Form 10-Q PRICESMART INC For: May 31

Form 10-Q PRICESMART INC For: May 31

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July 11, 2022 4:14 PM EDT

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psmt-20220531x10q

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 May 31, 2022


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

For the transition period from _______ to

COMMISSION FILE NUMBER 000-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)

Delaware

33-0628530

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


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

(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 every Interactive Data File required to be submitted 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 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 ¨
		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 30,931,562 shares of its common stock, par value $0.0001 per share, outstanding at June 30, 2022.

PRICESMART, INC.

INDEX TO FORM 10-Q


		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	1
	CONSOLIDATED BALANCE SHEETS AS OF MAY 31, 2022 (UNAUDITED) AND AUGUST 31, 2021	2
	CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021 - UNAUDITED	4
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021 - UNAUDITED	5
	CONSOLIDATED STATEMENTS OF EQUITY FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2022 AND 2021 - UNAUDITED	6
	CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MAY 31, 2022 AND 2021 - UNAUDITED	8
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED	10
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	55
ITEM 4.	CONTROLS AND PROCEDURES	56
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	57
ITEM 1A.	RISK FACTORS	57
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	57
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	57
ITEM 4.	MINE SAFETY DISCLOSURES	57
ITEM 5.	OTHER INFORMATION	57
ITEM 6.	EXHIBITS	58

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 May 31, 2022 and the consolidated balance sheet as of August 31, 2021, the unaudited consolidated statements of income for the three and nine months ended May 31, 2022 and 2021, the unaudited consolidated statements of comprehensive income for the three and nine months ended May 31, 2022 and 2021, the unaudited consolidated statements of equity for the three and nine months ended May 31, 2022 and 2021, and the unaudited consolidated statements of cash flows for the nine months ended May 31, 2022 and 2021 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)



	May 31,
	2022		August 31,
	(Unaudited)		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	207,528	$	202,060
Short-term restricted cash		2,986		3,647
Short-term investments		19,767		50,233
Receivables, net of allowance for doubtful accounts of $50 as of May 31, 2022 and $94 as of August 31, 2021, respectively		14,569		12,359
Merchandise inventories		460,962		389,711
Prepaid expenses and other current assets (includes $1,550 and $0 as of May 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments)		44,059		39,194
Total current assets		749,871		697,204
Long-term restricted cash		12,203		9,772
Property and equipment, net		765,034		730,204
Operating lease right-of-use assets, net		114,775		123,655
Goodwill		43,347		45,095
Other intangibles, net		1,153		7,762
Deferred tax assets		27,990		24,225
Other non-current assets (includes $5,410 and $2,464 as of May 31, 2022 and August 31, 2021, respectively, for the fair value of derivative instruments)		66,852		57,329
Investment in unconsolidated affiliates		10,538		10,544
Total Assets	$	1,791,763	$	1,705,790
LIABILITIES AND EQUITY
Current Liabilities:
Short-term borrowings	$	15,336	$	—
Accounts payable		393,536		388,791
Accrued salaries and benefits		40,411		41,896
Deferred income		29,648		26,898
Income taxes payable		8,292		8,310
Other accrued expenses and other current liabilities		35,387		39,736
Operating lease liabilities, current portion		7,442		8,526
Dividends payable		13,430		—
Long-term debt, current portion		34,275		19,395
Total current liabilities		577,757		533,552
Deferred tax liability		2,000		1,568
Long-term income taxes payable, net of current portion		5,550		4,160
Long-term operating lease liabilities		121,583		129,256
Long-term debt, net of current portion		108,182		110,110
Other long-term liabilities (includes $1,048 and $3,010 for the fair value of derivative instruments and $7,445 and $7,380 for post-employment plans as of May 31, 2022 and August 31, 2021, respectively)		8,493		10,930
Total Liabilities		823,565		789,576

‎

Table of Contents



Stockholders' Equity:
Common stock $0.0001 par value, 45,000,000 shares authorized; 31,688,311 and 31,467,971 shares issued and 30,930,527 and 30,755,308 shares outstanding (net of treasury shares) as of May 31, 2022 and August 31, 2021, respectively		3		3
Additional paid-in capital		477,281		465,015
Accumulated other comprehensive loss		(193,148)		(182,508)
Retained earnings		713,444		658,919
Less: treasury stock at cost, 757,784 shares as of May 31, 2022 and 712,663 shares as of August 31, 2021		(29,382)		(26,084)
Total stockholders' equity attributable to PriceSmart, Inc. stockholders		968,198		915,345
Noncontrolling interest in consolidated subsidiaries		—		869
Total Stockholders' Equity		968,198		916,214
Total Liabilities and Equity	$	1,791,763	$	1,705,790

See accompanying notes.
‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF INCOME

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



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2022		2021		2022		2021
Revenues:
Net merchandise sales	$	999,011	$	857,478	$	2,954,950	$	2,594,251
Export sales		13,396		10,213		32,604		30,800
Membership income		15,440		14,329		45,302		41,427
Other revenue and income		2,963		13,244		11,867		43,787
Total revenues		1,030,810		895,264		3,044,723		2,710,265
Operating expenses:
Cost of goods sold:
Net merchandise sales		856,812		720,726		2,503,638		2,179,453
Export sales		12,805		9,820		31,087		29,568
Non-merchandise		—		5,755		1,809		17,847
Selling, general and administrative:
Warehouse club and other operations		96,081		89,322		281,270		264,603
General and administrative		30,887		33,225		96,531		92,016
Pre-opening expenses		306		1		1,406		651
Loss on disposal of assets		157		366		881		568
Total operating expenses		997,048		859,215		2,916,622		2,584,706
Operating income		33,762		36,049		128,101		125,559
Other income (expense):
Interest income		473		518		1,540		1,454
Interest expense		(2,796)		(1,596)		(6,824)		(5,857)
Other expense, net		(2,423)		(2,295)		(1,833)		(4,132)
Total other expense		(4,746)		(3,373)		(7,117)		(8,535)
Income before provision for income taxes and loss of unconsolidated affiliates		29,016		32,676		120,984		117,024
Provision for income taxes		(9,776)		(10,082)		(39,729)		(38,265)
Gain (loss) of unconsolidated affiliates		18		(13)		(6)		(34)
Net income		19,258		22,581		81,249		78,725
Less: net income attributable to noncontrolling interest		—		(52)		(19)		(223)
Net income attributable to PriceSmart, Inc.	$	19,258	$	22,529	$	81,230	$	78,502
Net income attributable to PriceSmart, Inc. per share available for distribution:
Basic	$	0.62	$	0.73	$	2.63	$	2.55
Diluted	$	0.62	$	0.73	$	2.63	$	2.55
Shares used in per share computations:
Basic		30,615		30,414		30,582		30,396
Diluted		30,629		30,446		30,588		30,423

See accompanying notes.
‎

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED—AMOUNTS IN THOUSANDS)



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2022		2021		2022		2021
Net income	$	19,258	$	22,581	$	81,249	$	78,725
Less: net income attributable to noncontrolling interest		—		(52)		(19)		(223)
Net income attributable to PriceSmart, Inc.	$	19,258	$	22,529	$	81,230	$	78,502

Other Comprehensive Income, net of tax:
Foreign currency translation adjustments ⁽¹⁾		(9,401)		(3,007)		(15,119)		(2,577)
Defined benefit pension plan:
Net gain arising during period		5		3		42		65
Amortization of prior service cost and actuarial gains included in net periodic pensions cost		34		33		98		99
Total defined benefit pension plan		39		36		140		164
Derivative instruments:⁽²⁾
Unrealized gains/(losses) on change in derivative obligations		272		(667)		(147)		488
Unrealized gains on change in fair value of interest rate swaps		355		1,048		4,486		1,377
Total derivative instruments		627		381		4,339		1,865
Other comprehensive loss		(8,735)		(2,590)		(10,640)		(548)
Comprehensive income		10,523		19,939		70,590		77,954
Less: comprehensive income attributable to noncontrolling interest		—		33		3		91
Comprehensive income attributable to PriceSmart, Inc.	$	10,523	$	19,906	$	70,587	$	77,863

⁽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
														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 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	4		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		4,931		—		—	—		—		4,931		—		4,931
Dividend paid to stockholders	—		—		—		—		—	—		—		—		(87)		(87)
Net income	—		—		—		—		22,529	—		—		22,529		52		22,581
Other comprehensive income (loss)	—		—		—		(2,590)		—	—		—		(2,590)		33		(2,557)
Balance at May 31, 2021	31,456	$	3	$	459,812	$	(177,368)	$	639,472	678	$	(23,116)	$	898,803	$	981	$	899,784

Balance at February 28, 2022	31,626	$	3	$	473,277	$	(184,413)	$	694,186	755	$	(29,169)	$	953,884	$	—	$	953,884
Purchase of treasury stock	—		—		—		—		—	3		(213)		(213)		—		(213)
Issuance of restricted stock award	63		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards	(1)		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		4,004		—		—	—		—		4,004		—		4,004
Net income	—		—		—		—		19,258	—		—		19,258		—		19,258
Other comprehensive loss	—		—		—		(8,735)		—	—		—		(8,735)		—		(8,735)
Balance at May 31, 2022	31,688	$	3	$	477,281	$	(193,148)	$	713,444	758	$	(29,382)	$	968,198	$	—	$	968,198

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, 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

Balance at August 31, 2021	31,468	$	3	$	465,015	$	(182,508)	$	658,919	713	$	(26,084)	$	915,345	$	869	$	916,214
Purchase of treasury stock	—		—		—		—		—	54		(3,997)		(3,997)		—		(3,997)
Issuance of treasury stock	(9)		—		(699)		—		—	(9)		699		—		—		—
Issuance of restricted stock award	234		—		—		—		—	—		—		—		—		—
Forfeiture of restricted stock awards	(5)		—		—		—		—	—		—		—		—		—
Stock-based compensation	—		—		12,678		—		—	—		—		12,678		—		12,678
Dividend paid to stockholders	—		—		—		—		(13,275)	—		—		(13,275)		—		(13,275)
Dividend payable to stockholders	—		—		—		—		(13,430)	—		—		(13,430)		—		(13,430)
Net income	—		—		—		—		81,230	—		—		81,230		19		81,249
Other comprehensive income (loss)	—		—		—		(10,640)		—	—		—		(10,640)		3		(10,637)
Sale of Aeropost stock	—		—		287		—		—	—		—		287		(891)		(604)
Balance at May 31, 2022	31,688	$	3	$	477,281	$	(193,148)	$	713,444	758	$	(29,382)	$	968,198	$	—	$	968,198

See accompanying notes

Table of Contents

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—AMOUNTS IN THOUSANDS)



	Nine Months Ended
	May 31,		May 31,
	2022		2021
Operating Activities:
Net income	$	81,249	$	78,725
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		50,258		48,350
Allowance for doubtful accounts		10		19
Loss on sale of property and equipment		881		568
Deferred income taxes		(3,241)		(2,748)
Equity in losses of unconsolidated affiliates		6		34
Stock-based compensation		12,678		13,221
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		(16,133)		6,147
Merchandise inventories		(71,257)		(27,136)
Accounts payable		9,860		(37,213)
Net cash provided by operating activities		64,311		79,967
Investing Activities:
Proceeds from the disposal of Aeropost, net of divested cash		4,959		—
Additions to property and equipment		(98,562)		(73,350)
Purchases of short-term investments		(22,442)		(58,355)
Proceeds from settlements of short-term investments		53,058		37,605
Purchases of long-term investments		—		(1,479)
Proceeds from settlements of long-term investments		1,486		1,479
Proceeds from disposal of property and equipment		97		109
Net cash used in investing activities		(61,404)		(93,991)
Financing Activities:
Proceeds from long-term bank borrowings		30,633		3,000
Repayment of long-term bank borrowings		(17,804)		(13,135)
Proceeds from short-term bank borrowings		22,313		—
Repayment of short-term bank borrowings		(6,505)		(64,916)
Cash dividend payments		(13,275)		(11,108)
Purchase of treasury stock		(3,997)		(2,574)
Other financing activities		—		(223)
Net cash provided by (used in) financing activities		11,365		(88,956)
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(7,034)		(2,351)
Net increase (decrease) in cash, cash equivalents		7,238		(105,331)
Cash, cash equivalents and restricted cash at beginning of period		215,479		303,771
Cash, cash equivalents and restricted cash at end of period	$	222,717	$	198,440

Supplemental disclosure of noncash investing activities:
Capital expenditures accrued, but not yet paid	$	1,456	$	8,763
Dividends declared but not yet paid		(13,430)		(10,755)

‎

Table of Contents

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:


	Nine Months Ended
	May 31,		May 31,
	2022		2021
Cash and cash equivalents	$	207,528	$	190,687
Short-term restricted cash		2,986		781
Long-term restricted cash	$	12,203	$	6,972
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	222,717	$	198,440

See accompanying notes.

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

May 31, 2022

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“PriceSmart,” the “Company,” or "we") business consists primarily of international membership shopping and services offered both online and at warehouse clubs similar to, but typically smaller in size than, warehouse clubs in the United States. As of May 31, 2022, the Company had 50 warehouse clubs in operation in 12 countries and one U.S. territory (nine in Colombia; eight in Costa Rica; seven in Panama; five in the Dominican Republic and Guatemala; four in Trinidad; three in Honduras; two each in El Salvador, Nicaragua and Jamaica; and one each in Aruba, Barbados and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies). In addition, the Company plans to open a warehouse club in San Miguel, El Salvador in the spring of 2023 and a warehouse club in Medellín, Colombia in the summer of 2023. Once these two new clubs are open, the Company will operate 52 warehouse clubs. Our operating segments are the United States, Central America, the Caribbean and Colombia.

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

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

2.Increase Membership Value; and

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

Basis of Presentation – The 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”).

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, 2021 (the “2021 Form 10-K”). The interim consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. Intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation.

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 non-controlling interests. The Company reports non-controlling 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 year.

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

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

In the case of the Company's ownership interest in real estate development joint ventures, both parties to each joint venture share all rights, obligations and the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. As a result, the Company has determined that it is not the primary beneficiary of the VIEs and, therefore, has accounted for these entities under the equity method. Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment. The Company's ownership interest in real estate development joint ventures the Company has recorded under the equity method as of May 31, 2022 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.

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

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

Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The novel coronavirus (COVID-19) pandemic continues to significantly impact the economies of the countries where the Company operates. The Company has assessed the impact that COVID-19 has had on our estimates, assumptions and accounting policies and made additional disclosures, if and as necessary.

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,
	2022		2021
Short-term restricted cash	$	2,986	$	3,647
Long-term restricted cash		12,203		9,772
Total restricted cash⁽¹⁾	$	15,189	$	13,419

⁽¹⁾Restricted cash consists of cash deposits held within banking institutions in compliance with federal regulatory requirements in Costa Rica and Panama. In addition, the Company is required to maintain a certificate of deposit and/or security deposits of Trinidad dollars, as measured in U.S. dollars, of approximately $10.0 million with a few of its lenders as compensating balances for several U.S. dollar and euro denominated loans payable over several years. The certificates of deposit will be reduced annually commensurate with the loan balances.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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 $44.5 million as of May 31, 2022 and $52.9 million as of August 31, 2021. The Company reviews reported goodwill and other intangibles at the reporting unit level for impairment. The Company tests goodwill for impairment at least annually or when events or changes in circumstances indicate that it is more likely than not that the asset is impaired. In connection with the Aeropost disposal, we retained the intellectual property associated with our PriceSmart.com business. However, in conjunction with this disposal, we wrote off $1.7 million of goodwill, $4.4 million of intangibles related to the Aeropost trademark, and $1.0 million of intangibles related to the developed technology of Aeropost directly associated with Aeropost’s legacy marketplace and casillero business. These write offs of goodwill and intangible assets are included as part of the $2.7 million net pre-tax gain recorded during the first fiscal quarter of 2022 for the sale of Aeropost.

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, income taxes, and other taxes within the normal course of business in most of the countries in which it operates related to the procurement of merchandise and/or services the 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 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 applied to subsequent returns, and the net underpaid VAT must be remitted to the 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. In most countries where the Company operates, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of 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, forcing the Company to 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 two countries, there have been changes in the method of computing minimum tax payments, under which the 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 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 Company had income tax receivables of $11.0 million as of May 31, 2022 and August 31, 2021, respectively, and deferred tax assets of $3.3 million as of May 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. 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. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or deferred tax assets.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

The 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 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):



	May 31,		August 31,
	2022		2021
Prepaid expenses and other current assets	$	3,885	$	3,173
Other non-current assets		31,564		28,437
Total amount of VAT receivables reported	$	35,449	$	31,610

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



	May 31,		August 31,
	2022		2021
Prepaid expenses and other current assets	$	9,622	$	11,491
Other non-current assets		22,281		18,872
Total amount of income tax receivables reported	$	31,903	$	30,363

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 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.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or net realizable value. The Company provides for estimated inventory losses and obsolescence based on a percentage of sales. The provision is adjusted every reporting period to reflect the trend of actual physical inventory and cycle count 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 types of equity awards: restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). Compensation related to RSAs, RSUs and PSUs is based on the fair market value at the time of grant. The Company recognizes the compensation cost related to RSAs and RSUs over the requisite service period as determined by the grant, amortized ratably or on a straight-line basis over the life of the grant. The Company also recognizes compensation cost for PSUs over the performance period of each tranche, adjusting this cost based on the Company’s estimate of the probability that performance metrics will be achieved. If the Company 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. 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 shares of common stock. Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock. However, all outstanding RSUs have accompanying dividend equivalents, requiring payment to the employees and directors with unvested RSUs of amounts equal to the dividend they would have received had the shares of common stock underlying the RSUs been actually issued and outstanding. Payments of dividend equivalents to employees are recorded as compensation expense.

PSUs, similar to RSUs, are awarded with dividend equivalents, provided that such amounts become payable only if the performance metric is achieved. At the time the Compensation Committee confirms the performance metric has been achieved, the accrued dividend equivalents are paid on the PSUs.

Treasury Stock – Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in the Company’s consolidated balance sheets. The Company may reissue these treasury shares as part of its stock-based compensation programs. When treasury shares are reissued, the Company uses the first in/first out (“FIFO”) cost method for determining cost of the reissued shares. If the issuance price is higher than the cost, the excess of the issuance price over the cost is credited to additional paid-in capital (“APIC”). If the issuance price is lower than the cost, the difference is first charged against any credit balance in APIC from treasury stock and the balance is charged to retained earnings. During the nine months ended May 31, 2022, the Company reissued approximately 9,000 treasury shares.

Fair Value Measurements – The Company measures the fair value for all financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring or non-recurring basis. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

The Company has established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring and revaluing fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company was not required to revalue any assets or liabilities utilizing Level 1 or Level 3 inputs at the balance sheet dates. The Company's Level 2 assets and liabilities revalued at the balance sheet dates, on a recurring basis, consisted of cash flow hedges (interest rate swaps and cross-currency interest rate swaps) and forward foreign exchange contracts. In addition, the Company utilizes Level 2 inputs in determining the fair value of long-term debt.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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, no 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 disclosed in the Company’s 2021 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 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 reported in accumulated other comprehensive loss until the hedged item completes its contractual term. 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 entire gain or loss of the derivative, calculated as the net present value of the future cash flows, is reported on the consolidated balance sheets in accumulated other comprehensive loss. Amounts recorded in accumulated other comprehensive loss are released to earnings in the same period that the hedged transaction impacts consolidated earnings. Refer to “Note 8 - Derivative Instruments and Hedging Activities” for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of May 31, 2022 and August 31, 2021

Fair Value Instruments. The Company is exposed to foreign currency exchange rate fluctuations in the normal course of business. This includes exposure to 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 period of the change. 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 and are limited to less than one year in duration.

Revenue Recognition – The accounting policies and other disclosures such as the disclosure of disaggregated revenues are described in “Note 3 – Revenue Recognition.”

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Gain Contingencies and Recoveries – A gain contingency is an existing condition, situation, or set of circumstances involving uncertainty as to a possible gain that will ultimately be resolved when one or more future events occur or fail to occur. During the ordinary course of our business, gain contingencies arise when we have the opportunity to recover costs or damages we incur from insurance carriers or other third parties. Anticipated proceeds in excess of the amount of loss recognized are considered contingent gains. Anticipated proceeds in excess of a loss recognized in the financial statements are not recognized until all contingencies related to the collectability, timing and amount are realizable.

Cost of Goods Sold – The Company includes the cost of 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 supplying merchandise, raw materials and 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 includes the cost of merchandise and external and internal distribution and handling costs for supplying merchandise in cost of goods sold, exports.

For the marketplace and casillero operations, the Company includes the costs of external and internal shipping, handling and other direct costs incurred to provide delivery, insurance and customs processing services in cost of goods sold, non-merchandise.

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 records the reduction in cost of goods sold on a transactional basis for these programs. On a quarterly basis, the Company calculates the amount of rebates recorded in cost of goods sold that relates to inventory on hand and this amount is reclassified as a reduction to inventory, if significant. Prompt payment discounts are taken in substantially all cases and therefore are applied directly to reduce the acquisition cost of the related inventory, with the resulting effect recorded to cost of goods sold when the inventory is sold.

Selling, General and Administrative – Selling, general and administrative costs 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 expenses pre-opening costs (the costs of start-up activities, including organization costs and rent) for new warehouse clubs as incurred.

Loss Contingencies and Litigation – The Company records and reserves for loss contingencies if (a) information available prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impaired, or a liability had been incurred at the date of the consolidated financial statements and (b) the amount of loss can be reasonably estimated. If one or both criteria for accrual are not met, but there is at least a reasonable possibility that a material loss will occur, the Company does not record and reserve for a loss contingency but describes the contingency within a note and provides detail, when possible, of the estimated potential loss or range of loss. If an estimate cannot be made, a statement to that effect is made.

Foreign Currency Translation – The assets and liabilities of the Company’s foreign operations are translated to U.S. dollars when the functional currency in the Company’s international subsidiaries is the local currency and not U.S. dollars. Assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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, 2022 and 2021 (in thousands):


	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,			May 31,
	2022		2021		2022			2021
Effect on other comprehensive loss due to foreign currency translation	$	(9,401)	$	(3,007)	$	(15,119)	$	(2,577)

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 (in thousands):



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2022		2021		2022		2021
Currency loss	$	(2,504)	$	(2,240)	$	(6,142)	$	(3,970)

Recent Accounting Pronouncements Adopted

FASB ASC 740 ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for 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 adopted ASU No. 2019-12 on September 1, 2021, the first quarter of fiscal year 2022. Adoption of this guidance did not have a material 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 nine-month period ended May 31, 2022, and there were no other new accounting standards or pronouncements that were issued but not yet effective as of May 31, 2022 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.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Non-merchandise Sales. Until the disposal of Aeropost in the first quarter of fiscal 2022, the Company recognized non-merchandise revenue, net of sales taxes, on transactions where the Company had determined that it was the agent in the transaction. These transactions primarily consisted of contracts the Company entered into with its customers to provide delivery, insurance and customs processing services for products its customers purchased online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplace site. Revenue was recognized when the Company’s performance obligations were completed (that is when delivery of the items have been made to the destination point) and was recorded in “non-merchandise revenue” on the consolidated statements of income. Prepayment for orders for which the Company had not fulfilled its performance obligation were recorded as deferred income. Additionally, the Company recorded revenue at the net amounts retained, i.e., the amount paid by the customer less amounts remitted to the respective merchandise vendors, as the Company was acting as an agent and was not the principal in the sale of those goods being purchased from the vendors by the Company’s customers.

Membership Fee Revenue. Membership income represents annual membership fees paid by the Company’s warehouse club Members, which are recognized ratably over the 12-month term of the membership. Our membership policy allows Members to cancel their membership in the first 60 days and receive a full refund. After the 60-day period, membership refunds are prorated over the remaining term of the membership. The Company has significant experience with membership refund patterns and expects membership refunds will not be material. Therefore, no refund reserve was required for the periods presented. Membership fee revenue is included in membership income in the Company's consolidated statements of income. The deferred membership fee is included in deferred income in the Company's consolidated balance sheets.

Platinum Points Reward Programs. The Company currently offers Platinum Memberships in all of its twelve countries. The annual fee for a Platinum Membership is approximately $75. The Platinum Membership provides Members with a 2% rebate on most items, up to an annual maximum of $500. The rebate is issued annually to Platinum Members on March 1 and expires August 31. Platinum Members can apply this rebate to future purchases at the warehouse club during the redemption period. The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction. Accordingly, the Company has reduced warehouse sales and has accrued a liability within other accrued expenses and other current liabilities, platinum rewards. The Company has determined that breakage revenue is 5% of the awards issued; therefore, it records 95% of the Platinum Membership liability at the time of sale. Annually, the Company reviews for expired unused rebates outstanding, and the expired unused rebates are recognized as “Other revenue and income” on the consolidated statements of income.

Co-branded Credit Card Points Reward Programs. Most of the Company’s subsidiaries have points reward programs related to co-branded credit cards. These points reward programs provide incremental points that can be used at a future time to acquire merchandise within the Company’s warehouse clubs. This results in two performance obligations, the first performance obligation being the initial sale of the merchandise or services purchased with the co-branded credit card and the second performance obligation being the future use of the points rewards to purchase merchandise or services. As a result, upon the initial sale, the Company allocates the transaction price to each performance obligation with the amount allocated to the future use points rewards recorded as a contract liability within other accrued expenses and other current liabilities on the consolidated balance sheet. The portion of the selling price allocated to the reward points is recognized as Net merchandise sales when the points are used or when the points expire. The Company reviews on an annual basis expired points rewards outstanding, and the expired rewards are recognized as Net merchandise sales on the consolidated statements of income 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 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 portion of the interest income generated from the average outstanding balances on the co-branded credit cards from these financial institutions (“interest generating portfolio” or “IGP”). The Company recognizes its portion of interest received as revenue during the period it is earned. The

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

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 Company’s consolidated balance sheets. The following table provides these contract balances from transactions with customers as of the dates listed (in thousands):


	Contract Liabilities
	May 31, 2022		August 31, 2021
Deferred membership income	$	28,570	$	25,951
Other contract performance liabilities	$	8,050	$	7,871

Disaggregated Revenues

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



		Three Months Ended			Nine Months Ended
		May 31, 2022		May 31, 2021		May 31, 2022		May 31, 2021
Foods & Sundries	$	490,268	$	431,007	$	1,453,993	$	1,298,134
Fresh Foods		293,148		252,365		851,945		745,158
Hardlines		111,677		94,732		343,953		318,229
Softlines		57,322		43,468		172,355		130,732
Other Business		46,596		35,906		132,704		101,998
Net Merchandise Sales	$	999,011	$	857,478	$	2,954,950	$	2,594,251

NOTE 4 – 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 the performance criteria are satisfied. 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 units for which performance criteria have not been met 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.

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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 May 31, 2022 and 2021 (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	May 31,		May 31,		May 31,		May 31,
	2022		2021		2022		2021
Net income attributable to PriceSmart, Inc.	$	19,258	$	22,529	$	81,230	$	78,502
Less: Allocation of income to unvested stockholders		(312)		(372)		(869)		(952)
Net income attributable to PriceSmart, Inc. available for distribution	$	18,946	$	22,157	$	80,361	$	77,550
Basic weighted average shares outstanding		30,615		30,414		30,582		30,396
Add dilutive effect of performance stock units (two-class method)		14		32		6		27
Diluted average shares outstanding		30,629		30,446		30,588		30,423
Basic net income per share	$	0.62	$	0.73	$	2.63	$	2.55
Diluted net income per share	$	0.62	$	0.73	$	2.63	$	2.55

NOTE 5 – STOCKHOLDERS’ EQUITY

Dividends

The following table summarizes the dividends declared and paid during fiscal year 2022 and 2021 (amounts are per share):

First Payment

Second Payment

Declared

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

2/3/2022

0.86

2/15/2022

2/28/2022

N/A

0.43

8/15/2022

N/A

8/31/2022

0.43

2/4/2021

0.70

2/15/2021

2/26/2021

N/A

0.35

8/15/2021

8/31/2021

N/A

0.35

The Company anticipates the ongoing payment of semi-annual dividends in subsequent periods, although the actual declaration of future dividends, if any, the amount of such dividends, and the establishment of record and payment dates is subject to final determination by the Board of Directors at its discretion after its review of the Company’s financial performance and anticipated capital requirements, taking into account the uncertainty surrounding the ongoing effects of the COVID-19 pandemic on our results of operations and cash flows.

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

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


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2021	$	(182,508)	$	251	$	(182,257)
Foreign currency translation adjustments		(15,119)		3		(15,116)
Defined benefit pension plans ⁽¹⁾		140		—		140
Derivative instruments ⁽²⁾		4,339		—		4,339
Sale of Aeropost		—		(254)		(254)
Ending balance, May 31, 2022	$	(193,148)	$	—	$	(193,148)

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)


	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)


	Attributable to		Noncontrolling
	PriceSmart		Interests		Total
Beginning balance, September 1, 2020	$	(176,820)	$	134	$	(176,686)
Foreign currency translation adjustments		(7,837)		117		(7,720)
Defined benefit pension plans ⁽¹⁾		(230)		—		(230)
Derivative Instruments ⁽²⁾		2,252		—		2,252
Amounts reclassified from accumulated other comprehensive loss		127		—		127
Ending balance, August 31, 2021	$	(182,508)	$	251	$	(182,257)

⁽¹⁾Amounts reclassified from accumulated other comprehensive income (loss) related to the minimum pension liability are included in warehouse club and other operations in the Company's consolidated statements of income.

⁽²⁾Refer to Note 8 - Derivative Instruments and Hedging Activities.

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):

NOTE 6 – 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.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Income Taxes

For interim reporting, the Company uses an estimated annual effective tax rate (AETR) to calculate income 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 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 its ability to recover deferred tax assets in the jurisdictions from which they arise, the Company considers 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, 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 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. As part of these reviews, a taxing authority may disagree with the interpretations the Company used to calculate its tax liability and therefore require the Company to pay additional taxes.

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 May 31, 2022 and August 31, 2021, the Company has recorded within other accrued expenses and other current liabilities a total of $1.2 million and $1.8 million, respectively, for various non-income tax related tax contingencies.

While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of litigation, in estimating probable additional income tax liability taking into account uncertain tax positions and in evaluating the probable additional tax associated with various non-income tax filing positions. As such, the Company is unable to make a reasonable estimate of the sensitivity to change of estimates affecting its recorded liabilities. As additional information becomes available, the Company assesses the potential liability and revises its estimates as appropriate.

In two countries where the Company operates, minimum income tax 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 Company had income tax receivables of $11.0 million as of May 31, 2022 and August 31, 2021, respectively, and deferred tax assets of $3.3 million as of May 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. 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. There can be no assurance, however, that the Company will be successful in recovering all tax receivables or deferred tax assets.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Other Commitments

The Company is also committed to non-cancelable construction service obligations for various warehouse club developments and expansions. As of May 31, 2022 and August 31, 2021, the Company had approximately $10.0 million and $16.2 million, respectively, in contractual obligations for construction services not yet rendered.

From time to time, the Company has entered into general land purchase and land purchase option agreements. The Company’s land purchase agreements are typically subject to various conditions, including, but not 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 the right to cancel any of its agreements to purchase land without cause by forfeiture of some or all of the deposits it has made pursuant to the agreement. As of May 31, 2022, the Company had entered into three land purchase agreements that, if completed, would result in the use of approximately $10.6 million in cash. These land purchase agreements correlate with our due diligence for two potential additional warehouse clubs and one additional Produce Distribution Center. Lastly, the Company has one lease option agreement for one additional warehouse club.

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 May 31, 2022 (in thousands):



Entity	% ‎Ownership		Initial ‎Investment		Additional ‎Investments		Net Income (Loss) ‎Inception to ‎Date		Company’s ‎Variable ‎Interest ‎in Entity		Commitment ‎to Future ‎Additional ‎Investments⁽¹⁾		Company's ‎Maximum ‎Exposure ‎to Loss in ‎Entity⁽²⁾
GolfPark Plaza, S.A.	50	%	$	4,616	$	2,402	$	(56)	$	6,962	$	99	$	7,061
Price Plaza Alajuela PPA, S.A.	50	%		2,193		1,236		147		3,576		785		4,361
Total			$	6,809	$	3,638	$	91	$	10,538	$	884	$	11,422

⁽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 7 – DEBT

Short-term borrowings consist of unsecured lines of 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
May 31, 2022 - Committed	$	75,000	$	—	$	114	$	74,886	—	%
May 31, 2022 - Uncommitted		91,000		15,336		—		75,664	4.1
May 31, 2022 - Total	$	166,000	$	15,336	$	114	$	150,550	4.0	%

August 31, 2021 - Committed	$	40,000		—		97	$	39,903	—	%
August 31, 2021 - Uncommitted		91,000		—		—		91,000	—
August 31, 2021 - Total	$	131,000	$	—	$	97	$	130,903	—	%

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

As of May 31, 2022 and August 31, 2021, the Company was in compliance with all covenants or amended covenants for each of its short-term facility agreements. These facilities generally expire annually or bi-annually and are normally renewed. One of these facilities is a committed credit agreement with one bank for $75.0 million. In exchange for the bank’s commitment to fund any drawdowns the Company requests, the Company pays an annual commitment fee of 0.25%, payable quarterly, on any unused portion of this facility. Additionally, the Company has uncommitted facilities in most of the countries where it operates, with drawdown requests subject to approval by the individual banks each time a drawdown is requested.

The following table provides the changes in long-term debt for the nine months ended May 31, 2022:


(Amounts in thousands)	Current ‎portion of ‎long-term debt		Long-term ‎debt (net of current portion)		Total
Balances as of August 31, 2021	$	19,395	$	110,110	$	129,505	⁽¹⁾
Proceeds from long-term debt incurred during the period:
Guatemala subsidiary		—		4,204		4,204
Trinidad subsidiary		4,924		21,505		26,429
Total proceeds from long-term debt incurred during the period		4,924		25,709		30,633
Repayments of long-term debt:		(7,398)		(10,406)		(17,804)
Reclassifications of long-term debt due in the next 12 months		17,395		(17,395)		—
Translation adjustments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar⁽²⁾		(41)		164		123
Balances as of May 31, 2022	$	34,275	$	108,182	$	142,457	⁽³⁾

⁽¹⁾The carrying amount of cash and non-cash assets assigned as collateral for these loans was $7.0 million and $153.5 million, respectively.

⁽²⁾These foreign currency translation adjustments are recorded within Other comprehensive income (loss).

⁽³⁾The carrying amount of cash and non-cash assets assigned as collateral for these loans was $5.9 million and $160.6 million, respectively.

As of May 31, 2022 and August 31, 2021, the Company had approximately $114.9 million and $103.4 million, respectively, of long-term loans in several foreign subsidiaries that require these subsidiaries to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios. The Company was in compliance with all covenants or amended covenants for both periods. The net increase in long-term debt during the nine months ended May 31, 2022 is primarily attributable to a loan entered into by the Company’s Trinidad subsidiary, whereby it received $25.0 million in U.S. dollars, which it will pay back in Trinidad dollars (using a conversion rate fixed upon initial disbursement) over the four-year life of the loan.

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


Twelve Months Ended May 31,	Amount
2023	$	34,275
2024		18,763
2025		34,702
2026		11,980
2027		36,042
Thereafter		6,695
Total	$	142,457

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

NOTE 8 – 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 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 entire gain or loss on the derivative reported as a component of other comprehensive loss. Amounts are deferred in other comprehensive loss and reclassified into earnings in the same income statement line item that is used to present the earnings effect of the hedged item when the 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.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Cash Flow Hedges

As of May 31, 2022, all of the Company’s interest rate swap and cross-currency interest rate swap derivative financial instruments are designated and qualify as cash flow hedges. The Company formally documents the hedging relationships for its derivative instruments that qualify for hedge accounting.

The following table summarizes agreements for which the Company has recorded cash flow hedge accounting for the nine months ended May 31, 2022:

Entity

Date
‎Entered
‎into

Derivative
‎Financial
‎Counter-
‎party

Derivative
‎Financial
‎Instruments

Initial
‎US$
‎Notional
‎Amount

Bank
‎US$
‎loan
‎Held
‎with

Floating Leg
‎(swap
‎counter-party)

Fixed Rate
‎for PSMT
‎Subsidiary

Settlement
‎Dates

Effective
‎Period of swap

Colombia subsidiary

3-May-22

Citibank, N.A. ("Citi")

Cross currency interest rate swap

10,000,000

PriceSmart, Inc.

3.00%

9.04

3rd day of each May, August, November and February, beginning on August 3, 2022

May 3, 2022 -
‎May 3, 2027

Colombia subsidiary

17-Nov-21

Citibank, N.A. ("Citi")

Cross currency interest rate swap

10,000,000

PriceSmart, Inc.

3.00%

8.40

17th day of each February, May, August, and November, beginning on February 17, 2022

November 17, 2021 -
‎November 18, 2024

Colombia subsidiary

3-Dec-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

7,875,000

Citibank, N.A.

Variable rate 3-month Libor plus 2.45%

7.87

3rd day of each December, March, June, and September, beginning on March 3, 2020

December 3, 2019 -
‎December 3, 2024

Colombia subsidiary

27-Nov-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

25,000,000

Citibank, N.A.

Variable rate 3-month Libor plus 2.45%

7.93

27th day of each November, February, May and August beginning February 27, 2020

November 27, 2019 -
‎November 27, 2024

Colombia subsidiary

24-Sep-19

Citibank, N.A. ("Citi")

Cross currency interest rate swap

12,500,000

PriceSmart, Inc.

Variable rate 3-month Libor plus 2.50%

7.09

24th day of each December, March, June and September beginning December 24, 2019

September 24, 2019 -
‎September 26, 2022

Panama subsidiary

25-Jun-18

Bank of Nova Scotia ("Scotiabank")

Interest rate swap

14,625,000

Bank of Nova Scotia

Variable rate 3-month Libor plus 3.0%

5.99

23rd day of each month beginning on July 23, 2018

June 25, 2018 -
‎March 23, 2023

Honduras subsidiary

26-Feb-18

Citibank, N.A. ("Citi")

Cross currency interest rate swap

13,500,000

Citibank, N.A.

Variable rate 3-month Libor plus 3.00%

9.75

29th day of May, August, November and February beginning May 29, 2018

February 26, 2018 -
‎February 24, 2024

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

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

For the three and nine months ended May 31, 2022 and May 31, 2021, 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 May 31, 2022	$	618	$	871	$	1,489
Interest expense for the three months ended May 31, 2021	$	656	$	907	$	1,563
Interest expense for the nine months ended May 31, 2022	$	1,720	$	2,628	$	4,348
Interest expense for the nine months ended May 31, 2021	$	2,015	$	2,785	$	4,800

⁽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.

The total notional balance of the Company’s pay-fixed/receive-variable interest rate swaps and cross-currency interest rate swaps was as follows (in thousands):



	Notional Amount as of
	May 31,		August 31,
Floating Rate Payer (Swap Counterparty)	2022		2021
Union Bank	$	31,663	$	32,619
Citibank N.A.		67,522		51,032
Scotiabank		9,000		10,125
Total	$	108,185	$	93,776

Derivatives listed on the table below were designated as cash flow hedging instruments. The table summarizes the effect of the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualify for derivative hedge accounting and its associated tax effect on accumulated other comprehensive (income)/loss (in thousands):


		May 31, 2022						August 31, 2021
Derivatives designated as cash flow hedging instruments	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	$	4,512	$	(1,579)	$	2,933	$	2,464	$	(741)	$	1,723
Cross-currency interest rate swaps	Other current assets		1,550		(543)		1,007		—		—		—
Interest rate swaps	Other non-current assets		898		(198)		700		—		—		—
Interest rate swaps	Other long-term liabilities		(49)		14		(35)		(2,305)		535		(1,770)
Cross-currency interest rate swaps	Other long-term liabilities		(999)		340		(659)		(705)		212		(493)
Net fair value of derivatives designated as hedging instruments		$	5,912	$	(1,966)	$	3,946	$	(546)	$	6	$	(540)

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

Fair Value Instruments

From time to time the Company enters into non-deliverable forward foreign-exchange contracts. These contracts are treated for accounting purposes as fair value contracts and do not qualify for derivative hedge accounting. The use of non-deliverable forward foreign-exchange contracts is intended to offset changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically hedge exposure to U.S. dollar merchandise inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar.

Subsidiary

Dates
‎entered into

Financial
‎Derivative
‎(Counterparty)

Derivative
‎Financial
‎Instrument

Notional
‎Amount
‎(in thousands)

Settlement

Date

Effective Period
‎of Forward

Colombia

4-Feb-22

Scotiabank Colpatria, S.A.

Forward foreign
‎‎exchange contracts (USD)

5,000

3-Aug-22

February 4, 2022 - August 3, 2022

Colombia

28-Mar-22

Scotiabank Colpatria, S.A.

Forward foreign
‎‎exchange contracts (USD)

2,000

28-Jun-22

28 March, 2022 - 28 June, 2022

Colombia

28-Mar-22

Scotiabank Colpatria, S.A.

Forward foreign
‎‎exchange contracts (USD)

2,000

26-Jul-22

28 March, 2022 - 26 July, 2022

Colombia

28-Mar-22

Scotiabank Colpatria, S.A.

Forward foreign
‎‎exchange contracts (USD)

1,000

25-Aug-22

28 March, 2022 - 25 August, 2022

Forward derivative gains and (losses) on non-deliverable forward foreign-exchange contracts are included in Other income (expense), net in the consolidated statements of income in the period of change, but the amounts were immaterial for the three and nine month periods ended May 31, 2022 and May 31, 2021.

NOTE 9 – SEGMENTS

The Company and its subsidiaries are principally engaged in the international operation of membership shopping in 50 warehouse clubs located in 12 countries and one U.S. territory that are located in Central America, the Caribbean and Colombia. In addition, the Company operates distribution centers and corporate offices in the United States. The Company has aggregated its warehouse clubs, distribution centers and corporate offices into reportable segments. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographic location, which are used by management and the Company's chief operating decision maker in setting up management lines of responsibility, providing support services, and making operational decisions and assessments of financial performance. Segment amounts are presented after converting to U.S. dollars and consolidating eliminations. Certain revenues, operating costs and inter-company charges included in the United States segment are not allocated to the segments within this presentation, as it is impractical to do so, and they appear as reconciling items to reflect the amount eliminated on consolidation of intersegment transactions. From time to time, the Company revises the measurement of each segment's operating income and net income, including certain corporate overhead allocations, and other measures as determined by the information regularly reviewed by the Company's chief operating decision maker. When the Company does so, the previous period amounts and balances are reclassified to conform to the current period's presentation.

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

The following tables summarize by segment certain revenues, operating costs and balance sheet items (in thousands):



	United ‎States ‎Operations		Central ‎American ‎Operations		Caribbean ‎Operations⁽¹⁾		Colombia Operations		Reconciling ‎Items⁽²⁾		Total
Three Months Ended May 31, 2022
Revenue from external customers	$	13,396	$	599,132	$	294,785	$	123,497	$	—	$	1,030,810
Intersegment revenues		351,404		6,223		1,706		1,388		(360,721)		—
Depreciation, Property and equipment		1,355		8,688		4,408		2,718		—		17,169
Amortization, Intangibles		388		—		—		—		—		388
Operating income (loss)		2,821		39,458		19,163		4,652		(32,332)		33,762
Net income (loss) attributable to PriceSmart, Inc.		(442)		34,011		14,903		3,118		(32,332)		19,258
Capital expenditures, net		197		11,851		10,695		8,439		—		31,182

Nine Months Ended May 31, 2022
Revenue from external customers	$	36,102	$	1,785,017	$	860,953	$	362,651	$	—	$	3,044,723
Intersegment revenues		1,138,283		16,251		4,483		2,989		(1,162,006)		—
Depreciation, Property and equipment		3,361		25,586		12,449		7,638		—		49,034
Amortization, Intangibles		1,224		—		—		—		—		1,224
Operating income (loss)		17,377		128,889		60,796		17,154		(96,115)		128,101
Net income (loss) attributable to PriceSmart, Inc.		6,106		108,661		48,977		13,620		(96,134)		81,230
Long-lived assets (other than deferred tax assets)		70,322		494,086		218,365		186,630		—		969,403
Intangibles, net		1,153		—		—		—		—		1,153
Goodwill		8,982		24,316		10,049		—		—		43,347
Total assets		201,571		844,844		478,008		267,340		—		1,791,763
Capital expenditures, net		3,404		37,902		32,742		24,524		—		98,572

Three Months Ended May 31, 2021
Revenue from external customers	$	21,237	$	531,595	$	243,468	$	98,964	$	—	$	895,264
Intersegment revenues		309,261		4,305		1,228		434		(315,228)		—
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		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)		79,178		484,039		189,873		163,266		—		916,356
Intangibles, net		8,368		—		—		—		—		8,368
Goodwill		10,695		24,359		10,088		—		—		45,142
Total assets		202,770		777,703		427,078		224,404		—		1,631,955
Capital expenditures, net		6,052		30,334		14,748		20,416		—		71,550

As of August 31, 2021
Long-lived assets (other than deferred tax assets)	$	79,404	$	490,099	$	197,030	$	164,970	$	—	$	931,503
Intangibles, net		7,762		—		—		—		—		7,762
Goodwill		10,695		24,332		10,068		—		—		45,095
Total assets		246,896		795,940		434,428		228,526		—		1,705,790

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

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

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PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(Continued)

NOTE 10 – SUBSEQUENT EVENTS

The Company has evaluated all events subsequent to the balance sheet date as of May 31, 2022 through the date of issuance of these consolidated financial statements and has determined that there are no subsequent events that require disclosure.

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PRICESMART, INC.

ITEM 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, but not limited to: various political, economic and compliance risks associated with our international operations, adverse changes in economic conditions in our markets, natural disasters, volatility in currency exchange rates and illiquidity of certain local currencies in our markets, competition, consumer and small business spending patterns, political instability, increased costs associated with the integration of online commerce with our traditional business, whether the Company can successfully execute strategic initiatives, our reliance on third party service providers, including those who support transaction and payment processing, data security and other technology services, cybersecurity breaches that could cause disruptions in our systems or jeopardize the security of Member or business information, cost increases from product and service providers, interruption of supply chains, novel coronavirus (COVID-19) related factors and challenges, exposure to product liability claims and product recalls, recoverability of moneys owed to PriceSmart from governments, and other 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 Annual Report on Form 10-K for the fiscal year ended August 31, 2021 filed with the United States Securities and Exchange Commission (“SEC”) on October 21, 2021. These risk factors may be updated from time to time in our other filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Forward-looking statements speak only as of the date that they are made, and 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.

Overview

PriceSmart exists to improve the lives and businesses of our Members, our employees and our communities by reliably and consistently providing quality goods and valuable services at the lowest possible prices.

PriceSmart began operations in 1996 in San Diego, California, with the intent to bring our U.S. style membership shopping warehouse club concept to emerging and developing countries. We currently operate 50 warehouse clubs in Central America, the Caribbean and Colombia. In all 13 markets, our Members are able to engage with us on social media and shop on our e-commerce platform, PriceSmart.com.

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

Our warehouse clubs range in sales floor size from approximately 30,000 to 60,000 square feet. Our larger clubs are typically located in and around densely populated major cities that include a large penetration of consumers with significant disposable income. Our smaller clubs tend to be in areas with less population density, but where there are significant opportunities to serve the population and supply and support businesses. We also have smaller format clubs in urban areas where it is difficult to secure sufficient real estate at a reasonable cost.

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

Our logistics and distribution infrastructure is key to maximizing efficiencies. We revise and upgrade our logistics and distribution systems to capture efficiencies as our business grows in sales volume, in geography and through activity generated by e-commerce. We utilize regional distribution centers in the U.S. and Costa Rica as well as several local distribution centers to distribute merchandise efficiently and to create flexibility to mitigate the risk of supply-chain disruption. We also seek to capture efficiencies by using specialized distribution centers for produce and centralized production for categories such as bakery and meat processing.

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

Our warehouse clubs currently operate in emerging markets that historically have had higher growth rates and lower warehouse club market penetration than the U.S. market. In locations where we operate, we do not currently face direct competition from U.S. membership warehouse club operators. However, we do face competition from various local and international retail formats such as hypermarkets, supermarkets, cash and carry, hard discounters, home improvement centers, electronic retailers, specialty stores, convenience stores, traditional wholesale distribution and 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, 2022	May 31, 2021
Colombia	9	8
Costa Rica	8	8
Panama	7	7
Dominican Republic	5	5
Guatemala	5	4
Trinidad	4	4
Honduras	3	3
El Salvador	2	2
Nicaragua	2	2
Jamaica	2	1
Aruba	1	1
Barbados	1	1
U.S. Virgin Islands	1	1
Totals	50	47

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

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

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We also export products to a retailer in the Philippines and are looking to expand that business into other markets.

Factors Affecting Our Business

COVID-19 Pandemic

The COVID-19 pandemic has challenged us in many respects and continues to do so. COVID-related and other supply and logistics constraints have continued to adversely affect some merchandise categories and are expected to do so for the foreseeable future. The pandemic continues to remain unpredictable in duration and intensity, and we could see periodic reinstatements of stay-at-home orders and other restrictions should infections increase significantly. In addition, we are seeing adverse impacts on our suppliers in the Far East and at various ports, causing delays and changes in transportation schedules. We expect continued uncertainty in the supply chain and economies of our markets as a result of the pandemic and anticipate volatility in employment trends, consumer confidence and demand; shifts in consumer demands; 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, 2021.

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

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

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

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

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 (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 a general slow-down in global economic activity as a result of COVID-19 have significantly impacted and may continue to impact the economies in several of our markets and could cause significant declines in GDP and employment and devaluations of local currencies against the U.S. dollar.

The current environment that we are operating in is characterized by global supply chain disruption, high fuel and freight costs, inflation, significant foreign currency devaluations and less predictable consumer behavior and purchasing patterns due, in part, to COVID’s impact on consumer lifestyles. These factors have increased the complexity of managing our inventory flow and business. During the last half of fiscal year 2021 and persisting into fiscal 2022, we saw several factors pressuring supply chains, including raw material shortages, limited manufacturer capacity, factory labor shortages, container shortages, port delays, and truck and driver shortages. These disruptions and shortages continue to impact the timing of deliveries and are leading to higher freight and merchandise costs. Despite all these issues, we continued to see strong sales during the quarter. We are working to hold down and/or mitigate the price increases passed on to the Members while maintaining the right inventory mix to grow sales. One key mitigating factor has been our expanded network of distribution centers, which has facilitated alternative routings of shipments, increased throughput, and provided flexibility to more effectively mitigate these challenges. We made strategic investments in inventory based on anticipated demand and worked with our local vendors to source alternative products in order to reduce out-of-stocks on high demand items that were impacted by these disruptions or that were affected by electronic part shortages. However, rapidly changing consumer preferences, long lead times, and supply chain disruptions led to inventory build up in some of the discretionary non-foods categories in our hardlines segment. We took significantly higher than usual markdowns in the third quarter in these categories to sell through out-of-season merchandise. We are planning to reduce our days on hand of inventory to better adapt to and meet the changing demands of our Members. We expect to face some margin pressure in the fourth quarter of fiscal 2022, but significantly less than the third fiscal quarter, as we continue to right-size our inventory and rebalance our inventory mix.

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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 2022 and 2021, approximately 78.0% and 77.8%, respectively, of our net merchandise sales were in currencies other than the U.S. dollar. Of those sales, 48.7% and 48.1% 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 into 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. For example, the 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 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.

Periodically, we experience 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. This illiquidity also increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. During fiscal year 2021, we experienced significant limitations on our ability to convert Trinidad dollars to U.S. dollars or other tradeable currencies.

As of May 31, 2022, our Trinidad subsidiary had Trinidad dollar denominated cash and cash equivalents and short and long-term investments measured in U.S. dollars of approximately $28.8 million, a decrease of $24.1 million from August 31, 2021 when these same balances were approximately $52.9 million and a decrease of $71.7 million from the peak of $100.5 million as of November 30, 2020. The Trinidad central bank manages the exchange rate of the Trinidad dollar with the U.S. dollar. While the Trinidad government has publicly stated it has no intention to devalue the Trinidad dollar, it could in the future decide to devalue the currency to improve market liquidity, resulting in a devaluation in the U.S. dollar value of these cash and investments balances.

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In March 2022 the International Monetary Fund updated prior calculations and estimated that the Trinidad dollar was over-valued between approximately 11.6% and 20.4%. If, for example, a hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of our Trinidad dollar cash and investments position, measured in U.S. dollars, would decrease by approximately $5.8 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, 2022, we had a U.S. dollar denominated monetary asset position of approximately $70.5 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 $14.1 million gain. While we may pay premiums or enter into financial transactions at a discount from the official government rate to convert our Trinidad dollars into U.S. dollars, we use the official exchange rate published by the Central Bank of 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.

While our balance of Trinidad dollars has been reduced significantly so far in fiscal 2022, we have not yet converted all of our Trinidad dollars into U.S. dollars. In response to these liquidity challenges in Trinidad, we have been taking multiple actions, including but not limited to: raising sales prices on imported goods in Trinidad due to increased costs of conversion of Trinidad dollars to U.S. dollars and risks associated with continued illiquidity, shifting to local sources of goods where appropriate, and entering into financing arrangements such as the loan we obtained in December 2021 whereby we received $25 million in U.S. dollars and will repay the balance in Trinidad dollars (using a conversion rate fixed upon initial disbursement) over the four-year life of the loan. Additionally, we significantly limited shipments of goods from the U.S. to Trinidad during most of fiscal 2021 due to the illiquidity of the Trinidad dollar and further reduced our shipments in the last quarter of fiscal 2021 because of the government-imposed restrictions on sales of non-essential items during that period driven by the pandemic. Although most local restrictions have been lifted and liquidity of the Trinidad dollar has improved in fiscal 2022, we continue to manage to a target level of imports in Trinidad. So far in fiscal 2022, these self-imposed import limitations have been generally in line with the needs of the market from a demand perspective.

Mission and Business Strategy

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

Growth

As we look to the future, our Company is focused on three major drivers of growth:

 Expand Real Estate Footprint with New Clubs and Distribution Facilities

Increase Membership Value

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

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I.Expand Real Estate Footprint with New Clubs and Distribution Facilities. We continue to seek opportunities to expand our geographic footprint for brick-and-mortar warehouse clubs. We plan to open a warehouse club in El Salvador located in the city of San Miguel in the spring of 2023 and another club in Medellín, Colombia in the summer of 2023. We continue to actively pursue club growth in our markets and to evaluate opportunities in new markets. Our growth strategy, as it pertains to real estate, includes physical distribution centers of various types to support the flow of merchandise from the supplier to the Member, be it sales generated from the clubs or through PriceSmart.com. Also, the need for optionality in today’s world has proven essential. Therefore, we plan to make appropriate investments in our distribution network to maximize efficiencies, minimize supply chain disruption, maximize the efficient use of limited space in our warehouse clubs, and to provide optimal support for a growing e-commerce business. In addition to our distribution center in Miami, Florida, we also operate a regional distribution center in Costa Rica and are actively considering others. During fiscal 2022 we doubled our network of Produce Distribution Centers from two to four and are currently developing plans for two more. In some cases, these facilities also provide the opportunity to capture efficiencies by centralizing certain production activities, such as bakery, meat processing, packaging and labeling.

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

Another way we enhance Membership value is through our private label offering, “Member’s Selection^®,” a brand which is available only to PriceSmart Members. We believe the Member’s Selection^® brand carries goodwill, and is recognized in our markets for value. Private label also provides us the opportunity to source quality items locally when appropriate. Select local sourcing has multiple benefits including support of local communities in which we operate by developing industry and creating direct and indirect jobs, mitigation of foreign currency exchange risk, and reduced supply chain exposure. These initiatives offer additional benefits and services for our Members whether they choose to shop on-line, in-club, or both. During the first nine months of fiscal 2022, our private label sales represented 24.2% of total merchandise sales, up from 21.7% for fiscal year 2021, and we plan to continue to invest in the development of additional private label products under the “Member’s Selection^®” brand.

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

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Financial highlights for the third quarter of fiscal year 2022 included:

Total revenues increased 15.1% over the comparable prior year period.

Net merchandise sales increased 16.5% over the comparable prior year period. We ended the quarter with 50 warehouse clubs compared to 47 warehouse clubs at the end of the third quarter of fiscal 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.3% versus the comparable three-month period.

Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 13 weeks ended May 29, 2022 increased 12.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.2%.

Membership income for the third quarter of fiscal 2022 increased 7.8% to $15.4 million.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 4.0% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 14.2%, a decrease of 170 basis points (1.7%) from the same period in the prior year.

Operating income for the third quarter of fiscal 2022 was $33.8 million, a decrease of 6.3%, or $2.2 million, compared to the third quarter of fiscal 2021.

We recorded a $2.5 million net currency loss from currency transactions in the third quarter of fiscal 2022 compared to a $2.2 million net currency loss in the same period last year.

Our effective tax rate increased in the third quarter of fiscal 2022 to 33.7% from 30.9% in the third quarter of fiscal 2021, primarily related to changes in uncertain tax positions and changes in foreign currency value and related adjustments.

Net income attributable to PriceSmart for the third quarter of fiscal 2022 was $19.3 million, or $0.62 per diluted share, compared to $22.5 million, or $0.73 per diluted share, in the third quarter of fiscal 2021.

Financial highlights for the nine months ended May 31, 2022 included:

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

Net merchandise sales increased 13.9% over the comparable prior year period. We ended the first nine months of fiscal 2022 with 50 warehouse clubs compared to 47 warehouse clubs at the end of the third quarter of fiscal 2021. Foreign currency exchange rate fluctuations impacted net merchandise sales negatively by 2.1% versus the comparable nine-month period.

Comparable net merchandise sales (that is, sales in the 47 warehouse clubs that have been open for greater than 13 ½ calendar months) for the 39 weeks ended May 29, 2022 increased 10.8%. Foreign currency exchange rate fluctuations impacted comparable net merchandise sales negatively by 2.0%.

Membership income increased 9.4% to $45.3 million.

Total gross margins (net merchandise sales less associated cost of goods sold) increased 8.8% over the prior-year period, and merchandise gross profits as a percent of net merchandise sales were 15.3%, a decrease of 70 basis points (0.7%) from the same period in the prior year.

Operating income was $128.1 million, an increase of 2.0%, or $2.5 million, compared to the first nine months of fiscal 2021.

We recorded a $6.1 million net currency loss from currency transactions in the current nine-month period compared to a $4.0 million net currency loss in the same period last year.

Our effective tax rates for the first nine months of fiscal 2022 and 2021 were similar at 32.8% and 32.7%, respectively.

Net income attributable to PriceSmart for the first nine months of fiscal 2022 was $81.2 million, or $2.63 per diluted share, compared to $78.5 million, or $2.55 per diluted share, in the comparable prior year period.

COMPARISON OF THE three and NINE months ended May 31, 2022 and 2021

The following discussion and analysis compares the results of operations for the three-month and nine-month periods ended on May 31, 2022 with the three-month and nine month-periods ended on May 31, 2021 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.

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Net Merchandise Sales

The following tables indicate the net merchandise club sales in the segments in which we operate and the percentage growth in net merchandise sales by segment during the three and nine months ended May 31, 2022 and May 31, 2021.


	Three Months Ended
	May 31, 2022								May 31, 2021
	Amount		% of net ‎sales		Increase ‎from ‎prior year		Change		Amount		% of net ‎sales
Central America	$	587,616	58.8	%	$	66,261	12.7	%	$	521,355	60.8	%
Caribbean		290,441	29.1			51,118	21.4			239,323	27.9
Colombia		120,954	12.1			24,154	25.0			96,800	11.3
Net merchandise sales	$	999,011	100.0	%	$	141,533	16.5	%	$	857,478	100.0	%


	Nine Months Ended
	May 31, 2022								May 31, 2021
	Amount		% of net ‎sales		Increase ‎from ‎prior year		Change		Amount		% of net ‎sales
Central America	$	1,751,248	59.3	%	$	214,020	13.9	%	$	1,537,228	59.3	%
Caribbean		848,206	28.7			98,149	13.1			750,057	28.9
Colombia		355,496	12.0			48,530	15.8			306,966	11.8
Net merchandise sales	$	2,954,950	100.0	%	$	360,699	13.9	%	$	2,594,251	100.0	%

Comparison of Three and Nine Months Ended May 31, 2022 and 2021

Overall, total net merchandise sales grew 16.5% for the third quarter and 13.9% for the nine-month period ended May 31, 2022. The third quarter increase resulted from a 10.8% increase in transactions and a 5.2% increase in average ticket. For the nine-month period, the increase resulted from an 11.2% increase in transactions and a 2.4% increase in average ticket. 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 50 clubs in operation as of May 31, 2022 compared to 47 clubs as of May 31, 2021.

Net merchandise sales in our Central America segment increased 12.7% and 13.9% for the third quarter and nine-months ended May 31, 2022, respectively. These increases had a 770 basis point (7.7%) and 820 basis point (8.2%) positive impact on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the three and nine-month periods ended May 31, 2022. We added one new club to the segment when compared to the comparable prior-year periods. We opened our fifth warehouse club in Guatemala in October 2021.

Net merchandise sales in our Caribbean segment increased 21.4% and 13.1%, respectively, for the third quarter and the nine-months ended May 31, 2022. The increase for the quarter had a 600 basis point (6.0%) positive impact on net merchandise sales growth and the increase for the nine-months had a 380 basis point (3.8%) positive impact on net merchandise sales growth. All of our markets in this segment had positive net merchandise sales growth. Sales for Trinidad were particularly strong for the third quarter and the nine-months ended May 31, 2022 because in the comparable fiscal second and third quarters of 2021, sales were impacted by COVID-19 closures, government prohibitions on sales of most non-foods and non-essential items, and our decision to reduce imported merchandise due to the U.S. dollar liquidity challenges, which improved in the second and third quarters of fiscal 2022. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more information regarding the impact on us of the illiquidity of the Trinidad dollar. We opened our second warehouse club in Jamaica in April 2022.

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Net merchandise sales in our Colombia segment increased 25.0% and 15.8% for the third quarter and the nine-months ended May 31, 2022, respectively. This increase had a 280 basis point (2.8%) and 190 basis point (1.9%) positive impact on total net merchandise sales growth. The primary driver of the increased revenue for the quarter was the addition of one club to the segment when compared to the comparable prior year period. We opened our ninth warehouse club in Colombia in November 2021.

The following table indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage change from the three and nine-month period ended May 31, 2022. 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 into U.S. dollars. We calculate the effect of changes in currency exchange rates as the difference between current period activities translated using the current period’s currency exchange rates and the comparable prior year period’s currency exchange rates. We believe the disclosure of the effects of currency exchange rate fluctuations on our results permits investors to understand better the Company’s underlying performance.


	Currency exchange rate fluctuations for the
	Three months ended
	May 31, 2022
	Amount		% change
Central America	$	(14,377)	(2.8)	%
Caribbean		2,110	0.9
Colombia		(6,814)	(7.0)
Net merchandise sales	$	(19,081)	(2.3)	%


	Currency exchange rate fluctuations for the
	Nine Months Ended
	May 31, 2022
	Amount		% change
Central America	$	(30,528)	(2.0)	%
Caribbean		2,038	0.3
Colombia		(25,341)	(8.3)
Net merchandise sales	$	(53,831)	(2.1)	%

Overall, the effects of currency fluctuations within our markets had approximately $19.1 million and $53.8 million, or 230 basis point (2.3%) and 210 basis points (2.1%), negative impact on net merchandise sales for the quarter and nine-months ended May 31, 2022, respectively.

Currency fluctuations had a $14.4 million and $30.5 million, or 280 basis point (2.8%) and 200 basis point (2.0%), negative impact on net merchandise sales in our Central America segment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 170 basis points (1.7%) and 120 basis points (1.2%) of the total negative impact on net merchandise sales for the current period. The Costa Rica Colón depreciated significantly against the dollar as compared to the same three-month and nine-month period a year ago, and was a significant factor in the contribution to the unfavorable currency fluctuations in this segment.

Currency fluctuations had a $2.1 million and $2.0 million, or 90 basis point (0.9%) and 30 basis point (0.3%), positive impact on net merchandise sales in our Caribbean segment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 20 basis points (0.2%) and 10 basis points (0.1%) positive impact on total net merchandise sales, respectively. This positive impact was primarily driven by the appreciation of the Dominican Republic dollar as compared to the same three-month and nine-month period a year ago.

Currency fluctuations had a $6.8 million and $25.3 million, or 700 basis point (7.0%) and 830 basis point (8.3%), negative impact on net merchandise sales in our Colombia segment for the quarter and nine-months ended May 31, 2022. These currency fluctuations contributed approximately 80 basis points (0.8%) and 100 basis points (1.0%) of the total negative impact on total net merchandise sales for the quarter and nine-months ended May 31, 2022.

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Comparable Merchandise Sales

We report comparable 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 merchandise club sales on the weekends. 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. As a result, sales related to two of our warehouse clubs opened during calendar year 2021 and one opened in April 2022 will not be used in the calculation of comparable sales until they have been open for at least 13 ½ months. Therefore, comparable net merchandise sales includes 47 warehouse clubs for the thirteen and thirty-nine week periods ended May 29, 2022.

The following tables indicate the comparable net merchandise sales in the reportable segments in which we operate and the percentage changes in net merchandise sales by segment during the thirteen and thirty-nine week periods ended May 29, 2022 and May 30, 2021 compared to the prior year.


	Thirteen Weeks Ended
	May 29, 2022		May 30, 2021
	% Increase in comparable net merchandise sales		% Increase/(decrease) in comparable net merchandise sales
Central America	9.7	%	16.0	%
Caribbean	17.4		(2.5)
Colombia	18.1		3.6
Consolidated comparable net merchandise sales	12.8	%	8.8	%



	Thirty-Nine Weeks Ended
	May 29, 2022		May 30, 2021
	% Increase in comparable net merchandise sales		% Increase in comparable net merchandise sales
Central America	11.4	%	5.7	%
Caribbean	11.7		2.6
Colombia	5.5		2.2
Consolidated comparable net merchandise sales	10.8	%	4.3	%

Comparison of Thirteen and Thirty-Nine-Week Periods Ended May 29, 2022 and May 30, 2021

Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirteen-week period ended May 29, 2022 increased 12.8%. Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ months for some or all of the thirty-nine week period ended May 29, 2022 increased 10.8%.

Comparable net merchandise sales in our Central America segment increased 9.7% and 11.4% for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. All of our markets in Central America had positive comparable net merchandise sales growth for the thirteen-week and thirty-nine week periods ended May 29, 2022, except that Guatemala had negative comparable net merchandise sales growth during the quarter because of transfers of sales from warehouse clubs included in the comparable net merchandise sales calculation to a new club not included in the calculation. The positive comparable net merchandise sales growth for our Central America segment contributed approximately 590 basis points (5.9%) and 680 basis points (6.8%) of positive impact in total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively.

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Comparable net merchandise sales in our Caribbean segment increased 17.4% and 11.7% for the thirteen-week and thirty-nine week periods ended May 29, 2022. These increases contributed approximately 490 basis points (4.9%) and 340 basis points (3.4%) of positive impact on total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively.

Our Trinidad market continued its strong performance in the thirteen-week and thirty-nine week periods ended May 29, 2022, with 21.7% and 8.1% comparable net merchandise sales growth, respectively. Trinidad sales significantly improved versus the prior period due to COVID-19 closures and prohibited sales of most non-foods and non-essential items in the comparable prior year period, along with increased sales in the current period resulting from our restoring inventory levels of merchandise sourced in U.S. dollars in connection with an improvement in the liquidity of the Trinidad dollar during the period. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for more discussion on the Trinidad dollar illiquidity situation. Our Dominican Republic and Aruba markets also showed strong performance, with both having double digit comparable net merchandise sales growth for the thirteen and thirty-nine week periods.

Comparable net merchandise sales in our Colombia segment increased 18.1% and 5.5% for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. These increases contributed approximately 200 basis points (2.0%) and 60 basis points (0.6%) of positive impact in total comparable merchandise sales for the thirteen-week and thirty-nine week periods ended May 29, 2022, respectively. The increase in Colombia during the thirteen-week and thirty-nine week period was primarily due to the year-over-year improvements in sales growth due to the comparably improved COVID-19 situation.

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-week and thirty-nine week periods ended May 29, 2022.


	Currency Exchange Rate Fluctuations for the
	Thirteen Weeks Ended
	May 29, 2022
	Amount		% change
Central America	$	(14,434)	(2.8)	%
Caribbean		2,308	1.0
Colombia		(6,513)	(6.8)
Consolidated comparable net merchandise sales	$	(18,639)	(2.2)	%


	Currency Exchange Rate Fluctuations for the
	Thirty-Nine Weeks Ended
	May 29, 2022
	Amount		% change
Central America	$	(31,117)	(2.0)	%
Caribbean		2,386	0.3
Colombia		(22,590)	(7.6)
Consolidated comparable net merchandise sales	$	(51,321)	(2.0)	%

Overall, the mix of currency fluctuations within our markets had an approximately $18.6 million and $51.3 million, or 220 basis point (2.2%) and 200 basis point (2.0%), negative impact on comparable net merchandise sales for the thirteen and thirty-nine week periods ended May 29, 2022.

Currency fluctuations within our Central America segment accounted for approximately 170 basis points (1.7%) and 120 basis points (1.2%) of negative impact on total comparable merchandise sales for the thirteen and thirty-nine week period, respectively. Our Costa Rica market was the main contributor as the market experienced currency devaluation when compared to the same periods last year.

Currency fluctuations within our Caribbean segment accounted for approximately 30 basis points (0.3%) and 10 basis points (0.1%) of positive impact on total comparable merchandise sales the thirteen and thirty-nine week period, respectively. Our Dominican Republic market experienced currency appreciation, which was partially offset for the thirteen-week period and the thirty-nine week period by our Jamaica market, which experienced currency devaluation when compared to the same periods last year.

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Currency fluctuations within our Colombia segment accounted for approximately 80 basis points (0.8%) and 90 basis points (0.9%) of negative impact on total comparable merchandise sales for the thirteen and thirty-nine week period, respectively. This reflects the devaluation of the Colombian peso when compared to the same periods a year ago.

Membership Income

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



	Three Months Ended
	May 31,								May 31,
	2022								2021
	Amount		Increase ‎from ‎prior year		% Change		Membership income % to net merchandise club sales		Amount
Membership income - Central America	$	9,070	$	582	6.9	%	1.5	%	$	8,488
Membership income - Caribbean		4,130		203	5.2		1.4			3,927
Membership income - Colombia		2,240		326	17.0		1.9			1,914
Membership income - Total	$	15,440	$	1,111	7.8	%	1.5	%	$	14,329



	Nine Months Ended
	May 31,								May 31,
	2022								2021
	Amount		Increase from prior year		% Change		Membership ‎income % to ‎net merchandise ‎club sales		Amount
Membership income - Central America	$	26,824	$	2,382	9.7	%	1.5	%	$	24,442
Membership income - Caribbean		12,097		644	5.6		1.4			11,453
Membership income - Colombia		6,381		849	15.3		1.8			5,532
Membership income - Total	$	45,302	$	3,875	9.4	%	1.5	%	$	41,427

Number of accounts - Central America		942,096		56,574	6.4	%				885,522
Number of accounts - Caribbean		450,094		20,673	4.8					429,421
Number of accounts - Colombia		355,053		31,163	9.6					323,890
Number of accounts - Total		1,747,243		108,410	6.6	%				1,638,833

Comparison of Three and Nine Months Ended May 31, 2022

The number of member accounts as of May 31, 2022 was 6.6% higher than the number of accounts as of May 31, 2021. Membership income increased 7.8% and 9.4% over the three and nine-month periods ended May 31, 2022, respectively, compared to the same prior-year periods.

Membership income increased across all of our operating segments in the three and nine-month periods ended May 31, 2022. The consolidated increase in membership income is due to an increase in the membership base since the start of fiscal year 2022. Since August 31, 2021, all segments have increased their membership base. Central America had the largest increase in membership base in the first three quarters of fiscal year 2022, with 6.4% growth, due primarily to the opening of our fifth club in Guatemala in October 2021, followed by Colombia with an 9.6% increase, due primarily to the opening of our ninth club in November 2021, and the Caribbean with a 4.8% increase, due primarily to the opening of our second club in Jamaica in April 2022.

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We now offer the Platinum Membership program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 7.1% of our total membership base as of May 31, 2022, an increase from 6.0% as of May 31, 2021. Platinum Members tend to have higher renewal rates than our Diamond Members.

Our trailing twelve-month renewal rate was 88.9% and 87.6% for the periods ended May 31, 2022 and May 31, 2021, respectively. Approximately 14% and 15% of our membership sign-ups were completed using our online platform for the nine-month period ended May 31, 2022 and May 31, 2021, respectively. Our online platform facilitates capturing data and provides the opportunity for automatic renewal of memberships, as well as improving our digital connection with our Members.

Other Revenue

Other revenue primarily consists of non-merchandise revenue from freight and handling fees generated from the marketplace and casillero operations we sold in October 2021, 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, 2022						May 31, 2021
	Amount		Increase (decrease) from ‎prior year		% Change		Amount
Non-merchandise revenue	$	—	$	(10,806)	(100.0)	%	$	10,806
Miscellaneous income		2,359		713	43.3			1,646
Rental income		604		(188)	(23.7)			792
Other revenue	$	2,963	$	(10,281)	(77.6)	%	$	13,244


	Nine Months Ended
	May 31, 2022						May 31, 2021
	Amount		Increase (decrease) from ‎prior year		% Change		Amount
Non-merchandise revenue	$	3,307	$	(33,172)	(90.9)	%	$	36,479
Miscellaneous income		6,675		1,631	32.3			5,044
Rental income		1,885		(379)	(16.7)			2,264
Other revenue	$	11,867	$	(31,920)	(72.9)	%	$	43,787

Comparison of Three and Nine Months Ended May 31, 2022 and May 31, 2021

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

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Results of Operations



	Three Months Ended
Results of Operations Consolidated		May 31, 2022			May 31, 2021			Increase/(Decrease)
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	999,011		$	857,478		$	141,533
Total gross margin	$	142,199		$	136,752		$	5,447
Total gross margin percentage		14.2	%		15.9	%		(1.7)	%

Revenues
Total revenues	$	1,030,810		$	895,264		$	135,546
Percentage change from prior period								15.1	%

Comparable net merchandise sales
Total comparable net merchandise sales increase		12.8	%		8.8	%		4.0	%

Total revenue margin
Total revenue margin	$	161,193		$	158,963		$	2,230
Total revenue margin percentage		15.6	%		17.8	%		(2.2)	%

Selling, general and administrative
Selling, general and administrative	$	127,431		$	122,914		$	4,517
Selling, general and administrative percentage of total revenues		12.4	%		13.7	%		(1.3)	%


	Three Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2022	Total Revenue			2021	Total Revenue
Operating income- by segment
Central America	$	39,458	3.8	%	$	38,313	4.3	%
Caribbean		19,163	1.9			17,240	1.9
Colombia		4,652	0.4			5,135	0.6
United States		2,821	0.3			545	-
Reconciling Items ⁽¹⁾		(32,332)	(3.1)			(25,184)	(2.8)
Operating income - Total	$	33,762	3.3	%	$	36,049	4.0	%

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

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	Nine Months Ended
Results of Operations Consolidated		May 31, 2022			May 31, 2021			Increase/(Decrease)
(Amounts in thousands, except percentages and number of warehouse clubs)
Net merchandise sales
Net merchandise sales	$	2,954,950		$	2,594,251		$	360,699
Total gross margin	$	451,312		$	414,798		$	36,514
Total gross margin percentage		15.3	%		16.0	%		(0.7)	%

Revenues
Total revenues	$	3,044,723		$	2,710,265		$	334,458
Percentage change from comparable period								12.3	%

Comparable net merchandise sales
Total comparable net merchandise sales increase / (decrease)		10.8	%		4.3	%		6.5	%

Total revenue margin
Total revenue margin	$	508,189		$	483,397		$	24,792
Total revenue margin percentage		16.7	%		17.8	%		(1.1)	%

Selling, general and administrative
Selling, general and administrative	$	380,088		$	357,838		$	22,250
Selling, general and administrative percentage of total revenues		12.5	%		13.2	%		(0.7)	%

Warehouse clubs
Warehouse clubs at period end		50			47			3
Warehouse club sales floor square feet at period end		2,484			2,325			159


	Nine Months Ended
		May 31,	% of			May 31,	% of
Results of Operations Consolidated		2022	Total Revenue			2021	Total Revenue
Operating income- by segment
Central America	$	128,889	4.2	%	$	113,120	4.2	%
Caribbean		60,796	2.0			59,600	2.2
Colombia		17,154	0.6			17,139	0.6
United States		17,377	0.6			8,315	0.3
Reconciling Items ⁽¹⁾		(96,115)	(3.2)			(72,615)	(2.7)
Operating income - Total	$	128,101	4.2	%	$	125,559	4.6	%

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


	Three Months Ended
		May 31,	% of			May 31,	% of
		2022	Total Revenue			2021	Total Revenue
Warehouse club and other operations	$	96,081	9.3	%	$	89,322	10.0	%
General and administrative		30,887	3.0			33,225	3.7
Pre-opening expenses		306	0.1			1	—
Loss on disposal of assets		157	—			366	—
Total Selling, general and administrative	$	127,431	12.4	%	$	122,914	13.7	%


	Nine Months Ended
		May 31,	% of			May 31,	% of
		2022	Total Revenue			2021	Total Revenue
Warehouse club and other operations	$	281,270	9.3	%	$	264,603	9.8	%
General and administrative		96,531	3.2			92,016	3.4
Pre-opening expenses		1,406	—			651	—
Loss on disposal of assets		881	—			568	—
Total Selling, general and administrative	$	380,088	12.5	%	$	357,838	13.2	%

Comparison of Three and Nine Months Ended May 31, 2022 and May 31, 2021

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 percentage for the three months ended May 31, 2022 was 14.2%, 170 basis points (1.7%) lower than the comparable prior year period. This decrease for the quarter was primarily due to pricing actions taken to reduce inventory levels of seasonal and high cube merchandise during the quarter and a reduction in the premium we applied to our sales prices to offset our COVID-related operating costs.

On a consolidated basis, total gross margin percentage for the nine months ended May 31, 2022 was 15.3%, 70 basis points (0.7%) lower than the comparable prior year period. The decrease for the nine months ended was primarily due to increased markdowns versus the prior fiscal year period and a reduction in the premium we applied to our sales prices to offset our COVID-related operating costs. During 2021, while experiencing strong sales and projecting high demand for our long-lead time merchandise, we were also noting increases in costs of merchandise. We proceeded to purchase merchandise at higher than normal volumes to secure good pricing and in-stock position. That, combined with higher than normal freight and fuel costs, subsequent COVID-related Asia port closures and other supply-chain disruptions hampered the expected cadence of inventory flow, resulting in, among other things, seasonal merchandise arriving too late for the applicable season. We also did not attain the levels of sales we projected for certain non-food categories. As a result, we took significantly higher than usual markdowns in the third quarter in these categories to sell through out-of-season merchandise, and we anticipate continued margin pressure (albeit at a significantly lower rate than that experienced in our fiscal third quarter) into the fourth quarter of fiscal 2022.

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 a percentage of Total revenues.

Total revenue margin decreased 220 basis points (2.2%) for the three months ended May 31, 2022 compared to the prior-year period, which is primarily the result of the lower total gross margin percentage of 170 basis points (1.7%) along with lower revenue margins from our casillero and marketplace business of 40 basis points (0.4%), and 10 basis points (0.1%) from lower membership income as a percentage of revenue year-over-year. Total revenue margin decreased 110 basis points (1.1%) for the nine months ended May 31, 2022 compared to the prior-year period, which is primarily the result of lower revenue margins from our casillero and marketplace business of 40 basis points (0.4%) along with the lower total gross margin percentage of 70 basis points (0.7%).

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Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, pre-opening expenses, and loss on disposal of assets. In total, selling, general and administrative expenses increased $4.5 million compared to the prior year but decreased as a percentage of total revenue, declining 130 basis points (1.3%) to 12.4% of total revenue compared to 13.7% of total revenues for the third quarter of fiscal year 2022 compared to the third quarter of fiscal year 2021. Selling, general and administrative expenses increased $22.3 million compared to the prior year but decreased as a percentage of total revenue, declining 70 basis points (0.7%) to 12.5% of total revenue for the first nine months of fiscal year 2022 compared to 13.2% of total revenues for the first nine months of fiscal year 2021.

Warehouse club and other operations expenses decreased to 9.3% of total revenues for the third quarter of fiscal year 2022 compared to 10.0% for the third quarter of fiscal year 2021 primarily due to 50 basis points (0.50%) of lower operations expenses from our casillero and marketplace business due to the sale of Aeropost on October 1, 2021. This decrease was supplemented by our Costa Rica market which decreased 20 basis points (0.20%) as a percentage of revenue year over year primarily due to higher sales volumes driving favorable leverage in expenses and the devaluation of the Costa Rica colón.

Warehouse club and other operations expenses decreased to 9.3% of total revenues for the first nine months of fiscal year 2022 compared to 9.8% for the prior-year period. This was primarily due to 40 basis points (0.40%) of lower operations expenses from our casillero and marketplace business due to the sale of Aeropost on October 1, 2021. This decrease was supplemented by our Costa Rica market which decreased 10 basis points (0.10%) as a percentage of revenue year over year primarily due to the devaluation of the Costa Rica colón.

General and administrative expenses decreased to 3.0% of total revenues for the third quarter of fiscal year 2022 compared to 3.7% for the third quarter of fiscal year 2021. The 70 basis point (0.7%) decrease is primarily due to a 50 basis point (0.50%) decrease from the reduction in general and administrative expenses due to the sale of Aeropost.

General and administrative expenses decreased to 3.2% of total revenues for the first nine months of fiscal year 2022 compared to 3.4% for the first nine months of fiscal year 2021. The 20 basis point (0.2%) decrease is primarily due to a 50 basis point (0.50%) decrease from the reduction in general and administrative expenses due to the sale of Aeropost. This decrease was partially offset by a 30 basis point (0.30%) increase from our continued investments to support our technology development, talent acquisition, and employee development. Given our strategic initiatives, we expect to continue to invest at comparable or higher levels (as a percentage of revenue), especially in talent and technology, to enhance our competence and support our three drivers of growth.

Operating income in the third quarter of fiscal year 2022 decreased to $33.8 million (3.3% of total revenue) compared to $36.0 million (4.0% of total revenue) for the same period last year. This reflects the decrease in total revenue margin of 220 basis points (2.2%), partially offset by a 130 basis point (1.3%) increase due to leveraging of selling, general and administrative expenses over the comparable prior-year period.

Operating income for the nine months ended May 31, 2022 increased to $128.1 million (4.2% of total revenue) compared to $125.6 million (4.6% of total revenue) for the same period last year. This reflects the decrease in total revenue margin of 110 basis points (1.1%), partially offset by a 70 basis point (0.7%) increase due to leveraging of selling, general and administrative expenses over the comparable prior-year period.

Interest Expense

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 and distribution centers, warehouse club expansions, the capital requirements of warehouse club and other operations and ongoing working capital requirements.


	Three Months Ended
	May 31,				May 31,
	2022				2021
	Amount		Change		Amount
Interest expense on loans	$	2,160	$	865	$	1,295
Interest expense related to hedging activity		871		(36)		907
Less: Capitalized interest		(235)		371		(606)
Net interest expense	$	2,796	$	1,200	$	1,596

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	Nine Months Ended
	May 31,				May 31,
	2022				2021
	Amount		Change		Amount
Interest expense on loans	$	5,300	$	708	$	4,592
Interest expense related to hedging activity		2,628		(157)		2,785
Less: Capitalized interest		(1,104)		416		(1,520)
Net interest expense	$	6,824	$	967	$	5,857

Comparison of Three and Nine Months Ended May 31, 2022 and May 31, 2021

Net interest expense increased for the three-month and nine-month period ended May 31, 2022 primarily due to the increase in long-term borrowings in our Trinidad market to facilitate conversion of Trinidad dollars to US dollars and a decrease in capitalized interest from fewer construction projects comparatively.

Other Income (Expense), Net

Other income (expense), net, consists of currency gains or losses, as well as net benefit costs related to our defined benefit plans and other items considered to be non-operating in nature.



	Three Months Ended
	May 31,						May 31,
	2022						2021
	Amount		Change		% Change		Amount
Other expense, net	$	(2,423)	$	(128)	(5.6)	%	$	(2,295)



	Nine Months Ended
	May 31,						May 31,
	2022						2021
	Amount		Change		% Change		Amount
Other expense, net	$	(1,833)	$	2,299	55.6	%	$	(4,132)

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) are recorded as currency gains or losses. Additionally, gains or losses from transactions denominated in currencies other than the functional currency of the respective entity also generate currency gains or losses.

Comparison of Three and Nine Months Ended May 31, 2022 and 2021

For the three and nine-months ended May 31, 2022 the primary driver of Other income (expense), net included $2.5 million and $6.1 million losses, respectively, associated with foreign currency 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 and liabilities in markets where the local functional currency revalued or devalued against the U.S. dollar and from exchange transactions. For the first nine months of fiscal year 2022, this loss was partially offset by a gain of $2.7 million associated with the sale of our Aeropost subsidiary on October 1, 2021.

The primary foreign currency impacts during the quarter and nine months ended May 31, 2022 were higher transaction costs of $2.0 million and $5.9 million, respectively, associated with converting Trinidad dollars into available tradeable currencies, such as euros or Canadian dollars, before converting them to U.S. dollars.

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Provision for Income Taxes


	Three Months Ended
	May 31,					May 31,
	2022					2021
	Amount			Change		Amount
Provision for income taxes	$	9,776		$	(306)	$	10,082
Effective tax rate		33.7	%				30.9	%


	Nine Months Ended
	May 31,					May 31,
	2022					2021

	Amount			Change		Amount
Provision for income taxes	$	39,729		$	1,464	$	38,265
Effective tax rate		32.8	%				32.7	%

Comparison of Three and Nine Months Ended May 31, 2022 and May 31, 2021

For the three months ended May 31, 2022, the effective tax rate was 33.7% compared to 30.9% for the prior year period. The increase in the effective tax rate versus the prior year was primarily attributable to the following factors:

A comparably unfavorable net tax impact from recurring items of 0.5%, primarily resulting from valuation allowances we took with respect to deferred tax assets from foreign tax credits that are no longer deemed recoverable; and

A comparably unfavorable net tax impact from non-recurring items of 2.3%, primarily related to changes in uncertain tax positions, and changes in foreign currency value and related adjustments.

For the nine months ended May 31, 2022, the effective tax rate was 32.8% compared to 32.7% for the prior year period. The slight increase in the effective tax rate versus the prior year was primarily attributable to the following factors:

A comparably favorable benefit from non-recurring items of 0.4%, primarily related to changes in uncertain tax positions, and changes in foreign currency value and related adjustments.

Other Comprehensive Income (Loss)


	Three Months Ended
	May 31,						May 31,
	2022						2021
	Amount		Change		% Change		Amount
Other comprehensive loss	$	(8,735)	$	(6,145)	(237.3)	%	$	(2,590)


	Nine Months Ended
	May 31,						May 31,
	2022						2021
	Amount		Change		% Change		Amount
Other comprehensive loss	$	(10,640)	$	(10,092)	(1,841.6)	%	$	(548)

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Comparison of Three and Nine Months Ended May 31, 2022 and May 31, 2021

Our other comprehensive loss of approximately $8.7 million for the third quarter of fiscal year 2022 resulted primarily from the comprehensive loss of approximately $9.4 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, accompanied by approximately $0.6 million related to unrealized gains on changes in our derivative obligations. Other comprehensive loss for the nine-months ended May 31, 2022 of approximately $10.6 million was primarily the result of the comprehensive loss of $15.1 million from foreign currency translation adjustments offset by approximately $4.3 million related to unrealized gains on changes in the fair value of our derivative obligations. For the quarter, the Costa Rica colón exchange rate with the U.S. dollar declined significantly. For the nine-month period, the Colombia peso and Costa Rica colón exchange rate with the U.S. dollar declined significantly, and these declines were partially offset by an appreciation of the Dominican peso over the same period.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow

Our operations have historically supplied us with a significant source of liquidity. We 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 operations while allowing us to invest in activities that support the long-term growth of our operations and to pay dividends on our common stock. We evaluate our funding requirements on a regular basis to cover any shortfall in our ability to generate sufficient cash from operations to meet our capital requirements. We may consider funding alternatives to provide additional liquidity 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.

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).



	May 31,		August 31,
	2022		2021
Amounts held by foreign subsidiaries	$	194,047	$	160,808
Amounts held domestically		28,670		54,671
Total cash and cash equivalents, including restricted cash	$	222,717	$	215,479

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


	May 31,		August 31,
	2022		2021
Amounts held by foreign subsidiaries	$	19,767	$	50,233
Amounts held domestically		—		—
Total short-term investments	$	19,767	$	50,233

As of May 31, 2022 and August 31, 2021, long-term investments consisting of certificates of deposit with a maturity of over one year held by our foreign subsidiaries were $0 and $1.5 million, respectively. We have no long-term investments consisting of certificates of deposit with a maturity of over one year held domestically.

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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 merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported products or otherwise fund our operations. Since fiscal 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad and government officials to convert all of our Trinidad dollars into tradeable currencies. We have and continue to take additional actions in this respect. Refer to “Management’s Discussion & Analysis – Factors Affecting Our Business” for our quantitative analysis and discussion.

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


	Nine Months Ended
	May 31,		May 31,
	2022		2021		Change
Net cash provided by operating activities	$	64,311	$	79,967	$	(15,656)
Net cash used in investing activities		(61,404)		(93,991)		32,587
Net cash provided by (used in) financing activities		11,365		(88,956)		100,321
Effect of exchange rates		(7,034)		(2,351)		(4,683)
Net increase (decrease) in cash and cash equivalents	$	7,238	$	(105,331)	$	112,569

Net cash provided by operating activities totaled $64.3 million and $80.0 million for the nine months ended May 31, 2022 and May 31, 2021, respectively. The decrease in net cash provided by operating activities is primarily the result of non-working capital changes in the balance sheet of $22.3 million primarily from increases in prepaid assets and long-term tax assets. The increases in prepaid assets and long-term tax assets are largely due to the increase in prepaid expenses, prepaid duties and freight and VAT paid. Prepaid expenses increased primarily from our higher sales during the period, and prepaid duties and freight and VAT paid increased primarily from our higher inventory position. The changes in non-working capital were partially offset by an increase in net income for the nine months ended May 31, 2022 over the prior-year period. Inventory was $461.0 million as of May 31, 2022, compared with $389.7 million and $336.6 million at August 31, 2021 and May 31, 2021, respectively. The increase in the inventory balance compared to the prior fiscal year is the result of purchasing excess merchandise in certain non-food categories. During 2021, while experiencing strong sales and projecting high demand for our long-lead time merchandise, we were also noting increases in costs of merchandise. We proceeded to purchase merchandise at higher than normal volumes to secure good pricing and in-stock position. Unfortunately, COVID-related Asia port closures and other supply-chain disruptions hampered the expected cadence of inventory flow, resulting in, among other things, seasonal merchandise arriving too late for the applicable season. We also did not attain the levels of sales we projected for certain non-food categories. Lastly, we have three additional clubs in the current year.

Net cash used in investing activities totaled $61.4 million and $94.0 million for the nine months ended May 31, 2022 and May 31, 2021. The decrease is primarily the result of a decrease in purchases of certificates of deposits and higher proceeds from settlements compared to the same nine-month period a year-ago, primarily due to being able to source more U.S. dollars in Trinidad. Refer to “Management’s Discussion and Analysis – Factors Affecting Our Business” for additional discussion of the current U.S. dollar illiquidity we are experiencing in that market. The decrease was partially offset by higher property and equipment expenditures compared to the same nine-month period a year-ago to support growth of our real estate footprint.

Net cash provided by financing activities totaled $11.4 million and net cash used in financing activities was $89.0 million for the nine months ended May 31, 2022 and May 31, 2021, 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 $100.3 million shift from cash used in, to cash provided by, financing activities is primarily the result of obtaining additional financing (primarily the $25 million loan in Trinidad to address U.S. dollar liquidity challenges there) in the current year along with lower net repayments of short-term debt compared to the same nine-month period a year-ago, when we were repaying short-term facilities accessed at the early stages of the COVID-19 pandemic.

The following table summarizes the dividends declared and paid during fiscal years 2022 and 2021 (amounts are per share).

First Payment

Second Payment

Declared

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

Record
‎Date

Date
‎Paid

Date
‎Payable

Amount

2/3/2022

0.86

2/15/2022

2/28/2022

N/A

0.43

8/15/2022

N/A

8/31/2022

0.43

2/4/2021

0.70

2/15/2021

2/26/2021

N/A

0.35

8/15/2021

8/31/2021

N/A

0.35

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Short-Term Borrowings and Long-Term Debt

Our financing strategy is to ensure liquidity and access to capital markets while minimizing our borrowing costs. The proceeds of these borrowings were or will be used for general corporate purposes, which may include, among other things, funding for working capital, capital expenditures, acquisitions, dividends and repayment of existing debt. Please refer to “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 7 – Debt.”

Derivatives

Please refer to “Item 1. Financial Statements: Notes to Consolidated Financial Statements, Note 8 – Derivative Instruments and Hedging Activities” for further discussion.

Off-Balance Sheet Arrangements

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

Repurchase of Equity Securities and Reissuance of Treasury Shares

At the vesting dates for restricted stock awards to our employees, we repurchase a portion of the shares that have vested at the prior day's closing price per share and apply the proceeds to pay the employees' minimum statutory tax withholding requirements related to the vesting of restricted stock awards. The Company expects to continue this practice going forward. We do not currently have a stock repurchase program.

Shares of common stock repurchased by us are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in our consolidated balance sheets. We may reissue these treasury shares in the future.

We have reissued treasury shares as part of our stock-based compensation programs. During the nine-months ended May 31, 2022, we reissued approximately 9,000 treasury shares.

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Critical Accounting Estimates

The preparation of our consolidated financial statements requires that management make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require management to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Management continues to review its accounting policies and evaluate its estimates, including those related to business acquisitions, contingencies and litigation, income taxes, value added taxes, and long-lived assets. We base our estimates on historical experience and on other assumptions that management believes to be reasonable under the present circumstances. Using different estimates could have a material impact on our financial condition and results of operations.

Income Taxes

For interim reporting, we estimate an annual effective tax rate (AETR) to calculate income tax expense. Our 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. 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 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 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 judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss).

We 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. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe 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 we file our tax returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and, therefore, require us to pay additional taxes.

The Company accrues an amount for its estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than 50% likelihood of being sustained. This requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. There were no material changes in our uncertain income tax positions since August 31, 2021.

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Tax Receivables

We pay Value Added Tax (“VAT”) or similar taxes, 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 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 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 applied to subsequent returns, and the net underpaid VAT must be remitted to the 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. 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 and debit cards directly to the government as advance payments of VAT and/or income tax. This collection mechanism generally leaves us with net VAT and/or income tax receivables, forcing us to 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 two countries where the Company operates, there have been changes in the method of computing minimum tax payments under which the governments have sought to require the Company to pay taxes based on a percentage of sales rather than taxable income. As a result, we 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 Company had income tax receivables of $11.0 million as of May 31, 2022 and August 31, 2021, respectively, and deferred tax assets of $3.3 million as of May 31, 2022 and August 31, 2021, respectively, in these countries. While the rules related to refunds of income tax receivables in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. 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. There can be no assurance, however, that we will be successful in recovering all tax receivables or deferred tax assets.

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

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

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

Long-lived Assets

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

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

loss of legal ownership or title to the asset;

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

the impact of significant negative industry or economic trends.

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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, 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.

Goodwill

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

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 May 31, 2022 compared to those disclosed in our Annual Report on Form 10-K for the fiscal year ended August 31, 2021.

From time to time, we have experienced a lack of availability of U.S. dollars in certain markets (U.S. dollar illiquidity). This impedes our ability to convert local currencies obtained through 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. Since fiscal year 2017, we have experienced this situation in Trinidad and have been unable to source a sufficient level of tradeable currencies. We are working with our banks in Trinidad to source tradeable currencies. 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 foreign currency exchange rate fluctuations for the three-month period ended May 31, 2022 is disclosed in “Item 2. Management’s Discussion & Analysis – Other Expense, net”.

Information about the change in the fair value of our hedges and the financial impact thereof for the three-month period ended May 31, 2022 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 for the three and nine-month period ended May 31, 2022 is disclosed in “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

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. “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended August 31, 2021. 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, 2021.

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, 2022, the Company repurchased 2,744 shares in the indicated months. These were the only repurchases of equity securities made by the Company during the third quarter of fiscal year 2022. 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, 2022 - March 31, 2022		2,505		77.13		—		N/A
April 1, 2022 - April 30, 2022		239		80.34		—		N/A
May 1, 2022 - May 31, 2022		—		—		—		N/A
Total		2,744	$	77.41		—		—

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(4)		Second Amended and Restated Bylaws of the Company.
10.1*		Amended and Restated Employment Agreement dated May 1, 2022 between John Hildebrandt and the Company.
10.2*		Employment Agreement dated May 1, 2022 between Christopher Souhrada and the Company.
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.
32.1**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


*	Identifies management contract or compensatory plan or arrangement.

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

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

⁽²⁾Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004.

⁽³⁾Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2004 filed with the Commission on November 24, 2004.

⁽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

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:	July 11, 2022	By:	/s/ SHERRY S. BAHRAMBEYGUI
			Sherry S. Bahrambeygui
			Chief Executive Officer
			(Principal Executive Officer)

Date:	July 11, 2022	By:	/s/ MICHAEL L. MCCLEARY
			Michael L. McCleary
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

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August 31,

Retained earnings not available for distribution