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, 2021


☐¨	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:

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~~30,783,266 shares of its common stock, par value $0.0001 per share, outstanding at ~~December 31, 2017.~~June 30, 2021.

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, 2021 (UNAUDITED) AND AUGUST 31, ~~2017~~2020	2
	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2021 AND ~~2016~~2020 - UNAUDITED	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2021 AND ~~2016~~2020 - UNAUDITED	5
	CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE AND NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2021 AND ~~2016~~2020 - UNAUDITED	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~THREE~~NINE MONTHS ENDED ~~NOVEMBER 30, 2017~~MAY 31, 2021 AND ~~2016~~2020 - UNAUDITED	7 8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED	8 10
ITEM 22..	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29 32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50 56
ITEM 4.	CONTROLS AND PROCEDURES	51 57
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	52 58
ITEM 1A.	RISK FACTORS	52 58
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	52 58
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	52 58
ITEM 4.	MINE SAFETY DISCLOSURES	52 58
ITEM 5.	OTHER INFORMATION	52 58
ITEM 6.	EXHIBITS	53 59

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, 2021 and the consolidated balance sheet as of August 31, ~~2017,~~2020, the unaudited consolidated statements of income for the three and nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016,~~2020, the unaudited consolidated statements of comprehensive income (loss) for the three and nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016,~~2020, the unaudited consolidated statements of equity for the three and nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016,~~2020, and the unaudited consolidated statements of cash flows for the ~~three~~nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016,~~2020 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,		2021		August 31,
	(Unaudited)		2017		(Unaudited)		2020
ASSETS
Current Assets:
Cash and cash equivalents	$	129,183	$	162,434	$	190,687	$	299,481
Short-term restricted cash		373		460		781		185
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						67,068		46,509
Receivables, net of allowance for doubtful accounts of $166 as of May 31, 2021 and $147 as of August 31, 2020, respectively						12,221		13,153
Merchandise inventories		372,413		310,946		336,645		309,509
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						31,812		30,165
Total current assets		544,739		510,370		639,214		699,002
Long-term restricted cash		2,986		2,818		6,972		4,105
Property and equipment, net		567,038		557,829		716,337		692,279
Operating lease right-of-use assets, net						125,998		119,533
Goodwill		35,578		35,642		45,142		45,206
Other intangibles, net						8,368		10,166
Deferred tax assets		15,200		15,412		22,872		21,672
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 $1,160 and $872 as of May 31, 2021 and August 31, 2020, respectively, for the fair value of derivative instruments)						56,483		54,260
Investment in unconsolidated affiliates		10,781		10,765		10,569		10,602
Total Assets	$	1,222,828	$	1,177,514	$	1,631,955	$	1,656,825
LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings	$	2,483	$	—	$	—	$	65,143
Accounts payable		297,371		272,248		341,007		373,172
Accrued salaries and benefits		19,250		19,151		37,240		32,946
Deferred membership income		22,234		22,100
Deferred income						27,255		23,525
Income taxes payable		5,217		5,044		9,740		7,727
Other accrued expenses		28,253		26,483
Other accrued expenses and other current liabilities						27,959		37,731
Operating lease liabilities, current portion						8,486		8,594
Dividends payable						10,755		—
Long-term debt, current portion		18,257		18,358		20,554		19,437
Total current liabilities		393,065		363,384		482,996		568,275
Deferred tax liability		1,647		1,812		1,759		1,713
Long-term portion of deferred rent		8,838		8,914
Long-term income taxes payable, net of current portion		898		909		3,947		5,132
Long-term operating lease liabilities						131,510		124,181
Long-term debt, net of current portion		80,340		87,939		101,294		112,610
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 $3,154 and $4,685 for the fair value of derivative instruments and $6,665 and $6,155 for post-employment plans as of May 31, 2021 and August 31, 2020, respectively)						10,665		12,182
Total Liabilities		490,519		468,747		732,171		824,093

‎

Table of Contents



Stockholders' Equity:
Common stock $0.0001 par value, 45,000,000 shares authorized; 31,456,121 and 31,417,576 shares issued and 30,777,829 and 30,670,712 shares outstanding (net of treasury shares) as of May 31, 2021 and August 31, 2020, respectively		3		3
Additional paid-in capital		459,812		454,455
Accumulated other comprehensive loss		(177,368)		(176,820)
Retained earnings		639,472		582,487
Less: treasury stock at cost, 678,292 shares as of May 31, 2021 and 746,864 shares as of August 31, 2020		(23,116)		(28,406)
Total stockholders' equity attributable to PriceSmart, Inc. stockholders		898,803		831,719
Noncontrolling interest in consolidated subsidiaries		981		1,013
Total Stockholders' Equity		899,784		832,732
Total Liabilities and Equity	$	1,631,955	$	1,656,825

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		2021		2020		2021		2020
Revenues:
Net warehouse club sales	$	745,401	$	716,079
Net merchandise sales					$	857,478	$	768,368	$	2,594,251	$	2,418,822
Export sales		8,147		10,734		10,213		8,321		30,800		25,029
Membership income		12,375		11,710		14,329		13,525		41,427		41,364
Other income		1,149		1,049
Other revenue and income						13,244		9,717		43,787		33,392
Total revenues		767,072		739,572		895,264		799,931		2,710,265		2,518,607
Operating expenses:
Cost of goods sold:
Net warehouse club		637,236		608,490
Export		7,749		10,181
Net merchandise sales						720,726		661,258		2,179,453		2,067,416
Export sales						9,820		7,995		29,568		24,044
Non-merchandise						5,755		3,503		17,847		12,416
Selling, general and administrative:
Warehouse club operations		69,502		65,426
Warehouse club and other operations						89,322		78,431		264,603		241,826
General and administrative		18,830		16,802		33,225		24,408		92,016		77,910
Pre-opening expenses		430		(113)		1		257		651		1,254
Loss/(gain) on disposal of assets		159		407
Loss on disposal of assets						366		112		568		251
Total operating expenses		733,906		701,193		859,215		775,964		2,584,706		2,425,117
Operating income		33,166		38,379		36,049		23,967		125,559		93,490
Other income (expense):
Interest income		400		502		518		554		1,454		1,433
Interest expense		(1,255)		(1,654)		(1,596)		(2,564)		(5,857)		(5,116)
Other income (expense), net		278		(928)
Total other income (expense)		(577)		(2,080)
Income before provision for income taxes and income (loss) of unconsolidated affiliates		32,589		36,299
Other expense, net						(2,295)		(1,564)		(4,132)		(1,826)
Total other expense						(3,373)		(3,574)		(8,535)		(5,509)
Income before provision for income taxes and ‎loss of unconsolidated affiliates						32,676		20,393		117,024		87,981
Provision for income taxes		(10,115)		(11,437)		(10,082)		(7,744)		(38,265)		(29,849)
Income (loss) of unconsolidated affiliates		16		7
Loss of unconsolidated affiliates						(13)		(16)		(34)		(79)
Net income	$	22,490	$	24,869		22,581		12,633		78,725		58,053
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						(52)		72		(223)		(20)
Net income attributable to PriceSmart, Inc.					$	22,529	$	12,705	$	78,502	$	58,033
Net income attributable to PriceSmart, Inc. per share available for distribution:
Basic					$	0.73	$	0.41	$	2.55	$	1.90
Diluted					$	0.73	$	0.41	$	2.55	$	1.90
Shares used in per share computations:
Basic		30,078		29,982		30,414		30,271		30,396		30,268
Diluted		30,079		29,987		30,446		30,275		30,423		30,273
Dividends per share	$	—	$	—

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		2021		2020		2021		2020
Net income	$	22,490	$	24,869	$	22,581	$	12,633	$	78,725	$	58,053
Less: net (income) loss attributable to noncontrolling interest						(52)		72		(223)		(20)
Net income attributable to PriceSmart, Inc.					$	22,529	$	12,705	$	78,502	$	58,033

Other Comprehensive Income, net of tax:
Foreign currency translation adjustments (1)	$	(2,026)	$	(10,866)		(3,007)		(12,874)		(2,577)		(19,981)
Defined benefit pension plan:
Net gain/(loss) arising during period						3		(16)		65		(3)
Amortization of prior service cost and actuarial gains included in net periodic pensions cost		30		(7)		33		19		99		56
Total defined benefit pension plan		30		(7)		36		3		164		53
Derivative instruments: (2)
Unrealized gains/(losses) on change in fair value of interest rate swaps		587		492
Unrealized gains/(losses) on change in derivative obligations						(667)		(1,471)		488		(208)
Unrealized gains/(losses) on change in ‎fair value of interest rate swaps						1,048		(1,104)		1,377		(6,295)
Amounts reclassified from accumulated other comprehensive income to other expense, net for settlement of derivatives						—		—		—		2,751
Total derivative instruments		587		492		381		(2,575)		1,865		(3,752)
Other comprehensive income (loss)		(1,409)		(10,381)
Comprehensive income	$	21,081	$	14,488
Other comprehensive loss						(2,590)		(15,446)		(548)		(23,680)
Comprehensive income/(loss)						19,939		(2,741)		77,954		34,353
Less: comprehensive income attributable to noncontrolling interest						33		35		91		90
Comprehensive income/(loss) attributable to PriceSmart, Inc.					$	19,906	$	(2,776)	$	77,863	$	34,263

⁽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														Accumulated								Stockholders'
	Common Stock			Paid-in		Stock Based		Comprehensive		Retained		Treasury Stock			Total					Additional		Other								Equity
	Shares	Amount		Capital		Compensation		Income(Loss)		Earnings		Shares	Amount		Equity		Common Stock			Paid-in		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		Loss		Earnings		Shares	Amount			PriceSmart, Inc.		Interest	Equity
Balance at February 29, 2020																	31,451	$	3	$	452,858	$	(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																	57		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards																	(3)		—		—		—		—	—		—		—		—		—
Stock-based compensation																	—		—		3,718		—		—	—		—		3,718		—		3,718
Net income (loss)																	—		—		—		—		12,705	—		—		12,705		(72)		12,633
Other comprehensive income (loss)																	—		—		—		(15,446)		—	—		—		(15,446)		35		(15,411)
Balance at May 31, 2020																	31,425	$	3	$	455,889	$	(168,019)	$	562,408	776	$	(31,615)	$	818,666	$	937	$	819,603

Balance at February 28, 2021																	31,452	$	3	$	454,881	$	(174,778)	$	616,943	675	$	(22,781)	$	874,268	$	983	$	875,251
Purchase of treasury stock																	—		—		—		—		—	3		(335)		(335)		—		(335)
Issuance of restricted stock award	5		—		—		—		—		—	—		—		—	4		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		2,442		—		—		—	—		—		2,442	—		—		4,931		—		—	—		—		4,931		—		4,931
Dividend paid to stockholders																	—		—		—		—		—	—		—		—		(87)		(87)
Net income	—		—		—		—		—		24,869	—		—		24,869	—		—		—		—		22,529	—		—		22,529		52		22,581
Other comprehensive income (loss)	—		—		—		—		(10,381)		—	—		—		(10,381)	—		—		—		(2,590)		—	—		—		(2,590)		33		(2,557)
Balance at November 30, 2016	31,243	$	3	$	414,811	$	11,321	$	(114,332)	$	375,929	836	$	(32,731)	$	655,001

Balance at August 31, 2017	31,276	$	3	$	422,395	$	11,486	$	(110,059)	$	420,866	875	$	(35,924)	$	708,767
Issuance of restricted stock award	3		—		—		—		—		—	—		—		—
Stock-based compensation	—		—		2,461		—		—		—	—		—		2,461
Net income	—		—		—		—		—		22,490	—		—		22,490
Other comprehensive income (loss)	—		—		—		—		(1,409)		—	—		—		(1,409)
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, 2021																	31,456	$	3	$	459,812	$	(177,368)	$	639,472	678	$	(23,116)	$	898,803	$	981	$	899,784

See accompanying notes.

‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED—AMOUNTS IN THOUSANDS)


	Nine Months Ended
														Total
						Accumulated								Stockholders'
				Additional		Other								Equity
	Common Stock			Paid-in		Comprehensive		Retained		Treasury Stock				Attributable to		Noncontrolling	Total
	Shares	Amount		Capital		Loss		Earnings		Shares	Amount			PriceSmart, Inc.		Interest	Equity
Balance at August 31, 2019	31,461	$	3	$	454,570	$	(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	$	455,889	$	(168,019)	$	562,408	776	$	(31,615)	$	818,666	$	937	$	819,603

Balance at August 31,2020	31,418	$	3	$	454,455	$	(176,820)	$	582,487	747	$	(28,406)	$	831,719	$	1,013	$	832,732
Purchase of treasury stock	—		—		—		—		—	27		(2,574)		(2,574)		—		(2,574)
Issuance of treasury stock	(96)		—		(7,864)		—		—	(96)		7,864		—		—		—
Issuance of restricted stock award	137		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards	(3)		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		13,221		—		—	—		—		13,221		—		13,221
Dividend paid to stockholders	—		—		—		—		(10,762)	—		—		(10,762)		(346)		(11,108)
Dividend payable to stockholders	—		—		—		—		(10,755)	—		—		(10,755)		—		(10,755)
Net income	—		—		—		—		78,502	—		—		78,502		223		78,725
Other comprehensive income (loss)	—		—		—		(548)		—	—		—		(548)		91		(457)
Balance at May 31, 2021	31,456	$	3	$	459,812	$	(177,368)	$	639,472	678	$	(23,116)	$	898,803	$	981	$	899,784

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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		2021		2020
Operating Activities:
Net income	$	22,490	$	24,869	$	78,725	$	58,053
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,237		11,117		48,350		44,867
Allowance for doubtful accounts		(1)		7		19		(18)
(Gain)/loss on sale of property and equipment		159		407
Loss on sale of property and equipment						568		251
Deferred income taxes		(349)		984		(2,748)		(4,079)
Equity in (gains) losses of unconsolidated affiliates		(16)		(7)
Equity in losses of unconsolidated affiliates						34		79
Stock-based compensation		2,461		2,442		13,221		9,976
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)		6,147		(157)
Merchandise inventories		(61,467)		(44,082)		(27,136)		62,511
Accounts payable		21,372		12,894		(37,213)		2,647
Net cash provided by (used in) operating activities		(10,163)		2,115
Net cash provided by operating activities						79,967		174,130
Investing Activities:
Additions to property and equipment		(19,752)		(16,973)		(73,350)		(89,713)
Deposits for land purchase option agreements		—		(500)
Purchases of short-term investments						(58,355)		(31,711)
Proceeds from settlements of short-term investments						37,605		8,891
Purchases of long-term investments						(1,479)		(1,489)
Proceeds from settlements of long-term investments						1,479		—
Proceeds from disposal of property and equipment		20		108		109		44
Net cash provided by (used in) investing activities		(19,732)		(17,365)
Net cash used in investing activities						(93,991)		(113,978)
Financing Activities:
Proceeds from long-term bank borrowings						3,000		57,820
Repayment of long-term bank borrowings		(7,554)		(3,688)		(13,135)		(7,542)
Proceeds from short-term bank borrowings		16,954		681		—		271,014
Repayment of short-term bank borrowings		(14,696)		(4,155)		(64,916)		(207,368)
Cash dividend payments						(11,108)		(10,811)
Purchase of treasury stock						(2,574)		(1,585)
Other financing activities						(223)		(20)
Net cash provided by (used in) financing activities		(5,296)		(7,162)		(88,956)		101,508
Effect of exchange rate changes on cash and cash equivalents and restricted cash		2,021		(1,650)		(2,351)		(1,872)
Net increase (decrease) in cash, cash equivalents and restricted cash		(33,170)		(24,062)
Net increase (decrease) in cash, cash equivalents						(105,331)		159,788
Cash, cash equivalents and restricted cash at beginning of period		165,712		202,716		303,771		106,236
Cash, cash equivalents and restricted cash at end of period	$	132,542	$	178,654	$	198,440	$	266,024

Supplemental disclosure of noncash investing activities:
Capital expenditures accrued, but not yet paid					$	8,763	$	7,975
Dividends declared but not yet paid						10,755		10,719

‎

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PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(UNAUDITED—AMOUNTS IN THOUSANDS)

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		2021		2020
Cash and cash equivalents	$	129,183	$	175,402	$	190,687	$	261,788
Short-term restricted cash		373		517		781		240
Long-term restricted cash		2,986		2,735	$	6,972	$	3,996
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					$	198,440	$	266,024

See accompanying notes.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~November 30, 2017~~May 31, 2021

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, 2021, the Company had ~~40 consolidated~~47 warehouse clubs in operation in 12 countries and ~~one~~1 U.S. territory ~~(seven each~~(8 in ~~Colombia~~Costa Rica and ~~Costa Rica; five~~Colombia; 7 in Panama; ~~four~~5 in ~~Trinidad; three each in Guatemala,~~ the Dominican Republic, 4 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). The Company ~~opened a~~also plans to open new warehouse ~~club~~clubs in ~~Santa Ana, Costa Rica~~Guatemala City, Guatemala and Bucaramanga, Colombia in ~~October 2017, bringing~~ the ~~total warehouse clubs operating~~fall of 2021, and in ~~Costa Rica to seven. In June 2017, the Company acquired land in Santo Domingo, Dominican Republic. The Company is currently building a warehouse club on this site and expects to open~~Portmore, Jamaica in the spring of ~~calendar year 2018. This~~2022. Once these 3 new clubs are open, the Company will ~~bring~~operate 50 warehouse clubs.

PriceSmart continues to invest in technology to increase operational efficiencies that are expected to lead to greater value to the ~~number~~Member, to gain greater insights into the shopping preferences of ~~PriceSmart warehouse clubs operating~~our Members and to enhance the overall Member experience. Technology developments are driving omni-channel initiatives and capabilities, including online shopping and services. As of May 31, 2021, the Company offered the Click & Go™ curbside pickup and delivery service in ~~Dominican Republic~~all 13 of its markets. These services provide an alternative and convenient way for Members to ~~four.~~

shop, while reducing physical contact. The Company ~~continues~~also has launched digital membership, which helps it gather higher quality data it can use to ~~explore other potential sites for future warehouse clubs~~make better informed decisions in ~~Central~~all areas of the business and facilitates a more seamless auto-renewal process, increasing predictability of membership income. We believe digital membership also provides more convenience to the Members with digital cards and online payment. PriceSmart also operates a package forwarding (casillero) and marketplace business under the “Aeropost” banner in 38 countries in Latin America and the Caribbean, ~~and Colombia.~~many of which overlap with markets where it operates 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 continues to significantly impact the economies of the countries where the Company operates due to elevated infection rates and government restrictions. 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.

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~~2020 (the ~~“2017~~“2020 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

810

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—(Continued)~~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 interim 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, 2021 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, 2021 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 following table summarizes the restricted cash reported by the Company (in thousands):


	May 31,		August 31,
	2021		2020
Short-term restricted cash	$	781	$	185
Long-term restricted cash		6,972		4,105
Total restricted cash⁽¹⁾	$	7,753	$	4,290

⁽¹⁾Restricted cash consists of cash deposits held within banking institutions to comply with federal regulatory requirements in Costa Rica and Panama. In addition, the Company is required to maintain a certificate of deposit of Trinidad dollars, as measured in U.S. dollars, of approximately $3.0 million with one of its lenders as a compensating balance for a $3.0 million U.S. dollar denominated loan payable over several years. The certificate of deposit will be reduced annually commensurate with the loan balance.

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 $53.5 million as of May 31, 2021 and $55.4 million as of August 31, 2020. The Company reviews reported goodwill and other intangibles at the reporting unit level for impairment. The Company tests goodwill for impairment at least annually or when events or changes in circumstances indicate that it is more likely than not that the asset is impaired.

Receivables –Receivables consist primarily of credit card receivables and receivables from vendors and are stated net of allowances for credit losses. The determination of the allowance for credit losses is based on the Company’s assessment of collectability along with the consideration of current and expected market conditions that could impact collectability.

Tax Receivables –The Company pays Value Added Tax (“VAT”) or similar taxes, ~~(“input VAT”),~~ income taxes, and other taxes within the normal course of ~~its~~ business in most of the countries in which it operates related to the procurement of merchandise and/or services itthe Company acquires and/or on sales and taxable income. VAT is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is similar to, but operates somewhat differently than, sales tax paid in the United States. The Company ~~also~~generally collects VAT from its Members upon sale of goods and services and pays VAT to its vendors upon purchase of goods and services. Periodically, the Company submits VAT reports to governmental agencies and reconciles the VAT paid and VAT received. The net overpaid VAT may be refunded or ~~similar taxes on~~

~~Table of Contents~~

~~PRICESMART, INC.~~

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

~~behalf of~~applied to subsequent returns, and the ~~government (“output VAT”) for merchandise and/or services it sells. If the output~~net underpaid VAT ~~exceeds the input VAT, then the difference is~~must be remitted to the government, usually on a monthly basis. If the input VAT exceeds the output VAT, this creates a VAT receivable. In most countries where the Company operates, the governments have implemented additional collection procedures, such as requiring credit and debit card processors to remit a portion of sales processed via credit and debit card directly to the government as advance payments of VAT and/or income tax. In the case of VAT, these procedures alter the natural offset of input and output VAT and generally leave the Company with a net VAT receivable, forcing the Company to process significant refund claims on a recurring basis.government. With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due, this creates an income tax receivable. ~~The~~In most countries where the Company ~~either requests~~operates, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a ~~refund~~portion of ~~these~~sales processed via credit and debit cards directly to the government as advance payments of VAT and/or income tax. This collection mechanism generally leaves the Company with net VAT and/or income tax receivables, ~~or applies~~forcing the ~~balance~~Company to ~~expected future tax payments.~~ process significant refund claims on a recurring basis.These refund or offset processes can take anywhere from several months to several years to complete.

In 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 $9.1 million and ~~$1.2~~$7.0 million as of ~~November 30, 2017~~May 31, 2021 and August 31, ~~2017,~~2020, respectively. In ~~another country~~two other countries, there have been changes in the method of computing minimum tax payments, under which the ~~Company operates warehouse clubs, a new minimum income tax mechanism took effect in fiscal year 2015, which requires~~governments have sought to require the Company to pay taxes based on a percentage of sales rather than taxable income. As a result, the Company ~~is making~~has made and may continue to make income tax payments substantially in excess of those it would expect to pay based on taxable income. The ~~current rules (which the~~ Company ~~has challenged in court) do not clearly allow the Company to obtain a refund or to offset this excess~~had income tax ~~against other taxes. As~~receivables of ~~November 30, 2017~~$11.0 million and $10.4 million and deferred tax

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

assets of $3.2 million and $2.8 million as of May 31, 2021 and August 31, ~~2017,~~2020, respectively, in these countries. While the ~~Company had deferred tax assets~~rules related to refunds of ~~approximately $2.0 million in this country. Also, the Company had an~~ income tax ~~receivable balance of $5.3 million and $4.3 million as of November 30, 2017 and August 31, 2017, respectively, related to excess payments from fiscal years 2015 to 2017. The~~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,~~requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related ~~appeals and/~~appeals. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or ~~court challenge on this matter.~~deferred tax assets.

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		2021		2020
Prepaid expenses and other current assets	$	9,998	$	6,650	$	1,390	$	1,749
Other non-current assets		22,954		24,904		28,004		25,851
Total amount of VAT receivables reported	$	32,952	$	31,554	$	29,394	$	27,600

~~Table of Contents~~

~~PRICESMART, INC.~~

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

The following table summarizes the Income tax receivables reported by the Company (in thousands):



	November 30,		August 31,		May 31,		August 31,
	2017		2017		2021		2020
Prepaid expenses and other current assets	$	6,910	$	6,403	$	9,775	$	10,944
Other non-current assets		13,494		10,492		19,872		20,116
Total amount of Income tax receivables reported	$	20,404	$	16,895
Total amount of income tax receivables reported					$	29,647	$	31,060

Lease Accounting – The Company’s leases are operating leases for warehouse clubs and non-warehouse club facilities such as corporate headquarters, regional offices, and regional distribution centers. The Company determines if an arrangement is a lease and classifies it as either a finance or operating lease at lease inception. Operating leases are included in Operating lease right-of-use assets, net; Operating lease liabilities, current portion; and Long-term operating lease liabilities on the consolidated balance sheets. The Company does not have finance leases.

Operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. The Company’s leases generally do not have a readily determinable implicit rate; therefore, the Company uses a collateralized incremental borrowing rate at the commencement date in determining the present value of future payments. The incremental borrowing rate is based on a yield curve derived from publicly traded bond offerings for companies with credit characteristics that approximate the Company's market risk profile. In addition, we adjust the incremental borrowing rate for jurisdictional risk derived from quoted interest rates from financial institutions to reflect the cost of borrowing in the Company’s local markets. The Company’s lease terms may include options to purchase, extend or terminate the lease, which are

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

recognized when it is reasonably certain that the Company will exercise that option. The Company does not combine lease and non-lease components.

The Company measures Right-of-use (“ROU”) assets based on the corresponding lease liabilities, adjusted for any initial direct costs and prepaid lease payments made to the lessor before or at the commencement date (net of lease incentives). The lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease payments are not included in the calculation of the ROU asset and the related lease liability and are recognized as this lease expense is incurred. 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.

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~~based on ~~the basis of~~ a percentage of sales. The provision is adjusted ~~periodically~~every reporting period to reflect the trend of actual physical inventory and cycle count ~~results, with physical inventories occurring primarily in the second and fourth fiscal quarters.~~results. In addition, the Company may be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise.

Stock Based Compensation– The Company 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~~each tranche, adjusting this cost based on the Company’s estimate of ~~ASU 2016-09,~~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, 2021, 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, 2017.96,400 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—(Continued)~~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~~2020 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~~and are intended to provide 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 7~~Refer to “Note 8 - Derivative Instruments and Hedging ~~Activities~~Activities” for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of ~~November 30, 2017~~May 31, 2021 and August 31, ~~2017.~~2020.

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 transactions. As a result, these contracts are valued at fair value with unrealized gains or losses reported in earnings during the

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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~~Cost of Goods Sold –As The Company includes the cost of ~~October 1, 2017, PriceSmart, Inc. became self-insured~~merchandise and 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, cooperative marketing efforts, digital advertising, slotting fees, demonstration reimbursements and prompt payment discounts. Volume rebates and time-limited promotions are recognized on a systematic and rational allocation of the cash consideration as the Company progresses toward earning the rebate, provided the amounts to be earned are probable and reasonably estimable. Cooperative marketing efforts and digital advertising are related to consideration received by the Company from vendors for non-distinct online advertising services on the Company’s website and social media platforms. Slotting fees are related to consideration received by the Company from vendors for preferential "end cap" placement of the vendor's products within the warehouse club. Demonstration reimbursements are related to consideration received by the Company from vendors for the in-club promotion of the vendors' products. The Company ~~contracted~~records the reduction in cost of goods sold on a transactional basis for these programs. On a quarterly basis, the Company calculates the amount of rebates recorded in cost of goods sold that relates to inventory on hand and this amount is reclassified as a reduction to inventory, if significant. Prompt payment discounts are taken in substantially all cases and therefore are applied directly to reduce the acquisition cost of the related inventory, with ~~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 consist 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, 2021 and 2020 (in thousands):


	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,			May 31,
	2021		2020		2021			2020
Effect on other comprehensive loss due to foreign currency translation	$	(3,007)	$	(12,874)	$	(2,577)	$	(19,981)

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~~income (in thousands):

Three Months Ended

November 30,

November 30,

2017

2016
Currency gain (loss)

$
278

$
(928)



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2021		2020		2021		2020
Currency loss	$	(2,240)	$	(1,529)	$	(3,970)	$	(2,431)

Recent Accounting Pronouncements – Not Yet Adopted

FASB ASC ~~815~~740 ASU ~~2017-12 Derivatives and Hedging - Targeted Improvements to~~2019-12—Income Taxes (Topic 740): Simplifying the Accounting for ~~Hedging Activities~~Income Taxes

~~The~~In December 2019, the FASB ~~has~~ issued ~~Accounting Standards Update (ASU)~~ASU No. ~~2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to~~2019-12, Simplifying the Accounting for ~~Hedging Activities, which aims~~Income Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU is effective for annual periods beginning after December 15, 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 does not expect this guidance to have a material impact on the Company’s consolidated financial ~~reporting~~statements.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Recent Accounting Pronouncements Adopted

FASB ASC 848 ASU 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 exceptions, if certain criteria are met, for a limited period of time to ease the potential burden in accounting for contracts, hedging relationships, and other transactions affected by reference rate reform. This accounting standards update is intended to ~~better portray~~ease the ~~economic results~~process of ~~an entity’s risk management activities in its financial statements.~~migrating away from LIBOR to new reference rates. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). The amendments in this ASU ~~are intended~~refine the scope of ASC 848 and clarifies some of its guidance as it relates to ~~better align an entity’s risk management activities~~recent rate reform activities.

A substantial number of the Company’s debt agreements and ~~financial reporting for~~ hedging relationships ~~through changes~~bear interest at variable interest rates, primarily based on USD-LIBOR. To preserve the presentation of the Company’s debt and derivatives, the Company adopted ASU 2020-04 and ASU 2021-01 effective December 1, 2020, on a prospective basis. The Company has elected to ~~both~~apply the ~~designation~~contract modification expedient and ~~measurement guidance~~the hedge accounting expedients related to critical terms, probability of forecasted transactions, and the assessments of effectiveness for ~~qualifying~~future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. The adoption of, and future elections under ASU 2020-04 and ASU 2021-01, did not and are not expected to have a material impact on the Company’s accounting policies or consolidated financial statements. We will continue to monitor the impact the discontinuance of LIBOR will have on the Company’s contracts, hedging relationships and other transactions.

FASB ASC 350 ASU 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

In August 2018, the ~~presentation of hedge results. To satisfy that objective, the amendments expand~~FASB issued ASU No. 2018-15, Intangibles—Goodwill and ~~refine hedge~~Other—Internal-Use Software (Subtopic 350-40): Customer’s accounting for ~~both non-financial~~implementation costs incurred in a cloud computing arrangement that is a service contract. ASU No. 2018-15 aligns the 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 ~~financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.~~which costs to expense.

Additionally, the amendments ~~(1) permit hedge accounting for risk components~~ in ~~hedging relationships involving non-financial risk and interest rate risk; (2) change~~this ASU require the ~~guidance for designating fair value hedges~~entity to expense the capitalized implementation costs of ~~interest rate risk and for measuring~~a hosting arrangement that is a service contract over the ~~change in fair value~~term 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.hosting arrangement. The amendments in this ASU are effective for annual periods beginning after December 15, ~~2018~~2019 and interim

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~~PRICESMART, INC.~~

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

periods within those annual periods. The Company ~~will evaluate~~adopted ASU No. 2018-15 on a prospective basis on September 1, 2020, the ~~impact adoption~~first quarter of fiscal year 2021. Adoption of this guidance ~~may~~did not have a material impact on the Company’s consolidated financial statements.

FASB ASC ~~715~~820 ASU ~~2017-09 -Compensation—Stock Compensation~~2018-13 – Fair Value Measurement (Topic ~~718)—Scope of Modification Accounting~~

~~The FASB has issued Accounting Standards Update (ASU) No. 2017-09, Compensation—Stock Compensation (Topic 718)~~820): Scope of Modification Accounting, which seeks to provide clarity, reduce diversity in practice, and reduce cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, regarding a changeDisclosure Framework—Changes to the terms or conditions of a share-based payment award. This ASU provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Specifically, an entity is to accountDisclosure Requirements for the effects of a modification, unless all of the following are satisfied: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or as a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.Fair Value Measurement

~~FASB ASC 715 ASU 2017-07-Compensation—Retirement Benefits (Topic 715) —Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~

In ~~March 2017,~~August 2018, the FASB issued ASU No. ~~2017-07, Compensation—Retirement Benefits~~2018-13, Fair Value Measurement (Topic ~~715) — Improving~~820). The standard eliminates such disclosures as the ~~Presentation~~amount of ~~Net Periodic Pension Cost~~ and ~~Net Periodic Postretirement Benefit Cost. This ASU~~ i~~s designed to improve guidance related to the presentation~~reasons for transfers between Level 1 and Level 2 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. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.

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

In January 2017, the FASB issued Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value ~~of a reporting unit with its carrying amount, and (2) recognize an impairment charge~~hierarchy. ASU No. 2018-13 adds new disclosure requirements 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 2017-04 requires any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test.~~Level 3 measurements. The amendments in this ASU are effective for annual periods beginning after December 15, 2019. The Company ~~will evaluate~~adopted ASU No. 2018-13 on a prospective basis on September 1, 2020, the ~~impact adoption~~first quarter of fiscal year 2021. Adoption of this guidance ~~may~~did not have a material impact on the Company’s consolidated financial statements.

FASB ASC ~~740~~350 ASU ~~2016-16-Income Taxes~~2017-04 – Intangibles—Goodwill and Other (Topic ~~740)—Intra-Entity Transfers of Assets Other Than Inventory~~350): Simplifying the Test for Goodwill Impairment

In ~~October 2016,~~January 2017, the FASB issued ASU No. ~~2016-16, Income Taxes~~2017-04, Intangibles—Goodwill and Other (Topic ~~740)—Intra-Entity Transfers~~350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU modify the concept of ~~Assets Other Than Inventory. Currently, U.S. GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until~~impairment from the ~~asset has been sold to an outside party. ASU 2016-16 states~~condition that ~~an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory~~exists when the ~~transfer occurs.~~carrying amount of a reporting unit exceeds its fair value. An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

that reporting unit had been acquired in a business combination. Under this ASU, entities should now calculate any goodwill impairment by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge to the goodwill for the amount by which the carrying amount exceeds the reporting unit's fair value. 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.~~2019. The ~~amendments should be applied~~Company adopted ASU No. 2017-04 on a ~~modified retrospective~~prospective basis ~~through a cumulative-effect adjustment directly to retained earnings as~~on September 1, 2020, the first quarter of ~~the beginning of the period of adoption. The Company will evaluate the impact adoption~~fiscal year 2021. 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~~326 ASU ~~2016-15-Statement~~2016-13 – Financial Instruments—Credit Losses (Topic 326): Measurement of ~~Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)~~Credit Losses on Financial Instruments

In ~~August~~June 2016, the FASB issued ASU No. ~~2016-15, Statement~~2016-13, Measurement of ~~Cash Flows~~Credit Losses on Financial Instruments (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 in326), which amends 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 thisFASB’s guidance ~~may have~~ on the ~~Company's consolidated~~impairment of financial ~~statements.~~

~~FASB ASC 842 ASU 2016-02 -Leases (Topic 842): Amendments to the FASB Accounting Standards Codification~~

instruments. In ~~February 2016,~~April 2019, the FASB issued ~~guidance codified in ASC 842,~~ ~~Leases, which supersedes the guidance in ASC 840,~~ ~~Leases~~. ASC 842 will be effective for the Company on September 1, 2019, and the Company expects to apply the transition practical expedients allowed by the standard. Note 11 – “Leases” provides details on the Company’s current lease arrangements. While the Company continues to evaluate the provisions of ASC 842 to determine how it will be affected, the primary effect will be to require recording right-of-use assets and corresponding lease obligations for current operating leases. The Company expects the adoption of this guidance to have a material impact on the Company's consolidated balance sheets, but not on the consolidated statements of income or cash flows.

~~FASB ASC 606~~ ASU ~~2014-09 - Revenue 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 for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans to adopt this guidance at the beginning of its first quarter of fiscal year 2019. The Company is evaluating the impact of adoption of this guidance on all potentially significant revenue transactions that will be impacted by the new standard on the Company's consolidated financial statements and related disclosures as a result of adopting this standard.

~~Recent Accounting Pronouncements Adopted~~

~~FASB ASC 718 ASU 2016-09 - Compensation—Stock Compensation (Topic 718):~~No. 2019-04, Codification Improvements to ~~Employee Share-Based Payment Accounting~~

~~In March 2016, the FASB issued new guidance on stock compensation intended~~Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments to ~~simplify accounting for share-based payment transactions. The guidance will change accounting for income taxes, forfeitures,~~clarify and minimum statutory tax withholding requirements. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company 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~~address certain items 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 in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to entities, like the Company, that measure inventory value using the average cost method. The amendments in ~~this~~ ASU ~~more closely align~~2016-13. These amendments require the measurement of ~~inventory in GAAP with~~all expected credit losses for financial assets held at the ~~measurement of inventory in International Financial Reporting Standards.~~

reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ~~amendment in this ASU is~~amendments are effective ~~on a prospective basis for public entities~~ for fiscal years beginning after December 15, ~~2016,~~ 2019, including interim periods within those fiscal years. The Company adopted ~~this guidance~~the amendments on a prospective basis on September 1, ~~2017.~~2020, the first quarter of fiscal year 2021. Adoption of this guidance did not have a material ~~effect~~impact on the Company’s consolidated financial statements.

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, 2021, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 31, 2021 that the Company expects 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.

Net Merchandise Sales. The Company recognizes net 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 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. Our membership policy allows Members to cancel their membership in the first 60 days and receive a full refund. After the 60-day period, membership refunds are prorated over the remaining term of the membership. The Company has significant experience with membership refund patterns and expects membership refunds will not be material. Therefore, no refund reserve was required for the periods presented. Membership fee revenue is included in membership income in the Company's consolidated ~~financial statements.~~ statements of income. The deferred membership fee is included in deferred income in the Company's consolidated balance sheets.

~~FASB ASC 230 ASU 2016-18-Statement~~

Table of ~~Cash Flows(Topic 230)—Restricted Cash~~Contents

PRICESMART, INC.

~~In November 2016,~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Platinum Points Reward Programs. The Company currently offers Platinum memberships in all 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 ~~FASB issued ASU No. 2016-18, Statement~~warehouse club during the redemption period. The Company records this 2% rebate as a reduction of ~~Cash Flows (Topic 230)—Restricted Cash. This ASU addresses~~revenue at the ~~diversity in practice~~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 ~~exists regarding~~breakage revenue is 5% of the ~~classification~~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 ~~presentation of changes in restricted cash~~expired unused rebates are recognized as “Other revenue and income” on the ~~statement~~consolidated statements of ~~cash flows.~~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 ~~amendments~~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 within markets where the co-branded credit card agreement allows for such treatment.

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 ~~ASU No. 2016-18 require~~the consolidated balance sheets. These gift cards generally have a one-year stated expiration date from the date of issuance and are generally redeemed prior to expiration. However, the absence of a large volume of transactions for 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 periodically reviews unredeemed outstanding gift certificates, and the 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 markets, the Company often enters into revenue sharing agreements. As part of these agreements, in some countries, the Company receives a ~~statement~~portion of ~~cash flows explain~~ the ~~change~~interest income generated from the average outstanding balances on the co-branded credit cards from these financial institutions (“interest generating portfolio” or “IGP”). The Company recognizes its portion of interest received as revenue during the period it is earned. The Company has determined that this revenue should be recognized as “Other revenue and income” on the consolidated statements of income.

Contract Performance Liabilities

Contract performance liabilities as a result of transactions with customers primarily consist of deferred membership income, other deferred income, deferred gift card revenue, Platinum points programs, and liabilities related to co-branded credit card points rewards programs which are included in deferred income and other accrued expenses and other current liabilities 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 includedCompany’s consolidated balance sheets. The following table provides these contract balances from transactions 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~~the dates listed (in thousands):


	Contract Liabilities
	May 31, 2021		August 31, 2020
Deferred membership income	$	26,457	$	23,051
Other contract performance liabilities	$	5,895	$	5,190

Table of ~~this ASU impacted~~Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Disaggregated Revenues

In the ~~presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.~~following table, net merchandise sales are disaggregated by merchandise category (in thousands):



		Three Months Ended			Nine Months Ended
		May 31, 2021		May 31, 2020		May 31, 2021		May 31, 2020
Foods & Sundries	$	431,007	$	419,579	$	1,298,134	$	1,250,728
Fresh Foods		252,365		228,858		745,158		685,413
Hardlines		94,732		70,374		318,229		261,796
Softlines		43,468		25,597		130,732		115,860
Other Business		35,906		23,960		101,998		105,025
Net Merchandise Sales	$	857,478	$	768,368	$	2,594,251	$	2,418,822

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.

~~Table of Contents~~

~~PRICESMART, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL 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, 2021 and ~~2016~~2020 (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		2021		2020		2021		2020
Net income	$	22,490	$	24,869
Net income attributable to PriceSmart, Inc.					$	22,529	$	12,705	$	78,502	$	58,033
Less: Allocation of income to unvested stockholders		(300)		(420)		(372)		(188)		(952)		(527)
Net earnings available to common stockholders	$	22,190	$	24,449
Net income attributable to PriceSmart, Inc. per share available for distribution					$	22,157	$	12,517	$	77,550	$	57,506
Basic weighted average shares outstanding		30,078		29,982		30,414		30,271		30,396		30,268
Add dilutive effect of stock options (two-class method)		1		5
Add dilutive effect of performance stock units (two-class method)						32		4		27		5
Diluted average shares outstanding		30,079		29,987		30,446		30,275		30,423		30,273
Basic net income per share	$	0.74	$	0.82	$	0.73	$	0.41	$	2.55	$	1.90
Diluted net income per share	$	0.74	$	0.82	$	0.73	$	0.41	$	2.55	$	1.90

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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.~~2021 and 2020 (amounts are per share).

First Payment

Second Payment

First Payment

Second Payment

Declared

Amount

Record
Date

Date
Paid

Date
Payable

Amount

Record
Date

Date
Paid

Date
Payable

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

2/4/2021

0.70

2/15/2021

2/26/2021

N/A

0.35

8/15/2021

N/A

8/31/2021

0.35

2/6/2020

0.70

2/15/2020

2/28/2020

N/A

0.35

8/15/2020

8/31/2020

N/A

0.35

Table of Contents

PRICESMART, INC.

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

⁽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.

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. The Company believes that the final disposition of the pending legal proceedings, claims and litigation 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.

~~Taxes~~

Income Taxes –~~The~~ For interim reporting, the Company ~~accounts for~~uses an estimated annual effective tax rate (AETR), pursuant to ASC 740-270, 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

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

than 50% likelihood of being sustained. ~~There were no material changes in~~As of May 31, 2021, the Company's uncertain income tax ~~positions as of November 30, 2017 and~~position balance has been reduced by $1.2 million since August 31, ~~2017.~~2020, due to the expiration of statutes of limitation and other current year adjustments.

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, 2021 and August 31, ~~2017,~~2020, the Company has recorded within other accrued expenses and other current liabilities a total of ~~$3.2~~$1.7 million and ~~$3.4~~$2.5 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 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~~$11.0 million and ~~August 31, 2017, the Company had~~$10.4 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~~$3.2 million and ~~$4.3~~$2.8 million as of ~~November 30, 2017~~May 31, 2021 and August 31, ~~2017,~~2020, 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.

~~Table of Contents~~

~~PRICESMART, INC.~~

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

Other Commitments

The Company is committed under non-cancelable operating leases for the rental of facilities and land. 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 of the vacated previously leased space were subleased (and subsequently returned to the landlord) while the remainder remains available for sublease. As part of the subleases the Company was required to execute and deliver to the landlord of the leased facility a letter of credit (“LOC”) in the amount of $500,000 which entitles the landlord to draw on the LOC based on a decreasing scale over four years, if certain conditions occur related to nonpayment by the new tenant. Although this agreement is considered a guarantee, in measuring the fair value, the Company considers the risk and probability of default by the third party tenant as not likely nor probable, based on the Company’s review of the third party tenant’s financial position as well as the third party’s considerable capital investment into the leased facility. Therefore, the Company has not recorded a liability for this guarantee.

The Company is also committed to non-cancelable construction ~~services~~service obligations for various warehouse club developments and expansions. As of ~~November 30, 2017~~May 31, 2021 and August 31, ~~2017,~~2020, the Company had approximately ~~$3.2~~$16.3 million and ~~$7.9~~$5.1 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~~2021, the Company had entered into a land purchase option ~~agreements can be canceled at~~agreement that, if completed, would result in the ~~sole option~~use 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.~~$7.4 million in cash.

~~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, 2021 (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	$	22	$	7,040	$	99	$	7,139
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		100		3,529		785		4,314
Total			$	6,809	$	3,638	$	334	$	10,781	$	884	$	11,665			$	6,809	$	3,638	$	122	$	10,569	$	884	$	11,453

⁽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 to provide additional financial support.

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, 2021	$	131,000	$	—	$	125	$	130,875	—	%
August 31, 2020	$	81,210	$	65,143	$	388	$	15,679	3.7	%

As of ~~November 30, 2017~~May 31, 2021 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, 2017,2020, the Company was in compliance with ~~respect to these covenants. Each~~all covenants or amended covenants for each of ~~the~~its short-term facility agreements. These facilities ~~expires~~generally expire annually or bi-annually and isare 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, 2021:

(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, 2020	$	19,437	$	112,610	$	132,047	⁽¹⁾
Proceeds from long-term debt incurred during the period:
Trinidad subsidiary		547		2,453		3,000
Regularly scheduled loan payments		(1,164)		(11,971)		(13,135)
Reclassifications of long-term debt due in the next 12 months		1,706		(1,706)		—
Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar⁽²⁾		28		(92)		(64)
Balances as of May 31, 2021	$	20,554	$	101,294	$	121,848	⁽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 $158.6 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 loss.

⁽³⁾The carrying amount of ~~U.S. $13.3~~cash and non-cash assets assigned as collateral for these loans was $2.8 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.~~and $143.7 million, respectively.

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, 2021 and August 31, 2020, the Company had approximately ~~$82.8~~$96.0 million and $107.4 million, respectively, 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, the~~The Company was in compliance with all covenants or amended ~~covenants.~~covenants for both periods.

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.

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
2021

5,805
2022

2,634
Thereafter

31,026
Total

$
98,597


Twelve Months Ended May 31,	Amount
2022	$	20,554
2023		26,381
2024		9,174
2025		25,608
2026		4,310
Thereafter		35,821
Total	$	121,848

2225

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL ~~STATEMENTS—(Continued)~~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~~two 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 the 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, 2021, 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, 2021:

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

⁽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, 2021 and ~~2016,~~May 31, 2020, the Company included the gain or loss on the hedged items (that is, variable-rate borrowings) in the same line item—interest expense—as the offsetting gain or loss on the related interest rate swaps as follows (in thousands):

Income Statement Classification

Interest
expense on
borrowings(1)

Cost of
swaps (2)

Total
Interest expense for the 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, 2021	$	656	$	907	$	1,563
Interest expense for the three months ended May 31, 2020	$	1,067	$	620	$	1,687
Interest expense for the nine months ended May 31, 2021	$	2,015	$	2,785	$	4,800
Interest expense for the nine months ended May 31, 2020	$	3,287	$	1,477	$	4,764

⁽¹⁾This amount is representative of the interest expense recognized on the underlying hedged transactions.

⁽²⁾This amount is representative of the interest expense recognized on the interest rate swaps and cross-currency swaps designated as cash flow hedging instruments.

⁽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				Notional Amount as of
	November 30,		August 31,		May 31,		August 31,
Floating Rate Payer (Swap Counterparty)	2017		2017		2021		2020
Union Bank	$	35,700	$	35,700	$	32,938	$	33,894
Citibank N.A.		25,063		26,088		52,201		55,086
Scotiabank		12,924		13,724		10,500		11,625
Total	$	73,687	$	75,512	$	95,639	$	100,605

~~Table of Contents~~

~~PRICESMART, INC.~~

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

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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, 2021, all of the Company’s contracts are designated as hedging instruments.

For the three and nine months ended ~~November 30, 2017,~~May 31, 2021 and 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			2021	2020			2021	2020
Other income (expense), net	$	93	$	219
Other expense, net					$	—	$	—	$	—	$	(912)

~~Table of Contents~~

~~PRICESMART, INC.~~

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



	~~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)~~

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, 2021
Revenue from external customers	$	8,147	$	452,166	$	214,642	$	92,117	$	—	$	767,072	$	21,237	$	531,595	$	243,468	$	98,964	$	—	$	895,264
Intersegment revenues		340,128		—		1,207		198		(341,533)		—		309,261		4,305		1,228		434		(315,228)		—
Depreciation and amortization		1,744		5,523		2,677		2,293		—		12,237
Operating income		3,739		31,942		11,470		2,145		(16,130)		33,166
Net income (loss)		82		26,796		10,317		1,425		(16,130)		22,490
Depreciation, Property and equipment														1,666		7,990		3,920		2,403		—		15,979
Amortization, Intangibles														606		—		—		—		—		606
Operating income (loss)														545		38,313		17,240		5,135		(25,184)		36,049
Net income (loss) attributable to PriceSmart, Inc.														(2,388)		32,700		13,524		3,929		(25,236)		22,529
Capital expenditures, net		1,004		11,370		10,297		832		—		23,503		3,334		8,724		6,486		4,870		—		23,414

Nine Months Ended May 31, 2021
Revenue from external customers													$	67,622	$	1,567,287	$	762,153	$	313,203	$	—	$	2,710,265
Intersegment revenues														955,619		12,842		3,498		2,413		(974,372)		—
Depreciation, Property and equipment														5,115		23,367		11,570		6,500		—		46,552
Amortization, Intangibles														1,798		—		—		—		—		1,798
Operating income (loss)														8,315		113,120		59,600		17,139		(72,615)		125,559
Net income (loss) attributable to PriceSmart, Inc.														(4,306)		94,247		48,175		13,224		(72,838)		78,502
Long-lived assets (other than deferred tax assets)		70,352		304,434		130,896		121,629		—		627,311		79,178		484,039		189,873		163,266		—		916,356
Intangibles, net														8,368		—		—		—		—		8,368
Goodwill		—		31,014		4,564		—		—		35,578		10,695		24,359		10,088		—		—		45,142
Total assets		121,674		580,523		334,279		186,352		—		1,222,828		202,770		777,703		427,078		224,404		—		1,631,955
Capital expenditures, net														6,052		30,334		14,748		20,416		—		71,550

Three Months Ended November 30, 2016
Three Months Ended May 31, 2020
Revenue from external customers	$	10,755	$	438,234	$	207,022	$	83,561	$	—	$	739,572	$	15,852	$	452,927	$	250,304	$	80,848	$	—	$	799,931
Intersegment revenues		317,662		—		1,698		10		(319,370)		—		230,826		4,791		1,548		787		(237,952)		—
Depreciation and amortization		1,574		4,864		2,458		2,221		—		11,117
Operating income		7,597		33,504		12,214		913		(15,849)		38,379
Net income		3,658		26,227		10,861		(28)		(15,849)		24,869
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		2,337		10,756		4,438		473		—		18,004		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 (loss)														3,401		96,972		40,436		13,411		(60,730)		93,490
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)		20,372		278,721		110,939		125,589		—		535,621		83,813		481,942		181,578		143,437		—		890,770
Intangibles, net														10,772		—		—		—		—		10,772
Goodwill		—		31,072		4,531		—		—		35,603		10,695		24,484		10,137		—		—		45,316
Total assets		70,283		542,238		321,235		184,114		—		1,117,870		224,682		727,527		384,168		238,112		—		1,574,489
Capital expenditures, net														5,564		42,766		13,913		28,807		—		91,050

As of August 31, 2017
As of August 31, 2020
Long-lived assets (other than deferred tax assets)	$	70,353	$	296,915	$	122,616	$	126,206	$	—	$	616,090	$	81,008	$	475,744	$	177,166	$	146,862	$	—	$	880,780
Intangibles, net														10,166		—		—		—		—		10,166
Goodwill		—		31,118		4,524		—		—		35,642		10,696		24,418		10,092		—		—		45,206
Total assets		147,650		544,683		303,234		181,947		—		1,177,514		272,190		741,523		395,244		247,868		—		1,656,825

⁽¹⁾

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

Table of Contents

PRICESMART, INC.

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

NOTE 910 – SUBSEQUENT EVENTS

The Company has evaluated all events subsequent to the balance sheet date as of ~~November 30, 2017~~May 31, 2021 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.

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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,omni-channel initiatives, proposed warehouse club openings, the Company's performance relative to competitors and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” “intend,” 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,but not limited to: adverse changes in ~~part, on our ability to successfully open new warehouse clubs and grow sales~~economic conditions in our ~~existing locations; we might not identify~~markets, natural disasters, compliance risks, volatility in ~~a timely manner or effectively respond to changes~~currency exchange rates and illiquidity of certain local currencies in consumer preferences for merchandise, which could adversely affect our relationship 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~~competition, consumer and small business ~~through~~spending patterns, political instability, increased costs associated with the integration of ~~physical~~online commerce with our traditional business, whether the Company can successfully execute strategic initiatives, cybersecurity breaches that could cause disruptions in our systems or jeopardize the security of Member or business information, cost increases from product and ~~digital retail~~service providers, interruption of supply chains, novel coronavirus (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~~2020 filed with the United States Securities and Exchange Commission (“SEC”) on October ~~26, 2017, pursuant~~30, 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~~the Company does not undertake to update them, except as required by law. In addition, these risks are not the only risks that the Company faces. The Company could also be affected by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presently known to the Company or that the Company currently considers to be immaterial.

~~The following discussion~~Overview

PriceSmart exists to improve the lives and ~~analysis compares~~businesses of our Members, our employees and our communities through the ~~results~~ethical delivery of the best quality goods and services at the lowest possible prices. PriceSmart began operations ~~for the three months ended November 30, 2017~~in 1996 in San Diego, California. We own and ~~2016 and should be read in conjunction with the consolidated financial statements and the accompanying notes included therein.~~

~~Table of Contents~~

~~Our business consists primarily of operating international~~operate U.S. style membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. We operate in 13 countries/territories that are located in Latin America and the Caribbean. Our ownership in all operating subsidiaries as of November 30, 2017 is 100%, and they are presented on a consolidated basis. The number of warehouse clubs in operation as of November 30, 2017 for each country or territory are as follows:

Number of

Number of

Anticipated

Warehouse Clubs

Warehouse Clubs

Warehouse

in Operation as of

in Operation as of

Club Openings
Country/Territory

August 31, 2017

November 30, 2017

In Fiscal Year 2018
Colombia

7

7

—
Costa Rica

6

7

—
Panama

5

5

—
Trinidad

4

4

—
Dominican Republic

3

3

1
Guatemala

3

3

—
Honduras

3

3

—
El Salvador

2

2

—
Nicaragua

2

2

—
Aruba

1

1

—
Barbados

1

1

—
U.S. Virgin Islands

1

1

—
Jamaica

1

1

—
Totals

39

40

1

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 warehouse club in Santa Ana, Costa Rica in October 2017, bringing the total warehouse clubs operating in Costa Rica to seven.~~ In June 2017, we acquired land in Santo Domingo, Dominican Republic. We are currently building a warehouse club on this site that we expect to open in the spring of calendar year 2018. This will bring the number of PriceSmart warehouse clubs operating in Dominican Republic to four. ~~We continue to explore other potential sites for future~~ warehouse clubs in Central America, the Caribbean and Colombia. We sell high quality brand name and private label consumer products, offer prepared foods through our bakeries and food courts with the option for delivery, and in certain clubs we provide services such as optical and tires at low prices to individuals and businesses. Historically, our typical 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, we operate smaller format clubs, with sales floors ranging from approximately 30,000 to 40,000 square feet. These smaller format clubs are an alternative 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. This smaller format, coupled with our omni-channel initiatives, has the potential to expand our geographic reach in existing markets and provide greater value and more convenience for our Members. We continue to invest in technology to increase efficiencies and to enhance the Member shopping experience with omni-channel capabilities, including e-commerce online shopping. Most notably, the Company launched its Click & Go™ online order, curbside pickup and delivery service, in fiscal 2020, which provides contactless shopping in all 13 of our markets. We also have launched digital membership, which helps us gather higher quality data we can use to make better informed decisions in all areas of the business and facilitates a more seamless auto-renewal process, increasing predictability of membership income. We believe digital membership also provides more convenience to Members with digital cards and online payment. We also provide wholesale supply services to a retailer in the Philippines.

~~General Market Factors~~

~~Our sales~~We believe that our business success depends on strengthening the trust of our Members by providing curated high-quality items and ~~profits vary from market to market depending~~valuable services at a low cost in our markets and by offering the best value on ~~general economic factors, including GDP growth; consumer spending patterns; foreign currency exchange rates; political policies~~attractive products and ~~social conditions; local demographic characteristics (such as population growth); the number of years PriceSmart has operated~~services in a ~~particular market;~~safe and ~~the level of retail~~responsible environment.We believe that lower prices on products and ~~wholesale competition in that market.~~

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

~~A devaluation of the local currency not only reduces the value of sales and membership income that is generated in that country when translated to U.S. dollars for our consolidated results, but also~~volume, which increases the ~~local currency price of imported merchandise,~~Company’s buying leverage, which ~~impacts demand for a significant portion of the Company’s merchandise offering. For example, changes~~ in turn leads to better pricing that we can then offer to our Members, validating 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.annual membership fee.

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 to manage foreign currency reserves, have adversely affected consumer spending. Other countries where general market conditions provided a difficult operating environment during

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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 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, such as Honduras, El Salvador, Jamaica and Nicaragua, also have a more limited potential opportunity for sales growth as compared to more developed countries with larger upper and middle class consumer populations.

Political and other factors in each of our markets may have significant effects on our business. For example, when national elections are being held, the political situation can introduce uncertainty about how the leadership change may impact 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 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 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 the local currency relative to the U.S. dollar. During fiscal year 2017 and continuing into the first three months of fiscal year 2018, we experienced this situation in Trinidad (“TT”). We are working with our banks in Trinidad to source tradable currencies (including Euros and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this illiquidity condition is likely to continue. During part of the first half of fiscal year 2017, we limited shipments of merchandise to Trinidad from our distribution center in Miami to levels that generally aligned with our Trinidad subsidiary’s ability to source U.S. dollars to pay for that merchandise. This resulted in a reduced level of shipments, which negatively affected sales in the second quarter, particularly December 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, 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 net U.S. dollar denominated assets 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.

~~Business Strategy~~

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

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

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

~~Table of Contents~~

~~Growth~~

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

~~Current and Future Management Actions~~

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

We seek to grow sales by increasing transaction size and shopping frequency of our members by providing high quality, differentiated merchandise at a good value. We also grow sales by attracting new members and improving the capacity of our existing warehouse clubs to serve the growing membership base and level of sales in those locations through physical expansions of the building or adding additional parking or improving the flow of merchandise to and within the warehouse club. Sales growth is also achieved when we add new warehouse clubs with a corresponding increase in members in those markets that can support that growth. Sales during 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~~fundamental to ~~deliver~~delivering high quality merchandise at low prices to our ~~members.~~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 the merchandise either directly to our warehouse clubs or toutilize regional distribution centers ~~located~~ in ~~some of~~the U.S. and Costa Rica as well as several smaller local distribution centers, which enables us to more efficiently distribute our ~~larger markets. Our ability~~merchandise while also giving us increased flexibility and alternatives to ~~efficiently receive, handle~~source and distribute merchandise to the point where our members put that merchandise into their shopping carts has a significant impact on our level of operating expenses and ultimately how low we can price our merchandise.transport goods. We continue to explore ways to deliver value, improve efficiency, reduce costs and ensure a ~~good~~ flow of high quality, curated 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 fourth quarter of fiscal year 2018. In August 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~~in several of 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~~We believe 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

~~Table of Contents~~

provides a number of advantages as compared to leasing, including lower operating expenses, flexibility to expand or otherwise enhance our buildings, long-term control over the use of the property and the residual value that the real estate may have in future years. ~~In order to secure~~We own and lease our real estate, depending upon the best available opportunities.

Our warehouse clubs currently operate in emerging markets that historically have had higher growth rates and lower warehouse club ~~locations,~~market penetration than the U.S. market. In the countries in which we ~~occasionally have purchased more land than is actually needed for the~~operate, we do not currently face direct competition from U.S. membership warehouse club ~~facility. To~~operators. However, we do face competition from various retail formats such as hypermarkets, supermarkets, cash and carry, home improvement centers, electronic retailers, specialty stores, convenience stores, traditional wholesale distribution and growing online sales.

The number of warehouse clubs for each country or territory were as follows:



	Number of	Number of
	Warehouse Clubs	Warehouse Clubs
	in Operation as of	in Operation as of
Country/Territory	May 31, 2021	May 31, 2020
Costa Rica	8	7
Colombia	8	7
Panama	7	7
Dominican Republic	5	5
Trinidad	4	4
Guatemala	4	4
Honduras	3	3
El Salvador	2	2
Nicaragua	2	2
Aruba	1	1
Barbados	1	1
U.S. Virgin Islands	1	1
Jamaica	1	1
Totals	47	45

Our warehouse clubs, one regional distribution center and several smaller local distribution centers are located in Latin America and the ~~extent~~Caribbean, and our corporate headquarters, U.S. buying operations and our larger regional distribution center are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbean and Colombia. We also operate a package forwarding business (casillero) and marketplace business under the “Aeropost” banner in 38 countries in Latin America and the Caribbean, many of which overlap with markets where we operate warehouse clubs.

While we continue to closely monitor the continuing COVID-19 situations in each of our markets and recognize that the potential social and economic impacts in the markets where we ~~acquire property in excess~~operate and any resulting consequences to our results of ~~what is needed for~~operations and cash flow remain unknown, we have decided to proceed with the construction of three warehouse clubs on land we previously acquired. The first will be a ~~particular~~standard format warehouse club ~~we generally have looked to either sell or develop~~located within the ~~excess property. Excess land at Alajuela (Costa Rica) and Brisas (Panama) is being developed by joint ventures formed by us and the sellers~~Zone 5 locality of the property. We are employing a similar development strategy for the excess land at the San Fernando, Trinidad and Arroyo Hondo, Dominican Republic locations where the properties are fully owned by us. The profitable sale or development of excess real estate not required to operate aGuatemala City, Guatemala, which will be our fifth warehouse club ~~is highly dependent on real estate market conditions.~~

located in Guatemala. We ~~are currently engaged~~expect to open this warehouse club 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 fiscal year 2018 for evaluation and selection of the ERP vendor and to fund a newly established team to direct our technology investment and preopening spending to develop a new online business that we hope to launch during the summer of 2018. Substantially all of this spending for fiscal year 2018 will be recorded as expenses on the statement of income that will impact earnings during the fiscal year as we pursue these long-term initiatives, which will likely require further investments beyond the current fiscal year.

~~Financial highlights for~~ the first quarter of fiscal 2022. The second will be a smaller format warehouse club located within the city of Bucaramanga, Colombia. We expect to open this warehouse club, which will be our ninth warehouse club in Colombia, in the first quarter of fiscal 2022. The third will be a standard format warehouse club located within the city of Portmore, Jamaica. Portmore is a suburb west of the capital city of Kingston. We expect to open this warehouse club, which will be our second warehouse club in Jamaica, in the third quarter of fiscal 2022.

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Factors Affecting Our Business

The COVID-19 pandemic has resulted in significant challenges across our 13 markets since March 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 were permitted to be open, restrictions on segments of the population permitted to shop or circulate on particular days, and significant limits on the number of people permitted to be in the club at the same time. We also experienced product mix shifts due to changing consumer habits and/or government imposed limitations on many non-food categories, decreases in purchases by many business Members, particularly restaurants and hotels, and sporadic supply chain challenges, which can impact inventory levels.

We are currently focused on these four main priorities:

Protect the safety and well-being of our employees and our Members.

Take proactive measures to protect and expand our supply chain options.

Expand technology-enabled shopping and more effective use of data.

Manage cash and capital resources.

We remain vigilant in adapting to the ever-evolving consumer demands emerging from the COVID experience and the apparent desire of consumers to satisfy their shopping and service needs in one location. The COVID-19 pandemic remains unpredictable in duration and intensity in our markets, and we continue to see periodic reinstatements of stay-at-home orders and other restrictions. In addition, we expect continued uncertainty in the economies of our markets as a result of the pandemic and expect volatility in employment trends, industry and consumer confidence and demand; volatility and liquidity of foreign currency exchange rates; volatility of commodity prices; and possible fiscal austerity measures taken by governments in our markets, which will likely impact our results for the foreseeable future. For additional information, refer to the risk factors discussed in Part I. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2020.

We view the continued development and integration of technology to create an omni-channel Member experience as an important component of our value proposition, which can also offset some of the impact of pandemic-related restrictions we continue to see. Our Click & Go™ curbside and delivery service contributed approximately 3.5% of total net merchandise sales for the fiscal third quarter ended May 31, 2021. The demand for delivery through our Click &Go™ service has been increasing and represents a growing proportion of total Click & Go™ sales. Developing greater efficiencies remains a priority especially within these new sales channels. We believe that Click & Go™ curbside and delivery services will remain important alternative shopping methods and provide increased value for our Members by enabling them to leverage their membership across multiple shopping platforms. We also see value in the insights gained by communicating with our Members in real-time through a number of the online channels we have developed. Beyond Click & Go™, we continue to invest in technology to increase efficiencies, enhance our Member experience by enabling additional omni-channel capabilities, and finding new ways to generate value and benefits for our Members and the Company.

Increasing “same store” sales is an important element of our growth strategy, and we believe that there are a number of ways to achieve this goal. We are committed to increasing same store sales by increasing both the number of Member transactions and by increasing the average ticket. We have started or recently completed expansions and/or remodels of several clubs in our Central America segment in fiscal 2021, which we believe will contribute to same store sales growth. We have also increased our digital marketing efforts, which has resulted in enhanced reach and visibility of our products and services, contributing to the success of our recent programs. In particular, we believe that our Wellness programs offered in our clubs, such as Optical, which is now available in eight markets, and Pharmacy, which we are piloting in two Costa Rica clubs, and audiology centers that we will begin piloting later this calendar year, will create value for our Members and help drive overall sales growth.

Additionally, in an effort to provide healthy options for our Members, we source additional high quality fresh products through our Direct Farm Program. We believe that our Direct Farm Program reduces costs and improves quality on our fresh produce offerings, while simultaneously supporting local farmers and industry. Our produce distribution centers allow us to provide farm-to-table produce quicker and more efficiently. We opened two produce distribution centers in fiscal 2020 and expect to open additional produce distribution centers in the future.

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

Our sales and profits vary from market to market depending on general economic factors, including GDP growth; consumer preferences; foreign currency exchange rates; political policies and social conditions; local demographic characteristics

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(such as population growth); the number of years we have operated in a particular market; and the level of retail and wholesale competition in that market. The economies of many of our markets are dependent on foreign trade, tourism, and foreign direct investments. Global and local travel restrictions and the general slowdown in global economic activity as a result of COVID-19 have significantly impacted and may continue to impact the economies in our markets, causing significant declines in GDP and employment and devaluations and illiquidity of local currencies against the U.S. dollar. In general, positive conditions in the broader economy promote greater Member spending in our warehouse clubs, and economic weakness generally results in a reduction of customer spending.

Currency fluctuations can be one of the largest variables affecting our overall sales and profit performance, as we have experienced in prior fiscal years, because many of our markets are susceptible to foreign currency exchange rate volatility. During the first nine months of fiscal year 2021 and 2020, approximately 77.8% and 77.6%, respectively, of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 48.1% and 49.1% consisted of sales of products we purchased in U.S. dollars for each period, respectively.

A devaluation of local currency reduces the value of sales and membership income that is generated in that country when translated to U.S. dollars for our consolidated results. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which could impact demand for the merchandise affected by the price increase. We may also modify the mix of imported versus local merchandise and/or the source of imported merchandise in an effort to mitigate the impact of currency 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.”

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. Demographic characteristics within each of our markets can affect both the overall level of sales and future sales growth opportunities. Certain island markets, such as Aruba, Barbados and the U.S. Virgin Islands offer us limited upside for sales growth given their overall market size.

Political and other factors in each of our markets may have significant effects on our business. The recent and ongoing civil unrest in Colombia paralyzed significant portions of the country’s infrastructure as roadblocks and riots disrupted normal economic activity during the third quarter of fiscal 2021. Austerity and tax reform measures for Colombia and other Latin American countries with high national debt levels and income disparity pose a risk for political instability. Similar unrest happened in Nicaragua and Honduras in 2018 ~~included:~~and 2019, respectively; Costa Rica also had a general strike against tax reform measures that significantly impeded regular economic activity in 2018. Events of this sort have, and may continue to have, an adverse effect on our business.

Our operations are subject to volatile weather conditions and natural disasters. In November 2020, Hurricanes Eta and Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, that caused significant damage to parts of that country’s infrastructure. Although our warehouse clubs were not significantly affected and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, these natural disasters could adversely impact our overall sales, costs and profit performance in the future.

In the past, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity), particularly in Trinidad. This can and has impeded our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products and to otherwise redeploy these funds in our Company and, increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. We continued to experience significant limitations on our ability to convert Trinidad dollars to U.S. dollars or other tradeable currencies during fiscal 2020, with a further deterioration and the problem becoming more acute in August 2020. This U.S. dollar illiquidity situation has persisted thus far into fiscal 2021 and we anticipate the situation to continue. As liquidity conditions have tightened, we have methodically raised prices on imported goods in Trinidad, due to increased costs of conversion of Trinidad dollars to U.S. dollars and risks associated with continued illiquidity. We have also sought to shift the purchase of certain goods to local sources, where appropriate, and we are actively seeking to exchange Trinidad dollars for tradeable currencies, in order to manage our exposure to any potential devaluation. Moreover, in the first quarter of fiscal 2021, we began limiting shipments of goods from the U.S. to Trinidad, and subsequently, we further limited shipments late in the third quarter of fiscal 2021 due to the government’s general prohibition on sales on most non-food or non-essential items. This prohibition is expected to persist for at least some part of our fiscal fourth quarter, depending on the local COVID-19 situation.

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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Comparable net merchandise sales declined in Trinidad by 21.8% in the third quarter of fiscal year 2021, due to reductions in the levels of imported merchandise to amounts in-line with our ability to exchange Trinidad dollars for U.S. dollars or other tradeable currencies and the increased COVID-19 restrictions in that market. We also saw a drop in Member accounts of 2.7% during the third quarter and 5.0% since the end of last year, which we believe is also related to the reduction in imports and COVID-19 restrictions on Member traffic and prohibition on sales of non-essential items. At the start of the third quarter of fiscal 2021, we began raising U.S. imports into Trinidad; however, with the aforementioned COVID-19 restrictions, we significantly reduced U.S. shipments into Trinidad at the end of the quarter, temporarily, until the local situation improves. We expect that the combination of these factors will continue to negatively impact our sales in Trinidad in our fourth fiscal quarter.

Despite these headwinds, we continue to explore and execute several options to increase our ability to generate more reliable sources of U.S. dollars in Trinidad. These options include, but are not limited to, sourcing locally produced goods in Trinidad dollars and exporting these goods to our clubs and/or third parties in other countries in exchange for U.S. dollars. While these initiatives are being developed, we are exploring ways to finance additional imports, even if a higher level of imports exceeds the amount of U.S. dollars we are able to source in Trinidad. Alternatives we are considering include new U.S. dollar denominated loans, foreign currency exchange forwards, investing in financial instruments, and purchase and sales of commodities, which could create immediate U.S. dollar liquidity and/or fix the exchange rate of Trinidad dollars to U.S. dollars. Some of these alternatives may not mitigate the resulting increase in exposure to a potential devaluation of the Trinidad dollar and could result in us being required to take a discount on the amount of U.S. dollars we accept in exchange for Trinidad dollars, relative to what we would receive upon exchange in accordance with the official exchange rate and/or incur additional financing costs.

As of May 31, 2021, our Trinidad subsidiary had Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $76.7 million, a decrease of $2.9 million from August 31, 2020 when these same balances were approximately $79.6 million. The Trinidad central bank manages the exchange rate of the Trinidad dollar with the U.S. dollar. While the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $15.3 million, with a corresponding increase in Accumulated other comprehensive loss reflected on our consolidated balance sheet. Separate from the Trinidad dollar denominated cash and investments balances described above, as of May 31, 2021, we had a U.S. dollar denominated monetary asset position of approximately $7.0 million in Trinidad (net of U.S. dollar denominated liabilities), which would produce a gain from a potential devaluation of Trinidad dollars. If, for example, a hypothetical 20% devaluation of the Trinidad dollar occurred, the net effect on Other income (expense), net on our consolidated statement of operations of revaluing these U.S. dollar denominated net monetary assets would be an approximate $1.4 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we use the official exchange rate published by the Central Bank of Trinidad and Tobago to measure the U.S. dollar equivalent of Trinidad dollar-based revenues, expenses, assets and liabilities and the Trinidad dollar equivalent of U.S. dollar-based monetary assets and liabilities for financial reporting purposes, as there are no other reliable references available to translate or remeasure our revenues, expenses, assets and liabilities.

Our Barbados subsidiary also recently began facing a U.S. dollar illiquidity situation. The Barbados dollar has a conventional fixed-peg currency arrangement, in which the Barbados dollar exchange rate is fixed to the U.S. dollar. Thus, we do not expect a devaluation of this currency at this time. However, as of May 31, 2021, our Barbados subsidiary had Barbados dollar denominated cash and cash equivalents measured in U.S. dollars of approximately $15.6 million, which cannot be readily converted to U.S. dollars for general use within the Company.

Mission and Business Strategy

PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities through the ethical delivery of the best quality goods and services at the lowest possible prices. Our mission is to serve as a model company, which operates profitably and provides a good return to our investors, by providing Members in emerging and developing markets with exciting, high quality merchandise sourced from around the world and valuable services at compelling prices. We prioritize the well-being and safety of our Members and employees. We provide good jobs, fair wages, and benefits and the opportunity for growth. We strive to treat our suppliers right and empower them when we can. We conduct ourselves in a socially responsible manner and respect the environment and the laws of all the countries in which we operate. The annual membership fee enables us to operate our business with lower margins than traditional retail stores. As we are increasing technological capabilities and expanding our omni-channel shopping experience, we believe we can realize greater efficiencies in the supply chain, enhance our ability to satisfy our Members’ shopping expectations, and play a greater role in their lives. We believe we are well-positioned

~~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.

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to blend the excitement and appeal of our brick and mortar business with the convenience and additional benefits of online shopping and services.

Growth

We measure our growth primarily by the amount of the period-over-period activity in our net merchandise sales, our comparable club net merchandise sales, membership income and total revenues. Our investments are geared toward enhancing Member experience while creating greater efficiencies, which enable us to offer lower prices, more services, and convenience. We believe these efforts will support membership renewals and sustained growth for the Company. However, 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. When we open a new warehouse club in an existing market, which may reduce reported comparable net merchandise sales due to the transfer of sales from existing warehouse clubs, we do so to enhance the Member experience, grow membership and support long-term sales growth and profitability.

Financial highlights for the third quarter of fiscal year 2021 included:

Total revenues increased 11.9% over the comparable prior year period.

Net merchandise sales increased 11.6% over the comparable prior year period. We ended the quarter with 47 warehouse clubs compared to 45 warehouse clubs at the end of the third quarter of fiscal 2020. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 1.6% versus the comparable three-month period.

Comparable net merchandise sales (that is, sales in the 45 warehouse clubs that have been open for greater than 13 ½

calendar months) for the 13 weeks ended May 30, 2021 increased 8.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 1.5%.

Membership income for the third quarter of fiscal 2021 increased 5.9% to $14.3 million.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 27.7% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.9%, an increase of 200 basis points (2.0%) from the same period in the prior year. The increase is attributable to more focused merchandising strategies, inventory management, and pricing actions to offset foreign currency exchange costs.

Operating income for the third quarter of fiscal 2021 was $36.0 million, an increase of 50.4%, or $12.0 million, compared to the third quarter of fiscal 2020.

We recorded a $2.2 million net currency loss, primarily from foreign currency transactions, in the third quarter of fiscal 2021 compared to a $1.5 million net currency loss in the same period last year.

Our effective tax rate decreased in the third quarter of fiscal 2021 to 30.9% from 38.0% in the third quarter of fiscal 2020, primarily because we were able to recognize greater benefits from foreign tax credits in the current quarter compared to the prior year period.

Net income attributable to PriceSmart for the third quarter of fiscal 2021 was $22.5 million, or $0.73 per diluted share, compared to $12.7 million, or $0.41 per diluted share, in the third quarter of fiscal 2020.

Financial highlights for the nine months ended May 31, 2021 included:

Total revenues increased 7.6% over the comparable prior year period.

Net merchandise sales increased 7.3% over the comparable prior year period. We ended the quarter with 47 warehouse clubs compared to 45 warehouse clubs at the end of the third quarter of fiscal year 2020. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.7%.

Comparable net merchandise sales (that is, sales in the 45 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 39 weeks ended May 30, 2021 increased 4.3%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.7%.

Membership income increased 0.2% to $41.4 million.

Merchandise gross profits (net merchandise sales less associated cost of goods sold) increased 18.0% over the comparable prior year period and warehouse gross profits as a percent of net merchandise club sales were 16.0%, an increase of 150 basis points (1.5%) from the same period last year.

Operating income was $125.6 million, an increase of 34.3%, or $32.1 million, compared to the same period last year.

We recorded a $4.0 million net currency loss, primarily from foreign currency transactions, in the current nine-month period compared to a $2.4 million net loss in the same period last year.

Our effective tax rate decreased for the first nine months of fiscal 2021 to 32.7% from 33.9% in the first nine months of fiscal year 2020 because we were able to recognize greater benefits from foreign tax credits in the current year nine-month period compared to the prior-year period.

~~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.~~

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~~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.~~

Net income attributable to PriceSmart, Inc. for the first nine months of fiscal year 2021 was $78.5 million, or $2.55 per diluted share, compared to $58.0 million, or $1.90 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, 2021 and 2020

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, 2021 with the three-month ~~period~~and nine-month periods ended on ~~November 30, 2016~~May 31, 2020 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

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~~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 and nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016.~~May 31, 2020.



	Three Months Ended

	November 30, 2017								November 30, 2016				Three Months Ended
													May 31, 2021								May 31, 2020
	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	%	$	521,355	60.8	%	$	78,551	17.7	%	$	442,804	57.6	%
Caribbean		211,439	28.4	%		7,534	3.7	%		203,905	28.5	%		239,323	27.9			(7,138)	(2.9)			246,461	32.1
Colombia		90,295	12.1	%		8,293	10.1	%		82,002	11.4	%		96,800	11.3			17,697	22.4			79,103	10.3
Net warehouse club sales	$	745,401	100.0	%	$	29,322	4.1	%	$	716,079	100.0	%
Net merchandise sales													$	857,478	100.0	%	$	89,110	11.6	%	$	768,368	100.0	%


		Nine Months Ended
		May 31, 2021							May 31, 2020
	Amount		% of net ‎sales		Increase ‎from ‎prior year		Change		Amount		% of net ‎sales
Central America	$	1,537,228	59.3	%	$	125,221	8.9	%	$	1,412,007	58.4	%
Caribbean		750,057	28.9			14,758	2.0			735,299	30.4
Colombia		306,966	11.8			35,450	13.1			271,516	11.2
Net merchandise sales	$	2,594,251	100.0	%	$	175,429	7.3	%	$	2,418,822	100.0	%

Comparison of Three and Nine Months Ended ~~November 30, 2017~~May 31, 2021 and ~~2016~~May 31, 2020

Overall, total net ~~warehouse~~merchandise sales ~~growth of 4.1%~~grew 11.6% for the ~~first~~third quarter and 7.3% for the nine-month period ended May 31, 2021. The third quarter increase resulted from a ~~4.6%~~19.0% increase in transactions, ~~and~~partially offset by a ~~0.5%~~6.2% decrease in average ticket. For the nine-month period, the increase resulted from a 7.9% increase in average ticket, partially offset by a 0.6% decrease in transactions. Transactions represent the total number of visits our Members make to our warehouse clubs and Click & Go™ curbside pickup and delivery service transactions. Average ticket represents the amount our Members spend on each visit or Click & Go™ order. We had 47 clubs in operation as of May 31, 2021 compared to 45 clubs as of May 31, 2020.

Net ~~warehouse~~merchandise sales in our Central America segment increased ~~3.1%~~17.7% and 8.9% for the ~~first~~third quarter and the nine-months ended May 31, 2021, respectively. These increases had a 1,020 basis point (10.2%) and 520 basis point (5.2%) positive impact on total net merchandise sales growth, respectively. All markets within this segment showed increased net merchandise sales for the three and nine-month periods ended May 31, 2021. We added one new club to the segment when compared to the comparable prior-year periods. We opened our eighth club in Costa Rica in June 2020.

Net merchandise sales in our Caribbean segment decreased 2.9% and increased 2.0% for the third quarter and the nine-months ended May 31, 2021, respectively. The decrease for the quarter had a 90 basis point (0.9%) negative impact on net merchandise sales growth and the increase year-to-date had a 60 basis point (0.6%) positive impact on net merchandise sales growth. Our Dominican Republic market continued its strong performance in the quarter and nine-month period, despite

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experiencing a significant foreign currency devaluation, with 16.3% and 16.6% growth, respectively. This strong performance was offset by our Trinidad market which had declines in net merchandise sales for each period presented. Trinidad sales were adversely affected during the third quarter because we continued limiting merchandise shipments to the market due to the ongoing U.S. dollar illiquidity situation and due to significant COVID-19 restrictions. Trinidad saw a significant rise in COVID-19 cases during the recent quarter, and the government responded by shutting down all non-essential business and activities. PriceSmart was allowed to continue selling food and other essential goods, but the government prohibited sales of most non-foods/non-essential items by PriceSmart and other local retailers. As a result, we have further reduced shipments of U.S. imports until the infection rate improves and restrictions are eased. We expect the government restrictions to continue into the fourth quarter of fiscal year ~~2018, with~~2021. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the ~~addition of the Santa Ana warehouse club which opened~~Trinidad liquidity situation. Aruba also had soft sales in October contributing to an overall positive sales growth in Costa Rica. Panama sales were essentially flat, but all other Central American countries recorded positive growth in warehouse sales for the three-month period.

Our Caribbean segment showed improvement in sales growth from the past few quarters. While Trinidad, our largest market in the segment, was essentially flat, this was an improvement from negative sales 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 Septemberboth periods presented due to this market’s on-going economic slowdown caused by the ~~hurricanes that hit the island, the return~~COVID-19 pandemic due primarily to ~~normal operations~~a reduction in ~~October and November resulted in strong sales as some other retailers in the market have not recovered.~~tourism.

Net ~~warehouse~~merchandise sales in our Colombia segment ~~experienced growth of 10.1%~~increased 22.4% and 13.1% for the ~~three-month~~third quarter and the nine-months ended May 31, 2021, respectively. These increases had a 230 basis point (2.3%) and 150 basis point (1.5%) positive impact on total net merchandise sales growth, respectively. The primary driver of the increased revenue for the quarter and nine-month period was due to the additional club added to the segment when compared to the comparable prior year period. We opened our eighth club in Colombia in December 2020. Additionally, the market experienced a ~~year ago. With the stabilization~~strengthening of the local currency during the three-month period.

The following table indicates the impact that currency exchange ~~rate between~~rates had on our net merchandise sales in dollars and the ~~Colombian peso~~percentage change from the three and nine-month period ended May 31, 2021. The term “currency exchange rates” refers to the currency exchange rates we use to convert net merchandise and comparable net merchandise sales for all countries where the functional currency is not the U.S. dollar ~~over~~into U.S. dollars. We calculate the ~~past 15 months, we have seen continued sales growth~~effect of changes in ~~all of our warehouse clubs in Colombia. Transaction growth of 11.7% accounted for all~~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. We believe the disclosure of the ~~sales increase. Year~~effects of currency exchange rate fluctuations on ~~year~~our results permits investors to understand better the Company’s underlying performance.


	Currency exchange rate fluctuations for the
	Three months ended
	May 31, 2021
	Amount		% change
Central America	$	(10,735)	(2.5)	%
Caribbean		(6,465)	(2.6)
Colombia		5,616	7.1
Net merchandise sales	$	(11,584)	(1.6)	%


	Currency exchange rate fluctuations for the
	Nine months ended
	May 31, 2021
	Amount		% change
Central America	$	(30,812)	(2.2)	%
Caribbean		(26,991)	(3.7)
Colombia		(8,466)	(3.1)
Net merchandise sales	$	(66,269)	(2.7)	%

Overall, the effects of currency ~~changes did not have any material~~fluctuations within our markets had an approximately $11.6 million and $66.3 million, or 160 basis point (1.6%) and 270 basis point (2.7%), negative impact on net merchandise sales for the ~~U.S.~~quarter and nine-months ended May 31, 2021, respectively.

Currency fluctuations had a $10.7 million and $30.8 million, or 250 basis point (2.5%) and 220 basis point (2.2%), negative impact on net merchandise sales in our Central America segment for the quarter and nine months ended May 31, 2021. These currency fluctuations contributed approximately 150 basis points (1.5%) and 130 basis points (1.3%) of the total negative impact on total net merchandise sales for the respective period. The Costa Rica Colón depreciated significantly against the dollar ~~reported growth.~~as compared to the same three and nine-month periods a year ago, and was a significant factor in the contribution to the unfavorable currency fluctuations in this segment.

3439

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Currency fluctuations had a $6.5 million and $27.0 million, or 260 basis point (2.6%) and 370 basis point (3.7%), negative impact on net merchandise sales in our Caribbean segment for the quarter and nine months ended May 31, 2021. These currency fluctuations contributed approximately 90 basis points (0.9%) and 110 basis points (1.1%) of the total negative impact on total net merchandise sales for the respective periods. Jamaica and the Dominican Republic markets both experienced currency devaluation when compared to the same periods last year.

Currency fluctuations had a $5.6 million, or 710 basis point (7.1%), positive impact on net merchandise sales in our Colombia segment for the quarter and an $8.5 million, or 310 basis point (3.1%), negative impact on net merchandise sales in our Colombia segment for the nine months ended May 31, 2021. These currency fluctuations contributed approximately 80 basis points (0.8%) of positive impact on total net merchandise sales for the quarter and 30 basis points (0.3%) of the total negative impact on total net merchandise sales for the nine months ended May 31, 2021.

Comparable Merchandise 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~~two of our 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 2020, will not be used in the calculation of comparable sales until ~~December 2018.~~they have been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 45 warehouse clubs for the thirteen and thirty-nine week period ended May 30, 2021.

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 30, 2021 and May 31, 2020 compared, in each case, to the same period in the prior year.


	Three Months Ended				Thirteen Weeks Ended
	November 30, 2017		November 30, 2016		May 30, 2021		May 31, 2020
	% 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	%	16.0	%	(6.4)	%
Caribbean	3.3	%	(2.8)	%	(2.5)		6.4
Colombia	11.3	%	4.3	%	3.6		(14.8)
Consolidated segments	2.2	%	—	%
Consolidated comparable net merchandise sales					8.8	%	(3.6)	%



	Thirty-Nine Weeks Ended
	May 30, 2021		May 31, 2020
	% Increase ‎in comparable ‎net merchandise sales		% Increase/(decrease) ‎in comparable ‎net merchandise sales
Central America	5.7	%	(1.4)	%
Caribbean	2.6		3.2
Colombia	2.2		(6.6)
Consolidated comparable net merchandise sales	4.3	%	(0.7)	%

Comparison of ~~Three Months~~Thirteen and Thirty-Nine Week Periods Ended ~~November~~May 30, ~~2017~~2021 and ~~2016~~May 31, 2020

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 30, 2021 increased 8.8%.

~~Central America comparable warehouse club~~Comparable net merchandise sales ~~were impacted by the opening of the Company’s seventh warehouse club in Costa Rica in an area called Santa Ana. Often times, new~~for those warehouse clubs that wewere open ~~are not far from existing warehouse clubs that are included~~for at least 13 ½ months for some or all of the thirty-nine week period ended May 30, 2021 increased 4.3%.

Table of Contents

Comparable net merchandise sales in our Central America segment increased 16.0% and 5.7% for the thirteen week and thirty-nine week periods ended May 30, 2021, respectively. These increases contributed approximately 920 basis points (9.2%) and 330 basis points (3.3%) of positive impact in total comparable merchandise sales for each period, respectively.

For the thirteen-week period ended May 30, 2021, strong performance in the ~~calculation for~~relatively smaller markets of Guatemala, Nicaragua, Honduras, and El Salvador, along with our second largest market, Panama, contributed approximately 1,000 basis points (10.0%) of positive impact on the segment’s comparable ~~warehouse club sales resulting in a transfer of some~~net merchandise sales. This increase was offset by an 80 basis point (0.8%) negative impact on the segment’s comparable net merchandise sales from ~~an existing club (in~~our largest market, Costa Rica. During the quarter, Costa Rica experienced foreign currency exchange headwinds, with the Costa Rica Colón devaluing versus the comparable prior year period.

For the thirty-nine week period ended May 30, 2021, strong performance in the relatively smaller markets of Guatemala, Nicaragua, Honduras, and El Salvador contributed approximately 430 basis points (4.3%) of positive impact on comparable net merchandise sales in this ~~case Escazu)~~segment. This increase was partially offset by a 100 basis point (1.0%) negative impact on comparable net merchandise sales in this segment from the larger Panama and Costa Rica markets, as Panama had governmental restrictions on days the clubs were permitted to operate throughout the year and due to the ~~new club. This transfer~~devaluation of the Costa Rica Colón.

Comparable net merchandise sales ~~from existing warehouse clubs that are included~~ in our Caribbean segment decreased 2.5% and increased 2.6% for the ~~calculation~~thirteen week and thirty-nine week periods ended May 30, 2021, respectively. The decrease contributed approximately 80 basis points (0.8%) of ~~comparable warehouse club sales to new warehouse clubs that are not included in the calculation can have an adverse~~negative impact on ~~reported~~total comparable ~~warehouse club sales. We estimate that~~merchandise sales and the ~~transfer~~increase contributed approximately 80 basis points (0.8%) of ~~sales associated with the Santa Ana opening negatively impacted the~~positive impact on total comparable ~~warehouse club~~merchandise sales for the respective periods.

Our Dominican Republic market continued its strong performance in the thirteen and thirty-nine week period, despite having a foreign currency exchange devaluation, with 16.7% and 17.0% comparable sales growth, respectively. This strong performance was offset by our Trinidad market, which declined in comparable net merchandise sales for each period presented. Trinidad sales were adversely affected during the third fiscal quarter because we are limiting merchandise shipments to the market due to the ongoing U.S. dollar illiquidity situation. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad illiquidity situation. In addition, the market was also adversely affected by government restrictions imposed in response to a significant increase COVID-19 cases during the quarter as previously described.

Comparable net merchandise sales in our Colombia segment increased 3.6% and 2.2% for the thirteen week and thirty-nine week periods ended May 30, 2021, respectively. These increases contributed approximately 40 basis points (0.4%) and 20 basis points (0.2%) of positive impact in total comparable merchandise sales for the respective periods. The increase in Colombia during the current quarter was primarily due to the foreign currency tailwind partially offset by increasing COVID-19 restrictions and civil unrest that significantly impacted normal commerce in the market, particularly in the city of Cali. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the political situation in Colombia. The year-to-date increase is primarily due to year-over-year improvements in sales growth due to the comparably improved COVID-19 situation and related restrictions offset by sales transfers from existing clubs to our recent club that opened in December 2020.

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 for the thirteen and thirty-nine week periods ended May 30, 2021.


	Currency Exchange Rate Fluctuations for the
	Thirteen Weeks Ended
	May 30, 2021
	Amount		% change
Central America	$	(10,184)	(2.3)	%
Caribbean		(6,195)	(2.5)
Colombia		4,557	5.9
Consolidated comparable net merchandise sales	$	(11,822)	(1.5)	%

Table of Contents

Caribbean		(26,808)	(3.6)
Colombia		(8,835)	(3.3)
Consolidated comparable net merchandise sales	$	(65,026)	(2.7)	%

Overall, the mix of currency fluctuations within our markets had an approximately $11.8 million and $65.0 million, or 150 basis point (1.5%) and 270 basis point (2.7%), negative impact on comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 30, 2021.

Currency fluctuations within our Central America segment ~~by 150~~contributed approximately 130 basis points ~~(1.50%~~(1.3%) and 120 basis points (1.2%) of negative impact in total comparable 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 period, respectively. Our Costa Rica market was the ~~opportunity for some existing members, particularly those who now find~~main contributor as the ~~new clubs closer to their homes, to shop more frequently.~~

~~The Caribbean segment~~market experienced ~~positive comparable warehouse sales on improving conditions in all markets~~currency devaluation when compared to the ~~past few quarters, aided by strong growth~~same period last year.

Currency fluctuations within our Caribbean segment contributed approximately 80 basis points (0.8%) and 110 basis points (1.1%) of negative impact in ~~USVI.~~total comparable merchandise sales for the thirteen and thirty-nine week period, respectively. Our Dominican Republic and Jamaica markets experienced currency devaluation when compared to the same period last year.

~~The calculation~~Currency fluctuations within our Colombia segment contributed approximately 60 basis points (0.6%) of positive impact in total comparable ~~warehouse club~~merchandise sales for the thirteen-week period and 40 basis points (0.4%) of negative impact in ~~Colombia included~~total comparable merchandise sales for the ~~Chia warehouse club for five weeks in~~thirty-nine week period. This reflects the ~~13-week~~movement of the Colombian peso’s foreign currency exchange rate when compared to the same period ~~ending December 3, 2017.~~ a year ago.

~~Table of Contents~~

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.



	Three Months Ended
	May 31,								May 31,
	2021								2020
	Amount		Increase ‎from ‎prior year		% Change		Membership ‎ income % to ‎net merchandise ‎club sales		Amount
Membership income - Central America	$	8,488	$	294	3.6	%	1.6	%	$	8,194
Membership income - Caribbean		3,927		197	5.3		1.6			3,730
Membership income - Colombia		1,914		313	19.6		2.0			1,601
Membership income - Total	$	14,329	$	804	5.9	%	1.7	%	$	13,525



	Nine Months Ended
	May 31,								May 31,
	2021								2020
	Amount		Increase (decrease) ‎ from ‎prior year		% Change		Membership ‎income % to ‎net merchandise ‎club sales		Amount
Membership income - Central America	$	24,442	$	(496)	(2.0)	%	1.6	%	$	24,938
Membership income - Caribbean		11,453		277	2.5		1.5			11,176
Membership income - Colombia		5,532		282	5.4		1.8			5,250
Membership income - Total	$	41,427	$	63	0.2	%	1.6	%	$	41,364

Number of accounts - Central America		885,522		45,282	5.4	%				840,240
Number of accounts - Caribbean		429,421		599	0.1					428,822
Number of accounts - Colombia		323,890		10,261	3.3					313,629
Number of accounts - Total		1,638,833		56,142	3.5	%				1,582,691

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Comparison of Three and Nine Months Ended May 31, 2021 and May 31, 2020

The number of Member accounts as of May 31, 2021 was 3.5% higher than the number as of May 31, 2020. Membership income increased 5.9% and 0.2% over the three and nine-month periods ended May 31, 2021, respectively, compared to the same prior-year periods.

Membership income increased in our Caribbean and Colombia segments in the nine months ended May 31, 2021. The consolidated increase in membership income ~~primarily reflects a growth in~~is due to an increasing membership ~~accounts for which income is recognized during~~base since the ~~last twelve months. The average number of member accounts during the first quarter~~start of fiscal year ~~2018~~2021. Since August 31, 2020, all segments have increased their membership base. Colombia had the largest increase in membership base in the first nine months of fiscal year 2021 due to the opening of its eighth club in December 2020 and had 6.9% growth, followed by Central America with a 6.8% increase and the Caribbean with a 0.7% increase.

We began offering our Platinum membership program in Nicaragua in October 2020 and in El Salvador in March 2021. We now offer this program in all locations where PriceSmart operates. The annual fee for a Platinum membership in most markets is approximately $75. The Platinum membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction.

Our trailing twelve-month renewal rate was ~~2.7%~~87.6% and 82.5% for the periods ended May 31, 2021 and May 31, 2020, respectively. With our twelve-month renewal rate at 87.6%, this surpasses our renewal rate immediately preceding the COVID-19 pandemic, which we believe is a key indicator of membership satisfaction and loyalty and demonstrates that our Members recognize the value we bring. Although we continue to see reductions in in-club traffic resulting from the COVID-19 pandemic, we have seen increased sign-ups and renewals completed online with the launch of a new online catalog and our Click & Go™ services. Approximately 15% and 5% of our membership sign-ups were completed using our online platform for the nine month periods ended May 31, 2021 and May 31, 2020, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.

Other Revenue

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


	Three Months Ended
	May 31, 2021						May 31, 2020
	Amount		Increase (decrease) from ‎prior year		% Change		Amount
Non-merchandise revenue	$	10,806	$	3,585	49.6	%	$	7,221
Miscellaneous income		1,646		(215)	(11.6)			1,861
Rental income		792		157	24.7			635
Other revenue	$	13,244	$	3,527	36.3	%	$	9,717


	Nine Months Ended
	May 31, 2021						May 31, 2020
	Amount		Increase (decrease) from ‎prior year		% Change		Amount
Non-merchandise revenue	$	36,479	$	10,312	39.4	%	$	26,167
Miscellaneous income		5,044		(45)	(0.9)			5,089
Rental income		2,264		128	6.0			2,136
Other revenue	$	43,787	$	10,395	31.1	%	$	33,392

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Comparison of Three and Nine Months Ended May 31, 2021 and May 31, 2020

The primary driver of the increase in other revenue for the quarter and nine-month period is higher package volume in our marketplace and casillero operations, which appears to have increased due to the pandemic.

Table of Contents

Results of Operations



	Three Months Ended
Results of Operations Consolidated		May 31, 2021			May 31, 2020			Increase
(Amounts in thousands, except percentages and ‎number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	857,478		$	768,368		$	89,110
Total gross margin	$	136,752		$	107,110		$	29,642
Total gross margin percentage		15.9	%		13.9	%		2.0	%

Revenues
Total revenues	$	895,264		$	799,931		$	95,333
Percentage change from prior period								11.9	%

Comparable net merchandise sales
Total comparable net merchandise sales increase / (decrease)		8.8	%		(3.6)	%		12.4	%

Total revenue margin
Total revenue margin	$	158,963		$	127,175		$	31,788
Total revenue margin percentage		17.8	%		15.9	%		1.9	%

Selling, general and administrative
Selling, general and administrative	$	122,914		$	103,208		$	19,706
Selling, general and administrative percentage of total revenues		13.7	%		12.9	%		0.8	%


	Three Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2021	Total Revenue			2020	Total Revenue
Operating income- by segment
Central America	$	38,313	4.3	%	$	27,606	3.4	%
Caribbean		17,240	1.9			13,547	1.7
Colombia		5,135	0.6			3,487	0.4
United States		545	-			(1,115)	(0.1)
Reconciling Items ⁽¹⁾		(25,184)	(2.8)			(19,558)	(2.4)
Operating income - Total	$	36,049	4.0	%	$	23,967	3.0	%

⁽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, 2021			May 31, 2020			Increase
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	2,594,251		$	2,418,822		$	175,429
Total gross margin	$	414,798		$	351,406		$	63,392
Total gross margin percentage		16.0	%		14.5	%		1.5	%

Revenues
Total revenues	$	2,710,265		$	2,518,607		$	191,658
Percentage change from comparable period								7.6	%

Comparable net merchandise sales
Total comparable net merchandise sales increase / (decrease)		4.3	%		(0.7)	%		5.0	%

Total revenue margin
Total revenue margin	$	483,397		$	414,731		$	68,666
Total revenue margin percentage		17.8	%		16.5	%		1.3	%

Selling, general and administrative
Selling, general and administrative	$	357,838		$	321,241		$	36,597
Selling, general and administrative percentage of total revenues		13.2	%		12.8	%		0.4	%

Warehouse clubs
Warehouse clubs at period end		47			45			2
Warehouse club sales square feet at period end		2,325			2,232			93


	Nine Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2021	Total Revenue			2020	Total Revenue
Operating income- by segment
Central America	$	113,120	4.2	%	$	96,972	3.9	%
Caribbean		59,600	2.2			40,436	1.6
Colombia		17,139	0.6			13,411	0.5
United States		8,315	0.3			3,401	0.0
Reconciling Items ⁽¹⁾		(72,615)	(2.7)			(60,730)	(2.4)
Operating income - Total	$	125,559	4.6	%	$	93,490	3.7	%

⁽¹⁾The reconciling items reflect the amount eliminated upon 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
		2021	Total Revenue			2020	Total Revenue
Warehouse club and other operations	$	89,322	10.0	%	$	78,431	9.8	%
General and administrative		33,225	3.7			24,408	3.1
Pre-opening expenses		1	—			257	—
Loss on disposal of assets		366	—			112	—
Total Selling, general and administrative	$	122,914	13.7	%	$	103,208	12.9	%


	Nine Months Ended
		May 31,	% of			May 31,	% of
		2021	Total Revenue			2020	Total Revenue
Warehouse club and other operations	$	264,603	9.8	%	$	241,826	9.6	%
General and administrative		92,016	3.4			77,910	3.1
Pre-opening expenses		651	—			1,254	0.1
Loss on disposal of assets		568	—			251	—
Total Selling, general and administrative	$	357,838	13.2	%	$	321,241	12.8	%

Comparison of Three and Nine Months Ended May 31, 2021 and May 31, 2020

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 three months ended May 31, 2021 was 15.9%, 200 basis points (2.0%) higher than ~~during~~ the ~~same period a~~comparable prior year ~~ago. The income recognized per average member account increased 2.9%.~~period. Approximately 80 basis points (0.8%) of this increase is due to certain pricing actions we took to offset foreign currency exchange costs and COVID-related operating costs. In ~~February 2017,~~particular, we substantially increased the ~~annual membership fee~~liquidity premium we factor into our sales prices in ~~Colombia~~Trinidad on our imported merchandise, as we continue to experience a shortage of available U.S. dollars for exchange in that market. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for additional discussion. Of the remaining approximately 120 basis points (1.2%), 50 basis points (0.5%) of this improvement is primarily attributable to returning margin of our other business categories such as food services, tire center, and optical compared to the prior-year period. The remaining 70 basis points (0.7%) is the result of more focused merchandising strategies and inventory management that primarily resulted from fewer markdowns and spoilage.

On a consolidated basis, total gross margin for the nine months ended May 31, 2021 was 16.0%, 150 basis points (1.5%) higher than the comparable prior-year period. Approximately 80 basis points (0.8%) of this increase is due to the pricing actions described above with the remaining 70 basis points (0.7%) primarily attributable to more focused merchandising strategies and inventory management that resulted primarily from fewer markdowns and spoilage.

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 increased 190 basis points (1.9%) for the three months ended May 31, 2021 compared to the prior-year period, which is primarily the result of the higher total gross margins of 200 basis points (2.0%). This increase was offset by ~~15.4% to COP 75,000, which had~~10 basis points (0.1%) from lower revenue margins from our casillero and marketplace business in the ~~effect of increasing the membership income per average membership account in Colombia by 9.0% in the~~current quarter compared to the ~~first quarter of last~~prior year.

~~The Company had a net increase~~ ~~of 44,305 membership accounts over the past 12 months. Membership accounts in Colombia~~ Total revenue margin 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~~130 basis points (1.3%) for the ~~period~~nine months ended ~~November 30, 2017 was 85%,~~May 31, 2021 compared to the prior-year period, which is primarily the ~~same as~~result of 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.~~higher 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~~150 basis points ~~(0.51%~~(1.5%) ~~below the first quarter of fiscal year 2017 which~~. This increase was ~~unusually high at 15.0%. Exit costs associated with our leased distribution facility in Miami and merchandise labeling activity reduced consolidated margins~~offset by 820 basis points (0.2%) from lower revenue margins from our casillero and marketplace business in the current period compared to ~~a year ago, and warehouse club margins were lower in~~ the Central America and Caribbean segments by 31 basis points (0.31%) and 26 basis points (0.26%), respectively, largely from pricing actions to drive sales. Colombia’s margins increased 62 basis points (0.62%). prior year.

Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, pre-opening expenses, and ~~loss/(gain)~~loss on disposal of assets. In total, selling, general and administrative expenses increased ~~$6.4~~$19.7 million to ~~11.6%~~13.7% of ~~sales~~total revenue compared to ~~11.2%~~12.9% of ~~sales in~~total revenues for the ~~first~~third quarter of fiscal year ~~2017. Warehouse club operations expense was 9.3%~~2021 compared to the third quarter of ~~sales compared 9.1% a~~fiscal year ~~ago. The added cost of the new warehouse club in Santa Ana, Costa Rica added~~2020.

3747

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~~approximately 10 basis points,~~

Warehouse club and ~~hurricane-related costs, including support payments made~~other operations expenses increased to our employees in our St. Thomas, USVI club added another 5 basis points. Colombia continued to see a positive trend with a 46 basis point (0.46%) improvement in warehouse club operations expense as a percent10.0% of ~~sales~~total revenues for the third quarter of fiscal year 2021 compared to ~~same three months in~~9.8% for the third quarter of fiscal year ~~2017.~~ 2020 primarily due to the opening of a new club in Colombia that had not reached sales maturity as of May 31, 2021.

General and administrative expenses ~~grew 12.1% from~~increased to 3.7% of total revenues for the ~~first~~current quarter compared to 3.1% for the third quarter of fiscal year ~~2017~~2020. The 60 basis point (0.6%) increase is primarily due to our continued investments to support our technology development, talent acquisition, and ~~4% sequentially from~~employee development.

In total, selling, general and administrative expenses, increased $36.6 million to 13.2% of total revenues for the ~~prior quarter. The Company continues~~nine-month period ended May 31, 2021 compared 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~~12.8% of total revenues in the ~~future with expected $3.0 million~~same prior year period.

Warehouse club and other operations expenses increased to ~~$5.0 million spending~~9.8% of total revenues for the ~~current~~first nine months of the fiscal year 2021 compared to 9.6% for the prior-year period. Colombia, Guatemala, Costa Rica, and Honduras together added 20 basis points (0.2%) as a percentage of ~~which, $735,000 was spent~~revenue year over year. Colombia, Guatemala, and Costa Rica have new clubs that had not reached sales maturity as of May 31, 2021, thus increasing the operational expense ratios in ~~the first quarter. Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses~~those markets, and Honduras experienced currency appreciation during the first ~~three~~nine-month period which led to a slight deleveraging of expenses.

General and administrative expenses increased to 3.4% of total revenues for the first nine months of fiscal year ~~2018 included preopening expenses for Santa Ana, Costa Rica. Preopening expenses~~2021 compared to 3.1% for the same ~~three months~~period in the prior year. The 30 basis point (0.3%) increase is primarily due to our continued investments to support our technology development, talent acquisition, and employee development.

Pre-opening expenses decreased in the third quarter ended May 31, 2021 compared to the same prior year period with no club openings or preparation for an opening in the current quarter. The decrease for the nine-month period is attributable to fewer club openings in fiscal 2021 compared to the prior year period.

Operating income in the third quarter of fiscal year ~~2017 included the preopening expenses for Chia, Colombia.~~

~~Operating income decreased~~2021 increased to ~~$33.2~~$36.0 million ~~for the three months ended November 30, 2017~~(4.0% of total revenue) compared to ~~$38.4~~$24.0 million (3.0% of total revenue) for the same period last ~~year on lower~~year. This reflects the increase in total revenue margin dollars primarily from net merchandise ~~margins as a percent~~sales of ~~sales and higher expenses particularly those related~~180 basis points (1.8%), partially offset by an 80 basis point (0.8%) decrease due to ~~the addition~~deleveraging of ~~a new warehouse club and increased corporate-level~~selling, general and administrative ~~expenses. Higher net warehouse sales and membership~~expenses over the comparable prior-year period.

Operating income ~~and~~for the nine months ended May 31, 2021 increased ~~warehouse club gross margins resulted in a $1.2~~to $125.6 million (4.6% of total revenue) compared to $93.5 million (3.7% of total revenue) for the same period last year. This reflects the increase in ~~operating profit in Colombia compared to~~total revenue margin dollars primarily from net merchandise sales of 130 basis points (1.3%), partially offset by 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 activity40 basis point (0.4%) decrease due to deleveraging of selling, general and administrative expenses over the ~~volume of shipments flowing through Miami to support the upcoming holiday season.~~ comparable prior-year period.

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,
	2021				2020
	Amount		Change		Amount
Interest expense on loans	$	1,295	$	(925)	$	2,220
Interest expense related to hedging activity		907		287		620
Less: Capitalized interest		(606)		(330)		(276)
Net interest expense	$	1,596	$	(968)	$	2,564

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	Nine Months Ended
	May 31,				May 31,
	2021				2020
	Amount		Change		Amount
Interest expense on loans	$	4,592	$	(673)	$	5,265
Interest expense related to hedging activity		2,785		1,308		1,477
Less: Capitalized interest		(1,520)		106		(1,626)
Net interest expense	$	5,857	$	741	$	5,116

Comparison of Three and Nine Months Ended May 31, 2021 and May 31, 2020

Net interest expense decreased for the three-month period ended May 31, 2021 primarily due to lower short-term borrowings compared to the comparable prior year period. We drew down on ~~loans decreased year-on-year. An increase year-on-year~~short-term lines of credit in ~~long-term debt~~the third quarter of ~~approximately $14.1 million, primarily~~fiscal year 2020 as a part of our efforts to ~~finance~~secure adequate cash to cover contingencies arising from COVID-19 related risks. We repaid all of these borrowings by the ~~acquisition~~end of the ~~distribution center~~current quarter. The increase in Miami, Florida and an additional loan within our Trinidad subsidiary as part efforts to improve liquidity, were offset by decreases in the payments on various loans held by our subsidiaries. Additionally, interest expense related to hedging activity ~~decreased~~is a result of the increase in the ~~first quarter~~volatility of ~~fiscal~~interest rates. We also capitalized more interest compared to a year ~~2018~~ago due to the increase of construction projects as we continue to add to our new club pipeline.

Net interest expense increased for the nine-month period ended May 31, 2021 primarily due to higher average long-term loan balances to fund our capital projects in Guatemala and U.S. dollar working capital needs in Trinidad, offset by lower short-term borrowings compared to the ~~first quarter of fiscal~~comparable prior year ~~2017 due~~period. The increase in interest expense related to ~~the pay-off~~hedging activity is a result of the ~~various loans held by our subsidiaries that were hedged. Additionally, an~~ increase in ~~capitalized~~the volatility of interest ~~in the first quarter of fiscal year 2018 compared to the first quarter of fiscal year 2017 resulted from higher levels of construction activities.~~ rates.

Other expense, net

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

~~Other income~~ consists of currency ~~gain~~gains or ~~loss.~~losses, as well as net benefit costs related to our defined benefit plans and the receipt of a one-time indemnification payment from a business combination escrow account.



	Three Months Ended
	May 31,						May 31,
	2021						2020
	Amount		Increase from prior year		% Change		Amount
Other expense, net	$	(2,295)	$	(731)	(46.7)	%	$	(1,564)



	Nine Months Ended
	May 31,						May 31,
	2021						2020
	Amount		Increase ‎from ‎prior year		% Change		Amount
Other expense, net	$	(4,132)	$	(2,306)	(126.3)	%	$	(1,826)

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)

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~~ gains/(losses), are recorded as currency gains or losses.

~~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, 2021 and ~~2016~~2020

For the ~~three-month period, we had a~~three- and nine-months ended May 31, 2021 the primary driver of Other expense, net ~~gain~~included losses of $2.2 million and $4.0 million, respectively, associated with foreign currency ~~transactions. These~~transactions and the revaluation of monetary assets and liabilities in several of our markets. The foreign currency gains and losses resulted from the revaluation of net U.S. dollar assets

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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, in Costa Rica and~~transactions.

The primary impacts during the ~~Dominican Republic, we experienced strengthening of the local currencies relative to the U.S. Dollar. These benefits~~quarter were ~~offset 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~~Additionally, the Jamaican dollar appreciated, which resulted in a loss recognized on our net U.S. dollar asset position in that market. The primary impacts during the nine-month period were higher transaction costs associated with converting Trinidad dollars into available tradeable currencies such as ~~that situation continues in Trinidad, we plan~~Euros or Canadian dollars, before converting them 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. This was partially offset by an appreciation of the Honduran Lempira, which resulted in a gain from our net U.S. dollar liability position in that market.

Provision for Income Taxes


									Three Months Ended
	Three Months Ended								May 31,					May 31,
	November 30,					November 30,			2021					2020
	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		$	10,082		$	2,338	$	7,744
Effective tax rate		31.0	%				31.5	%		30.9	%				38.0	%


	Nine Months Ended
	May 31,					May 31,
	2021					2020
	Amount			Increase ‎ from ‎prior year		Amount
Provision for income taxes	$	38,265		$	8,416	$	29,849
Effective tax rate		32.7	%				33.9	%

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Comparison of Three and Nine Months Ended ~~November 30, 2017~~May 31, 2021 and ~~2016~~May 31, 2020

For the three months ended ~~November 30, 2017,~~May 31, 2021, the effective tax rate was ~~31.0%~~30.9%. The decrease 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 benefit from recurring items of 8.4%, primarily because we were able to recognize greater benefits from foreign tax credits in the current year three-month period compared to the prior-year period due to higher income before the provision for income taxes for the current quarter, and improvements in other tax credits in our countries of operation; and

A comparably unfavorable net tax impact from non-recurring items, of 1.3%, primarily related to changes in uncertain tax positions.

For the nine months ended May 31, 2021, the effective tax rate was 32.7%. The decrease in the effective tax rate versus the prior year was primarily attributable to the following factors:

A comparably favorable benefit from recurring items, of 3.7%, primarily because we were able to recognize greater benefits from foreign tax credits in the current year three-month period compared to the prior-year period due to higher income before the provision for income taxes for the current nine-month period and improvements in other tax credits in our countries of operation; and

A comparably unfavorable net tax impact from non-recurring items, of 2.5%, primarily related to changes in uncertain tax positions.

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Other Comprehensive ~~Income (Loss)~~Loss


	Three Months Ended
	May 31,						May 31,
	2021						2020
	Amount		Change		% Change		Amount
Other comprehensive loss	$	(2,590)	$	12,856	83.2	%	$	(15,446)


	Nine Months Ended
	May 31,						May 31,
	2021						2020
	Amount		Change		% Change		Amount
Other comprehensive loss	$	(548)	$	23,132	97.7	%	$	(23,680)

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)

Comparison of Three and Nine Months Ended ~~November 30, 2017~~May 31, 2021 and ~~2016~~May 31, 2020

Our other comprehensive loss of approximately ~~$1.4~~$2.6 million for the ~~first~~third quarter of fiscal year ~~2018~~2021 resulted primarily from the comprehensive loss of approximately ~~$2.2~~$3.0 million from foreign currency translation adjustments related to assets and liabilities and the translation of revenue, costs and expenses on the statements of income of our subsidiaries whose functional currency is not the U.S. dollar, offset by ~~comprehensive income of~~ approximately ~~$587,000~~$381,000 related to unrealized gains on changes in our derivative obligations. ~~When~~Other comprehensive loss for nine-months ended May 31, 2021 of approximately $548,000 was primarily the ~~functional~~result of the comprehensive loss of $2.6 million from foreign currency translation adjustments offset by approximately $1.9 million related to unrealized gains on changes in the fair value of our ~~international subsidiaries is~~derivative obligations. For the ~~local currency~~quarter, the Costa Rica Colón and ~~not U.S. dollars, the assets and liabilities of such subsidiaries are translated to U.S. dollars at the~~Colombia Peso exchange rate onwith the ~~balance sheet date,~~U.S. Dollar declined significantly, and revenue, costs and expenses are translated at average rates 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 liquidationthese declines were offset by an appreciation of the ~~underlying investment. The reported other comprehensive income or loss reflects~~Dominican Republic Peso over the ~~unrealized increase or decrease in~~same period. For the ~~value in~~nine-month period, the Costa Rica Colón exchange rate with the U.S. ~~dollars~~Dollar declined significantly and this decline was offset by an appreciation of the ~~net assets of~~Colombian Peso and the ~~subsidiaries as of~~Dominican Republic Peso over the ~~date of the balance sheet, which will vary from period to period as exchange rates fluctuate.~~ same period.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

Our operations have historically supplied us with a significant source of liquidity. We ~~require~~generate cash from operations primarily through net merchandise sales and membership fees. Cash used in operations generally consist of payments to our merchandise vendors, warehouse club and distribution center operating costs (including payroll, employee benefits and utilities), as well as payments for income taxes. Our cash flows provided by operating activities, supplemented with our long-term debt and short-term borrowings, have generally been sufficient to fund our ~~operating expenses and working capital requirements, 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. Refer to “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 7 - Debt” for additional information regarding our available short-term facilities, short-term and long-term borrowings, and any repayments.

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

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

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,
	2021		2020
Amounts held by foreign subsidiaries	$	158,064	$	203,598
Amounts held domestically		40,376		100,173
Total cash and cash equivalents, including restricted cash	$	198,440	$	303,771

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


	May 31,		August 31,
	2021		2020
Amounts held by foreign subsidiaries	$	67,068	$	46,509
Amounts held domestically		—		—
Total short-term investments	$	67,068	$	46,509

As of May 31, 2021 and August 31, 2020, certificates of deposit with a maturity of over one year held by our foreign subsidiaries and domestically were $1.5 million in both periods.

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~~or otherwise fund our ~~foreign exchange exposure to any devaluation of local currency relative to the U.S. dollar. During~~operations. Since fiscal ~~year~~ 2017, ~~and continuing into the first three months of fiscal year 2018,~~ we have experienced this situation in ~~Trinidad. We are working with our banks in~~ Trinidad ~~to source tradable currencies (including Euros~~ and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this illiquidity condition is likely to continue. During part of the first half of fiscal year 2017, we limited shipments of merchandise to Trinidad from our distribution center in Miami to levels that generally aligned with our Trinidad subsidiary’s ability to source U.S. dollars to pay for that merchandise. This resulted in a reduced level of shipments, which negatively affected sales in the second quarter, particularly December 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~~currencies. We are working with our banks in Trinidad ~~consistent with~~and government officials to source tradeable currencies. We expect the ~~level~~illiquid market conditions in Trinidad to continue and are considering various measures to address the adverse effect of ~~merchandise we were importing for~~this situation on the ~~holiday shopping season. As of November 30, 2017,~~Company’s liquidity. In addition, our ~~Trinidad~~Barbados subsidiary ~~had net~~recently began facing a similar U.S. dollar ~~denominated liability exposures of approximately $12.1 million, an increase of $16.1 million from August 31, 2017 when~~liquidity situation. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for 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. quantitative analysis and discussion.

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


					Nine Months Ended
	Three Months Ended				May 31,		May 31,
	November 30,		November 30,		2021		2020		Change
	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 operating activities					$	79,967	$	174,130	$	(94,163)
Net cash used in investing activities						(93,991)		(113,978)		19,987
Net cash provided by (used in) financing activities		(5,296)		(7,162)		(88,956)		101,508		(190,464)
Effect of exchange rates		2,021		(1,650)		(2,351)		(1,872)		(479)
Net increase (decrease) in cash and cash equivalents	$	(33,170)	$	(24,062)	$	(105,331)	$	159,788	$	(265,119)

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~~Our~~Net cash provided by operating activities totaled $80.0 million and $174.1 million for the nine months ended May 31, 2021 and May 31, 2020, respectively. The decrease in net cash provided by ~~(used in)~~ operating activities ~~for~~was primarily due to the ~~three months ended November 30, 2017~~increase in our inventory position and ~~2016 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 from operating activities reconciled for non-cash operating activities decreased approximately $2.8 million for~~ the ~~three months ended November 30, 2017 over~~higher net settlement of accounts payable versus the ~~same~~comparable prior year period, ~~last year, resulting from~~which was partially offset by a ~~year-on-year decrease~~significant increase in net income for the nine months ended May 31, 2021 over the prior-year period.

Inventory was $336.7 million as of ~~approximately $2.4~~May 31, 2021, compared with $309.5 million and $268.8 million at August 31, 2020 and May 31, 2020, respectively. The increase over the balances as of May 31, 2020 reflects our efforts to bring our inventory levels in-line with our sales trends. In addition, the lower balance as May 31, 2020 reflected the rapid sell-through of merchandise as Members stockpiled items in anticipation of the impacts of the COVID-19 pandemic in the ~~first~~third fiscal quarter of ~~fiscal year 2018~~2020 and the reduction of certain non-food categories to align with initial consumer preferences at the start of the pandemic. We have made strategic investments in inventory to avoid future out-of-stocks on high volume items that have been impacted from container, commodity, and electronic part shortages. Lastly, we have two additional clubs in the current year. Accounts payable was $341.0 million as of May 31, 2021, compared with $373.2 million and $283.0 million at August 31, 2020 and May 31, 2020, respectively. The decrease from the balances as of August 31, 2020 is largely the result of the expiration of temporary extensions of vendor terms negotiated as part of our response to the ~~first quarter of~~pandemic in fiscal ~~year 2017~~2020. However, on average 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 comparedalthough not quite to the same ~~period a year ago. The Company partially offset this increased inventory with an increase in accounts payable as~~extent, we have been able to permanently extend some of ~~November 30, 2017 compared to November 30, 2016 of approximately $8.5 million.~~ our vendor payment terms.

~~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 $94.0 million and $114.0 million for the nine months ended May 31, 2021 and May 31, 2020. The decrease is primarily the result of a decrease in construction expenditures and an increase in the ~~first three months~~net proceeds of ~~fiscal year 2018~~short-term and long-term certificate of deposit purchases and 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 net proceeds from certificates of deposit is primarily a result of improved sources versus uses of U.S. dollars in Trinidad during our fiscal third quarter, reducing our need to invest Trinidad dollars. Refer to “Management’s Discussion and Analysis – Factors Affecting Our Business” for additional discussion of the current U.S. dollar illiquidity we are experiencing in that market.

Net cash ~~expenditures for construction~~used in financing activities ~~for a warehouse club in Santa Ana, Costa Rica that opened in September 2017 and construction activities for 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.

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 $125.0totaled $89.0 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, thenet 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 was $101.5 million for the ~~three~~nine months ended ~~November 30, 2017~~May 31, 2021 and ~~2016~~May 31, 2020, respectively. We use cash flows provided by financing primarily to fund our working capital needs, our warehouse club and distribution center acquisitions and expansions, and investments in technology to support our omni-channel initiatives. The $190.5 million shift from cash provided by to cash used in financing activities 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 cash~~primarily the result of a net decrease of proceeds from long-term borrowings and a net decrease in short-term ~~loan activities~~borrowings compared to the same nine-month period a year-ago. In the prior year period, we executed long-term loans primarily to finance land purchases and construction of several of our warehouse clubs and increased ~~approximately $1.9 million during~~our short-term borrowings as part of our cash management strategy in the ~~first three months~~early stages of ~~fiscal year 2018 over~~ the first three months of fiscal year 2017. This increase in cash primarily resulted from a period-over-period increase in cash from short-term loans, offset by an increase in loan payments of approximately $3.9 million primarily resulting from an early loan payment of approximately $3.0 million within our Trinidad subsidiary.pandemic.

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.~~ 2021 (amounts are per share).

First Payment

Second Payment

First Payment

Second Payment

Declared

Amount

Record
Date

Date
Paid

Date
Payable

Amount

Record
Date

Date
Paid

Date
Payable

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

2/4/2021

0.70

2/15/2021

2/26/2021

N/A

0.35

8/15/2021

N/A

8/31/2021

0.35

2/6/2020

0.70

2/15/2020

2/28/2020

N/A

0.35

8/15/2020

8/31/2020

N/A

0.35

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.~~

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

~~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~~



	~~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 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.~~

Three Months Ended

November 30,

November 30,

2017

2016
Shares repurchased

—

—
Cost of repurchase of shares (in thousands)

$
—

$
—

4753

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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 740-270 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~~As of May 31, 2021, the Company's uncertain income tax ~~positions for the periods ended on November 30, 2017 and~~position balance has been reduced by $1.2 million since 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 charges2020 due to the ~~lack~~expiration of ~~withholding. Based on the Company's interpretation~~statutes of ~~local law, rulings~~limitation 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.other current year estimate adjustments.

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 because54

Table of ~~the complexity of the computation.~~Contents

Tax ~~Receivables:~~ Receivables

We pay Value Added Tax (“VAT”) or similar taxes, ~~(“input VAT”),~~ income taxes, and other taxes within the normal course of our business in most of the countries in which we operate related to the procurement of merchandise and/or services we ~~acquires~~acquire and/or on sales and taxable income. VAT is a form of indirect tax applied to the value added at each stage of production (primary, manufacturing, wholesale and retail). This tax is similar to, but operates somewhat differently than, sales tax paid in the United States. We ~~also~~generally collect VAT from our Members upon sale of goods and services and pay VAT to our vendors upon purchase of goods and services. Periodically, we submit VAT reports to governmental agencies and reconcile the VAT paid and VAT received. The net overpaid VAT may be refunded or ~~similar taxes on behalf of~~applied to subsequent returns, and the ~~government (“output VAT”) for merchandise and/or services we sell. If the output~~net underpaid VAT ~~exceeds the input VAT, then the difference is~~must be remitted to the ~~government, usually on a monthly basis. If~~government. With respect to income taxes paid, if the ~~input VAT exceeds~~estimated income taxes paid or withheld exceed the ~~output VAT,~~actual income tax due this creates ~~a VAT~~an income tax receivable. In most countries where we operate, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit ~~card~~and debit cards directly to the government as advance payments of VAT and/or income tax. ~~In the case of VAT, these procedures alter the natural offset of input and output VAT and~~This collection mechanism generally ~~leave~~leaves us with a net VAT ~~receivable,~~and/or income tax receivables, forcing us to process significant refund claims on a recurring basis. With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due this creates an income tax receivable. We 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.

~~Table of Contents~~

In most countries where we operate, there are defined and structured processes to recover VAT receivables via refunds or offsets. However, in one country without a clearly defined refund process, the Company is actively engaged with the local government to recover VAT receivables totaling $9.1 million and $7.0 million as of May 31, 2021 and August 31, 2020, respectively. In addition, in two other countries where the Company operates, ~~the tax refund process is defined and structured with 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 courthave been changes in the ~~country without a clearly defined process and expects to prevail. The balance~~method of the VAT receivable in the country with undefined refund mechanisms was approximately $1.3 million and $1.2 million as of November 30, 2017 and August 31, 2017, respectively. In another country incomputing minimum tax payments under which the governments have sought to require the Company ~~has warehouse clubs, beginning in fiscal year 2015, a new minimum income tax mechanism took effect, which requires us~~ to pay taxes based on a percentage of sales rather than taxable income. As a result, we ~~are making~~have made and may continue to make income tax payments substantially in excess of those we would expect to pay based on taxable income. The ~~current rules (which we have challenged in court) do not clearly allow us to obtain a refund or offset this excess~~Company had income tax ~~against other taxes. As~~receivables of ~~November 30, 2017~~$11.0 million and ~~August 31, 2017, the Company had~~$10.4 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~~$3.2 million and ~~$4.3~~$2.8 million as of ~~November 30, 2017~~May 31, 2021 and August 31, ~~2017,~~2020, 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,~~requests. Similarly, we have not placed any recoverability allowances on tax receivables that arise from payments we are required to make originating from tax assessments that we are appealing, as we believe it is more likely than not that we will ultimately prevail in the related ~~appeals and/~~appeals. There can be no assurance, however, that we will be successful in recovering all tax receivables or ~~court challenge on this matter.~~deferred tax assets.

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

Long-lived Assets:

We ~~periodically~~ evaluate 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;~~

Table of Contents

~~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~~which could require 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 $45.1 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.

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~~May 31, 2021 compared to those disclosed in our Annual Report 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 currencies 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 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).2020.

In addition, the Company's subsidiaries whose functional currency is not the U.S. dollar carry 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 currency gain (loss) within Other income (expense) in the consolidated statements of income.

~~The following table summarizes the amounts recorded for the three months ending November 30, 2017 and 2016 (in thousands):~~

Three Months Ended

November 30,

November 30,

2017

2016
Currency gain (loss)

$
278

$
(928)

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. We are working with our banks in~~ Trinidad ~~to source tradable currencies (including Euros~~ and Canadian dollars), but until the central bank in Trinidad makes more U.S. dollars available, this illiquidity condition is likely to continue. During part of the first half of fiscal year 2017, we limited shipments of merchandise to Trinidad from our distribution center in Miami to levels that generally aligned with our Trinidad subsidiary’s ability to source U.S. dollars to pay for that merchandise. This resulted in a reduced level of shipments, which negatively affected sales in the second quarter, particularly December 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~~currencies. We are working with our banks in Trinidad ~~consistent with~~and Barbados to source tradeable currencies. We expect the ~~level~~illiquid market conditions in both markets to continue. Refer to “Item 2. Management’s Discussion & Analysis – Factors Affecting Our Business” and “Item 2. Management’s Discussion & Analysis – Liquidity: Financial Position and Cash Flow” for our quantitative analysis and discussion.

Information about the financial impact of ~~merchandise we were importing~~foreign currency exchange rate fluctuations for the ~~holiday shopping season. As~~three and nine-month period ended May 31, 2021 is disclosed in “Item 2. Management’s Discussion & Analysis – Other Expense, net”.

Information about the change in the fair value of ~~November 30, 2017,~~ our ~~Trinidad subsidiary had net~~hedges and the financial impact thereof for the three and nine-month period ended May 31, 2021 is disclosed in “Item 1. Financial Statements: 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 balance sheets of our subsidiaries whose functional currency is not the U.S. dollar ~~denominated liability exposures of approximately $12.1 million, an increase of $16.1 million from August~~for the three 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 Trinidad2021 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 & 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.

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,I. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, ~~2017.~~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.~~2020.

~~Available Information~~

The PriceSmart, Inc. website or internet address is www.pricesmart.com. On this website the Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, and the annual report to the 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~~.

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, 2021, the Company repurchased 3,407 shares in the indicated months. These were the only repurchases of equity securities made by the Company during the third quarter of fiscal year 2021. 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, 2021 - March 31, 2021		3,108	$	98.37		—		N/A
April 1, 2021 - April 30, 2021		299	$	97.77		—		N/A
May 1, 2021 - May 31, 2021		—	$	—		—		N/A
Total		3,407	$	98.31		—		—

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~~*	~~Amendment to 2013 Equity Incentive Award Plan of PriceSmart, Inc.~~
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~~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~~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.

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~~SIGNATURES~~

SIGNATURES

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



		PRICESMART, INC.

Date:	~~January 4, 2018~~July 8, 2021	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 8, 2021	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)~~

5460



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)


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2020	$	(176,820)	$	134	$	(176,686)
Foreign currency translation adjustments		(2,577)		91		(2,486)
Defined benefit pension plans ⁽¹⁾		164		—		164
Derivative instruments ⁽²⁾		1,865		—		1,865
Ending balance, May 31, 2021	$	(177,368)	$	225	$	(177,143)



	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)



Twelve Months Ended November 30,	Amount
2018	$	18,257
2019		19,437
2020		21,438
2021		5,805
2022		2,634
Thereafter		31,026
Total	$	98,597



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



		November 30, 2017						August 31, 2017							May 31, 2021						August 31, 2020
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	$	1,160	$	(353)	$	807	$	872	$	(265)	$	607
Interest rate swaps	Other non-current assets		764		(272)		492		—		—		—	Other long-term liabilities		(2,338)		547		(1,791)		(3,857)		898		(2,959)
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)	Other long-term liabilities		(816)		245		(571)		(828)		248		(580)
Net fair value of derivatives designated as hedging instruments		$	2,932	$	(1,099)	$	1,833	$	1,865	$	(735)	$	1,130		$	(1,994)	$	439	$	(1,555)	$	(3,813)	$	881	$	(2,932)



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



	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)

August 31,

Retained earnings not available for distribution