, 2017 and 2016 (in thousands):~~



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2020		2019		2020		2019
Currency gain (loss)	$	(1,529)	$	192	$	(2,431)	$	(1,930)

Three Months Ended

November 30,

November 30,

2017

2016
Currency gain (loss)

$
278

$
(928)

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Pronouncements – Not Yet Adopted

FASB ASC ~~815~~848 ASU ~~2017-12 Derivatives~~2020-04—Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU No. 2020-04 provides optional expedients and ~~Hedging - Targeted Improvements~~exceptions for a limited period of time to ~~Accounting~~ease the potential burden in accounting for ~~Hedging Activities~~

The FASB has issued Accounting Standards Update (ASU) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims 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. The amendments in this ASU are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifyingcontracts, hedging relationships, and ~~the presentation of hedge results. To satisfy that objective, the amendments expand~~other transactions affected by reference rate reform. The guidance was effective upon issuance and ~~refine hedge accounting for both non-financial~~may be applied prospectively to contract modifications made 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 afterentered into or evaluated on or before December ~~15, 2018 and interim~~

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~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~periods within those annual periods.~~ 31, 2022. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC ~~715~~740 ASU ~~2017-09 -Compensation—Stock Compensation~~2019-12—Income Taxes (Topic ~~718)—Scope of Modification~~740): Simplifying the Accounting for Income Taxes

~~The~~In December 2019, the FASB ~~has~~ issued ASU No. 2019-12, Simplifying the Accounting ~~Standards Update (ASU)~~for Income Taxes. ASU No. ~~2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which seeks~~2019-12 removes certain exceptions to ~~provide clarity, reduce diversity in practice, and reduce cost and complexity when applying~~ the ~~guidance~~general principles in Topic ~~718, Compensation—Stock Compensation, regarding a change~~740 and also clarifies and amends existing guidance to ~~the terms or conditions of a share-based payment award. This~~improve consistent application. The 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.~~2020. Early adoption is permitted. The Company expects to adopt ASU No. 2019-12 on September 1, 2021, the first quarter of fiscal year 2022. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC ~~715~~810 ASU ~~2017-07-Compensation—Retirement Benefits (Topic 715) —Improving the Presentation of Net Periodic Pension Cost~~2018-15 – Intangibles—Goodwill and ~~Net Periodic Postretirement Benefit Cost~~Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

In ~~March 2017,~~August 2018, the FASB issued ASU No. ~~2017-07, Compensation—Retirement Benefits (Topic 715) — Improving~~2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. ASU No. 2018-15 aligns the ~~Presentation~~requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). As such, the amendment in this ASU requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in subtopic 350-40 in order to determine which implementation costs to capitalize as an asset and which costs to expense.

Additionally, the amendments in this ASU require the entity to expense the capitalized implementation costs of ~~Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU~~ i~~s designed to improve guidance related to~~a hosting arrangement that is a service contract over the ~~presentation~~term 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 employees during the period.hosting arrangement. The amendments in this ASU are effective for annual periods beginning after December 15, ~~2017~~2019 and interim periods within those annual periods. Early adoption is permitted. The Company expects to adopt ASU No. 2018-15 on September 1, 2020, the first quarter of fiscal year 2021. While the Company is still in the process of determining the impact that adoption of this guidance will have on its consolidated financial statements, it does not anticipate that the new guidance will have a material impact on its consolidated financial statements.

FASB ASC 715 ASU 2018-14 – Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement benefits (Topic 715-20). The standard amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other post-retirement plans. This ASU is effective for fiscal years ending after December 15, 2020 and must be applied on a retrospective basis. The Company expects to adopt ASU No. 2018-14 on September 1, 2021, the first quarter of fiscal year 2022. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

FASB ASC 820 ASU 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The standard eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. ASU No. 2018-13 adds new disclosure requirements for Level 3 measurements. The amendments in this ASU are effective for annual periods beginning after December 15, 2019. Early adoption is permitted. The Company expects to adopt ASU No. 2018-13 on September 1, 2020, the first quarter of fiscal year 2021. While the Company is still in the process of determining the impact that adoption of

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

this guidance will have on its consolidated financial statements, it does not anticipate that the new guidance will have a material impact on its consolidated financial statements.

FASB ASC 350 ASU ~~2017-04-~~2017-04 – Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, 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 understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, ASU No. 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. Early adoption is permitted. The Company ~~will evaluate~~expects to adopt ASU No. 2017-04 on September 1, 2020, the first quarter of fiscal year 2021. While the Company is still in the process of determining the impact that adoption of this guidance ~~may~~will have on its consolidated financial statements, it does not anticipate that the new guidance will have a material impact on its consolidated financial statements.

FASB ASC 326 ASU 2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which amends the FASB’s guidance on the impairment of financial instruments. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments to clarify and address certain items related to the amendments in ASU 2016-13. These amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company expects to adopt the amendments on September 1, 2020, the first quarter of fiscal year 2021. While the Company is still in the process of determining the impact that adoption of this guidance will have on its consolidated financial statements, it does not anticipate that the new guidance will have a material impact on its consolidated financial statements given the materiality and nature of the financial assets currently held.

Recent Accounting Pronouncements Adopted

FASB ASC 815 ASU 2018-16 – Derivatives and Hedging — Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes

In October 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-16, Derivatives and Hedging—Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which expands the list of United States benchmark interest rates permitted in the application of hedge accounting. The amendments in this ASU allow use of the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, Derivatives and Hedging. The Company adopted ASU 2018-16 in the first quarter of fiscal year 2020. Adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

FASB ASC ~~740~~718 ASU ~~2016-16-Income Taxes~~2018-07 -Compensation—Stock Compensation (Topic ~~740)~~718) —~~Intra-Entity Transfers of Assets Other Than Inventory~~Improvements to Nonemployee Share-Based Payment Accounting

In ~~October 2016,~~June 2018, the FASB issued ASU No. ~~2016-16, Income Taxes~~2018-07, Compensation—Stock Compensation (Topic ~~740)—Intra-Entity Transfers of Assets Other Than Inventory. Currently, U.S. GAAP prohibits recognizing current~~718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope to include share-based payment transactions for acquiring goods and ~~deferred income tax consequences for an intra-entity asset transfer until~~services from non-employees. The amendments in this ASU apply to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in 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.

grantor’s own operations by issuing share-based payment awards. The amendments in this ASU are effective for annual periods beginning after December 15, ~~2017~~2018 and interim

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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~~adopted ASU 2018-07 in the ~~impact adoption~~first quarter of fiscal year 2020. Adoption of this guidance ~~may~~did not have a material impact on the Company’s consolidated financial statements.

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~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~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 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~~amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the ~~guidance~~present value of the lease payments.

The Company adopted ASU 2016-02 using the modified retrospective transition method in ~~ASC 840,~~ ~~Leases~~.the first quarter of fiscal year 2020. In accordance with ASC 842, ~~will be effective for~~ the Company ondid not restate comparative periods in transition to ASC 842 and instead reported comparative periods under ASC 840. Adoption of the standard resulted in the initial recognition of $120.6 million of operating lease right-of-use (“ROU”) assets and $132.1 million of short-term and long-term operating lease liabilities as of September 1, 2019. The difference between the assets and liabilities primarily represents the deferred rent recorded as of August 31, 2019, which was eliminated upon adoption. NaN cumulative-effect adjustments were recorded to retained earnings, and there was no material impact to the Company’s interim consolidated statements of income, consolidated statements of comprehensive income, or consolidated statements of cash flows. However, several of the Company’s leases are denominated in a currency that is not the functional currency of the Company’s local subsidiary. The resulting monetary liability is revalued to the functional currency at each balance sheet date, with the resulting gain or loss being recorded in Other income (expense). The monetary lease liability subject to revaluation as of May 31, 2020 was $33.7 million. Due to the mix of foreign currency exchange rate fluctuations during the third quarter of fiscal year 2020, the impact to the interim consolidated statements of income of revaluing this liability was immaterial.

The Company elected the transition package of practical expedients permitted within the new standard which, among other things, allowed it to carry-forward the historical lease classification. The Company also elected the practical expedient to carry forward the accounting treatment for land easements and the practical expedient allowing the Company ~~expects~~not 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 provisionsrecognition requirements of ASC 842 to ~~determine how it will be affected,~~short-term leases. However, the ~~primary effect will be~~Company did not elect to ~~require recording right-of-use assets~~combine lease and ~~corresponding lease obligations~~non-lease components. Please refer to Note 10 – Leases for ~~current operating~~further discussion on the Company's leases. ~~The~~

There were no other new accounting standards that had a material impact on the Company’s consolidated financial statements during the three and nine month periods ended May 31, 2020, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 31, 2020 that the Company expects ~~the adoption of this guidance~~ to have a material impact on its consolidated financial statements.

NOTE 3 – REVENUE RECOGNITION

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.

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. The Company recognizes non-merchandise revenue, net of sales taxes, on transactions where the Company has determined that it is the agent in the transaction. These transactions primarily consist of contracts the Company enters into with its customers to provide delivery, insurance and customs processing services for products its customers purchase online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplace site. Revenue is recognized when the Company’s performance obligations have been completed (that is when delivery of the items have been made to the destination point) and is recorded in “non-merchandise revenue” on the Consolidated Statements of Income. Prepayment for orders for which the Company has not fulfilled its performance obligation are recorded as deferred income. Additionally, the Company records revenue at the net amounts retained, i.e., the amount paid by the customer less

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

amounts remitted to the respective merchandise vendors, as the Company is acting as an agent and is 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. Membership refunds are prorated over the remaining term of the membership; accordingly, no refund reserve is required to be established 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 not~~sheets.

Platinum Points Reward Programs. The Company currently offers Platinum memberships in 11 of its 13 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 warehouse 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.

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 606 ASU 2014-09 - Revenue~~Gift Cards. Members’ purchases of gift cards to be utilized at the Company's warehouse clubs are not recognized as sales until the card is redeemed and the customer purchases merchandise using the gift card. The outstanding gift cards are reflected as other accrued expenses and other current liabilities in the consolidated balance sheets. These gift cards generally have a one-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 effective~~issuance 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 certificates; therefore, the Company assumes a 100% redemption rate prior to expiration of the gift certificate. The Company ~~plans to adopt this guidance at~~periodically reviews unredeemed outstanding gift certificates, and the ~~beginning~~gift certificates 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 ~~first quarter~~markets, the Company often enters into revenue sharing agreements. As part of ~~fiscal year 2019.~~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 ~~evaluating the impact of adoption of~~earned. The Company has determined that this ~~guidance on all potentially significant~~ revenue ~~transactions that will~~should be ~~impacted by the new standard~~recognized as “Other revenue and income” on the ~~Company's~~ consolidated ~~financial~~ statements ~~and related disclosures~~of income.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Contract Performance Liabilities

Contract performance liabilities as a result of ~~adopting this standard.~~

~~Recent Accounting Pronouncements Adopted~~

~~FASB ASC 718 ASU 2016-09 - Compensation—Stock Compensation (Topic 718): Improvements~~transactions with customers primarily consist of deferred membership income, other deferred income, deferred gift card revenue, Platinum points programs, and liabilities related 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~~co-branded credit card points rewards programs which are included in deferred income ~~taxes, forfeitures,~~ and ~~minimum statutory tax withholding requirements. The new standard is effective for fiscal years~~other accrued expenses and ~~interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance on September 1, 2017.~~

The Company determined that the adoption of this guidance did 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 adoption of this guidance and the amendments related to the presentation of employee taxes paid on the statement of cash flows did not have a material effect on the consolidated statements of cash flows.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The adoption of this guidance and 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 the adoption of this methodology using the modified retrospective transition method resulted in the Company electing to eliminate the recording of the forfeiture rate on the expense recorded. The elimination of the forfeiture rate required recording a cumulative-effect adjustment by increasing retained earnings and reducing Additional Paid in Capital, at the beginning of the year of adoption, which was September 1, 2017, for the service periods already incurred for unvested shares.

~~FASB ASC 330 ASU 2015-11 -Inventory (Topic 330): Simplifying the Measurement of Inventory~~

~~In July 2015, the FASB issued guidance that will require an entity to measure in-scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices~~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.Company’s consolidated balance sheets. The ~~amendments in this ASU more closely align the measurement of inventory in GAAP~~following table provides these contract balances from transactions 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. The Company adopted this guidance on September 1, 2017. Adoption of this guidance did not have a material effect on the Company's consolidated financial statements.

~~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 ASUcustomers 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~~dates listed (in thousands):


	Contract Liabilities
	May 31, 2020		August 31, 2019
Deferred membership income	$	23,380	$	24,901
Other contract performance liabilities	$	4,892	$	4,048

Disaggregated Revenues

In the ~~presented periods.~~following table, net merchandise sales are disaggregated by merchandise category (in thousands):



		Three Months Ended			Nine Months Ended
		May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Foods & Sundries	$	419,579	$	384,902	$	1,250,728	$	1,174,087
Fresh Foods		228,858		209,452		685,413		630,657
Hardlines		70,374		83,606		261,796		274,596
Softlines		25,597		38,700		115,860		127,158
Other Business		23,960		38,349		105,025		116,244
Net Merchandise Sales	$	768,368	$	755,009	$	2,418,822	$	2,322,742

NOTE 34 – 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 restricted stock units issued pursuant to the 2013 Equity Incentive Award Plan. The Company does not include performance stock units as participating securities until they vest. 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 ~~options~~units 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.

1621

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

The following table sets forth the computation of net income per share for the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~2019 (in thousands, except per share amounts):



	Three Months Ended				Three Months Ended				Nine Months Ended
	November 30,		November 30,		May 31,		May 31,		May 31,		May 31,
	2017		2016		2020		2019		2020		2019
Net income	$	22,490	$	24,869
Net income attributable to PriceSmart, Inc.					$	12,705	$	14,096	$	58,033	$	52,518
Less: Allocation of income to unvested stockholders		(300)		(420)		(188)		(189)		(527)		(414)
Net earnings available to common stockholders	$	22,190	$	24,449
Net income attributable to PriceSmart, Inc. per share available for distribution					$	12,517	$	13,907	$	57,506	$	52,104
Basic weighted average shares outstanding		30,078		29,982		30,271		30,198		30,268		30,192
Add dilutive effect of stock options (two-class method)		1		5
Add dilutive effect of performance stock units (two-class method)						4		7		5		10
Diluted average shares outstanding		30,079		29,987		30,275		30,205		30,273		30,202
Basic net income per share	$	0.74	$	0.82	$	0.41	$	0.46	$	1.90	$	1.73
Diluted net income per share	$	0.74	$	0.82	$	0.41	$	0.46	$	1.90	$	1.73

NOTE 45 – STOCKHOLDERS’ EQUITY

Dividends

~~No dividends were declared by the Company’s Board of Directors during the first three months of fiscal year 2018.~~ The following table summarizes the dividends declared and paid during fiscal year ~~2017.~~2020 and 2019 (amounts are per share).

First Payment

Second Payment

Declared

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

2/6/2020

0.70

2/15/2020

2/28/2020

N/A

0.35

8/15/2020

N/A

8/31/2020

0.35

1/30/2019

0.70

2/15/2019

2/28/2019

N/A

0.35

8/15/2019

8/30/2019

N/A

0.35

First Payment

Second Payment
Declared

Amount

Record
Date

Date
Paid

Date
Payable

Amount

Record
Date

Date
Paid

Date
Payable

Amount
2/1/2017

$
0.70

2/15/2017

2/28/2017

N/A

$
0.35

8/15/2017

N/A

8/31/2017

$
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.

Comprehensive Income and Accumulated Other Comprehensive Loss

The following tables disclose the effects of each component of other comprehensive income (loss), net of tax (in thousands):

Three Months Ended November 30, 2017

Foreign
currency
translation
adjustments

Defined
benefit
pension
plans

Derivative
Instruments

Total
Beginning balance, September 1, 2017

$
(108,539)

$
(442)

$
(1,078)

$
(110,059)
Other comprehensive income (loss)

(2,026)

30

587
(1)

(1,409)
Ending balance, November 30, 2017

$
(110,565)

$
(412)

$
(491)

$
(111,468)


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2019	$	(144,339)	$	20	$	(144,319)
Foreign currency translation adjustments		(19,981)		90		(19,891)
Defined benefit pension plans		53		—		53
Derivative instruments ⁽¹⁾		(3,752)		—		(3,752)
Ending balance, May 31, 2020	$	(168,019)	$	110	$	(167,909)

Three Months Ended November 30, 2016

Foreign
currency
translation
adjustments

Defined
benefit
pension
plans

Derivative
Instruments

Total
Beginning balance, September 1, 2016

$
(102,242)

$
(315)

$
(1,394)

$
(103,951)
Other comprehensive income (loss)

(10,866)

(7)

492
(1)

(10,381)
Ending balance, November 30, 2016

$
(113,108)

$
(322)

$
(902)

$
(114,332)

1722

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

Twelve Months Ended August 31, 2017

Foreign
currency
translation
adjustments

Defined
benefit
pension
plans

Derivative
Instruments

Total
Beginning balance, September 1, 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)

—

39
Ending balance, August 31, 2017

$
(108,539)

$
(442)

$
(1,078)

$
(110,059)


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2018	$	(121,216)	$	(1)	$	(121,217)
Foreign currency translation adjustments		(17,972)		80		(17,892)
Defined benefit pension plans		73		—		73
Derivative Instruments ⁽¹⁾		(2,053)		—		(2,053)
Ending balance, May 31, 2019	$	(141,168)	$	79	$	(141,089)

⁽¹⁾

~~See Note 7 - 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.


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2018	$	(121,216)	$	(1)	$	(121,217)
Foreign currency translation adjustments		(19,717)		21		(19,696)
Defined benefit pension plans		(112)		—		(112)
Derivative Instruments ⁽¹⁾		(3,369)		—		(3,369)
Amounts reclassified from accumulated other comprehensive income (loss) ⁽²⁾		75		—		75
Ending balance, August 31, 2019	$	(144,339)	$	20	$	(144,319)

⁽¹⁾See Note 8 - Derivative Instruments and Hedging Activities.

⁽²⁾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.

Retained Earnings Not Available for Distribution

The following table summarizes retained earnings designated as legal reserves of various subsidiaries which cannot be distributed as dividends to PriceSmart, Inc. according to applicable statutory regulations (in thousands):

November 30,

August 31,

2017

2017
Retained earnings not available for distribution

$
6,557

$
6,459

NOTE 56 – 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.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PERA filed a consolidated class action complaint, which alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company believes ~~that~~ the ~~final disposition~~case lacks merit and intends to vigorously defend itself against any obligations or liability to the plaintiffs. During the third quarter of fiscal 2020, the ~~pending legal proceedings, claims~~Company filed a Motion to Dismiss the Plaintiff’s Consolidated Amended Complaint and ~~litigation will not have~~the Plaintiff filed an Opposition to the Motion to Dismiss. During the fourth quarter of fiscal 2020, the Company plans to file a ~~material adverse effect on its financial position, results~~Reply to the Opposition. Oral arguments are scheduled for the first quarter 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.~~2021.

~~Taxes~~

Income Taxes –~~The~~ For interim reporting, the Company ~~accounts for~~uses an estimated annual effective tax rate (AETR), pursuant to ASC 740-279, to calculate income ~~taxes using the asset and liability method. Under the asset and liability method,~~tax expense. Income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. The Company is subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are ~~recognized for~~required in the ~~future~~determination of the consolidated income tax ~~consequences attributed to~~expense. Deferred income taxes arise from temporary differences between the ~~financial statement carrying amounts~~tax basis 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~~reported amounts in the ~~years~~financial statements, which will result in ~~which those temporary differences and carry-forwards are expected~~taxable or deductible amounts in the future. In evaluating its ability to ~~be recovered or settled. The effect on~~recover deferred tax assets ~~and liabilities of a change in tax rates is recognized in income~~ in the ~~period that includes~~jurisdictions from which they arise, the ~~enactment date. A valuation allowance is established when necessary to reduce~~Company considers all available positive and negative evidence, including scheduled reversals of deferred tax ~~assets~~liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and incorporates assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates we are using to ~~amounts expected to be realized.~~manage the underlying businesses. In evaluating the objective evidence that historical results provide, the Company considers three years of cumulative operating income (loss).

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.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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 less than 50% likelihood of being sustained. There were no ~~material~~significant changes in the Company's uncertain income tax positions ~~as of November 30, 2017 and~~since August 31, ~~2017.~~2019.

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 ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, the Company has recorded within other accrued expenses and other current liabilities a total of ~~$3.2~~$3.1 million and ~~$3.4~~$3.2 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.

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 $2.7 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 $5.5 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 other 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 advance payments to the government while it appeals.~~

~~In another country in which the Company has warehouse clubs, beginning in fiscal year 2015, a new~~operates, minimum income tax ~~mechanism took effect, which requires~~rules 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 excess~~had income tax ~~against other taxes. As~~receivables of ~~November 30, 2017~~$9.8 million and ~~August 31, 2017, the Company had~~$7.8 million and deferred tax assets of ~~approximately $2.0 million in this country. Also, the Company had an income tax receivable balance of $5.3~~$2.8 million and ~~$4.3~~$2.7 million as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, respectively, in these countries. While the rules related to ~~excess payments from fiscal years 2015 and 2017. The~~refunds 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 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. Subsequent to the passage of new US tax legislation described in Note 9 – Subsequent Events, the Company is in the process of calculating the amount of taxes that will be due on these non-U.S. undistributed earnings.

1924

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

Other Commitments

The Company is committed under non-cancelable operating leases for the rental of facilities and land. Future minimum lease commitments for facilities under these leases with an initial term in excess of one year are as follows (in thousands):

Open

Years ended November 30,

Locations(1)

2018

$
12,113

2019

11,715

2020

10,795

2021

9,339

2022

9,027

Thereafter

113,822

Total

$
166,811
(2)

⁽¹⁾

Operating lease obligations have been reduced by approximately $883,000 to reflect sub-lease income. Certain obligations under leasing arrangements are collateralized by the underlying asset being leased.

⁽²⁾

Future minimum lease payments include $3.0 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 $50,000 recorded on the balance sheet as of November 30, 2017. Projected income for any executed sub-leases would be used to reduce the amount reported as minimum lease payments.

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~~As of May 31, 2020, all of the vacated ~~previously leased~~ space ~~were~~has been subleased ~~(and subsequently~~(and/or returned to the landlord) ~~while the remainder remains available for sublease.~~. As part of the subleases, the Company ~~was required to execute and deliver to~~provided the landlord of the leased facility a letter of credit (“LOC”) infor the initial amount of $500,000 which ~~entitles~~entitled the landlord to draw on the LOC based on a decreasing scale over four years if certain conditions were to occur related to nonpayment by the new tenant. The balance of this LOC decreases at an annual rate of $125,000 starting in August 2018. As of May 31, 2020, the remaining balance of the LOC was $250,000. 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~~third-party tenant as not likely nor probable based on the Company’s review of the ~~third party~~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 ~~services~~service obligations for various warehouse club developments and expansions. As of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, the Company had approximately ~~$3.2~~$7.8 million and ~~$7.9~~$14.9 million, respectively, in contractual obligations for construction services not yet rendered.

~~The~~From time to time, the Company has entered into general land purchase and land purchase option agreements. The Company’s land purchase agreements ~~that have~~are typically subject to various conditions, including, but not ~~been recorded as commitments, for which~~limited 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 and~~the right to cancel any of its agreements to purchase land without cause by forfeiture of some or all of the deposits asit has made pursuant to the agreement. As of ~~November 30, 2017 and August~~May 31, ~~2017 approximately $600,000. The~~2020, the Company did 0t have any pending land purchase option agreements can be canceled at the sole option of the Company, with the deposits being fully refundable until all permits are issued. The Company does not have a timetable of when or if it will exercise these land purchase options, due 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.agreements.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The table below summarizes the Company’s interest in real estate joint ventures, commitments to additional future investments and the Company’s maximum exposure to loss as a result of its involvement in these joint venture as of ~~November 30, 2017~~May 31, 2020 (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 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	$	301	$	7,319	$	99	$	7,418	50	%	$	4,616	$	2,402	$	92	$	7,110	$	99	$	7,209
Price Plaza Alajuela, S.A.	50	%		2,193		1,236		33		3,462		785		4,247
Price Plaza Alajuela PPA, S.A.															50	%		2,193		1,236		79		3,508		785		4,293
Total			$	6,809	$	3,638	$	334	$	10,781	$	884	$	11,665			$	6,809	$	3,638	$	171	$	10,618	$	884	$	11,502

⁽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.

⁽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 ~~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 $442,000.~~provide additional financial support.

The Company contracts for off-site data recovery services as part of its disaster recovery plan. The contract for these data recovery services expires on November 30, 2019. Future minimum service commitments related to this contract are approximately $372,000 for each of the 12-month periods ending November 30, 2018 and 2019.

NOTE 67 – DEBT

Short-term borrowings consist of unsecured lines of ~~credit that 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

November 30, 2017

$
69,000

$
2,483

$
562

$
65,955

4.3
%
August 31, 2017

$
69,000

$
—

$
966

$
68,034

—
%


			Facilities Used
	Total Amount		Short-term		Letters of		Facilities		Weighted average
	of Facilities		Borrowings		Credit		Available		interest rate
May 31, 2020	$	81,210	$	70,886	$	472	$	9,852	3.6	%
August 31, 2019	$	69,000	$	7,540	$	486	$	60,974	6.1	%

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, 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 ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, the Company was in compliance with ~~respect to these covenants.~~all covenants or amended covenants for each of its short-term facility agreements. Each of the facilities expires annually ~~and is~~except for the U.S. facility, which expires bi-annually. The facilities are normally renewed.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

The following table provides the changes in long-term debt for the ~~three months~~nine-months ended ~~November 30, 2017:~~May 31, 2020:

(Amounts in thousands)

Current
portion of
long-term debt

Long-term
debt (net of current portion)

Total

Balances as of August 31, 2017

$
18,358

$
87,939

$
106,297
(1)
Repayments of long-term debt

—

(3,000)

(3,000)

Regularly scheduled loan payments

(225)

(4,554)

(4,779)

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

124

(45)

79

Balances as of November 30, 2017

$
18,257

$
80,340

$
98,597
(3)


(Amounts in thousands)	Current ‎portion of ‎long-term debt		Long-term ‎debt (net of current portion)		Total
Balances as of August 31, 2019	$	25,875	$	63,711	$	89,586	⁽¹⁾
Proceeds from long-term debt incurred during the period:
Colombia subsidiary		—		25,000		25,000
Guatemala subsidiary		—		20,820		20,820
Trinidad subsidiary		6,000		6,000		12,000
Regularly scheduled loan payments		(1,539)		(6,003)		(7,542)
Refinances of short-term debt		(11,046)		11,046		—
Reclassifications of long-term debt due in the next 12 months		3,402		(3,402)		—
Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar⁽²⁾		92		(127)		(35)
Balances as of May 31, 2020	$	22,784	$	117,045	$	139,829	⁽³⁾

⁽¹⁾

~~The carrying amount of non-cash assets assigned as collateral for these loans was $128.4 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 of non-cash assets assigned as collateral for these loans was $121.0 million. No cash assets were assigned as collateral for these loans.~~

⁽¹⁾The carrying amount of non-cash assets assigned as collateral for these loans was $111.3 million. NaN cash assets were assigned as collateral for these loans.

~~In August 2017, the Company’s Panama subsidiary paid off the outstanding principal balance~~⁽²⁾These foreign currency translation adjustments are recorded within Other comprehensive income.

⁽³⁾The carrying amount of ~~U.S. $13.3 million 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.~~non-cash assets assigned as collateral for these loans was $166.2 million. NaN cash assets were assigned as collateral for these loans.

On March 31, 2017, the Company's Trinidad subsidiary entered into a loan agreement with Citibank, N.A. The agreement provides 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 loan 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 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”) 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. The monthly principal and interest payments begin in April 2019. The Company also entered into an interest rate hedge with Union Bank 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.

As of ~~November 30, 2017,~~May 31, 2020, the Company had approximately ~~$82.8~~$114.3 million of long-term loans in ~~the U.S., Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados and Colombia~~several foreign subsidiaries that require these subsidiaries to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios. As of ~~November 30, 2017,~~May 31, 2020, the Company was in compliance with all covenants or amended covenants.

As of August 31, ~~2017,~~2019, the Company had approximately ~~$85.6~~$83.1 million of long-term loans in ~~Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados, and Colombia~~several 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, the Company was in compliance with all covenants or amended~~ covenants.

Annual maturities of long-term debt are as follows (in thousands):



Twelve Months Ended November 30,	Amount
2018	$	18,257
2019		19,437
2020		21,438
Twelve Months Ended May 31,			Amount
2021		5,805	$	22,784
2022		2,634		17,900
2023				25,845
2024				8,577
2025				24,983
Thereafter		31,026		39,740
Total	$	98,597	$	139,829

2226

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

NOTE 78 – 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 non-functional currency long-term debt of three of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposure, the Company’s subsidiaries entered 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.

These derivative instruments (cash flow hedging instruments) are designated and qualify as cash flow hedges, with the ~~effective portion of the~~entire 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 which~~income statement line item that is used to present earnings effect of the hedged ~~transaction is determined to be ineffective. There were no such amounts recorded for ineffectiveness for~~item 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.

The Company uses other derivatives not designated as hedging instruments that consist primarily of written call options in which the Company receives a premium from the holder. This premium lowers the cost of the Company’s hedging activities. The Company recognizes changes in fair value of the derivative instrument, as well as the offsetting change in the fair value of the hedged item, in Other expense, net in the consolidated statements of income in the period of change.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Flow Hedges

As of ~~November 30, 2017,~~May 31, 2020, 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.

~~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 for the ~~three~~nine months ended ~~November 30, 2017:~~May 31, 2020:

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

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 (1)

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

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

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

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

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

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

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

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

Settled on
October 22, 2017

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, 2024

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

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

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

⁽¹⁾

~~The initial notional amount and fixed rate were modified effective January 2017.~~

For the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016,~~2019, 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 three months ended November 30, 2017

$
849

$
322

$
1,171
Interest expense for the three months ended November 30, 2016

$
750

$
423

$
1,173



Income Statement Classification	Interest ‎expense on ‎borrowings⁽¹⁾		Cost of ‎swaps⁽²⁾		Total
Interest expense for the three months ended May 31, 2020	$	1,067	$	620	$	1,687
Interest expense for the three months ended May 31, 2019	$	1,204	$	110	$	1,314
Interest expense for the nine months ended May 31, 2020	$	3,287	$	1,477	$	4,764
Interest expense for the nine months ended May 31, 2019	$	3,606	$	380	$	3,986

⁽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 cross-currency interest rate swaps designated as cash flow hedging instruments.

⁽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 cross-currency interest rate swaps designated as cash flow hedging instruments.~~

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
	May 31,		August 31,
Floating Rate Payer (Swap Counterparty)	2020		2019
Union Bank	$	34,213	$	35,169
Citibank N.A.		50,650		24,225
Scotiabank		16,500		18,375
Total	$	101,363	$	77,769

Notional Amount as of

November 30,

August 31,
Floating Rate Payer (Swap Counterparty)

2017

2017
Union Bank

$
35,700

$
35,700
Citibank N.A.

25,063

26,088
Scotiabank

12,924

13,724
Total

$
73,687

$
75,512

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

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):



		November 30, 2017						August 31, 2017							May 31, 2020						August 31, 2019
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	$	2,514		(938)		1,576	$	2,547	$	(950)	$	1,597	Other non-current assets	$	428	$	(132)	$	296	$	—	$	—	$	—
Interest rate swaps	Other non-current assets		764		(272)		492		—		—		—
Cross-currency interest rate swaps														Other current assets		—		—		—		2,736		(903)		1,833
Interest rate swaps	Other long-term liabilities		(4)		(3)		(7)		(231)		80		(151)	Other long-term liabilities		(4,005)		933		(3,072)		(2,178)		517		(1,661)
Cross-currency interest rate swaps	Other long-term liabilities		(342)		114		(228)		(451)		135		(316)	Other long-term liabilities		(1,562)		475		(1,087)		(732)		220		(512)
Cross-currency interest rate swaps														Other current liabilities		(30)		9		(21)		—		—		—
Net fair value of derivatives designated as hedging instruments		$	2,932	$	(1,099)	$	1,833	$	1,865	$	(735)	$	1,130		$	(5,169)	$	1,285	$	(3,884)	$	(174)	$	(166)	$	(340)

Fair Value Instruments

~~The~~From time to time the Company ~~has entered~~enters 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. ~~The following table summarizes~~As of May 31, 2020, the Company did not have any material non-deliverable forward ~~foreign exchange~~foreign-exchange contracts.

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 May 31, 2020, the Company has settled its outstanding call options and does not have any other contracts ~~that are open~~not designated as ~~of November 30, 2017:~~hedging instruments.

~~Subsidiary~~

~~Dates~~
~~entered into~~

~~Financial~~
~~Derivative~~
~~(Counterparty)~~

~~Derivative~~
~~Financial~~
~~Instrument~~

~~Notional~~
~~Amount~~
~~(in thousands)~~

~~Settlement~~
~~Date~~

~~Effective Period~~
~~of Forward~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 13, 2017 -~~
~~December 6, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 17, 2017 -~~
~~December 13, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 18, 2017 -~~
~~December 20, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 19, 2017 -~~
~~December 27, 2017~~

For the three and nine months ended ~~November 30, 2017,~~May 31, 2020, the Company included in its consolidated statements of income the ~~forward~~loss of its other non-designated derivative ~~gain or (loss) on the non-deliverable forward foreign-exchange~~ contracts as follows (in thousands):



	Three Months Ended					Three Months Ended				Nine Months Ended
	November 30,		November 30,			May 31,	May 31,			May 31,	May 31,
Income Statement Classification	2017		2016			2020	2019			2020	2019
Other income (expense), net	$	93	$	219
Other expense, net					$	—	$	—	$	(912)	$	—

2529

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

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



	~~November 30, 2017~~			~~August 31, 2017~~
~~Non-deliverable forward foreign exchange contracts~~	~~Balance Sheet~~ ~~Location~~	~~Fair Value~~		~~Balance Sheet~~ ~~Location~~	~~Fair Value~~
~~Foreign currency forward contracts~~	~~Other current assets~~	$	71	~~Other current assets~~	$	—
~~Foreign currency forward contracts~~	~~Other accrued expenses~~		—	~~Other accrued expenses~~		—
~~Net fair value of non-deliverable forward foreign exchange contracts designated as hedging instruments that do not qualify for hedge accounting(1)~~		$	71		$	—

⁽¹⁾

The fair value of these financial assets and liabilities measured and recorded using Level 2 inputs, which are inputs other than quoted prices in active markets that are either directly or indirectly observable.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

NOTE 89 – SEGMENTS

The Company and its subsidiaries are principally engaged in the international operation of membership shopping in 4045 warehouse clubs located in ~~13 countries/territories~~12 countries and 1 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.

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		Colombia Operations		Reconciling Items(1)		Total		United ‎States ‎Operations		Central ‎American ‎Operations		Caribbean ‎Operations⁽¹⁾		Colombia Operations		Reconciling ‎Items⁽²⁾		Total
Three Months Ended November 30, 2017
Three Months Ended May 31, 2020
Revenue from external customers	$	8,147	$	452,166	$	214,642	$	92,117	$	—	$	767,072	$	15,852	$	452,927	$	250,304	$	80,848		—	$	799,931
Intersegment revenues		340,128		—		1,207		198		(341,533)		—		230,826		4,791		1,548		787		(237,952)		—
Depreciation and amortization		1,744		5,523		2,677		2,293		—		12,237
Depreciation, Property and equipment														1,294		7,577		3,810		1,591		—		14,272
Amortization, Intangibles														607		—		—		—		—		607
Operating income (loss)														(1,115)		27,606		13,547		3,487		(19,558)		23,967
Net income (loss) attributable to PriceSmart, Inc.														(3,785)		22,724		10,849		2,403		(19,486)		12,705
Capital expenditures, net														1,446		9,395		2,163		3,508		—		16,512

Nine Months Ended May 31, 2020
Revenue from external customers													$	52,039	$	1,442,336	$	747,004	$	277,228	$	—	$	2,518,607
Intersegment revenues														868,137		12,745		3,627		1,870		(886,379)		—
Depreciation, Property and equipment														3,981		22,027		11,602		5,452		—		43,062
Amortization, Intangibles														1,805		—		—		—		—		1,805
Operating income		3,739		31,942		11,470		2,145		(16,130)		33,166		3,401		96,972		40,436		13,411		(60,730)		93,490
Net income (loss)		82		26,796		10,317		1,425		(16,130)		22,490
Capital expenditures, net		1,004		11,370		10,297		832		—		23,503
Long-lived assets (other than deferred tax assets)		70,352		304,434		130,896		121,629		—		627,311
Net income (loss) attributable to PriceSmart, Inc.														(5,350)		79,815		34,978		9,340		(60,750)		58,033
Long-lived assets (other than deferred tax assets) ⁽³⁾														83,813		481,942		181,578		143,437		—		890,770
Intangibles, net														10,772		—		—		—		—		10,772
Goodwill		—		31,014		4,564		—		—		35,578		10,695		24,484		10,137		—		—		45,316
Total assets		121,674		580,523		334,279		186,352		—		1,222,828		224,682		727,527		384,168		238,112		—		1,574,489
Capital expenditures, net														5,564		42,766		13,913		28,807		—		91,050

Three Months Ended November 30, 2016
Three Months Ended May 31, 2019
Revenue from external customers	$	10,755	$	438,234	$	207,022	$	83,561	$	—	$	739,572	$	17,454	$	448,118	$	228,586	$	94,398	$	—	$	788,556
Intersegment revenues		317,662		—		1,698		10		(319,370)		—		284,205		3,401		1,032		444		(289,082)		—
Depreciation and amortization		1,574		4,864		2,458		2,221		—		11,117
Depreciation, Property and equipment														1,312		6,200		3,551		2,132		—		13,195
Amortization, Intangibles														606		—		—		—		—		606
Operating income (loss)														1,139		26,314		10,295		3,294		(19,045)		21,997
Net income (loss) attributable to PriceSmart, Inc.														(1,655)		22,725		9,514		2,528		(19,016)		14,096
Capital expenditures, net														143		13,322		8,010		1,093		—		22,568

Nine Months Ended May 31, 2019
Revenue from external customers													$	51,614	$	1,372,918	$	702,954	$	295,132	$	—	$	2,422,618
Intersegment revenues														924,624		7,620		3,375		1,119		(936,738)		—
Depreciation, Property and equipment														3,958		18,072		10,181		6,356		—		38,567
Amortization, Intangibles														1,798		—		—		—		—		1,798
Operating income		7,597		33,504		12,214		913		(15,849)		38,379		4,565		90,681		37,346		10,327		(59,716)		83,203
Net income		3,658		26,227		10,861		(28)		(15,849)		24,869
Capital expenditures, net		2,337		10,756		4,438		473		—		18,004
Net income (loss) attributable to PriceSmart, Inc.														(3,885)		75,009		32,536		8,632		(59,774)		52,518
Long-lived assets (other than deferred tax assets)		20,372		278,721		110,939		125,589		—		535,621		85,638		339,950		157,186		105,384		—		688,158
Intangibles, net														13,182		—		—		—		—		13,182
Goodwill		—		31,072		4,531		—		—		35,603		11,315		24,606		10,237		—		—		46,158
Total assets		70,283		542,238		321,235		184,114		—		1,117,870		152,322		605,399		331,999		172,144		—		1,261,864
Capital expenditures, net														3,759		56,695		24,271		3,831		—		88,556

As of August 31, 2017
As of August 31, 2019
Long-lived assets (other than deferred tax assets)	$	70,353	$	296,915	$	122,616	$	126,206	$	—	$	616,090	$	65,278	$	383,665	$	165,584	$	115,838	$	—	$	730,365
Intangibles, net														12,576		—		—		—		—		12,576
Goodwill		—		31,118		4,524		—		—		35,642		11,315		24,593		10,193		—		—		46,101
Total assets		147,650		544,683		303,234		181,947		—		1,177,514		161,583		614,579		340,216		180,033		—		1,296,411

⁽¹⁾

~~The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.~~

⁽¹⁾Management considers its club in the U.S. Virgin Islands to be part of its Caribbean operations.

⁽²⁾The reconciling items reflect the amount eliminated on consolidation of intersegment transactions.

⁽³⁾Effective September 1, 2019, we adopted the requirements of Accounting Standards Update (ASU) 2016-02, "Leases (Topic 842)" (ASC 842) using the modified retrospective approach, under which financial results reported in prior periods were not restated. As a result, the Long-lived assets (other than deferred tax assets)as of May 31, 2020 is not comparable with that as of May 31, 2019 and August 31, 2019.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—~~STATEMENTS — (Continued)

NOTE 10 – LEASES

The Company adopted ASC 842 as of September 1, 2019, using the modified retrospective method and applying transitional relief allowing entities to initially apply the requirements at the adoption date by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, results and disclosures for the reporting periods beginning September 1, 2019 are reported and presented under ASC 842, while prior period amounts and disclosures are not adjusted and continue to be reported and presented under ASC 840.

As part of the adoption, the Company elected the following practical expedients:

A package of practical expedients allowing the Company to: a) carry forward its historical lease classification; b) avoid reassessing whether any expired or existing contracts are or contain leases; and c) avoid reassessing initial direct costs for any existing lease.

A practical expedient related to land easements, allowing the Company to carry forward the accounting treatment for land easements on existing agreements and eliminating the need to reassess existing lease contracts to determine if land easements are separate leases under ASC 842.

A practical expedient allowing the Company not to apply the recognition requirements of ASC 842 to short-term leases (12 months or less).

The Company did not elect the following practical expedients:

A practical expedient that would allow the Company to use hindsight in determining the lease term and to assess impairment of the entity’s right-of use (“ROU”) assets because election of this expedient could make adoption more complex given the requirement to reevaluate the lease term.

A practical expedient allowing the Company to not separate lease components from nonlease components (e.g., common area maintenance costs) because the Company does not combine lease and nonlease components for any of its real estate 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 May 31, 2020, 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 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 on the interim unaudited 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.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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.

Adoption of the standard resulted in the initial recognition of $120.6 million of operating lease ROU assets and $132.1 million of short-term and long-term operating lease liabilities as of September 1, 2019. The difference between the newly recorded assets and liabilities is $11.5 million, which was recorded against our deferred rent balance of $11.2 million as of August 31, 2019. The difference of $0.3 million was expensed in the first quarter of fiscal year 2020. NaN cumulative-effect adjustments were recorded to retained earnings, and there was no material impact to the Company’s interim consolidated statements of income, consolidated statements of comprehensive income, or consolidated statements of cash flows.

The following table is a summary of the Company’s components of total lease costs for the three and nine months of fiscal year 2020 (in thousands):


	Three Months Ended		Nine Months Ended
	May 31,		May 31,
	2020		2020
Operating lease cost	$	4,338	$	12,831
Short-term lease cost		64		146
Variable lease cost		856		2,983
Sublease income		(258)		(829)
Total lease costs	$	5,000	$	15,131

The weighted average remaining lease term and weighted average discount rate for operating leases as of May 31, 2020 were as follows:


		Operating leases
Weighted average remaining lease term in years		18.3
Weighted average discount rate percentage		6.4%

Supplemental cash flow information related to leases under which the Company is the lessee was as follows (amounts in thousands):


	Three Months Ended		Nine Months Ended
	May 31,		May 31,
	2020		2020
Operating cash flows paid for operating leases	$	3,653	$	11,306

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Leased
Years Ended May 31,	Locations⁽¹⁾
2021	$	14,914
2022		14,959
2023		14,762
2024		14,454
2025		13,984
Thereafter		171,840
Total future lease payments		244,913
Less imputed interest		(110,229)
Total operating lease liabilities	$	134,684	⁽²⁾

⁽¹⁾Operating lease obligations have been reduced by approximately $1.2 million to reflect expected sub-lease income. Certain obligations under leasing arrangements are collateralized by the underlying asset being leased.

⁽²⁾Future minimum lease payments include $0.7 million of lease payment obligations for the prior leased Miami distribution center. For purposes of calculating the minimum lease payments, a reduction is reflected for the actual sub-lease income the Company expects to receive during the remaining lease term. This sub-lease income was also considered for the purposes of calculating the exit obligation, which was immaterial as of May 31, 2020.

NOTE 911 – SUBSEQUENT EVENTS

The Company has evaluated all events subsequent to the balance sheet date of ~~November 30, 2017~~May 31, 2020 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~~

~~The Company has entered into forward exchange contracts during December 2017 for approximately $5.0 million with settlement dates during January 2018.~~

~~New tax legislation~~

In December 2017, the United States approved new legislation that significantly modifies current tax legislation. The Company is currently assessing the impact of this recent legislation; however, the most significant changes to the Company are:

a reduction in the U.S. corporate tax rate from 35.0% to 21.0% starting in January 2018. This will likely result in a one-time non-cash expense to be booked in the second quarter of fiscal year 2018 to reduce the value of certain deferred tax assets. On an ongoing basis, it will likely result in a favorable impact on the Company’s overall effective tax rate. However, substantially all of the Company’s revenue are from foreign sources, much of which attracts foreign withholding taxes. In the past, the Company has generally been able to recover all of the foreign tax credits generated by these withholdings as an offset to U.S. taxes payable. However, the Company currently estimates that foreign tax credits will be higher than 21% of U.S. taxable income and lower than 35%. Therefore, the Company expects to benefit from the reduction of tax rates, but not to the full extent of the rate reduction, as excess foreign tax credits will have to be expensed; and

a one-time tax on accumulated foreign profits, which will likely result in a tax expense being recorded for the full amount in the second quarter of fiscal 2018, while the payment will be spread over eight years. However, from a cash perspective, the Company expects to be able to offset some of this charge by foreign tax credits accumulated prior to January 1, 2018.

2834

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PRICESMART, INC.

~~ITE~~MITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements concerning PriceSmart, Inc.'s ("PriceSmart", the "Company" or "we") anticipated future revenues and earnings, adequacy of future cash flows, 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,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially including, the following risks: our financial performance is dependent on international operations, which exposes us to various risks; any failure by us to manage our widely dispersed operations could adversely affect our business; we face significant competition; future sales growth depends, in part, on our ability to successfully open new warehouse clubs and grow sales in our existing locations; we mightbut not ~~identify in a timely manner or effectively respond to~~limited to: adverse changes in economic conditions in the Company’s markets, natural disasters, compliance risks, volatility in currency exchange rates, competition, consumer ~~preferences for merchandise, which could adversely affect our relationship~~and small business spending patterns, political instability, increased costs associated with members, demand for our products and market share; 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; failure to grow our e-commerce business through the integration of ~~physical~~online commerce with our traditional business, whether the Company can successfully execute strategic initiatives, breaches of security or privacy of member or business information, cost increases from product and ~~digital retail~~service providers, interruption of supply chains, COVID-19 related factors and challenges, including among others, the duration of the pandemic, the unknown long-term economic impact, the impact of government policies and restrictions that have limited access for our members, and shifts in demand away from discretionary or ~~otherwise, and the cost of our increasing e-commerce investments, may materially adversely affect our market position, net sales and financial performance; our profitability is vulnerable~~higher priced products to cost increases; we face difficulties in the shipment of, and risks inherent in the importation of, merchandise to our warehouse clubs; we are exposed to weather and other natural disaster risks that might not be adequately compensated by insurance; negative economic conditions could adversely impact our business in various respects; our failure to maintain our brand and reputation could adversely affect our results of operations; we face the risk oflower priced products, exposure to product liability claims aand product recall and adverse publicity; we are subject to risks associated with possible changes in our relationships with third parties with which we do business, as well as the performance of such third parties; we could be subject to additional tax liabilities or subject to reserves on therecalls, recoverability of ~~tax receivables;~~ ~~we face the possibility of operational interruptions related~~moneys owed to union work stoppages; we are subject to volatility in foreign currency exchange rates and limits on our ability to convert foreign currencies into U.S. dollars; we face compliance risks related to our international operations; we rely extensively on computer systems to process transactions, summarize results and manage our business. Failure to adequately maintain our systems and disruptions in our systems could harm our business and adversely affect our results of operations; w~~e may experience difficulties implementing our new global enterprise resource planning system~~; any failure by us to maintain the security of the information that we hold relating to our company, members, employees and vendors, whether as a result of cybersecurity attacks on our information systems, failure of internal controls, employee negligence or malfeasance or otherwise, could damage 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 litigation and could materially adversely affect our operating results; ~~we are subject to payment related risks; failure to attract and retain qualified employees, increases in wage and benefit costs, changes in laws~~PriceSmart from governments, and other ~~labor issues could materially adversely affect~~important factors discussed under the captions “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our financial performance; 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; a few of our stockholders own approximately 25.3% of our voting stock as of November 30, 2017, which may make it difficult to complete some corporate transactions without their support and may impede a change in control. The risks described above as well as the other risks detailed in the Company’s U.S. Securities and Exchange Commission (“SEC”) reports, including the Company’s Annual Report on Form 10-K ~~filed~~ for the fiscal year ended August 31, ~~2017~~2019 filed with the United States Securities and Exchange Commission (“SEC”) on October ~~26, 2017, pursuant~~29, 2019 and our Quarterly Report on Form 10-Q for the three months ended February 29, 2020 filed with the SEC on April 8, 2020. These risk factors may be updated from time to time in our other filings with the ~~Securities Exchange Act~~SEC, which are accessible on the SEC’s website at www.sec.gov. Forward-looking statements speak only as of ~~1934, see “Part I - Item 1A - Risk Factors,” could materially~~the date that they are made, 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~~does not undertake to update them, except as required 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.law.

The following discussion and analysis compares the results of operations for the three and nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~May 31, 2019 and should be read in conjunction with the consolidated financial statements, and the accompanying notes included therein.

Overview

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~~Our business consists primarily of operating international~~PriceSmart began operations in 1996 in San Diego, California. We own and operate U.S. style membership shopping warehouse clubs ~~similar~~in Central America, the Caribbean and Colombia. We also function as a wholesale supplier to ~~but~~a retailer in the Philippines. We sell high quality brand name and private label consumer products and provide services such as optical and tires at low prices to individuals and businesses. Historically, our typical no-frills standard warehouse buildings have ranged in sales floor size from approximately 40,000 to 60,000 square feet and are located primarily in and around the major cities in our markets to take advantage of dense populations and relatively higher levels of disposable income. Additionally, starting in fiscal year 2019, we also began opening smaller format clubs, with sales floors ranging from approximately 30,000 to 40,000 square feet. These smaller format clubs are intended to serve markets where the population is likely to support a smaller club or densely populated urban areas where it is challenging to secure sufficient real estate at a reasonable cost for a larger club. We believe this smaller format has the potential to expand our geographic reach in ~~size than,~~existing markets and provide more convenience for our members.

As warehouse club operators, we believe that our business success depends on our ability to be the lowest cost operators in our markets and, in turn, to offer the lowest prices on high quality products and services in our markets. We believe that lower prices on products and services should drive sales volume, which increases the Company’s buying leverage, which in turn leads to better pricing that can be offered to our members, validating the membership investment that our customers make.

Logistics and distribution efficiencies are fundamental to delivering high quality merchandise at low prices to our members. We continue to explore ways to deliver value, improve efficiency, reduce costs and ensure a flow of high quality, curated merchandise to our warehouse clubs.

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 markets because suitable sites at economically feasible prices are difficult to find. We believe 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

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the residual value that the real estate may have in future years. While our preference is to own rather than lease real estate, we have entered into real estate leases in certain cases and will likely continue to do so in the ~~United States. We~~future.

Our warehouse clubs currently operate in ~~13 countries/territories~~emerging markets that ~~are located~~historically have had higher growth rates and lower warehouse club market penetration than the U.S. market. In the countries in ~~Latin America~~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 ~~the Caribbean. Our ownership in all operating subsidiaries as of November 30, 2017 is 100%,~~carry, home improvement centers, electronic retailers, specialty stores, convenience stores, traditional wholesale distribution and ~~they are presented on a consolidated basis.~~ growing online sales.

The number of warehouse clubs ~~in operation~~ as of ~~November 30, 2017~~May 31, 2020 for each country or territory ~~are~~were as follows:



	Number of		Number of		Anticipated		Number of	Number of
	Warehouse Clubs		Warehouse Clubs		Warehouse		Warehouse Clubs	Warehouse Clubs
	in Operation as of		in Operation as of		Club Openings		in Operation as of	in Operation as of
Country/Territory	August 31, 2017		November 30, 2017		In Fiscal Year 2018		May 31, 2019	May 31, 2020
Colombia		7		7		—	7	7
Costa Rica		6		7		—	7	7
Panama		5		5		—	6	7
Dominican Republic							4	5
Trinidad		4		4		—	4	4
Dominican Republic		3		3		1
Guatemala		3		3		—	3	4
Honduras		3		3		—	3	3
El Salvador		2		2		—	2	2
Nicaragua		2		2		—	2	2
Aruba		1		1		—	1	1
Barbados		1		1		—	1	1
U.S. Virgin Islands		1		1		—	1	1
Jamaica		1		1		—	1	1
Totals		39		40		1	42	45

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.

We opened ~~a new~~our 46th warehouse club in ~~Santa Ana,~~Liberia, Costa Rica, on June 17, 2020. The new Liberia club is a smaller warehouse club located approximately 130 miles from the nearest PriceSmart club and three hours from the capital city of San José. We are also currently constructing and expect to open our third warehouse club in ~~October 2017, bringing~~Bogota, Colombia during our second fiscal quarter of 2021.

Due to the ~~total~~uncertainty created from the outbreak of COVID-19 and the unknown potential social and economic impacts in the markets where we operate and any resulting consequences to our results of operations and cash flow, we continue to closely monitor and reevaluate the timing of our future capital investments and warehouse club openings.

We continue to invest in technology to increase efficiencies and to enhance our member experience by enabling omni-channel capabilities, including e-commerce online shopping and services. During the third quarter of Fiscal 2020, we launched online ordering and our Click & Go™ curbside pickup service. In June 2020, we offered this service in all 13 of our markets and in substantially all clubs.

We also operate a legacy business (casillero and marketplace) under the “Aeropost” banner in 38 countries in Latin America and the Caribbean, many of which overlap with markets where we operate warehouse clubs.

Factors Affecting Our Business

COVID-19 Updates

The COVID-19 pandemic resulted in significant challenges across our 13 markets in the third quarter of fiscal 2020. Many markets imposed limitations, varying by market and in frequency, on access to the Company’s clubs and on the Company’s club operations, including in some cases frequent temporary club closures, a reduction in the number of days during the week and hours per day the Company’s clubs are permitted to be open, restrictions on segments of the population permitted to shop or circulate on particular days, and limits on the number of people permitted to be in the club at the same time. In addition, the

governments of some of the countries in which we operate have expressed a preference in favor of imports of essential items over discretionary goods. We have also experienced product mix shifts due to changing consumer habits, as well as sporadic supply-chain challenges, which can impact inventory levels. In response, we have shifted our focus to four main priorities:

Protect the safety and well-being of our employees and our members.We continue to be vigilant in taking the necessary and prudent measures to provide the safest possible environment for our employees and our members. We are closely tracking numerous decrees and government mandates and are following all local guidelines. We have taken preventative measures that include frequent and enhanced cleaning and sanitizing protocols, providing personal protective equipment, installing protective barriers for the cashiers and in other member-facing areas, reducing or eliminating in-club food service, eliminating food sampling, implementing social distancing measures, metering the number of customers in a club at any one time, requiring masks to be worn by members in the club (where legally permitted), taking temperatures of employees at the beginning of shifts, quickly identifying and cooperating with local health officials about confirmed cases, promptly implementing contact tracing protocols and mapping of potentially exposed employees who are then immediately quarantined while continuing to be paid, off-siting employees whose functions could be performed remotely, offering vulnerable employees with underlying health conditions, employees over 60 and pregnant employees paid leave and vigilantly educating our employees about safe practices and enforcing best practices of good hygiene. We have also expanded our efforts to educate family members of employees about safe practices and to provide them with masks and sanitizing materials. We have modified our sick leave policy to make sure that sick people can take paid time off. We have built reserve teams of employees who do not overlap with each other so that they can step in as needed.

Take proactive measures to protect our supply chain. We are working closely with our suppliers to make sure that we have essential items available for our members. This includes increasing the use of our regional and local distribution centers and merchandise vendors to provide additional flexibility and reduce the risk of interruption of the flow of merchandise to our markets. We have also placed limits on the quantity of certain key items that members can purchase such as cleaning supplies, paper products and core shelf-stable groceries. We have also activated distribution systems and routing to ensure optionality in the event of outbreak or restrictions on mobility in certain geographic areas.

Expand technology-enabled shopping. During the third fiscal quarter of 2020, we launched our Click & Go™ program to allow for a contactless way for our members to shop. In June 2020, we offered the Click & Go™ program in all 13 of our markets and substantially all clubs we operate, providing an alternative and convenient way for our members to shop, while reducing physical contact. Our Click & Go™ program enables members to use our e-commerce platform to identify and select merchandise, order and pay online, and then have their orders placed in their cars at their chosen clubs. We continue to work on improving and expanding our online initiatives, in conjunction with optimizing our club operations to allow members to shop safely, quickly and efficiently.

Manage cash and capital resources. Given the uncertainty surrounding the potential impact of the outbreak on our results of operations and cash flows, we are proactively taking steps to secure and preserve available cash. Initially, we suspended most of our capital projects and discretionary spending. As we gained a better understanding of the climate in which we were operating and our resulting performance, we methodically restarted several of our previously postponed investments. We opened our smaller format warehouse club in Liberia, Costa Rica, ~~to seven.~~ Inon June ~~2017,~~17, 2020, and we ~~acquired land~~have resumed construction on our third club in ~~Santo Domingo, Dominican Republic. We are currently building a warehouse club on this site that we expect~~the greater metropolitan area of Bogota, the eighth in Colombia, which is expected to open in the ~~spring~~second quarter of ~~calendar year 2018. This will bring the number of PriceSmart warehouse clubs operating in Dominican Republic to four.~~ fiscal 2021. We continue to ~~explore other potential sites for~~evaluate when to restart previously announced construction of future warehouse clubs on land that we acquired in ~~Central America,~~Bucaramanga, Colombia and in Jamaica, as well as other capital projects. We also furloughed approximately 80 employees in the ~~Caribbean~~United States and ~~Colombia.~~implemented temporary salary reductions for employees and executives above a certain income level on a tiered basis increasing from 10% to 30% based on compensation level. Additionally, the Board of Directors waived their cash payment for the calendar quarter ended June 30, 2020. Finally, we have negotiated extended terms with many vendors and have taken advantage of tax deferral arrangements, where available. In the current environment, we believe cash flows from operations, our current cash position and access to capital markets will continue to be sufficient to meet our anticipated operating cash needs, which include any deferred liabilities, funding seasonal buildups in merchandise inventories and funding our capital expenditures, dividend payments and other financing requirements. Refer to Item 2 “Management’s Discussion and Analysis - Liquidity and Capital Resources” for additional information.

~~General Market Factors~~We expect continued uncertainty in the economies of our 13 markets with respect to the duration and intensity of the COVID–19 pandemic; the length and impact of stay-at-home orders and other restrictions; volatility in employment trends and consumer confidence; volatility in foreign currency exchange rates and commodity prices; and the fiscal austerity measures taken by governments in our markets, which will likely impact our results in the near future.

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

Our sales and profits vary from market to market within the 13 markets we serve depending on general economic factors, including GDP growth; consumer spending patterns; foreign currency exchange rates; political policies and employment and social conditions; local demographic characteristics (such as population growth); the number of years ~~PriceSmart has~~we have operated in a particular market; and the level of retail and wholesale competition in that market.

Currency fluctuations can be one of the largest ~~variable~~variables affecting our overall sales and ~~profit performance, as we experienced in fiscal years 2015 and 2016,~~profitability because many of our markets are susceptible to foreign currency exchange rate volatility. InDuring the first ~~three~~nine months of fiscal year ~~2018~~2020 and ~~during~~ fiscal year ~~2017,~~2019, approximately ~~77%~~78% of our net ~~warehouse~~merchandise sales were in currencies other than the U.S. dollar. Of those sales, ~~that were currencies other than the U.S. dollar, approximately~~49% and 52% were comprised of sales of products we purchased in U.S. ~~dollars.~~dollars during the first nine months of fiscal year 2020 and fiscal year 2019, respectively.

~~A devaluation~~Fluctuation of ~~the~~ local currency ~~not only reduces~~versus the U.S. dollar can increase or decrease the value of sales and membership income that ~~is generated~~we generate in that country when translated to U.S. dollars for our consolidated ~~results, but also increases~~financial results. In cases where a local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which ~~impacts~~could impact demand for ~~a significant portion~~the merchandise affected by the price increase. We may also modify the mix of ~~the Company’s~~imported versus local merchandise ~~offering. For example, changes in~~and/or 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. A stabilization of the currency during fiscal year 2017 contributed to improving business conditions in Colombia, resulting in good sales growth and a return to operating profitability in our Colombia segment that has continued into the first three months of fiscal year 2018.

Certain of our Central American and Caribbean markets experienced some slowing of overall economic activity during fiscal year 2017, which, to some degree, is continuing into the first three months of fiscal year 2018. In particular, Trinidad, which depends on oil and gas exports as a major source of ~~income, has been experiencing overall difficult economic conditions. These adverse economic conditions, combined with government policies intended~~imported merchandise to ~~manage foreign~~mitigate the impact of currency ~~reserves, have adversely affected consumer spending. Other countries where general market conditions provided a difficult operating environment during~~fluctuations. Information about the effect of local currency devaluations is discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Net Merchandise Sales and Comparable Sales.”

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~~fiscal year 2017 and continuing into the first three months of fiscal year 2018 include USVI, where Hurricanes Irma and Maria had a severe impact on the infrastructure of the island, and Barbados.~~

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.

Demographic characteristics within each of our markets can ~~also~~ affect both the overall level of sales and ~~also~~ future sales growth opportunities. Island countries 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,~~populations, such as Honduras, El Salvador, Jamaica and Nicaragua, ~~also~~offer growth potential but may have a more limited ~~potential~~market opportunity for sales growth as compared to more developed countries with larger or growing upper and middle class consumer populations.

Political and other factors in each of our markets may have significant effects on our business. U.S. foreign policy can also have an impact on social and economic stability in the countries where we operate. For example, the U.S. State Department has announced varying strategies regarding if, when ~~national elections are being held,~~and how it would authorize disbursement of foreign aid that had been previously approved by the U.S. Congress to Guatemala, Honduras and El Salvador. Changes in U.S. policies regarding financial assistance could cause political ~~situation can introduce uncertainty about how~~or financial instability in the ~~leadership change may impact~~countries we serve.

In the economy and affect near-term consumer spending. As has been the case in recent weeks in Honduras, political turmoil can result in local unrest, resulting in curfews and reduced operating hours and interrupt the normal flow of merchandise to our warehouse clubs. The need for increased tax revenue in certain countries can also 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 prices of various products.

~~From time to time~~past, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This ~~impedes~~can impede our ability to convert local currencies obtained through ~~warehouse~~merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products, or otherwise redeploy in our Company, increasing our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. ~~During~~We continued to experience illiquidity in Trinidad during fiscal year ~~2017 and continuing into the first three months~~2020. However, as of ~~fiscal year 2018, we experienced this situation in~~May 31, 2020, our Trinidad ~~(“TT”).~~subsidiary was current on its U.S. dollar payables for imported merchandise. We are working with our banks in Trinidad to source ~~tradable~~tradeable currencies, ~~(including Euros and Canadian dollars),~~ but until ~~the central bank in Trinidad makes~~ more U.S. dollars become 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 2016, 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 third and fourth fiscal quarters. Over the past three months, however, we have been unable to source a sufficient level of tradeable currencies in Trinidad consistent with the level of merchandise we are importing for the holiday shopping season. As of ~~November 30, 2017,~~May 31, 2020, our Trinidad subsidiary had ~~net U.S.~~Trinidad dollar denominated ~~liability exposures~~cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately ~~$12.1~~$72.3 million, an increase of ~~$16.1~~$47.4 million from August 31, ~~2017~~2019 when these same balances were approximately $24.9 million. Illiquidity of the Trinidad dollar could signify that it is overvalued, and the Trinidad government could 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 ~~subsidiary~~dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $14.5 million, with a corresponding decrease in our Stockholders’ Equity recorded in the Accumulated other comprehensive loss caption of our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments illiquidity situation described above, as of May 31, 2020, we had ~~net~~a U.S. dollar denominated ~~assets~~net monetary asset position of approximately ~~$4.0 million.~~ $11.2 million in Trinidad that 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 of revaluing these U.S. dollar net monetary assets would be an approximate $2.2 million gain.

We are carefully monitoring the situation, which may require us to limit future 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.

Mission and Business Strategy

Our ~~business strategy~~mission is to ~~operate membership warehouse clubs in Latin America~~improve the quality of life for members, their businesses and the ~~Caribbean. We sell~~communities in which they live and work, while treating our employees well and being supportive of our suppliers. To do this, we make available a ~~limited number~~wide range of high ~~volume products and services across a broad range of categories to businesses and families~~quality, curated merchandise sourced from around the world at ~~the lowest possible prices. PriceSmart members pay an~~good value. The annual membership fee ~~and that fee, combined with volume purchasing and operating efficiencies throughout the supply chain, enable~~enables us to operate our business ~~efficiently~~ with lower margins than traditional retail stores. Through the use of technology and ~~prices than conventional retail stores~~the development of an omni-channel platform, we are pursuing opportunities to satisfy our members’ shopping expectations, create additional efficiencies in the supply chain and ~~wholesale suppliers.~~

~~While~~increase our ~~traditional membership warehouse club strategy continues to work well~~significance in our ~~markets, we recognize that technology is having an increasingly profound impact on shopping habits throughout the world.~~members’ lives. We ~~believe our business strategy needs~~strive to ~~be broadened to respond to changes in shopping habits so~~establish a relationship with our members ~~will have the~~that enhances their lives with quality goods and services and offers a shopping experience ~~they desire.~~

~~Our longer range strategic objective is to combine~~that blends the ~~traditional membership warehouse club “brick~~excitement and ~~mortar”~~appeal of our brick and mortar business with the convenience of online shopping ~~to provide the best shopping experience possible for our members.~~and services.

Growth

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~~Growth~~

We measure our growth primarily by the amount of the period-over-period activity in our net ~~warehouse~~merchandise sales, our comparable ~~warehouse~~ club net merchandise sales, ~~(which include~~membership income and total revenues. However, our investments are intended to increase the ~~impact of e-commerce sales) and~~value our membership ~~income. At times,~~provides to our member. Our investments are geared toward creating greater efficiency, to enable lower prices, better services, enhanced convenience and exciting experiences for our members, which we ~~make strategic investments that are focused on the long-term~~believe will support sustained growth offor the Company. These investments can impact near-term results, such as when we invest in technology and talent that are expected to yield long-term benefits or when we incur fixed costs in advance of achieving full projected sales, negatively impacting near-term operating profit and net ~~income, or when~~income. When we open a new warehouse club in an existing market, which ~~can~~may reduce reported comparable ~~warehouse~~net merchandise sales due to the ~~cannibalization~~transfer of sales from existing warehouse ~~clubs.~~ clubs, we do so to enhance the member experience, grow membership and support long-term sales growth and profitability.

~~Current and Future Management Actions~~Financial highlights for the three months ended May 31, 2020 included:

~~Generally, our operating efficiencies, earnings and cash flow improve as~~Total revenues increased 1.4% over the comparable prior year period.

Net merchandise 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~~increased 1.8% over the comparable prior year period. We ended the quarter with ~~continuous efforts to improve efficiencies through our distribution network and within our~~45 warehouse clubs ~~also give us the opportunity~~compared 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 existing42 warehouse clubs ~~to serve~~at the ~~growing membership base and level~~end 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 the first three months of fiscal year 2018 were positively impacted by the addition of a new warehouse club that opened in Santa Ana, Costa Rica in October 2017, fiscal year 2018. 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 the first quarter of fiscal year 2018, net warehouse sales increased 4.1% when compared to the same three month period in fiscal year 2017. Finally, we believe that online sales constitute a significant opportunity to grow sales in the future.

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 was 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 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 in October, fiscal year 2018, we introduced the Platinum membership in the Dominican Republic.

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, a significant portion of which we receive 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 has increased our ability to efficiently receive, handle and distribute merchandise. We then ship~~2019. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.5% versus the same three-month period in the prior year.

Comparable net merchandise ~~either directly to our~~sales (that is, sales in the 41 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 13 weeks ended May 31, 2020 decreased 3.6%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.5%.

Membership income increased 3.0% to $13.5 million over the comparable prior-year period primarily driven by new member sign-ups for the four club openings in Panama, Dominican Republic, and Guatemala in calendar year 2020.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 1.9% over the comparable prior year period and total gross margins as a percent of net merchandise club sales were 13.9%, remaining flat over the prior year.

Operating income was $24.0 million, an increase of 9.0%, or ~~to regional distribution centers located in some of our larger markets. Our ability to efficiently receive, handle and distribute merchandise~~$2.0 million, compared 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. We expect to begin operating this distribution center during the fourththird quarter of fiscal year ~~2018. In August~~2019.

We recorded a $1.5 million net currency loss from currency transactions in the current quarter compared to a $192,000 net gain in the same period last year.

The effective tax rate for the third quarter of fiscal year 2017, we entered into a long-term lease for a 52,463 square foot distribution center in Panama that we occupied in September 2017. We expect that both these new distribution centers will improve the merchandise flow and in-stock conditions in our warehouse clubs, reduce merchandise costs and facilitate online sales to our members.

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

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~~provides a number of advantages~~2020 was 38.0%, 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 neededeffective tax rate for the ~~warehouse club facility. To the extent that we acquire property in excess~~third quarter of ~~what is needed for a particular warehouse club, we generally have looked~~fiscal year 2019 of 34.7%.

Net income attributable 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 strategyPriceSmart, Inc. 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~~third quarter of fiscal year 2020 was $12.7 million, or ~~development of excess real estate not required~~$0.41 per diluted share, compared to ~~operate a warehouse club is highly dependent on real estate market conditions.~~

~~We are currently engaged~~$14.1 million, or $0.46 per diluted share, 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 committee of the 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 fiscalcomparable prior 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 fiscal year as we pursue these long-term initiatives, which will likely require further investments beyond the current fiscal year.period.

Financial highlights for the ~~first~~nine months ended May 31, 2020 included:

Total revenues increased 4.0% over the comparable prior year period.

Net merchandise sales increased 4.1% over the comparable prior year period. We ended the quarter with 45 warehouse clubs compared to 42 warehouse clubs at the end of the third quarter of fiscal year ~~2018 included:~~2019. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 1.5%.

Comparable net merchandise sales (that is, sales in the 41 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 39 weeks ended May 31, 2020 decreased 0.7%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 1.4%.

Membership income increased 6.8% to $41.4 million membership over the comparable prior-year period primarily driven by new member sign-ups for the four club openings in Panama, Dominican Republic, and Guatemala in calendar year 2020.

Net warehouse club sales increased 4.1% over the comparable prior-year period. We ended the quarter with 40 warehouse clubs compared to 39 warehouse clubs at the end of the first quarter of fiscal year 2017.

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 December 3, 2017 increased 2.2%, impacted by the opening of our Santa Ana, Costa Rica warehouse club in October.

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~~Membership income for the first quarter of fiscal year 2018 increased 5.7% to $12.4 million over the comparable prior-year period.~~

Warehouse gross profits (net warehouse club sales less associated cost of goods sold) increased 0.5% over the comparable prior year period and warehouse gross profits as a percent of net warehouse club sales were 14.5%, a decrease of 51 basis points (0.51%) from the same period last year.

~~Operating income for the first quarter of fiscal year 2018 was $33.2 million, compared to $38.4 million in the first quarter of fiscal year 2017.~~

~~We recorded a $278,000 net currency gain from currency transactions in the current quarter compared to a $928,000 net loss in the same period last year.~~

~~The effective tax rate for the first quarter of fiscal year 2018 was 31.0%, as compared to the effective tax rate for the first quarter of fiscal year 2017 of 31.5%.~~

~~Net income for the first quarter of fiscal year 2018 was $22.5 million, or $0.74 per diluted share, compared to $24.9 million, or $0.82 per diluted share, in the comparable prior-year period.~~

Total gross margin (net merchandise sales less associated cost of goods sold) increased 7.7% over the comparable prior year period and total gross margins as a percent of net merchandise club sales were 14.5%, an increase of 50 basis points (0.5%) versus the same period last year.

Operating income was $93.5 million, an increase of 12.4%, or $10.3 million, compared to the first nine months of fiscal year 2019.

We recorded a $2.4 million net currency loss from currency transactions in the current nine-month period compared to a $1.9 million net loss in the same period last year.

The effective tax rate for the first nine months of fiscal year 2020 was 33.9%, as compared to the effective tax rate for the first nine months of fiscal year 2019 of 33.7%.

Net income attributable to PriceSmart, Inc. for the first nine months of fiscal year 2020 was $58.0 million, or $1.90 per diluted share, compared to $52.5 million, or $1.73 per diluted share, in the comparable prior year period.

COMPARISON OF THE ~~THREE MONTHS ENDED NOVEMBER 30, 2017 AND 2016~~three and nine months ended May 31, 2020 and 2019

The following discussion and analysis compares the results of operations for the three-month ~~period~~and nine-month periods ended on ~~November 30, 2017~~May 31, 2020 with the three-month ~~period~~and nine-month periods ended on ~~November 30, 2016~~May 31, 2019 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. Unless otherwise noted, all tables on the following pages present U.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding.

Net Merchandise Sales

~~Table of Contents~~

~~Net Warehouse Club Sales~~

The following tables indicate the net ~~warehouse~~merchandise club sales in the segments in which we operate and the percentage growth in net ~~warehouse club~~merchandise sales by segment during the three ~~months~~and nine-months ended ~~November 30, 2017~~May 31, 2020 and ~~2016.~~2019.



	Three Months Ended

	November 30, 2017								November 30, 2016				Three Months Ended
													May 31, 2020								May 31, 2019
	Amount		% of net sales		Increase/ (decrease) from prior year		Change		Amount		% of net sales		Amount		% of net ‎sales		Increase/ ‎(decrease) ‎from ‎prior year		Change		Amount		% of net ‎sales
Central America	$	443,667	59.5	%	$	13,495	3.1	%	$	430,172	60.1	%	$	442,804	57.6	%	$	5,202	1.2	%	$	437,602	58.0	%
Caribbean		211,439	28.4	%		7,534	3.7	%		203,905	28.5	%		246,461	32.1			21,555	9.6			224,906	29.8
Colombia		90,295	12.1	%		8,293	10.1	%		82,002	11.4	%		79,103	10.3			(13,398)	(14.5)			92,501	12.2
Net warehouse club sales	$	745,401	100.0	%	$	29,322	4.1	%	$	716,079	100.0	%
Net merchandise sales													$	768,368	100.0	%	$	13,359	1.8	%	$	755,009	100.0	%

During the third quarter and the nine-month period, net merchandise sales were positively impacted by increases in average ticket, which were offset by decreases in transactions due to capacity restrictions and other government restrictions as a result of the COVID-19 pandemic. In the third quarter, governments in our markets imposed restrictions of varying degrees on nearly all businesses, including essential businesses such as ours. These governments have mandated various protocols resulting in limitations on the number of people in our clubs, reduced hours of operation, restrictions on or closure of dining and other services areas, and, in some cases, closure of our clubs intermittently or on certain days of the week. These, in combination with consumer trepidation about the spread of COVID-19 and government restrictions limiting times when consumers can leave their homes, have caused reduced traffic in our clubs and led to the significant decline in transactions for the third quarter and nine-month period ended May 31, 2020.

Net ~~warehouse~~merchandise sales in our Central America segment increased ~~3.1%~~1.2% and 5.3% for the ~~first~~third quarter ~~of fiscal year 2018,~~and the nine-months ended May 31, 2020, respectively, when compared to the same periods last year. These increases had a 70 basis point (0.7%) and 310 basis point (3.1%) positive impact on total net merchandise sales growth, respectively. All markets within this segment, with the ~~addition~~exception of Honduras, showed increased net merchandise sales year-on-year. We added two new clubs to the ~~Santa Ana warehouse~~segment when compared to the period ended May 31, 2019. In Panama, we opened our seventh club ~~which opened~~ in October ~~contributing~~2019 and in Guatemala, we opened our fourth club in November 2019.

Net merchandise sales in our Caribbean segment grew 9.6% and 6.2% for the third quarter and the nine-months ended May 31, 2020, respectively, when compared to ~~an overall~~the same periods last year. These increases had a 290 basis point (2.9%) and 190 basis point (1.9%) positive impact on total net merchandise sales growth, respectively. Our Dominican Republic, Trinidad, and Jamaica markets led the way in ~~Costa Rica. Panama sales were essentially flat, but all other Central American countries recorded positive~~this segment with 21.4%, 16.4%, and 11.8% growth ~~in warehouse sales~~ for the ~~three-month period.~~

~~Our Caribbean segment showed improvement~~third quarter ended May 31, 2020, and 17.9%, 6.8%, and 11.5% growth for the nine-months ended May 31, 2020, respectively. In the Dominican Republic, we opened our fifth club in June 2019, while in Jamaica and Trinidad, strong comparable sales growth ~~from~~was the ~~past few quarters. While Trinidad, our largest market in the segment, was essentially flat, this was an improvement from negative sales~~primary driver of growth experienced in each of the prior four quarters. All other countries in the segment recorded positive sales growth, including Barbados which, like Trinidad, had negative sales growth in each of the previous four quarters. Sales in the Company’s USVI warehouse club grew 15.3% for the ~~quarter. Despite significant business interruption in September due to~~third quarter and the ~~hurricanes that hit the island, the return to normal operations in October and November resulted in strong sales as some other retailers in the market have not recovered.~~nine-months ended May 31, 2020.

Net ~~warehouse~~merchandise sales in our Colombia segment ~~experienced growth of 10.1%~~decreased 14.5% and 6.2% for the ~~three-month period~~third quarter and the nine-months ended May 31, 2020, respectively, when compared to the same period last year. These decreases had a ~~year ago. With~~180 basis point (1.8%) and 90 basis point (0.9%) negative impact on total net merchandise sales growth, respectively. The declines for the ~~stabilization of~~third quarter and the nine-months ended May 31, 2020, are primarily due to significant unfavorable foreign currency devaluation during the current period and government restrictions in response to the coronavirus outbreak.

In discussing our operating results, the term “currency exchange ~~rate between~~rates” refers to the ~~Colombian peso and~~currency exchange rates we use to convert the operating results for all countries where the functional currency is not the U.S. dollar ~~over~~into U.S. dollars. We calculate the ~~past 15~~effect of changes in currency exchange rates as the difference between current period activities translated using the current period's currency exchange rates and the comparable prior year period's currency exchange rates. The disclosure of currency exchange rate fluctuations permits investors to better understand our underlying performance without the effects of currency exchange rate fluctuations.

The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage change from the three and nine-month periods ended May 31, 2020.


	Currency exchange rate fluctuations for the
	three months ended
	May 31, 2020
	Amount		% change
Central America	$	5,556	1.2	%
Caribbean		(7,616)	(3.4)
Colombia		(17,260)	(18.7)
Net merchandise sales	$	(19,320)	(2.5)	%


	Currency exchange rate fluctuations for the
	nine months ended
	May 31, 2020
	Amount		% change
Central America	$	15,549	1.1	%
Caribbean		(17,426)	(2.5)
Colombia		(32,504)	(11.2)
Net merchandise sales	$	(34,381)	(1.5)	%

Overall, the effects of currency fluctuations within our markets had an approximately $19.3 million and $34.4 million, or 250 basis point (2.5%) and 150 basis point (1.5%), negative impact on net merchandise sales for the quarter and nine-months ended May 31, 2020, respectively.

Currency fluctuations had a $5.6 million and $15.6 million, or 120 basis point (1.2%) and 110 basis point (1.1%), positive impact on net merchandise sales in our Central America segment for the quarter and nine months ~~we have seen continued sales growth in all of our warehouse clubs in Colombia. Transaction growth of 11.7% accounted for all~~ended May 31, 2020, respectively. The currency fluctuations contributed approximately 70 basis points (0.7%) and 60 basis points (0.6%) of the ~~sales increase. Year on year currency changes did not have any material~~total positive impact on total net merchandise sales, respectively. The Costa Rica Colón appreciated significantly against the ~~U.S.~~ dollar as compared to the same three and nine-month period a year ago and was a significant factor in the contribution to the favorably of currency exchange rate fluctuations in this segment.

Currency devaluations had a $7.6 million and $17.4 million, or 340 basis point (3.4%) and 250 basis point (2.5%) negative impact on reported ~~growth.~~net merchandise sales in our Caribbean segment for the quarter and nine months ended May 31, 2020, respectively. The currency devaluations contributed approximately 100 basis points (1.0%) and 80 basis points (0.8%) of the total negative impact on total net merchandise sales for the quarter and nine months ended May 31, 2020, respectively. Our Jamaica and Dominican Republic markets both experienced currency devaluation when compared to the same periods last year.

Currency devaluations had a $17.3 million and $32.5 million, or 1,870 basis point (18.7%) and 1,120 basis point (11.2%), negative impact on net merchandise sales in our Colombia segment for the quarter and nine-months ended May 31, 2020, respectively. The currency devaluations contributed approximately 220 basis points (2.2%) and 130 basis points (1.3%) of the total negative impact on total net merchandise sales, respectively.

Comparable Merchandise Sales

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~~Comparable Sales~~

We report comparable ~~warehouse club~~net merchandise 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 of 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~~merchandise club sales on the weekends. ~~Further, each~~Each of the warehouse clubs used in the calculations was open for at least 13 ½ 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 ~~the~~our four warehouse ~~club~~clubs opened ~~in Colombia in September 2016 were not used in the calculation of comparable sales until November 2017. Sales related to the warehouse opened in Costa Rica in October 2017~~during calendar year 2019 will not be used in the calculation of comparable sales until ~~December 2018.~~they have been open for at least the 13 ½ months. Therefore, comparable net merchandise sales include only 41 warehouse clubs for the thirteen and thirty-nine week periods ended May 31, 2020.

The following tables indicate the comparable net ~~warehouse club~~merchandise sales in the reportable segments in which we operate and the percentage ~~growth~~changes in net ~~warehouse club~~merchandise sales by segment during ~~fiscal years 2017~~the thirteen week and ~~2016.~~thirty-nine week periods ended May 31, 2020 and June 2, 2019.


	Three Months Ended				Thirteen Weeks Ended
	November 30, 2017		November 30, 2016		May 31, 2020		June 2, 2019
	% Increase/(decrease) in comparable net warehouse sales		% Increase/(decrease) in comparable net warehouse sales		% Increase/(decrease) in comparable net merchandise sales		% Increase/(decrease) in comparable net merchandise sales
Central America	(0.1)	%	0.7	%	(6.4)	%	(1.8)	%
Caribbean	3.3	%	(2.8)	%	6.4		2.9
Colombia	11.3	%	4.3	%	(14.8)		(4.5)
Consolidated segments	2.2	%	—	%
Consolidated comparable net merchandise sales					(3.6)	%	(0.8)	%



	Thirty-Nine Weeks Ended
	May 31, 2020		June 2, 2019
	% Increase/(decrease) in comparable net merchandise sales		% Increase/(decrease) in comparable net merchandise sales
Central America	(1.4)	%	(2.9)	%
Caribbean	3.2		1.4
Colombia	(6.6)		0.6
Consolidated comparable net merchandise sales	(0.7)	%	(1.3)	%

Comparison of ~~Three Months~~Thirteen and Thirty-Nine Week Periods Ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~June 2, 2019

Comparable ~~warehouse club~~net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the ~~13-week~~thirteen week period ended ~~December 3, 2017 grew 2.2%~~May 31, 2020 decreased 3.6%. Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirty-nine week period ended on May 31, 2020 decreased 0.7%.

Comparable net merchandise sales in our Central America ~~comparable warehouse club sales were impacted by~~segment decreased 6.4% and 1.4% for the ~~opening~~thirteen week and thirty-nine week periods ended May 31, 2020. These decreases contributed approximately 370 basis points (3.7%) and 80 basis points (0.8%) of the ~~Company’s seventh warehouse club~~decrease in total comparable merchandise sales, respectively.

For the thirteen weeks ended May 31, 2020, decreases in comparable net merchandise sales in Guatemala, Honduras and Panama contributed approximately 540 basis points (5.4%) of the decrease, which was partially offset by a 170 basis point (1.7%) increase in Costa Rica, El Salvador, and Nicaragua. The decreases in ~~an area called Santa Ana. Often times, new warehouse~~Guatemala, Honduras, and Panama are primarily related to periodic club closures and other government-mandated restrictions in response to the coronavirus outbreak, which also include travel restrictions, “shelter in place” advisories, curfews, and social distancing measures. Many of these government policies and restrictions in response to the coronavirus outbreak have resulted in limiting access for our members and impacted our club operations. These include temporary club closures, limits on the number of days during the week and hours per day our clubs can be open, restrictions on segments of the population permitted to shop on particular days, and limits on the number of people that ~~we open are not far from existing warehouse clubs that are included~~can be in a club. We believe comparable net merchandise sales in the ~~calculation for comparable warehouse club sales resulting in a transfer of some sales from an existing club (in this case Escazu) to the new club. This transfer~~segment were also adversely affected by transfers of sales from existing ~~warehouse~~ clubs ~~that are~~ included in the calculation of comparable ~~warehouse club~~net merchandise sales to ~~new warehouse~~newly opened clubs ~~that are~~ not included in the calculation, ~~can have an adverse~~with two in Panama and one in Guatemala. These decreases were partially offset by significant foreign currency appreciation within our Costa Rica market as well as strong performance in our El Salvador and Nicaragua markets.

For the thirty-nine week period ended May 31, 2020, comparable net merchandise sales experienced a decline of 11.6% in Panama, 5.6% in Guatemala, and 4.0% in Honduras. These declines contributed approximately 250 basis points (2.5%) of the decrease, primarily due to coronavirus restrictions and transfers of sales from existing to newly opened clubs. These declines were offset by a 170 basis point (1.7%) increase in Costa Rica, El Salvador, and Nicaragua due to foreign currency appreciation in Costa Rica and strong performance in El Salvador and Nicaragua.

Comparable net merchandise sales in our Caribbean segment increased 6.4% for the thirteen week period ended May 31, 2020. This increase contributed approximately 190 basis points (1.9%) of positive impact on ~~reported~~total comparable ~~warehouse club~~net merchandise sales. ~~We estimate that~~For the ~~transfer~~thirty-nine week period ended May 31, 2020, comparable net merchandise sales in our Caribbean segment increased 3.2%, which contributed approximately 90 basis points (0.9%) of ~~sales associated~~positive impact on total comparable net merchandise sales.

For the thirteen and thirty-nine week periods ended May 31, 2020, all markets in our Caribbean segment, with the ~~Santa Ana opening negatively impacted~~exception of the U.S. Virgin Islands, Aruba and Barbados, showed strong growth compared to the same period in the prior year. Strong performance in our Trinidad market resulted in 17.0% and 6.6% growth in comparable ~~warehouse club~~net merchandise sales and investments we made in our Jamaica market resulted in 12.3% and 11.2% growth in comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 31, 2020. In our U.S. Virgin Islands market, comparable net merchandise sales declined when compared to the same period in the prior year. Hurricanes Irma and Maria had a severe impact on the infrastructure of the islands in the fall of calendar year 2017. From that time until the end the first quarter of fiscal year 2020, the Company benefitted from the difficulty other retailers had in becoming fully operational, but those same retailers have rebuilt, contributing to increased competition in that market.

Comparable net merchandise sales in our Colombia segment decreased 14.8% and 6.6% for the thirteen and thirty-nine week periods ended May 31, 2020. These decreases contributed approximately 180 basis points (1.8%) and 80 basis points (0.8%) of negative impact on total comparable sales for the respective period. These declines were largely due to the devaluation of the Colombian peso relative to the U.S. dollar and government restrictions imposed in response to the coronavirus outbreak.

The following tables illustrate the impact that changes in foreign currency exchange rates had on our comparable merchandise sales in dollars and the percentage change from the thirteen and thirty-nine week periods ended May 31, 2020.


	Currency Exchange Rate Fluctuations for the
	Thirteen Weeks Ended
	May 31, 2020
	Amount		% change
Central America	$	5,096	1.2	%
Caribbean		(6,905)	(3.1)
Colombia		(16,630)	(18.3)
Consolidated comparable net merchandise sales	$	(18,439)	(2.5)	%


	Currency Exchange Rate Fluctuations for the
	Thirty-Nine Weeks Ended
	May 31, 2020
	Amount		% change
Central America	$	15,061	1.1	%
Caribbean		(16,224)	(2.4)
Colombia		(31,866)	(11.0)
Consolidated comparable net merchandise sales	$	(33,029)	(1.4)	%

Overall, the mix of currency fluctuations within our markets had an approximate $18.4 million and $33.0 million, or 250 basis points (2.5%) and 140 basis points (1.4%), of negative impact on comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 31, 2020.

Currency fluctuations within our Central America segment ~~by 150~~accounted for approximately 70 basis points ~~(1.50%~~(0.7%) and 60 basis points (0.6%) of positive impact in total comparable net merchandise sales for the ~~period. New warehouse clubs attract new members from areas not previously served by us~~thirteen and ~~also create~~thirty-nine week periods. This is primarily the ~~opportunity for some existing members, particularly those who now find~~result of significant appreciation in the ~~new clubs closer to their homes, to shop more frequently.~~

~~The Caribbean segment experienced positive comparable warehouse sales on improving conditions in all markets~~Costa Rica Colón against the U.S. dollar during the current periods compared to the ~~past few quarters, aided by strong growth~~same periods a year ago.

Currency devaluations within our Caribbean segment accounted for approximately 90 basis points (0.9%) and 70 basis points (0.7%) of negative impact on total comparable net merchandise sales for the thirteen and thirty-nine week periods, respectively. The Dominican Republic peso and Jamaican dollar devalued against the U.S. dollar when compared to the same periods last year.

Currency devaluations within our Colombia segment accounted for approximately 230 basis points (2.3%) and 130 basis points (1.3%) of negative impact in ~~USVI.~~total comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 31, 2020. This reflects the devaluation of the Colombian peso against the U.S. dollar when compared to the same period a year ago.

~~The calculation of comparable warehouse club sales in Colombia included the Chia warehouse club for five weeks in the 13-week period ending December 3, 2017.~~

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Membership Income

Three Months Ended

November 30,

November 30,

2017

2016

Amount

Increase/
(decrease)
from
prior year

% Change

Membership
income % to
net warehouse
club sales

Amount
Membership income - Central America

$
7,694

$
381

5.2
%

1.7
%

$
7,313
Membership income - Caribbean

3,018

65

2.2

1.4

2,953
Membership income - Colombia

1,663

219

15.2

1.8

1,444
Membership income - Total

$
12,375

$
665

5.7
%

1.7
%

$
11,710

Number of accounts - Central America

831,906

24,572

3.0
%

807,334
Number of accounts - Caribbean

393,397

1,338

0.3

392,059
Number of accounts - Colombia

318,680

18,395

6.1

300,285
Number of accounts - Total

1,543,983

44,305

3.0
%

1,499,678

~~Comparison of Three Months Ended November 30, 2017 and 2016~~

Membership income is recognized ratably over the one-year life of the membership. The ~~increase~~table below represents the change in membership income ~~primarily reflects~~by segment and as a ~~growth in membership accounts for which income is recognized during the last twelve months.~~ percentage of net merchandise club sales of each segment:



	Three Months Ended
	May 31,								May 31,
	2020								2019
	Amount		Increase (decrease) ‎from ‎prior year		% Change		Membership ‎ income % to ‎net merchandise ‎club sales		Amount
Membership income - Central America	$	8,194	$	286	3.6	%	1.9	%	$	7,908
Membership income - Caribbean		3,730		255	7.3		1.5			3,475
Membership income - Colombia		1,601		(148)	(8.5)		2.0			1,749
Membership income - Total	$	13,525	$	393	3.0	%	1.8	%	$	13,132



	Nine Months Ended
	May 31,								May 31,
	2020								2019
	Amount		Increase (decrease) ‎ from ‎prior year		% Change		Membership ‎income % to ‎net merchandise ‎club sales		Amount
Membership income - Central America	$	24,938	$	1,657	7.1	%	1.8	%	$	23,281
Membership income - Caribbean		11,176		941	9.2		1.5			10,235
Membership income - Colombia		5,250		49	0.9		1.9			5,201
Membership income - Total	$	41,364	$	2,647	6.8	%	1.7	%	$	38,717

Number of accounts - Central America		840,240		(11,773)	(1.4)	%				852,013
Number of accounts - Caribbean		428,822		4,835	1.1					423,987
Number of accounts - Colombia		313,629		(28,387)	(8.3)					342,016
Number of accounts - Total		1,582,691		(35,325)	(2.2)	%				1,618,016

Comparison of Three and Nine Months Ended May 31, 2020 and 2019

The ~~average~~ number of member accounts during the first nine months of fiscal year 2020 was 2.2% lower than the prior year period. Membership income increased 3.0% and 6.8% over the three and nine-month periods ended May 31, 2020, respectively, compared to the prior-year periods.

The growth in membership income during fiscal year 2020 in our Central America segment is primarily the result of the opening of three new warehouse clubs – Santiago de Veraguas and Metropark in Panama and San Cristobal in Guatemala. The launch of Platinum membership in two Central American markets in calendar year 2019 also contributed to the increase in membership income for the quarter and nine-month period.

In our Caribbean market, membership income growth was primarily attributable to the opening of the new Bolivar warehouse club in the Dominican Republic in June 2019. The launch of Platinum membership in three Caribbean markets in calendar year 2019 also contributed to the increase in membership income for the quarter and nine-month period.

In Colombia, we increased the Diamond membership fee from 75,000 (COP) to 90,000 (COP) (including VAT) beginning in April 2019, providing a converted membership price of approximately $24, which has contributed to the increase in membership income for the nine months ended May 31, 2020 compared to the same prior year period. Membership income in

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Colombia declined in the third quarter due to the decline in total Colombia membership accounts for the second consecutive quarter.

We began offering our Platinum membership program in Colombia in June 2020 and we intend to expand our Platinum membership program to additional markets. 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 2% rebate as a reduction on net merchandise sales at the time of the sales transaction.

Our trailing twelve-month renewal rate was 82.5% and 85.0% for the periods ended May 31, 2020 and May 31, 2019, respectively. We believe the renewal rate decline is driven by the overall decrease in membership accounts of 2.2% over the same period because of a significant decline of in-club traffic in some of our markets due to governmental COVID-19 movement restrictions on their respective general populaces. Historically, membership renewals have primarily been transacted in the club at the time of purchase of merchandise or services when a membership has expired. Since COVID-19 and the notable increase of online traffic due to our new online catalogue and Click & Go™ services, sign-ups and renewals completed online have been increasing.

Other Revenue

Other revenue consists primarily of non-merchandise revenue from freight and handling fees generated from our marketplace and casillero operations; miscellaneous income comprised primarily of revenue from an interest generating portfolio (“IGP”) from our co-branded credit cards; and rental income from operating leases where the Company is the lessor.


	Three Months Ended
	May 31, 2020						May 31, 2019
	Amount		Decrease from prior year		% Change		Amount
Non-merchandise revenue	$	7,221	$	(1,670)	(18.8)	%	$	8,891
Miscellaneous income		1,861		(540)	(22.5)			2,401
Rental income		635		(207)	(24.6)			842
Other revenue	$	9,717	$	(2,417)	(19.9)	%	$	12,134


	Nine Months Ended
	May 31, 2020						May 31, 2019
	Amount		Decrease from ‎prior year		% Change		Amount
Non-merchandise revenue	$	26,167	$	(1,743)	(6.2)	%	$	27,910
Miscellaneous income		5,089		(2,376)	(31.8)			7,465
Rental income		2,136		(334)	(13.5)			2,470
Other revenue	$	33,392	$	(4,453)	(11.8)	%	$	37,845

Comparison of Three and Nine Months Ended May 31, 2020 and 2019

Non-merchandise revenue and rental income for the three-months ended May 31, 2020 decreased primarily from the effects of COVID-19. Non-merchandise revenue decreased because of a decline in customer orders in our casillero and marketplace businesses as consumer purchasing behavior shifted away from discretionary spending to stockpiling and consumption of essential goods. Rental income decreased due to concessions granted to our lessees. Miscellaneous income decreased because of a one-time $666,000 reimbursement from a credit card vendor for underpayment of income earned on our co-branded credit card interest-generating portfolio during the three-months ended May 31, 2019. Non-merchandise revenue and rental income for the nine-months ended May 31, 2020 decreased primarily because of the activity in the third quarter of 2020 as explained above. Miscellaneous income declined primarily from a prior year $2.9 million reimbursement we received during the nine-months ended May 31, 2019 from the underpayment of income earned on our co-branded credit card interest-generating portfolio over several years.

Table of Contents

Results of Operations



	Three Months Ended
Results of Operations Consolidated		May 31, 2020			May 31, 2019			Increase/(Decrease)
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	768,368		$	755,009		$	13,359
Total gross margin	$	107,110		$	105,115		$	1,995
Total gross margin percentage		13.9	%		13.9	%		-	%

Revenues
Total revenues	$	799,931		$	788,556		$	11,375
Percentage change from prior period								1.4	%

Comparable net merchandise sales
Total comparable net merchandise sales decrease		(3.6)	%		(0.8)	%		(2.8)	%

Total revenue margin
Total revenue margin	$	127,175		$	126,669		$	506
Total revenue margin percentage		15.9	%		16.1	%		(0.2)	%

Selling, general and administrative
Selling, general and administrative	$	103,208		$	104,672		$	(1,464)
Selling, general and administrative percentage of total revenues		12.9	%		13.3	%		(0.4)	%


	Three Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2020	Total Revenue			2019	Total Revenue
Operating income- by segment
Central America	$	27,606	3.4	%	$	26,314	3.4	%
Caribbean		13,547	1.7			10,295	1.3
Colombia		3,487	0.4			3,294	0.4
United States		(1,115)	(0.1)			1,139	0.1
Reconciling Items ⁽¹⁾		(19,558)	(2.4)			(19,045)	(2.4)
Operating income - Total	$	23,967	3.0	%	$	21,997	2.8	%

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

Table of Contents



	Nine Months Ended
Results of Operations Consolidated		May 31, 2020			May 31, 2019			Increase
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	2,418,822		$	2,322,742		$	96,080
Total gross margin	$	351,406		$	326,147		$	25,259
Total gross margin percentage		14.5	%		14.0	%		0.5	%

Revenues
Total revenues	$	2,518,607		$	2,422,618		$	95,989
Percentage change from comparable period								4.0	%

Comparable net merchandise sales
Total comparable net merchandise sales decrease		(0.7)	%		(1.3)	%		0.6	%

Total revenue margin
Total revenue margin	$	414,731		$	390,693		$	24,038
Total revenue margin percentage		16.5	%		16.1	%		0.4	%

Selling, general and administrative
Selling, general and administrative	$	321,241		$	307,490		$	13,751
Selling, general and administrative percentage of total revenues		12.8	%		12.7	%		0.1	%


	Nine Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2020	Total Revenue			2019	Total Revenue
Operating income- by segment
Central America	$	96,972	3.9	%	$	90,681	3.7	%
Caribbean		40,436	1.6			37,346	1.5
Colombia		13,411	0.5			10,327	0.4
United States		3,401	0.1			4,565	0.2
Reconciling Items ⁽¹⁾		(60,730)	(2.4)			(59,716)	(2.5)
Operating income - Total	$	93,490	3.7	%	$	83,203	3.4	%


Warehouse clubs
Warehouse clubs at period end	45	42	3
Warehouse club sales square feet at period end	2,232	2,123	109

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

Table of Contents

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


	Three Months Ended
		May 31,	% of			May 31,	% of
		2020	Total Revenue			2019	Total Revenue
Warehouse club and other operations	$	78,431	9.8	%	$	78,231	9.9	%
General and administrative		24,408	3.1			24,532	3.1
Pre-opening expenses		257	—			1,647	0.3
Loss on disposal of assets		112	—			262	—
Total Selling, General and Administrative	$	103,208	12.9	%	$	104,672	13.3	%


	Nine Months Ended
		May 31,	% of			May 31,	% of
		2020	Total Revenue			2019	Total Revenue
Warehouse club and other operations	$	241,826	9.6	%	$	228,161	9.4	%
General and administrative		77,910	3.1			76,835	3.2
Pre-opening expenses		1,254	0.1			1,759	0.1
Loss on disposal of assets		251	—			735	—
Total Selling, general and administrative	$	321,241	12.8	%	$	307,490	12.7	%

Comparison of Three and Nine Months Ended May 31, 2020 and 2019

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 third quarter of fiscal year ~~2018~~2020 as a percentage of total net merchandise sales was 2.7% higher than during the same period a year ago. The income recognized per average member account increased 2.9%. In February 2017, we increased the annual membership fee in Colombia by 15.4% to COP 75,000, which had the effect of increasing the membership income per average membership account in Colombia by 9.0% in the quarter compared to the first quarter of last year.

~~The Company had a net increase~~ of 44,305 membership accounts over the past 12 months. Membership accounts in Colombia increased 18,395 on improving renewal rates and continued new membership sign-ups, mostly associated with the Chia warehouse club. The Company’s twelve-month renewal rate for the period ended November 30, 2017 was 85%13.9%, ~~which is~~ the same as the ~~rate for the twelve-month period ended August 31, 2017. Excluding Colombia, the twelve-month renewal rate was 87% as of November 30, 2017.~~

~~Table of Contents~~

~~Results of Operations~~

Three Months Ended
Results of Operations Consolidated

November 30, 2017

November 30, 2016

Increase/(Decrease)

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

Net warehouse club sales

Net warehouse club sales

$
745,401

$
716,079

$
29,322

Warehouse club sales gross margin

$
108,165

$
107,589

$
576

Warehouse club gross margin percentage

14.5
%

15.0
%

(0.5)
%

Revenues

Total revenues

$
767,072

$
739,572

$
27,500

Percentage change from comparable period

3.7
%

Comparable warehouse club sales

Total comparable warehouse club sales increase (decrease)

2.2
%

—
%

2.2
%

Gross margin

Total gross margin

$
122,087

$
120,901

$
1,186

Gross margin percentage to total revenues

15.9
%

16.3
%

(0.4)
%

Selling, general and administrative

Selling, general and administrative

$
88,921

$
82,522

$
6,399

Selling, general and administrative percentage of total revenues

11.6
%

11.2
%

0.4
%

Operating income- by segment

Operating income - Central America

$
31,942

$
33,504

$
(1,562)

Operating income - Caribbean

$
11,470

$
12,214

$
(744)

Operating income - Colombia

$
2,145

$
913

$
1,232

Operating Income - United States

$
3,739

$
7,597

$
(3,858)

Reconciling Items (1)

$
(16,130)

$
(15,849)

$
(281)

Operating income - Total

$
33,166

$
38,379

$
(5,213)

Operating income as a percentage of total revenues

4.3
%

5.2
%

(0.9)
%

Warehouse clubs

Warehouse clubs at period end

40

39

1

Warehouse club square feet at period end (2)

1,998

1,940

58

⁽¹⁾

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.

⁽²⁾

~~Warehouse club square feet at period end has been updated to reflect sales floor square feet vs. total building square feet to align with industry standards.~~

~~Comparison of Three Months Ended November 30, 2017 and 2016~~

On a consolidated basis, warehouse club gross margins as a percent of net warehouse sales were generally in line with the past three fiscal quarters at 14.5%, although 51 basis points (0.51%) below the firstthird quarter of fiscal year ~~2017 which~~2019.

For the nine-month period, consolidated total gross margin as a percentage of total net merchandise sales was ~~unusually high at 15.0%. Exit costs associated with our leased distribution facility in Miami and merchandise labeling activity reduced consolidated margins by 8~~14.5%, 50 basis points ~~compared~~(0.5%) higher than the comparable period of fiscal year 2019. This improvement is attributable to ~~a year ago,~~more focused merchandising strategies and ~~warehouse club~~inventory management. Net merchandise margins ~~were lower in~~increased across all segments with the Central America ~~and Caribbean segments by 31~~segment contributing 30 basis points ~~(0.31%~~(0.3%) ~~and 26~~the Caribbean segment contributing 10 basis points ~~(0.26%~~(0.1%), ~~respectively, largely from pricing actions to drive sales. Colombia’s margins increased 62~~and the Colombia segment contributing 10 basis points ~~(0.62%~~(0.1%) to the overall increase.

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 express our Total revenue margin as percentage of Total revenues.

Total revenue margin decreased 20 basis points (0.2%) for the three-month period presented, which is the result of the lower revenue margins from our casillero and marketplace business in the quarter of 10 basis points (0.1%). The other 10 basis point (0.1%) shortfall was the result of the non-recurring reimbursement payment from one of our credit card vendors in the prior year. Total revenue margin increased 40 basis points (0.4%) for the nine-month period. Total revenue margin during the nine-months ended May 31, 2020 increased by 50 basis points (0.5%) primarily due to improved total gross margins. These total revenue margin improvements were offset by the non-recurring reimbursement payment from one of our credit card vendors in the prior year, which resulted in a 10 basis point (0.1%) decline in total revenue margins.

Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, pre-opening expenses, and loss/(gain) on disposal of assets. In total, selling, general and administrative expenses ~~increased $6.4~~decreased $1.5 million to ~~11.6%~~12.9% of ~~sales~~total revenues compared to ~~11.2%~~13.3% of total revenues in the third quarter of fiscal year 2019.

Warehouse club and other operations expenses decreased to 9.8% of total revenues compared to 9.9% for the third quarter of fiscal year 2019. This decrease of 10 basis points (0.1%) was primarily attributable to savings in salaries and utilities because of reduced hours at our warehouse clubs resulting from COVID 19-related restrictions and cost-saving initiatives in our Aeropost subsidiary.

Table of Contents

General and administrative expenses remained flat at 3.1% of total revenues for the third quarter of fiscal year 2020 due to employee furloughs and reduced compensation in our U.S. corporate headquarters and distribution centers.

Pre-opening expenses declined 30 basis points (0.3%) in the third quarter ended May 31, 2020 compared to the same prior year period. This is due to club openings occurring in the prior-year period.

Selling, general and administrative expenses increased to 12.8% of total revenues for the nine-month period ended May 31, 2020, compared to 12.7% of total revenues in the same prior year period.

Warehouse club and other operations expenses increased to 9.6% of total revenues compared to 9.4% for the nine-month period ended fiscal year 2019. The increase is due to operating an additional four warehouse clubs compared to the prior year period. These four new clubs have not reached sales maturity as of May 31, 2020, thus increasing operational expenses by 20 basis points (0.2%) as a percentage of total revenues.

General and administrative expenses decreased to 3.1% of total revenues compared to 3.2% of total revenues for the nine-months ended May 31, 2020 when compared to the same prior year period. In the prior nine-months ended May 31, 2019, two non-recurring transactions increased general and administrative expenses. First, was the $3.8 million, or a 20 basis points (0.2%) decrease, recorded in the first quarter of fiscal year ~~2017. Warehouse club operations expense was 9.3%~~2019 for separation and other related termination benefits for our former Chief Executive Officer and President who resigned in October 2018 by mutual agreement with the Board of ~~sales compared 9.1% a year ago. The added cost~~Directors. These costs, net of tax, negatively impacted earnings per share for the ~~new warehouse club in Santa Ana, Costa Rica added~~

~~Table~~nine months ended May 31, 2019, by $0.13 per share. An additional decrease of ~~Contents~~

approximately $2.3 million, or 10 basis points ~~and hurricane-related costs, including support payments made~~(0.10%), was due to ~~our employees~~the expiration of the amortization of post-combination compensation expense related to the Aeropost business we acquired in ~~our St. Thomas, USVI club added another 5~~March 2018. These decreases were offset by net increases of $8.8 million, or 40 basis ~~points. Colombia continued to see a positive trend with a 46 basis point (0.46%~~points (0.4%) ~~improvement~~, in ~~warehouse club operations expense as a percent of sales compared to same three months in fiscal year 2017. General~~general and administrative expenses ~~grew 12.1% from~~primarily due to additions to headcount to support technology development and implementation and other administrative functions made during the ~~first~~nine-month period ended May 31, 2020.

For the nine-months ended May 31, 2020, pre-opening expenses remained flat, as a percentage of total revenue, compared to the prior-year period.

Operating income in the third quarter of fiscal year ~~2017 and 4% sequentially from the prior quarter. The Company continues~~2020 increased to ~~grow our buying staff and is now increasingly investing in efforts to evaluate and develop technologies to create a seamless omni-channel experience for our members in the future with expected $3.0~~$24.0 million ~~to $5.0 million spending for the current fiscal year,~~(3.0% of which, $735,000 was spent in the first quarter. Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses and during the first three months of fiscal year 2018 included preopening expenses for Santa Ana, Costa Rica. Preopening expenses for the same three months of fiscal year 2017 included the preopening expenses for Chia, Colombia.

~~Operating income decreased to $33.2 million for the three months ended November 30, 2017~~total revenue) compared to ~~$38.4~~$22.0 million (2.8% of total revenue) for the same period last ~~year on~~year. This reflects the increase in total revenue margin dollars from net merchandise sales, and lower ~~merchandise~~selling, general and administrative expenses over the comparable prior-year period principally because of the decrease in pre-opening expenses as we had temporarily halted some our previously announced warehouse club projects. These were the primary factors for the overall 20 basis point (0.2%), as percentage of total revenue, increase in operating income.

Operating income for the nine months ended May 31, 2020 increased to $93.5 million (3.7% of total revenue) compared to $83.2 million (3.4% of total revenue) for the same period last year. Higher total gross margins as a percent of ~~sales~~total revenue and margin dollars were partially offset by incrementally higher ~~expenses particularly those related to the addition of a new warehouse club and increased corporate-level~~ general and administrative ~~expenses. Higher net warehouse sales~~expenses and ~~membership income and increased warehouse club gross margins resulted in a $1.2 million~~were the primary factors for the overall 30 basis point (0.3%) increase in operating profit in Colombia compared to a year ago, while operating profit decreased in other segments on lower merchandise margins, along with new club expenses (Central America), hurricane related costs (Caribbean) and higher corporate spending (United States). Operating profit was also adversely impacted by exit costs associated with our leased facility in Miami (which were recorded to warehouse club costs of goods sold) and a higher level of merchandise labeling activity due to the volume of shipments flowing through Miami to support the upcoming holiday season. income.

Interest Expense

Three Months Ended

November 30,

November 30,

2017

2016

Amount

Increase/
(decrease)
from prior
year

Amount
Interest expense on loans

$
1,191

$
(228)

$
1,419
Interest expense related to hedging activity

322

(101)

423
Less: Capitalized interest

258

70

188
Net interest expense

$
1,255

$
(399)

$
1,654

~~Comparison of Three Months Ended November 30, 2017 and 2016~~

~~Interest~~Net 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, ~~warehouse club and distribution center expansions,~~ the capital requirements of warehouse club and other operations and ongoing working capital requirements.

~~Interest~~


	Three Months Ended
	May 31,				May 31,
	2020				2019
	Amount		Increase		Amount
Interest expense on loans	$	2,220	$	813	$	1,407
Interest expense related to hedging activity		620		510		110
Less: Capitalized interest		(276)		326		(602)
Net interest expense	$	2,564	$	1,649	$	915

Table of Contents


	Nine Months Ended
	May 31,				May 31,
	2020				2019
	Amount		Increase		Amount
Interest expense on loans	$	5,265	$	1,056	$	4,209
Interest expense related to hedging activity		1,477		1,097		380
Less: Capitalized interest		(1,626)		14		(1,640)
Net interest expense	$	5,116	$	2,167	$	2,949

Comparison of Three and Nine Months Ended May 31, 2020 and 2019

Net interest expense increased for the three and nine-month periods ended May 31, 2020 primarily due to higher average long-term loan balances to fund our capital projects and recent drawdowns on ~~loans decreased year-on-year. An increase year-on-year in long-term debt~~short-term lines of ~~approximately $14.1 million, primarily to finance the acquisition of the distribution center in Miami, Florida and an additional loan within our Trinidad subsidiary~~credit as part of our COVID-19 related efforts to ~~improve liquidity, were offset by decreases in the payments on various loans held by our subsidiaries. Additionally, interest~~secure cash. Interest expense related to hedging activity ~~decreased in the first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017~~increased due to ~~the pay-off of the various loans held by our subsidiaries that were hedged. Additionally,~~ an increase in hedging activity as we seek to mitigate our exposure to interest rate risk on our recently executed loan agreements to finance our anticipated warehouse club openings in fiscal year 2021. A decrease in capitalized interest infor the ~~first quarter~~three and nine-month periods ended May 31, 2020 is mainly attributable to a temporary halt of ~~fiscal year 2018 compared~~some of our construction projects as part of our efforts to ~~the first quarter of fiscal year 2017 resulted from higher levels of construction activities.~~ preserve our cash on hand.

~~Table of Contents~~

Other ~~Income (Expense)~~income (expense), net

Other income (expense), net consists of currency ~~gain~~gains or ~~loss.~~losses, as well as net benefit costs related to our defined benefit plans and the one time settlement of a business combination escrow account.



	Three Months Ended
	May 31,						May 31,
	2020						2019
	Amount		Decrease from prior year		% Change		Amount
Other income (expense), net	$	(1,564)	$	(1,723)	(1,083.6)	%	$	159

Three Months Ended

November 30,

November 30,

2017

2016

Amount

Increase
from
prior year

%Change

Amount
Other income (expense), net

$
278

$
1,206

130.0
%

$
(928)



	Nine Months Ended
	May 31,						May 31,
	2020						2019
	Amount		Increase ‎from ‎prior year		% Change		Amount
Other expense, net	$	(1,826)	$	206	10.1	%	$	(2,032)

~~Receipts~~ Additionally, gains or losses from ~~insurance reimbursements up to~~transactions denominated in currencies other that the ~~amount~~functional 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 Three and Nine Months Ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~2019

For the ~~three-month period, we had a~~three and nine months ended May 31, 2020 Other income (expense), net ~~gain~~included $1.5 million and $2.4 million of net expense, respectively, associated with foreign currency ~~transactions.~~transactions and the revaluation of monetary assets and liabilities. These gains and losses resulted from the revaluation of net U.S. dollar assets and liabilities in markets where the local functional currency revalued or devalued against the U.S. dollar, and from exchange transactions, net of any exchange reserve movements. ~~In particular,~~

Table of Contents

For the three-month period, the net loss is attributable primarily to losses recorded on the revaluation of our U.S. dollar denominated liabilities in ~~Costa Rica and~~ the Dominican Republic ~~we experienced strengthening~~as the peso devalued against the U.S. dollar. For the nine months ended May 31, 2020, the primary driver for the net expense was $2.4 million of net expense associated with foreign currency transactions and revaluation of U.S. dollar denominated liabilities in several of our markets. These net expenses were partially offset by a $705,000 gain resulting from the settlement of outstanding claims related to the acquisition of the ~~local currencies relative to the U.S. Dollar. These benefits were offset~~business that we purchased in part by higher transaction costs we continue to incur associated with converting Trinidad dollars into available tradeable currencies such as Euros or Canadian dollars before converting them to U.S. dollars. For so long as that situation continues in Trinidad, we plan to take that additional cost into consideration in our pricing model and will limit our shipments from the U.S. to Trinidad to levels that generally align with our Trinidad subsidiary’s ability to pay for the merchandise in U.S. dollars. March of 2018.

Provision for Income Taxes


									Three Months Ended
	Three Months Ended								May 31,					May 31,
	November 30,					November 30,			2020					2019
	2017					2016			Amount			Increase from prior year		Amount
	Amount			Increase/ (decrease) from prior year		Amount
Current tax expense	$	10,464		$	11	$	10,453
Net deferred tax provision (benefit)		(349)			(1,333)		984
Provision for income taxes	$	10,115		$	(1,322)	$	11,437		$	7,744		$	266	$	7,478
Effective tax rate		31.0	%				31.5	%		38.0	%				34.7	%


	Nine Months Ended
	May 31,					May 31,
	2020					2019
	Amount			Increase ‎ from ‎prior year		Amount
Provision for income taxes	$	29,849		$	3,128	$	26,721
Effective tax rate		33.9	%				33.7	%

~~Table of Contents~~

Comparison of Three and Nine Months Ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~2019

For the three months ended ~~November 30, 2017,~~May 31, 2020, the effective tax rate was ~~31.0%~~38.0%. The ~~decrease~~increase in the effective tax rate versus the prior year was primarily attributable to the following factors:

An intercompany transaction between PriceSmart, Inc. and our Colombian subsidiary in support of PriceSmart’s ongoing market development and growth in Colombia resulted in a favorable year-on-year impact on the effective tax rate of 0.8% due to the 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 that the favorable impact of this transaction on the consolidated Company’s effective tax rate will decrease over the next several quarters.

The comparably favorable impact of 0.3% 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

~~The unfavorable impact of 0.7% in the current period from the effect of changes in foreign currency value.~~

A comparably favorable net impact of 6.8% resulting from changes in income tax liabilities for uncertain tax positions;

The comparably unfavorable impact of 4.4% in the current period from the effect of changes in foreign currency value and related adjustments; and

A comparably unfavorable net impact of 3.9% in the current period resulting from the loss of benefit of foreign tax credits, which are no longer recoverable as a result of U.S. Tax Reform.

For the nine months ended May 31, 2020, the effective tax rate was 33.9%. The increase in the effective tax rate versus the prior year was primarily attributable to the following factors:

A comparably favorable impact of 2.2% resulting from changes in income tax liabilities for uncertain tax positions; and

A comparably unfavorable net impact of 2.6% in the current period resulting from the loss of benefit of foreign tax credits, which are no longer recoverable as a result of U.S. Tax Reform.

Other Comprehensive ~~Income (Loss)~~Loss


	Three Months Ended
	May 31,						May 31,
	2020						2019
	Amount		Decrease from prior year		% Change		Amount
Other comprehensive loss	$	(15,446)	$	(4,387)	(39.7)	%	$	(11,059)

Three Months Ended

November 30,

November 30,

2017

2016

Amount

Increase
from
prior year

% Change

Amount
Other comprehensive income (loss)

$
(1,409)

$
8,972

(86.4)
%

$
(10,381)


	Nine Months Ended
	May 31,						May 31,
	2020						2019
	Amount		Decrease from prior year		% Change		Amount
Other comprehensive loss	$	(23,680)	$	(3,728)	(18.7)	%	$	(19,952)

Comparison of Three and Nine Months Ended ~~November 30, 2017~~May 31, 2020 and ~~2016~~2019

Our other comprehensive loss of approximately ~~$1.4~~$15.4 million for the ~~first~~third quarter of fiscal year ~~2018~~2020 resulted primarily from the comprehensive loss of approximately ~~$2.2~~$12.9 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, ~~offset by comprehensive income~~with additional losses of approximately ~~$587,000~~$2.6 million related to unrealized ~~gains~~losses on changes in our derivative obligations. ~~When~~Other comprehensive loss for nine-months ended May 31, 2020, of approximately $23.7 million was primarily the ~~functional~~result of the comprehensive loss of $20.0 million from foreign currency translation adjustments and $3.8 million related to unrealized losses on changes in the fair value of our ~~international subsidiaries is the local~~derivative obligations. The Colombian and Dominican Republic pesos foreign currency ~~and not U.S. dollars, the assets and liabilities of such subsidiaries are translated to U.S. dollars at the~~ exchange rate with the U.S. dollar declined significantly during the nine-months ended May 31, 2020 primarily due to COVID-19 related impacts on the ~~balance sheet date, and revenue, costs and expenses are translated at average rates~~economies of exchange in effect during the period. The corresponding translation differences 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. those countries.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

~~We require~~Our operations have historically supplied us with a significant source of liquidity. 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, including investments~~operations while allowing us to invest in ~~merchandise inventories, acquisition~~activities that support the long-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. We may ~~obtain additional loans and/or credit facilities~~consider funding alternatives to provide additional liquidity ~~when~~if necessary.

~~Table~~ There is some uncertainty surrounding the continuing potential impact of ~~Contents~~

~~The following table summarizes~~ the ~~cash~~novel coronavirus outbreak (COVID-19) on our results of operations and cash ~~equivalents held by~~flows. As a result, we are proactively taking steps to increase cash available on-hand, including, but not limited to, drawing funds on our ~~foreign subsidiaries~~short-term facilities and ~~domestically (in thousands).~~ delaying some strategic capital expenditures. Refer to the Notes to Consolidated Financial Statements – Note 7 – Debt for additional information regarding our drawdown on our short-term facilities and long-term borrowings. We have and plan to continue cost savings measures in the U.S. and in the markets where we operate to improve our cash availability.

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).

November 30,

August 31,

2017

2017
Cash and cash equivalents held by foreign subsidiaries

$
130,648

$
139,270
Cash and cash equivalents held domestically

1,894

26,442
Total cash and cash equivalents

$
132,542

$
165,712



	May 31,		August 31,
	2020		2019
Amounts held by foreign subsidiaries	$	195,479	$	98,964
Amounts held domestically		70,545		7,272
Total cash and cash equivalents, including restricted cash	$	266,024	$	106,236

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


	May 31,		August 31,
	2020		2019
Amounts held by foreign subsidiaries	$	40,042	$	17,045
Amounts held domestically		—		—
Total short-term investments	$	40,042	$	17,045

As of May 31, 2020, certificates of deposits with a maturity of over a year held by our foreign subsidiaries and domestically were $1.5 million. There were no certificates of deposits with a maturity of over a year held by our foreign subsidiaries or domestically as of August 31, 2019.

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 ~~warehouse~~merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported ~~products, increasing our foreign exchange exposure to any devaluation of local currency relative to the U.S. dollar. During~~products. Since fiscal year 2017, ~~and continuing into the first three months of fiscal year 2018,~~ we have experienced this situation in ~~Trinidad.~~Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad to source ~~tradable currencies (including Euros and Canadian dollars), but until~~tradeable currencies. We expect the ~~central bank~~illiquid market conditions 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~~See Item 2 “Management’s Discussion & Analysis – Factors Affecting Our Business” for 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 2016, 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 thirdquantitative analysis and fourth fiscal quarters. Over the past three months, however, we have been unable to source a sufficient level of tradeable currencies in Trinidad consistent with the level of merchandise we were importing for the holiday shopping season. As of November 30, 2017, our Trinidad subsidiary had net U.S. dollar denominated liability exposures of approximately $12.1 million, an increase of $16.1 million from August 31, 2017 when our Trinidad subsidiary had a net U.S. dollar denominated asset position of approximately $4.0 million. We are carefully monitoring the situation, which may require us to limit future 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. discussion.

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

Three Months Ended

November 30,

November 30,

2017

2016
Net cash provided by (used in) operating activities

$
(10,163)

$
2,115
Net cash provided by (used in) investing activities

(19,732)

(17,365)
Net cash provided by (used in) financing activities

(5,296)

(7,162)
Effect of exchange rates

2,021

(1,650)
Net increase (decrease) in cash and cash equivalents

$
(33,170)

$
(24,062)


	Nine Months Ended
	May 31,		May 31,		Increase/
	2020		2019		(Decrease)
Net cash provided by operating activities	$	174,130	$	112,952	$	61,178
Net cash used in investing activities		(113,978)		(70,971)		(43,007)
Net cash provided by (used in) financing activities		101,508		(21,547)		123,055
Effect of exchange rates		(1,872)		(3,365)		1,493
Net increase in cash and cash equivalents	$	159,788	$	17,069	$	142,719

~~Table~~Net cash provided by operating activities totaled $174.1 million and $113.0 million for the nine months ended May 31, 2020 and 2019, respectively. Our cash flow provided by operations is primarily derived from net merchandise sales and membership fees. Cash flows used in operations generally consist of ~~Contents~~

~~Our~~payments to our merchandise vendors, warehouse operating costs (including payroll, employee benefits and utilities), as well as payments for income taxes. The $61.2 million increase in net cash provided by ~~(used in)~~ operating activities ~~for the three months ended November 30, 2017~~was primarily due to a net increase of $55.6 million in operating assets and ~~2016~~liabilities and a net increase of $5.6 million from changes in non-cash reconciling items. The $55.6 million increase in operating assets and liabilities is ~~summarized below:~~

Three Months Ended

Increase/

November 30,

November 30,

(Decrease)

2017

2016

2017 to 2016
Net income

$
22,490

$
24,869

$
(2,379)
Adjustments to reconcile net income to net cash provided from (used in) operating activities:

Depreciation and amortization

12,237

11,117

1,120
(Gain) loss on sale of property and equipment

159

407

(248)
Deferred income taxes

(349)

984

(1,333)
Stock-based compensation expenses

2,461

2,442

19
Other non-cash operating activities

(16)

—

(16)
Net non-cash related expenses

$
14,492

$
14,950

$
(458)
Net income from operating activities reconciled for non-cash operating activities

36,982

39,819

(2,837)
Changes in operating assets and liabilities not including merchandise inventories

14,322

6,378

7,944
Changes in merchandise inventories

(61,467)

(44,082)

(17,385)
Net cash provided by (used in) operating activities

$
(10,163)

$
2,115

$
(12,278)

~~Net income~~primarily due to net working capital improvements of $57.5 million, which resulted from ~~operating activities reconciled for non-cash operating activities decreased approximately $2.8~~a $68.2 million ~~for the three months ended November 30, 2017~~decrease in merchandise inventories and a $10.7 million decrease in accounts payable over the ~~same period last year, resulting from a year-on-year~~comparable nine-months ended May 31, 2020 and 2019. The decrease in merchandise inventories is primarily the result of lower replenishment of certain items within our non-food categories in response to changes in consumer preferences toward purchases of more essential goods during the initial stages of the COVID-19 crisis. The $5.6 million change in non-cash reconciling items was primarily due to the increase in net income of ~~approximately $2.4~~$5.5 million inover the ~~first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017~~comparable nine-month period ended May 31, 2020 and a decrease in deferred income taxes of $1.3 million quarter-over quarter, due to the improved financial results in the Company’s Colombia subsidiary for which no tax benefit was recognized. These decreases were offset by an increase in depreciation expense of approximately $1.1 million in the first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017 due to new warehouse club construction and the continued ongoing capital improvements to existing warehouse clubs. In addition to the decrease in net income from operating activities reconciled for non-cash operating activities there was a net cash usage of $9.4 million primarily related to a higher growth in merchandise inventories during the current three month period compared to the same period a year ago. The Company partially offset this increased inventory with an increase in accounts payable as of November 30, 2017 compared to November 30, 2016 of approximately $8.5 million. 2019.

~~Our use of cash in investing activities for the three months ended November 30, 2017 and 2016 is summarized below:~~

Three Months Ended

Increase/

November 30,

November 30,

(Decrease)

2017

2016

2017 to 2016
Cash used for additions of property and equipment:

Deposits for land purchase option agreements

$
—

$
500

$
(500)
Warehouse club and distribution center expansion, construction and land improvements

6,283

1,189

5,094
Acquisition of fixtures and equipment

13,469

15,784

(2,315)
Proceeds from disposals of property and equipment

(20)

(108)

88
Net cash flows used by (provided in) investing activities

$
19,732

$
17,365

$
2,367

Net cash used in investing activities ~~increased~~totaled $114.0 million and $71.0 million for the nine months ended May 31, 2020 and 2019, respectively. Our cash used in investing activities is primarily for the ~~first three months~~construction of ~~fiscal year 2018~~and improvements to our warehouse clubs and management of our cash investments. The $43.0 million increase in cash used in investing activities is primarily the result of a net $39.6 million increase in short-term and long-term certificate of deposit purchases and fewer settlements compared to the ~~first three months of fiscal year 2017 by approximately $2.4 million. This was primarily due to an~~same nine-month period a year-ago. The increase in ~~cash~~purchases and fewer settlements is the result of

additional Trinidad dollars we have on-hand and that we have invested into certificates of deposit to generate interest income while we actively work to convert those Trinidad dollars into U.S. dollars as availability allows. Refer to Item 2 “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.We also had $3.3 million of additional construction expenditures made for ~~construction activities for a~~our future warehouse club ~~in Santa Ana, Costa Rica that opened in September 2017 and construction activities for~~openings versus the same nine-month period a ~~warehouse club in~~ ~~Santo Domingo~~, Dominican Republic that is anticipated to open in the spring of 2018. Continued investments in warehouse club expansion activities related to warehouse expansions in Guatemala, Honduras, El Salvador, Trinidad and Jamaica during the first three months of fiscal year ~~2018 also increased period-over-period investing activities.~~ago.

As of November 30, 2017, we had commitments for capital expenditures for new warehouse club construction for approximately $7.9 million related to our building of a warehouse club in Santo Domingo, Dominican Republic. We expect to spend between $125.0 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.

~~Table of Contents~~

We have entered into land purchase option agreements within our subsidiaries that have not been recorded as commitments, for which we have recorded deposits of approximately $600,000. The land purchase option agreements can generally be canceled at our sole options with the deposits being fully refundable 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.

In January 2017, we finalized our acquisition of a distribution center in Medley, Miami-Dade County, Florida, for a total purchase price of approximately $46.0 million, and we transferred our Miami dry distribution center activities previously located in our 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 ~~(used in)~~ provided by financing activities totaled $101.5 million and net cash used in financing activities was $21.5 million for the ~~three~~nine months ended ~~November 30, 2017~~May 31, 2020 and ~~2016 is summarized below:~~

Three Months Ended

Increase/

November 30,

November 30,

(Decrease)

2017

2016

2017 to 2016
New bank loans offset by regularly scheduled payments on existing bank loans (loan activities)

$
(7,554)

$
(3,688)

$
(3,866)
New short-term bank loans, offset by payments

2,258

(3,474)

5,732
Net cash provided by (used in) financing activities

$
(5,296)

$
(7,162)

$
1,866

~~Net~~2019, respectively. Our cash ~~from long-term~~flows provided by or used in financing activities are used primarily to fund our working capital needs and ~~short-term loan activities increased approximately $1.9~~our warehouse club expansions and investments. The $123.1 million ~~during the first three months of fiscal year 2018 over the first three months of fiscal year 2017. This~~ increase in cash provided by financing activities is primarily ~~resulted~~the result of a net increase of proceeds from long-term borrowings of $59.8 million compared to a ~~period-over-period~~year ago and a net $61.5 million increase in cash ~~from~~provided by additional short-term ~~loans, offset by an~~borrowings, compared to the same nine-month period a year-ago. We have increased our short-term borrowings to increase ~~in loan payments~~available cash on hand to meet current and any future potential operational cash needs as a result of ~~approximately $3.9 million primarily resulting from an early loan payment of approximately $3.0 million within our Trinidad subsidiary.~~COVID-19.

The following table summarizes the dividends declared and paid during fiscal year ~~2017. No dividends have been declared or paid during the first three months of fiscal year 2018.~~ 2020 (amounts are per share).

First Payment

Second Payment

Declared

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

2/6/2020

0.70

2/15/2020

2/28/2020

N/A

0.35

8/15/2020

N/A

8/31/2020

0.35

1/30/2019

0.70

2/15/2019

2/28/2019

N/A

0.35

8/15/2019

8/30/2019

N/A

0.35

We anticipate 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.

~~Financing Activities~~

In August 2017, the Company’s Panama subsidiary paid off its outstanding loan balance of U.S. $13.3 million under 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 provides for a U.S. $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

~~Table of Contents~~

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.

~~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 flows 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 lows 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.

~~Table of Contents~~

~~The following table summarizes agreements for which the Company has recorded cash flow hedge accounting transactions during the three months ended November 30, 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 (1)

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

Settled on
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

$
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

⁽¹⁾

~~The initial notional amount and fixed rate were modified effective January 2017.~~

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 above 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):

November 30, 2017

August 31, 2017
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

$
2,514

(938)

1,576

$
2,547

$
(950)

$
1,597
Interest rate swaps

Other non-current assets

764

(272)

492

—

—

—
Interest rate swaps

Other long-term liabilities

(4)

(3)

(7)

(231)

80

(151)
Cross-currency interest rate swaps

Other long-term liabilities

(342)

114

(228)

(451)

135

(316)
Net fair value of derivatives designated as hedging instruments

$
2,932

$
(1,099)

$
1,833

$
1,865

$
(735)

$
1,130

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.

~~Table of Contents~~

~~The following table summarizes these agreements as of November 30, 2017:~~

~~Subsidiary~~

~~Dates~~
~~entered into~~

~~Financial~~
~~Derivative~~
~~(Counterparty)~~

~~Derivative~~
~~Financial~~
~~Instrument~~

~~Notional~~
~~Amount~~
~~(in thousands)~~

~~Settlement~~

~~Date~~

~~Effective Period~~
~~of Forward~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 13, 2017 -~~
~~December 6, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 17, 2017 -~~
~~December 13, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 18, 2017 -~~
~~December 20, 2017~~

~~Colombia~~

~~Oct-17~~

~~Citibank, N.A.~~

~~Forward foreign~~
~~exchange contracts (USD)~~

~~1,000~~

~~Dec-17~~

~~October 19, 2017 -~~
~~December 27, 2017~~

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



	~~November 30, 2017~~			~~August 31, 2017~~
~~Non-deliverable forward foreign exchange contracts~~	~~Balance Sheet~~ ~~Location~~	~~Fair Value~~		~~Balance Sheet~~ ~~Location~~	~~Fair Value~~
~~Foreign currency forward contracts~~	~~Other current assets~~	$	71	~~Other current assets~~	$	—
~~Foreign currency forward contracts~~	~~Other accrued expenses~~		—	~~Other accrued expenses~~		—
~~Net fair value of non-deliverable forward foreign exchange contracts designated as hedging instruments that do not qualify for hedge accounting(1)~~		$	71		$	—

⁽¹⁾

Short-Term Borrowings and Long-Term Debt

~~Short-term~~Our financing strategy is to ensure liquidity and access to capital markets while minimizing our borrowing costs. The proceeds of these borrowings ~~consist~~were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, acquisitions, and repayment of ~~lines of credit that are secured by certain assets of the Company~~existing debt. Please see Note 7 – Debt for further discussion.

Derivatives

Please see Note 8 – Derivative Instruments 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):~~Hedging Activities for further discussion.

As of November 30, 2017 and August 31, 2017, 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 November 30, 2017 and August 31, 2017, the Company was in compliance with respect to these covenants. Each of the facilities expires annually and is normally renewed.

~~Table of Contents~~

~~The following table provides the changes in our long-term debt for the three months ended November 30, 2017:~~

⁽¹⁾

~~The carrying amount of non-cash assets assigned as collateral for these loans was $128.4 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 of non-cash assets assigned as collateral for these loans was $121.0 million. No cash assets were assigned as collateral for these loans.~~

As of November 30, 2017, the Company had approximately $82.8 million of long-term loans in the U.S., Trinidad, Panama, El Salvador, Honduras, Costa Rica, Barbados and Colombia that require compliance with certain annual or quarterly financial covenants, which include debt service and leverage ratios. As of November 30, 2017, the Company was in compliance with all covenants or amended covenants.

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.

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~~and apply the ~~funds used~~proceeds to pay the employees' minimum statutory tax withholding requirements related to the vesting of restricted stock awards. The Company expects to continue this practice going forward. We do not currently 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.~~consolidated balance sheets. We may reissue these treasury ~~shares. When treasury~~ shares ~~are reissued, we use~~in 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.future.

~~We did not repurchase any shares during the first three months of fiscal years 2017 and 2016.~~

Three Months Ended

November 30,

November 30,

2017

2016
Shares repurchased

—

—
Cost of repurchase of shares (in thousands)

$
—

$
—

We have reissued treasury shares as part of our stock-based compensation programs. ~~However, we did not reissue any~~During the nine months ended May 31, 2020, the Company reissued 174,000 treasury ~~shares during the first three months of fiscal years 2018 and 2017.~~shares.

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Critical Accounting Estimates

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 accounting policies and evaluate its estimates, 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.

Income ~~Taxes:~~ ~~We account for~~Taxes

For interim reporting, we estimate an annual effective tax rate (AETR) pursuant to ASC 740-279, to calculate income ~~taxes using the asset and liability method. Under the asset and liability method, deferred~~ tax ~~assets and liabilities are recognized for the future~~expense. Our income 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 November 30, 2017, we evaluated ourexpense, deferred tax assets and liabilities, and ~~determined that a valuation allowance was necessary~~liabilities for ~~certain~~unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of the consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax ~~asset balances, primarily because~~assets in the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the ~~existence~~results of discontinued operations and incorporate assumptions about the amount of future state, federal, and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require the use of significant ~~negative~~judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence ~~such as the fact~~ that ~~certain subsidiaries are in a cumulative loss position for the past~~historical results provide, we consider three years ~~indicating that certain net~~of cumulative operating ~~loss carry-forward periods are not sufficient to realize the related deferred tax assets.~~income (loss).

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. InWe, in consultation with our tax advisors, we base our tax returns on interpretations that we ~~believed~~believe 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 of~~file our ~~subsidiaries file~~ tax returns. As part of these reviews, a taxing authority may disagree with respect to the ~~income~~interpretations 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.

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 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 periods ended on November 30, 2017~~as of May 31, 2020 and August 31, 2017. During the first quarter of fiscal year 2015, one of the Company’s subsidiaries received assessments claiming $2.7 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 $5.5 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.2019.

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 a 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 ~~acquires~~acquire and/or on sales and taxable income. We also collect VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services we sell. If the output VAT exceeds the input VAT, then the difference is 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 we operate, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit 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 us with a net VAT receivable, 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 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.

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In most countries where the Company operates, ~~the tax refund process is~~there are defined and structured ~~with~~processes to recover VAT receivables via regular refunds or offsets. However, ~~as of November 30, 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 fiscal year 2017, two of these countries clarified the refund mechanism, which we are currently pursuing. The Company, together with its tax and legal advisers, is currently seeking clarification in court in the country without a clearly defined refund process, ~~and expects~~the Company is actively engaged with the local government to ~~prevail. The balance of the~~recover VAT ~~receivable in the country with undefined refund mechanisms was approximately $1.3~~receivables totaling $6.2 million and ~~$1.2~~$5.1 million as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, respectively. In ~~another country in which the Company has warehouse clubs, beginning in fiscal year 2015, a new~~two other countries, minimum income tax ~~mechanism took effect, which requires us~~rules require the Company to pay taxes based on a percentage of sales rather than income. As a result, ~~we are~~the Company is making income tax payments substantially in excess of those weit 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 excess~~Company had income tax ~~against other taxes. As~~receivables of ~~November 30, 2017~~$9.8 million and ~~August 31, 2017, the Company had~~$7.8 million and deferred tax assets of ~~approximately $2.0 million in this country. Also, the Company had an income tax receivable balance of $5.3~~$2.8 million and ~~$4.3~~$2.7 million as of ~~November 30, 2017~~May 31, 2020 and August 31, ~~2017,~~2019, respectively, in these countries. While the rules related to ~~excess payments from fiscal years 2015 to 2017. The~~refunds 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 ~~our~~its refund ~~requests, related appeals and/or court challenge on this matter.~~requests.

~~The Company’s~~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 the Company’s subsidiary has generally demonstrated the ability to recover the VAT or income tax receivable within one year. The Company also classify as short-term any approved refunds or credit notes to the extent that the Company 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 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 do not expect to eventually prevail in its recovery. The Company does not currently have any allowances provided against VAT and income tax receivables.

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 of such balances. We do not currently have any allowances provided against VAT and income tax receivables.

Long-lived Assets:

We ~~periodically~~ evaluate quarterly our long-lived assets for indicators of impairment. ~~Some of the key indicators~~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. Loss/(gain) on disposal of assets recorded during the years reported resulted from improvements to operations and normal preventive maintenance.

~~Seasonality~~Goodwill and Other Indefinite-Lived Intangibles

Goodwill and other indefinite-lived acquired intangible assets are not amortized but are 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 and other indefinite-lived acquired intangible assets have generated sufficient returns to recover the cost of goodwill and other indefinite-lived acquired intangible assets. 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 $45.3 million of certain acquired indefinite-lived intangible assets, the fair value approximated the carrying value; any deterioration in the fair value may result in an impairment charge.

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Seasonality

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.

~~Table of Contents~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in interest rates and changes in currency exchange rates. ~~There have been no material changes in our market risk factors at November 30, 2017 compared to those disclosed in our Annual Report~~As part of the adoption of the new leasing standard, we recorded several monetary liabilities on ~~Form 10-K for~~ the fiscal year ended August 31, 2017. The gross fair value of our derivative financial instruments designated as cash flow hedges has increased by $1.1 million since August 31, 2017, primarily due to the fluctuations in interest rates, fluctuations in exchange rates for the currenciesconsolidated balance sheet that are ~~being hedged, and changes in the scheduled maturities of the underlying instruments during the three months ended November 30, 2017. Movements in currency~~exposed to foreign exchange rates and the related impact on the translation of the balance sheets of the Company's subsidiaries whose functional currency is not the U.S. dollar were the primary cause of the $2.0 million net loss for the three months ended November 30, 2017 in the foreign currency translation adjustments category of accumulated other comprehensive income (loss).

~~In addition, the Company's subsidiaries whose functional currency is not the U.S. dollar carry~~movements. These monetary ~~assets and~~ liabilities arise from leases denominated in ~~currencies other than~~a currency that is not the functional currency of the ~~respective entity (primarily U.S. dollars) are revalued~~Company’s local subsidiary. The monetary liability for these leases as of May 31, 2020 was $33.7 million. Due to the ~~functional~~mix of foreign currency ~~using the~~ exchange rate onfluctuations during the balance sheet date. These foreign exchange transaction gains (losses), including transactions recorded involving these monetary assets and liabilities, are recorded as currency gain (loss) within Other income (expense) inthird quarter of fiscal year 2020, the impact to the interim consolidated statements of ~~income.~~income and comprehensive income from these monetary liabilities was immaterial.

The following table ~~summarizes~~discloses the ~~amounts recorded~~net effect on other expense, net for U.S. dollar-denominated and other foreign-denominated accounts relative to a hypothetical simultaneous currency revaluation based on balances as of May 31, 2020 (in thousands) including the new lease-related monetary liabilities described above:



Overall weighted negative currency movement	Losses based on change in U.S. dollar denominated and other foreign denominated cash, cash equivalents and restricted cash balances		Losses 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%	$	(3,279)	$	(902)	$	3,675	$	(506)
10%	$	(6,557)	$	(1,803)	$	7,350	$	(1,010)
20%	$	(13,114)	$	(3,606)	$	14,699	$	(2,021)

⁽¹⁾Amounts are before consideration of income taxes.

Information about the financial impact of foreign currency exchange rate fluctuations for the three ~~months ending November 30, 2017~~ and ~~2016 (in thousands):~~nine-month period ended May 31, 2020 is disclosed in Item 2 “Management’s Discussion and Analysis – Other Expense, net”.

Three Months Ended

November 30,

November 30,

2017

2016
Currency gain (loss)

$
278

$
(928)

Information about the change in the fair value of our hedges and the financial impact thereof for the three and nine-month period ended May 31, 2020 is disclosed in the Notes to Consolidated Financial Statements – Note 8 – Derivative Instruments and Hedging Activities.

Information about the movements in currency exchange rates and the related impact on the translation of the ~~first half~~balance sheets 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~~subsidiaries whose functional currency is not the 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 2016, 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 third and fourth fiscal quarters. Over the past three months, however, we have been unable to source a sufficient level of tradeable currencies in Trinidad consistent with the level of merchandise we were importingdollar for the holiday shopping season. As of November 30, 2017, our Trinidad subsidiary had net U.S. dollar denominated liability exposures of approximately $12.1 million, an increase of $16.1 million from Augustthree and nine-month period ended May 31, 2017 when our Trinidad subsidiary had a net U.S. dollar denominated asset position of approximately $4.0 million. We are carefully monitoring the situation, which may require us to limit future shipments from the U.S. to Trinidad2020 is disclosed in ~~line with our ability to exchange Trinidad dollars for tradeable currencies to manage our exposure to any potential devaluation.~~ Item 2 “Management’s Discussion and Analysis – Other Comprehensive Loss”.

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ITEM 4. CONTROLS AND PROCEDURES

Limitations on Effectiveness of Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decision regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. Because we do not control or manage those entities, our control procedures with respect to those entities were substantially more limited than those we maintain with respect to our consolidated subsidiaries.

Evaluation of Disclosure Controls and Procedures

As required by SEC Rules 13a-15(e) or 15d-15(e), we carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we review our system of internal control over financial reporting and make changes to our systems and processes to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems and automating manual processes. There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our 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.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~None.~~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.

On May 22, 2019, a class action complaint was filed against PriceSmart, Inc., as well as certain former and current officers in the United States District Court for the Southern District of California. On October 7, 2019, the Court granted Public Employees Retirement Association of New Mexico’s (PERA’s) Motion for Appointment as Lead Plaintiff. On January 3, 2020, PERA filed a consolidated class action complaint, which alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Company intends to vigorously defend itself against any obligations or liability to the plaintiffs with respect to such claims. The Company believes the claims are without merit. During the third quarter of fiscal 2020, the Company filed a Motion to Dismiss the Plaintiff’s Consolidated Amended Complaint and the Plaintiff filed an Opposition to the Motion to Dismiss. During the fourth quarter of fiscal 2020, the Company plans to file a Reply to the Opposition. Oral arguments are scheduled for the first quarter of fiscal 2021.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the 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, ~~2017.~~2019 and the factors discussed in Part II, “Item 1A. Risk Factors” in the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2020. There have been no material changes in the Company's risk factors from those disclosed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended August 31, ~~2017.~~

~~Available Information~~

~~The PriceSmart, Inc. website or internet address is www.pricesmart.com. On this website~~2019 and Part II, “Item 1A. Risk Factors” in the ~~Company makes available, free of charge, its annual report on Form 10-K, quarterly reports~~Company’s Quarterly Report on Form 10-Q current reports on Form 8-K and any amendments to those reports, and the annual report to the security holders, as soon as reasonably practicable after electronically filing such material with or furnishing it to the U.S. Securities and Exchange Commission (SEC). The Company’s SEC reports can be accessed through the investor relations section of its website under “SEC Filings.” All of the Company’s 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. The Company made available its annual report on Form 10-K and its annual Proxy Statement for the ~~fiscal year 2017 at the internet address~~ ~~http://materials.proxyvote.com/741511~~.quarter ended February 29, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) None.

(b) None.

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 the quarter ended May 31, 2020, the Company repurchased 4,210 shares in the indicated months. These were the only repurchases of equity securities made by the Company during the third quarter of fiscal year 2020. The Company does not have a stock repurchase program.



Period	(a) ‎Total Number ‎of Shares ‎Purchased		(b) ‎Average Price ‎Paid Per Share		(c) ‎Total Number ‎of Shares ‎Purchased ‎as Part of ‎Publicly ‎Announced ‎Plans or ‎Programs		(d) ‎Maximum ‎Number of ‎Shares That ‎May Yet Be ‎Purchased ‎Under the ‎Plans or ‎Programs
March 1, 2020 - March 31, 2020		3,914	$	48.17		—		N/A
April 1, 2020 - April 30, 2020		296	$	53.70		—		N/A
May 1, 2020 - May 31, 2020		—	$	—		—		N/A
Total		4,210	$	48.56		—		—

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a) Exhibits:



3.1(1)	Amended and Restated Certificate of Incorporation of the Company.
3.2(2)	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
3.3(3)	Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
3.4~~(1)~~(4)	Second Amended and Restated Bylaws of the Company.
10.1(5)*	~~Amendment to 2013 Equity Incentive Award Plan of PriceSmart, Inc.~~Employment Agreement between the Company and Michael McCleary dated April 1, 2020.
~~31.1~~10.2	Promissory Note between PriceSmart clubs (TT) Limited and Citibank, N.A. dated April 17, 2020.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002..
32.1**	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification 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)


*	Identifies management contract or compensatory plan or arrangement.

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

⁽³⁾

~~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.~~

⁽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 29, 2004 filed with the Commission on April 14, 2004.

⁽³⁾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.

⁽⁴⁾Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on July 17, 2015.

⁽⁵⁾Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on April 7, 2020.

5362

Table of Contents

~~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:	~~January 4, 2018~~July 9, 2020	By:	/s/ ~~JOSE LUIS LAPARTE~~SHERRY S. BAHRAMBEYGUI
			~~Jose Luis Laparte~~Sherry S. Bahrambeygui
			~~Director,~~ Chief Executive Officer ~~and President~~
			(Principal Executive Officer)

Date:	~~January 4, 2018~~July 9, 2020	By:	/s/ ~~JOHN M. HEFFNER~~MICHAEL L. MCCLEARY
			~~John M. Heffner~~Michael L. McCleary
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)
			~~Principal Accounting Officer)~~

5463



	November 30,		August 31,		May 31,		August 31,
	2017		2017		2020		2019
Prepaid expenses and other current assets	$	6,910	$	6,403	$	8,084	$	9,009
Other non-current assets		13,494		10,492		20,652		16,381
Total amount of Income tax receivables reported	$	20,404	$	16,895
Total amount of income tax receivables reported					$	28,736	$	25,390



Equity:
Common stock $0.0001 par value, 45,000,000 shares authorized; 31,278,595 and 31,275,727 shares issued and 30,403,610 and 30,400,742 shares outstanding (net of treasury shares) as of November 30, 2017 and August 31, 2017, respectively		3		3
Additional paid-in capital		424,856		422,395
Tax benefit from stock-based compensation		11,486		11,486
Accumulated other comprehensive loss		(111,468)		(110,059)
Retained earnings		443,356		420,866
Less: treasury stock at cost, 874,985 shares as of both November 30, 2017 and August 31, 2017		(35,924)		(35,924)
Total Equity		732,309		708,767
Total Liabilities and Equity	$	1,222,828	$	1,177,514



	August 31, 2017 balance sheet line item as previously reported		Amount reclassified		August 31, 2017 balance sheet line item as currently reported
Retained earnings	$	420,499	$	367	$	420,866
Additional paid-in capital	$	422,762	$	(367)	$	422,395



	Three Months Ended November 30, 2017
	Foreign currency translation adjustments		Defined benefit pension plans		Derivative Instruments			Total
Beginning balance, September 1, 2017	$	(108,539)	$	(442)	$	(1,078)		$	(110,059)
Other comprehensive income (loss)		(2,026)		30		587	(1)		(1,409)
Ending balance, November 30, 2017	$	(110,565)	$	(412)	$	(491)		$	(111,468)



	Twelve Months Ended August 31, 2017
	Foreign currency translation adjustments		Defined benefit pension plans			Derivative Instruments			Total
Beginning balance, September 1, 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)		—			39
Ending balance, August 31, 2017	$	(108,539)	$	(442)		$	(1,078)		$	(110,059)



	Open
Years ended November 30,	Locations(1)
2018	$	12,113
2019		11,715
2020		10,795
2021		9,339
2022		9,027
Thereafter		113,822
Total	$	166,811	(2)



(Amounts in thousands)	Current portion of long-term debt		Long-term debt (net of current portion)		Total
Balances as of August 31, 2017	$	18,358	$	87,939	$	106,297	(1)
Repayments of long-term debt		—		(3,000)		(3,000)
Regularly scheduled loan payments		(225)		(4,554)		(4,779)
Translation adjustments on foreign-currency debt of subsidiaries whose functional currency is not the U.S. dollar (2)		124		(45)		79
Balances as of November 30, 2017	$	18,257	$	80,340	$	98,597	(3)



Income Statement Classification	Interest expense on borrowings(1)		Cost of swaps (2)		Total
Interest expense for the three months ended November 30, 2017	$	849	$	322	$	1,171
Interest expense for the three months ended November 30, 2016	$	750	$	423	$	1,173

August 31,

Retained earnings not available for distribution