0001041803-18-000022.txt : 20180405 0001041803-18-000022.hdr.sgml : 20180405 20180405162126 ACCESSION NUMBER: 0001041803-18-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 73 CONFORMED PERIOD OF REPORT: 20180228 FILED AS OF DATE: 20180405 DATE AS OF CHANGE: 20180405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICESMART INC CENTRAL INDEX KEY: 0001041803 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 330628530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22793 FILM NUMBER: 18740824 BUSINESS ADDRESS: STREET 1: 9740 SCRANTON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 8584048800 MAIL ADDRESS: STREET 1: 9740 SCRANTON ROAD CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 psmt-20180228x10q.htm 10-Q PSMT-10Q Q2 FY2018_Taxonomy2017

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q





 

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



For the quarterly period ended February 28, 2018 

OR





 

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



For the transition period from                to 



COMMISSION FILE NUMBER 0-22793

PriceSmart, Inc.

(Exact name of registrant as specified in its charter)



 

 

Delaware

 

33-0628530

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)



9740 Scranton Road, San Diego, CA 92121

(Address of principal executive offices)



(858) 404-8800

(Registrant’s telephone number, including area code)



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





 

Yes  

No  





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).





 

Yes  

No  





Indicate by check mark 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  

Accelerated filer  

Smaller Reporting Company  

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

Emerging growth company  



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



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).







 

Yes  

No  



The registrant had 30,418,544 shares of its common stock, par value $0.0001 per share, outstanding at March 31, 2018.

 



 

 


 

 

PRICESMART, INC.



INDEX TO FORM 10-Q





 

 



 

Page

PART I - FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS



CONSOLIDATED BALANCE SHEETS AS OF FEBRUARY 28, 2018  (UNAUDITED) AND AUGUST 31, 2017



CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017 - UNAUDITED



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017 - UNAUDITED



CONSOLIDATED STATEMENTS OF EQUITY FOR THE SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017 - UNAUDITED



CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2018 AND 2017 - UNAUDITED



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

30 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

52 

ITEM 4.

CONTROLS AND PROCEDURES

53 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

54 

ITEM 1A.

RISK FACTORS

54 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

54 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

55 

ITEM 4.

MINE SAFETY DISCLOSURES

55 

ITEM 5.

OTHER INFORMATION

55 

ITEM 6.

EXHIBITS

56 

 



 

i


 

PART I—FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS



PriceSmart, Inc.’s (“PriceSmart,” “we or the “Company”) unaudited consolidated balance sheet as of February 28, 2018 and the consolidated balance sheet as of August 31, 2017, the unaudited consolidated statements of income for the three and six months ended February 28, 2018 and 2017, the unaudited consolidated statements of comprehensive income for the three and six months ended February 28, 2018 and 2017, the unaudited consolidated statements of equity for the six months ended February 28, 2018 and 2017, and the unaudited consolidated statements of cash flows for the six months ended February 28, 2018 and 2017, are included hereinAlso included herein are the notes to the unaudited consolidated financial statements.

 

1


 

PRICESMART, INC.

CONSOLIDATED BALANCE SHEETS

(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)







 

 

 

 

 

 



 

 

 

 

 

 



 

February 28,

 

 

 



 

2018

 

August 31,



 

(Unaudited)

 

2017

ASSETS

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

152,132 

 

$

162,434 

Short-term restricted cash

 

 

365 

 

 

460 

Receivables, net of allowance for doubtful accounts of $0 and $7 as of February 28, 2018 and August 31, 2017, respectively

 

 

8,194 

 

 

6,460 

Merchandise inventories

 

 

314,811 

 

 

310,946 

Prepaid expenses and other current assets

 

 

30,115 

 

 

30,070 

Total current assets

 

 

505,617 

 

 

510,370 

Long-term restricted cash

 

 

3,114 

 

 

2,818 

Property and equipment, net

 

 

580,117 

 

 

557,829 

Goodwill

 

 

35,473 

 

 

35,642 

Deferred tax assets

 

 

10,449 

 

 

15,412 

Other non-current assets (includes $4,030 and $2,547 as of February 28, 2018 and August 31, 2017, respectively, for the fair value of derivative instruments)

 

 

46,168 

 

 

44,678 

Investment in unconsolidated affiliates

 

 

10,786 

 

 

10,765 

Total Assets

 

$

1,191,724 

 

$

1,177,514 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

253,579 

 

$

272,248 

Accrued salaries and benefits

 

 

18,682 

 

 

19,151 

Deferred membership income

 

 

24,255 

 

 

22,100 

Income taxes payable

 

 

8,839 

 

 

5,044 

Other accrued expenses

 

 

26,449 

 

 

26,483 

Dividends payable

 

 

10,652 

 

 

 —

Long-term debt, current portion

 

 

14,160 

 

 

18,358 

Total current liabilities

 

 

356,616 

 

 

363,384 

Deferred tax liability

 

 

1,800 

 

 

1,812 

Long-term portion of deferred rent

 

 

9,014 

 

 

8,914 

Long-term income taxes payable, net of current portion

 

 

4,147 

 

 

909 

Long-term debt, net of current portion

 

 

82,512 

 

 

87,939 

Other long-term liabilities (includes $670 and $682 for the fair value of derivative instruments and $5,688 and $5,051 for post-employment plans as of February 28, 2018 and August 31, 2017, respectively)

 

 

6,401 

 

 

5,789 

Total Liabilities

 

 

460,490 

 

 

468,747 



2


 





 

 

 

 

 

 



 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Common stock $0.0001 par value, 45,000,000 shares authorized; 31,310,880 and 31,275,727 shares issued and 30,414,382 and 30,400,742 shares outstanding (net of treasury shares) as of February 28, 2018 and August 31, 2017, respectively

 

 

 

 

Additional paid-in capital

 

 

427,545 

 

 

422,395 

Tax benefit from stock-based compensation

 

 

11,486 

 

 

11,486 

Accumulated other comprehensive loss

 

 

(106,250)

 

 

(110,059)

Retained earnings

 

 

436,207 

 

 

420,866 

Less: treasury stock at cost, 896,498 and 874,985 shares as of February 28, 2018 and August 31, 2017, respectively

 

 

(37,757)

 

 

(35,924)

Total Equity

 

 

731,234 

 

 

708,767 

Total Liabilities and Equity

 

$

1,191,724 

 

$

1,177,514 



See accompanying notes.

3


 

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF INCOME

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









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

February 28,

 

February 28,

 

February 28,

 

February 28,



 

2018

 

2017

 

2018

 

2017

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Net warehouse club sales

 

$

816,573 

 

$

772,273 

 

$

1,561,974 

 

$

1,488,352 

Export sales

 

 

9,138 

 

 

8,172 

 

 

17,285 

 

 

18,906 

Membership income

 

 

12,703 

 

 

11,833 

 

 

25,078 

 

 

23,543 

Other income

 

 

1,149 

 

 

1,018 

 

 

2,298 

 

 

2,067 

Total revenues

 

 

839,563 

 

 

793,296 

 

 

1,606,635 

 

 

1,532,868 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold:

 

 

 

 

 

 

 

 

 

 

 

 

Net warehouse club

 

 

699,355 

 

 

659,802 

 

 

1,336,591 

 

 

1,268,292 

Export

 

 

8,685 

 

 

7,761 

 

 

16,434 

 

 

17,942 

Selling, general and administrative:

 

 

 

 

 

 

 

 

 

 

 

 

Warehouse club operations

 

 

71,951 

 

 

67,784 

 

 

141,453 

 

 

133,210 

General and administrative

 

 

20,258 

 

 

18,212 

 

 

39,088 

 

 

35,014 

Pre-opening expenses

 

 

81 

 

 

 —

 

 

511 

 

 

(113)

Asset impairment

 

 

1,929 

 

 

 —

 

 

1,929 

 

 

 —

Loss/(gain) on disposal of assets

 

 

40 

 

 

335 

 

 

199 

 

 

742 

Total operating expenses

 

 

802,299 

 

 

753,894 

 

 

1,536,205 

 

 

1,455,087 

Operating income

 

 

37,264 

 

 

39,402 

 

 

70,430 

 

 

77,781 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

368 

 

 

549 

 

 

768 

 

 

1,051 

Interest expense

 

 

(992)

 

 

(1,644)

 

 

(2,247)

 

 

(3,298)

Other income (expense), net

 

 

210 

 

 

915 

 

 

488 

 

 

(13)

Total other income (expense)

 

 

(414)

 

 

(180)

 

 

(991)

 

 

(2,260)

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

 

 

36,850 

 

 

39,222 

 

 

69,439 

 

 

75,521 

Provision for income taxes

 

 

(22,707)

 

 

(11,989)

 

 

(32,822)

 

 

(23,426)

Income (loss) of unconsolidated affiliates

 

 

 

 

(14)

 

 

21 

 

 

(7)

Net income

 

$

14,148 

 

$

27,219 

 

$

36,638 

 

$

52,088 

Net income per share available for distribution:

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.47 

 

$

0.90 

 

$

1.21 

 

$

1.72 

Diluted net income per share

 

$

0.47 

 

$

0.90 

 

$

1.21 

 

$

1.72 

Shares used in per share computations:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,100 

 

 

30,004 

 

 

30,089 

 

 

29,993 

Diluted

 

 

30,100 

 

 

30,008 

 

 

30,090 

 

 

29,997 

Dividends per share

 

$

0.70 

 

$

0.70 

 

$

0.70 

 

$

0.70 



See accompanying notes.

4


 

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED—AMOUNTS IN THOUSANDS)







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

February 28,

 

February 28,

 

February 28,

 

February 28,



 

2018

 

2017

 

2018

 

2017

Net income

 

$

14,148 

 

$

27,219 

 

$

36,638 

 

$

52,088 

Other Comprehensive Income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (1)

 

$

4,339 

 

$

9,237 

 

$

2,313 

 

$

(1,629)

Defined benefit pension plan:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

29 

 

 

(7)

 

 

59 

 

 

(14)

Total defined benefit pension plan

 

 

29 

 

 

(7)

 

 

59 

 

 

(14)

Derivative instruments: (2)

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

850 

 

 

291 

 

 

1,437 

 

 

783 

Total derivative instruments

 

 

850 

 

 

291 

 

 

1,437 

 

 

783 

Other comprehensive income (loss)

 

 

5,218 

 

 

9,521 

 

 

3,809 

 

 

(860)

Comprehensive income

 

$

19,366 

 

$

36,740 

 

$

40,447 

 

$

51,228 



(1)

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

(2)

See Note 7 - Derivative Instruments and Hedging Activities.



See accompanying notes.

5


 

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED—AMOUNTS IN THOUSANDS)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

Tax Benefit

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Additional

 

From

 

Other

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Paid-in

 

Stock Based

 

Comprehensive

 

Retained

 

Treasury Stock

 

Total



 

Shares

 

Amount

 

Capital

 

Compensation

 

Income(Loss)

 

Earnings

 

Shares

 

Amount

 

Equity

Balance at August 31, 2016

 

31,238 

 

$

 

$

412,369 

 

$

11,321 

 

$

(103,951)

 

$

351,060 

 

836 

 

$

(32,731)

 

$

638,071 

Purchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

24 

 

 

(1,941)

 

 

(1,941)

Issuance of restricted stock award

 

23 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Forfeiture of restricted stock awards

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 

 

 —

 

 

229 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

229 

Stock-based compensation

 

 —

 

 

 —

 

 

5,178 

 

 

213 

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,391 

Dividend paid to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,641)

 

 —

 

 

 —

 

 

(10,641)

Dividend payable to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,643)

 

 —

 

 

 —

 

 

(10,643)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

52,088 

 

 —

 

 

 —

 

 

52,088 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(860)

 

 

 —

 

 —

 

 

 —

 

 

(860)

Balance at February 28, 2017

 

31,264 

 

$

 

$

417,776 

 

$

11,534 

 

$

(104,811)

 

$

381,864 

 

860 

 

$

(34,672)

 

$

671,694 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at August 31, 2017

 

31,276 

 

$

 

$

422,395 

 

$

11,486 

 

$

(110,059)

 

$

420,866 

 

875 

 

$

(35,924)

 

$

708,767 

Purchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

21 

 

 

(1,833)

 

 

(1,833)

Issuance of restricted stock award

 

38 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Forfeiture of restricted stock awards

 

(7)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 

 

 —

 

 

269 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

269 

Stock-based compensation

 

 —

 

 

 —

 

 

4,881 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,881 

Dividend paid to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,645)

 

 —

 

 

 —

 

 

(10,645)

Dividend payable to stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(10,652)

 

 —

 

 

 —

 

 

(10,652)

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

36,638 

 

 —

 

 

 —

 

 

36,638 

Other comprehensive income (loss)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,809 

 

 

 —

 

 —

 

 

 —

 

 

3,809 

Balance at February 28, 2018

 

31,311 

 

$

 

$

427,545 

 

$

11,486 

 

$

(106,250)

 

$

436,207 

 

896 

 

$

(37,757)

 

$

731,234 



See accompanying notes.

6


 

PRICESMART, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED—AMOUNTS IN THOUSANDS)







 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

February 28,

 

February 28,



 

2018

 

2017

Operating Activities:

 

 

 

 

 

 

Net income

 

$

36,638 

 

$

52,088 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

24,812 

 

 

22,562 

Allowance for doubtful accounts

 

 

(7)

 

 

 —

Asset impairment and closure costs

 

 

1,929 

 

 

 —

(Gain)/loss on sale of property and equipment

 

 

199 

 

 

742 

Deferred income taxes

 

 

6,668 

 

 

(1,412)

Equity in (gains) losses of unconsolidated affiliates

 

 

(21)

 

 

Stock-based compensation

 

 

4,881 

 

 

5,178 

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

 

 

5,914 

 

 

717 

Merchandise inventories

 

 

(3,865)

 

 

(14,077)

Accounts payable

 

 

(18,069)

 

 

(817)

Net cash provided by (used in) operating activities

 

 

59,079 

 

 

64,988 

Investing Activities:

 

 

 

 

 

 

Additions to property and equipment

 

 

(46,233)

 

 

(87,020)

Deposits for land purchase option agreements

 

 

 —

 

 

(300)

Proceeds from disposal of property and equipment

 

 

54 

 

 

181 

Net cash provided by (used in) investing activities

 

 

(46,179)

 

 

(87,139)

Financing Activities:

 

 

 

 

 

 

Proceeds from long-term bank borrowings

 

 

13,500 

 

 

35,700 

Repayment of long-term bank borrowings

 

 

(23,150)

 

 

(7,231)

Proceeds from short-term bank borrowings

 

 

57,248 

 

 

 —

Repayment of short-term bank borrowings

 

 

(57,248)

 

 

(10,011)

Cash dividend payments

 

 

(10,645)

 

 

(10,641)

Purchase of treasury stock for tax withholding on stock compensation

 

 

(1,833)

 

 

(1,941)

Proceeds from exercise of stock options

 

 

269 

 

 

229 

Net cash provided by (used in) financing activities

 

 

(21,859)

 

 

6,105 

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

 

 

(1,142)

 

 

(1,155)

Net increase (decrease) in cash, cash equivalents

 

 

(10,101)

 

 

(17,201)

Cash, cash equivalents and restricted cash at beginning of period

 

 

165,712 

 

 

202,716 

Cash, cash equivalents and restricted cash at end of period

 

$

155,611 

 

$

185,515 



 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Dividends declared but not paid

 

$

10,652 

 

$

10,643 



7


 

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







 

 

 

 

 

 



 

Six Months Ended



 

February 28,

 

February 28,



 

2018

 

2017

Cash and cash equivalents

 

$

152,132 

 

$

181,990 

Short-term restricted cash

 

 

365 

 

 

816 

Long-term restricted cash

 

 

3,114 

 

 

2,709 

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

 

$

155,611 

 

$

185,515 



See accompanying notes.



 

8


 

Table of Contents

PRICESMART, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

February 28, 2018

 

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION



PriceSmart, Inc.’s (“PriceSmart” or the “Company”) business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States.  As of February 28, 2018, the Company had 40 consolidated warehouse clubs in operation in 12 countries and one U.S. territory (seven each in Colombia and Costa Rica;  five in Panama; four in Trinidad; three each in Guatemala, the Dominican Republic and Honduras;  two each in El Salvador and Nicaragua; and one each in Aruba, Barbados,  Jamaica and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies).  The Company opened a new warehouse club in Santa Ana, Costa Rica in October 2017, bringing the total warehouse clubs operating in Costa Rica to seven.  In June 2017, the Company acquired land in Santo Domingo, Dominican Republic. The Company is currently building a warehouse club on this site and expects to open in May of 2018. This will bring the number of PriceSmart warehouse clubs operating in Dominican Republic to four.



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



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, 2017 (the “2017 Form 10-K”).  The interim consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries.  Inter-company transactions between the Company and its subsidiaries have been eliminated in consolidation.



Reclassifications to consolidated statement of cash flows recorded during fiscal year 2018 for fiscal year 2017  – Accounting Standards Update (ASU) 2016-18 - The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts set forth on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years and will be applied using a retrospective transition method to each period presented.  The Company early adopted this ASU as of August 31, 2017. The adoption of this ASU impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.



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



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







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

August 31, 2017

balance sheet line item

as previously reported

 

Amount

reclassified

 

August 31, 2017

balance sheet line item

as currently reported

Retained earnings

 

$

420,499 

 

$

367 

 

$

420,866 

Additional paid-in capital

 

$

422,762 

 

$

(367)

 

$

422,395 



9


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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



·

According to ASU 2016-09, the cash paid to a tax authority when shares are withheld to satisfy the employer’s statutory income tax withholding obligation should be classified as a financing activity on the statement of cash flows, and the full retrospective transition method should be applied. The Company already classifies cash paid for tax withholdings as a financing activity; thus, the adoption did not change the Company’s classification for this activity. However, the Company has changed the naming convention from “Purchase of treasury stock” to “Purchase of treasury stock for tax withholding on stock compensation” in the statement of cash flows.



·

Furthermore, the new standard requires the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. The Company has adopted this change, retrospectively, which resulted in $213,000 being reclassified from a financing activity to an operating activity for the six months ended February 28, 2017. 





 

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 and the Company's investment in, and the Company's share of the income (loss) of, joint ventures recorded under the equity method.  All significant inter-company accounts and transactions have been eliminated in consolidation.  The interim consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC and reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows for the periods presented.  The results for interim periods are not necessarily indicative of the results for the full year.  As of February 28, 2018, all of the Company's subsidiaries were wholly owned.  Additionally, the Company's ownership interest in real estate development joint ventures as of February 28, 2018 is listed below:







 

 

 

 

 

 

 



 

 

 

 

 

 

 

Real Estate Development Joint Ventures

 

Countries

 

Ownership

 

Basis of
Presentation

GolfPark Plaza, S.A.

 

Panama

 

50.0 

%

 

Equity(1)

Price Plaza Alajuela PPA, S.A.

 

Costa Rica

 

50.0 

%

 

Equity(1)



(1)

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



The Company determines whether any of the joint ventures in which it has made investments is a Variable Interest Entity (“VIE”) at the start of each new venture and if a reconsideration event has occurred.  At this time, the Company also considers whether it must consolidate a VIE and/or disclose information about its involvement in a VIE.  A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) that will absorb a majority of the VIE's expected losses, receive a majority of the VIE's expected residual returns, or both.  A reporting entity must consider the rights and obligations conveyed by its variable interests and the relationship of its variable interests with variable interests held by other parties to determine whether its variable interests will absorb a majority of a VIE's expected losses, receive a majority of the VIE's expected residual returns, or both.  The reporting entity that consolidates a VIE is called the primary beneficiary of that VIE.



Due to the nature of the joint ventures and the continued commitments for additional financing, the Company determined these joint ventures are VIEs.  Since all rights, obligations and the power to direct the activities of a VIE that most significantly impact the VIE's economic performance is shared equally by both parties within each joint venture, the Company has determined that it is not the primary beneficiary of the VIEs and, therefore, has accounted for these entities under the equity method.  Under the equity method, the Company's investments in unconsolidated affiliates are initially recorded as an investment in the stock of an investee at cost and are adjusted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of the initial investment.



Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

 

10


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Tax Receivables  The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income.  The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells.  If the output VAT exceeds the input VAT, then the difference is remitted to the government, usually on a monthly basis.  If the input VAT exceeds the output VAT, this creates a VAT receivable.  In most countries where the Company operates, the governments have implemented additional collection procedures, such as requiring credit and debit card processors to remit a portion of sales processed via credit and debit card directly to the government as advance payments of VAT and/or income tax.  In the case of VAT, these procedures alter the natural offset of input and output VAT and generally leave the Company with a net VAT receivable, forcing the Company to process significant refund claims on a recurring basis. With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actual income tax due, this creates an income tax receivable.  The Company either requests a refund of these tax receivables or applies the balance to expected future tax payments.  These refund or offset processes can take anywhere from several months to several years to complete.



In most countries where the Company operates, the tax refund process is defined and structured with regular refunds or offsets.  However, as of August 31, 2016, there were three countries that lacked a clearly defined process. During the third and fourth quarters of fiscal year 2017, two of these countries clarified the refund mechanism, which we are currently pursuing. The Company, together with its tax and legal advisers, is currently seeking clarification in court in the remaining country without a clearly defined process and expects to prevail. The balance of the VAT receivable in the country with undefined refund mechanisms was approximately $633,000 and $1.2 million as of February 28, 2018 and August 31, 2017, respectively.  In another country in which the Company operates warehouse clubs, a new minimum income tax mechanism took effect in fiscal year 2015, which requires the Company to pay taxes based on a percentage of sales rather than income. As a result, the Company is making income tax payments substantially in excess of those it would expect to pay based on taxable income. The current rules (which the Company has challenged in court) do not clearly allow the Company to obtain a refund or to offset this excess income tax against other taxes. As of February 28, 2018 and August 31, 2017, the Company had deferred tax assets of approximately $2.2 million and $2.0 million in this country, respectively. Also, the Company had an income tax receivable balance of $5.3 million and $4.3 million as of February 28, 2018 and August 31, 2017, respectively, related to excess payments from fiscal years 2015 to 2017. The Company has not placed any type of allowance on the recoverability of these tax receivables or deferred tax assets because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests, related appeals and/or court challenge on these matters.



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 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):







 

 

 

 

 

 



 

 

 

 

 

 



 

February 28,

 

August 31,



 

2018

 

2017

Prepaid expenses and other current assets

 

$

9,537 

 

$

6,650 

Other non-current assets

 

 

19,880 

 

 

24,904 

Total amount of VAT receivables reported

 

$

29,417 

 

$

31,554 



11


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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







 

 

 

 

 

 



 

 

 

 

 

 



 

February 28,

 

August 31,



 

2018

 

2017

Prepaid expenses and other current assets

 

$

4,096 

 

$

6,403 

Other non-current assets

 

 

15,329 

 

 

10,492 

Total amount of Income tax receivables reported

 

$

19,425 

 

$

16,895 



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



Stock Based Compensation  The Company utilizes three types of equity awards: stock options (“options”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).  The Company adopted ASU 2016-09 – Compensation - Stock Compensation (Topic 718) on September 1, 2017, see Note 1 – Company Overview and Basis of Presentation for more information on the implementation. Compensation related to options is accounted for by applying the valuation technique based on the Black-Scholes model. Compensation related to RSAs and RSUs is based on the fair market value at the time of grant.  The Company recognizes the compensation cost related to these awards over the requisite service period as determined by the grant, amortized ratably or on a straight line basis over the life of the grant. As a result of adoption of ASU 2016-09, the Company currently accounts for actual forfeitures as they occurThe Company records the tax savings resulting from tax deductions in excess of expense for stock-based compensation and the tax deficiency resulting from stock-based compensation in excess of the related tax deduction as income tax expense or benefit, based on ASU 2016-09. 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.



Exit or Disposal Cost Obligations – In January 2017, the Company purchased a distribution center in Medley, Miami-Dade County, Florida. The Company transferred its Miami dry distribution center activities that were previously in a leased facility to the new facility during the third quarter of fiscal year 2017. As part of this transaction, the Company has recorded an exit obligation related to the lease of the previous distribution center. The obligation consists of the costs associated with the exit or disposal activity measured initially at its fair value as of May 1, 2017, the date on which the obligation was incurred. These costs are primarily comprised of the costs to terminate the operating lease and other associated costs, including costs to consolidate or close facilities, net of any potential sub-lease income the Company could receive during the remaining lease term. In periods subsequent to initial measurement, changes to the exit obligation, including any changes resulting from a revision to either the timing or the amount of estimated cash flows over the remaining lease period, is measured using the credit-adjusted risk-free rate that was used to measure the initial obligation. During the third quarter of fiscal year 2017, the Company initially recorded an obligation related to this exit activity for approximately $496,000 within other long-term liabilities. The Company’s exit obligation recorded as of August 31, 2017 was approximately $57,000. The Company’s exit obligation recorded as of February 28, 2018 was approximately $43,000.  Exit costs of approximately $1.4 million were recorded to net warehouse club cost of goods sold for the twelve months ended August 31, 2017.  Exit costs of approximately $623,000 were recorded to net warehouse club cost of goods sold for the six months ended February 28, 2018.  Subsequent to the balance sheet date the Company entered into a sub-lease agreement for approximately half of the facility, which will reduce the Company’s expenses going forward.



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



12


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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



Non-financial assets and liabilities are revalued and recognized at fair value subsequent to initial recognition when there is evidence of impairment.  For the periods reported, 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 as disclosed in the Company’s 2017 Form 10-K.



Derivatives Instruments and Hedging Activities – The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates.  In using derivative financial instruments for the purpose of hedging the Company’s exposure to interest and currency exchange rate risks, the contractual terms of a hedged instrument closely mirror those of the hedged item, providing a high degree of risk reduction and correlation.  Contracts that are effective at meeting the risk reduction and correlation criteria (effective hedge) are recorded using hedge accounting.  If a derivative financial instrument is an effective hedge, changes in the fair value of the instrument will be offset in accumulated other comprehensive income (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 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 deferred 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.  See Note 7 - Derivative Instruments and Hedging Activities for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of February 28, 2018 and August 31, 2017.



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

13


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

and are limited to less than one year in duration.  See Note 7 - Derivative Instruments and Hedging Activities for information on the fair value of open, unsettled forward foreign-exchange contracts as of February 28, 2018 and August 31, 2017.

 

Insurance Reimbursements – Receipts from insurance reimbursements up to the amount of the losses recognized are considered recoveries.  These recoveries are accounted for when they are probable of receipt.  Insurance recoveries are not recognized prior to the recognition of the related cost.  Anticipated proceeds in excess of the amount of loss recognized are considered gains and are subject to gain contingency guidance.  Anticipated proceeds in excess of a loss recognized in the financial statements are not recognized until all contingencies related to the insurance claim are resolved.



Self-Insurance  As of October 1, 2017, PriceSmart, Inc. became self-insured for its employee medical health benefits and in doing so the Company has assumed the financial risk for providing health care benefits to its employees.  The Company contracted with Cigna Health and Life Insurance Company (“CHLIC”), a third party administrator, to process claims on its behalf under an Administrative Services Only (ASO) agreement.  The Company has elected to purchase “Stop Loss Insurance” to cover the risk in excess of certain dollar limits. The Company establishes an estimated accrual for its insurance program based on available comparable claims data, trends and projected ultimate costs of claims. This accrual is based on estimates prepared with the assistance of outside actuaries and the ultimate cost of these claims may vary from initial estimates and established accrual. The actuaries periodically update their estimates and the Company records such adjustments in the period in which such determination is made. The accrued obligation for this self-insurance program is included in “Accrued salaries and benefits” in the consolidated balance sheets and is $381,000 as of February 28, 2018.  



Asset Impairment Costs – The Company periodically evaluates its long-lived assets for indicators of impairment. Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity. These periodic evaluations could cause management to conclude that impairment factors exist, requiring an adjustment of these assets to their then-current fair value. Future business conditions and/or activity could differ materially from the projections made by management causing the need for additional impairment charges. The Company recorded an impairment charge of approximately $1.9 million for the three and six months ended February 28, 2018 related to the write off of internally developed software for e-commerce due to the Company’s acquisition of Aeropost, Inc. (see Note 9 – Subsequent Events) and its digital e-commerce platform.



Foreign Currency Translation – The assets and liabilities of the Company’s foreign operations are translated to U.S. dollars when the functional currency in the Company’s international subsidiaries is the local currency and not U.S. dollars.  Assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and revenue, costs and expenses are translated at average rates of exchange in effect during the period.  The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss.  These adjustments will affect net income upon the sale or liquidation of the underlying investment.  Monetary assets and liabilities denominated in currencies other than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date.  These foreign exchange transaction gains (losses), including transactions recorded involving these monetary assets and liabilities, are recorded as Other income (expense) in the consolidated statements of income.



The following table summarizes the amounts recorded for the three and six months ended February 28, 2018 and 2017 (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

February 28,

 

February 28,

 

February 28,

 

February 28,



 

2018

 

2017

 

2018

 

2017

Currency gain (loss)

 

$

210 

 

$

915 

 

$

488 

 

$

(13)





14


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Recent Accounting Pronouncements – Not Yet Adopted



FASB ASC 220 ASU 2018-02 - Income Statement—Reporting Comprehensive Income (Topic 220)— Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income



In February 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which helps organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017 (“tax reform”), enacted on December 22, 2017. ASU No. 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from tax reform. Additionally, ASU No. 2018-02 requires financial statement preparers to disclose (1) a description of their accounting policy for releasing income tax effects from accumulated other comprehensive income, (2) whether they elect to reclassify the stranded income tax effects from the tax reform, and (3) information about other income tax effects related to the application of the tax reform that are reclassified from accumulated other comprehensive income to retained earnings, if any. The amendments in this ASU are effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.



FASB ASC 715 ASU 2017-09 - Compensation—Stock Compensation (Topic 718)—Scope of Modification Accounting



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



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



In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715) — Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU is designed to improve guidance related to the presentation of defined benefit costs in the income statement. In particular, ASU 2017-07 requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.



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



In January 2017, the FASB issued Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under the amendments in this ASU, an entity should (1) perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and (2) recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the understanding that the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.



Additionally, ASU 2017-04 requires any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual periods beginning after December 15, 2019. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.



15


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

FASB ASC 740 ASU 2016-16- Income Taxes (Topic 740)—Intra-Entity Transfers of Assets Other Than Inventory



In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740)—Intra-Entity Transfers of Assets Other than Inventory. Currently, U.S. GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 states that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.



The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company will evaluate the impact adoption of this guidance may have on the Company’s consolidated financial statements.



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



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



FASB ASC 606 ASU 2014-09 - Revenue from Contracts with Customers



In May 2014, the Financial Accounting Standards Board (FASB) issued new guidance on the recognition of revenue from contracts with customers. The guidance combines the requirements for reporting revenue and requires disclosures sufficient to describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from these contracts. Transition is permitted either retrospectively or as a cumulative effect adjustment as of the date of adoption. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company plans to adopt this guidance at the beginning of its first quarter of fiscal year 2019. The Company is evaluating the impact of the adoption of this guidance on all of its sources of revenue and the resulting effect it will have on the Company's consolidated financial statements and related disclosures.



Recent Accounting Pronouncements Adopted



FASB ASC 815 ASU 2017-12 Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities



The FASB has issued Accounting Standards Update (ASU) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which aims to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this ASU are intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.



Additionally, the amendments (1) permit hedge accounting for risk components in hedging relationships involving non-financial risk and interest rate risk; (2) change the guidance for designating fair value hedges of interest rate risk and for measuring the change in fair value of the hedged item in fair value hedges of interest rate risk; (3) continue to allow an entity to exclude option premiums and forward points from the assessment of hedge effectiveness; and (4) permit an entity to exclude the portion of the change in fair value of a currency swap that is attributable to a cross-currency basis spread from the assessment of hedge effectiveness. The amendments in this ASU are effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption allowed. The Company adopted this guidance during the second quarter of fiscal year 2018.  Adoption of this guidance did not have a material effect on the Company's consolidated financial statements.



16


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

FASB ASC 718 ASU 2016-09 - Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting 



In March 2016, the FASB issued new guidance on stock compensation intended to simplify accounting for share-based payment transactions. The guidance will change accounting for income taxes, forfeitures and minimum statutory tax withholding requirements. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. The Company adopted this guidance on September 1, 2017. 



·

The Company determined that the adoption of this guidance did not have a material effect on the result of operations and the calculation of earnings per share.  The Company has used the two-step method for the diluted net income per share calculation over the last several years.

·

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

·

The adoption of this guidance and the amendments related to the timing of when excess tax benefits are recognized, the effect of minimum statutory withholding requirements, forfeitures, and intrinsic value and the adoption of this methodology using the modified retrospective transition method resulted in the Company electing to eliminate the recording of the forfeiture rate on the expense recorded.  The elimination of the forfeiture rate required recording a cumulative-effect adjustment by increasing retained earnings and reducing Additional Paid in Capital, at the beginning of the year of adoption, which was September 1, 2017, for the service periods already incurred for unvested shares



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



In July 2015, the FASB issued guidance that will require an entity to measure in-scope inventory at the lower of cost and net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This amendment applies to entities, like the Company, that measure inventory value using the average cost method.  The amendments in this ASU more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.



The amendment in this ASU is effective on a prospective basis for public entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this guidance on September 1, 2017.  Adoption of this guidance did not have a material effect on the Company's consolidated financial statements.



FASB ASC 230 ASU 2016-18- Statement of Cash Flows (Topic 230)—Restricted Cash



In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230)—Restricted Cash. This ASU addresses the diversity in practice that exists regarding the classification and the presentation of changes in restricted cash on the statement of cash flows.



The amendments in ASU No. 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Thus, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and the end-of-period total amounts set forth on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those fiscal years and will be applied using a retrospective transition method to each period presented.  The Company early adopted this ASU as of August 31, 2017. The adoption of this ASU impacted the presentation of cash flows with inclusion of restricted cash flows for each of the presented periods.



FASB ASC 230 ASU 2016-15- Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)



In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses stakeholders’ concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and Other Topics. In particular, ASU No. 2016-15 addresses eight specific cash flow issues in an effort to reduce this diversity in practice: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon bonds; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle.

17


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 



The amendments in this ASU are effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. The amendments in this ASU should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company early adopted this guidance on December 1, 2017.  Adoption of this guidance did not have an effect on the Company's consolidated financial statements.



 

NOTE 3 – 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 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 stock options 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.



The following table sets forth the computation of net income per share for the three and six months ended February 28, 2018 and 2017 (in thousands, except per share amounts):







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

February 28,

 

February 28,

 

February 28,

 

February 28,



 

2018

 

2017

 

2018

 

2017

Net income

 

$

14,148 

 

$

27,219 

 

$

36,638 

 

$

52,088 

Less: Allocation of income to unvested stockholders

 

 

 —

 

 

(345)

 

 

(398)

 

 

(758)

Net earnings available to common stockholders

 

$

14,148 

 

$

26,874 

 

$

36,240 

 

$

51,330 

Basic weighted average shares outstanding

 

 

30,100 

 

 

30,004 

 

 

30,089 

 

 

29,993 

Add dilutive effect of stock options (two-class method)

 

 

 —

 

 

 

 

 

 

Diluted average shares outstanding

 

 

30,100 

 

 

30,008 

 

 

30,090 

 

 

29,997 

Basic net income per share

 

$

0.47 

 

$

0.90 

 

$

1.21 

 

$

1.72 

Diluted net income per share

 

$

0.47 

 

$

0.90 

 

$

1.21 

 

$

1.72 

 

NOTE 4 – STOCKHOLDERS’ EQUITY



Dividends



The following table summarizes the dividends declared and paid during fiscal year 2018 and 2017 (amounts are per share).







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

First Payment

 

Second Payment

Declared

 

Amount

 

Record
Date

 

Date
Paid

 

Date
Payable

 

Amount

 

Record
Date

 

Date
Paid

 

Date
Payable

 

Amount

1/24/2018

  

$

0.70 

  

2/14/2018

  

2/28/2018

  

N/A

  

$

0.35 

  

8/15/2018

  

N/A

  

8/31/2018

  

$

0.35 

2/1/2017

  

$

0.70 

  

2/15/2017

  

2/28/2017

  

N/A

  

$

0.35 

  

8/15/2017

  

8/31/2017

  

N/A

  

$

0.35 



The Company anticipates the ongoing payment of semi-annual dividends in subsequent periods, although the actual declaration of future dividends, the amount of such dividends, and the establishment of record and payment dates is subject to final determination by the Board of Directors at its discretion after its review of the Company’s financial performance and anticipated capital requirements.



18


 

Table of Contents

PRICESMART, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Comprehensive Income and Accumulated Other Comprehensive Loss



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





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended February 28, 2018



 

Foreign
currency
translation
adjustments

 

Defined
benefit
pension
plans

 

Derivative
Instruments

 

Total

Beginning balance, September 1, 2017

 

$

(108,539)

 

$

(442)

 

$

(1,078)

 

$

(110,059)

Other comprehensive income (loss)

 

 

2,313 

 

 

59 

 

 

1,437 

(1)

 

3,809 

Ending balance, February 28, 2018

 

$

(106,226)

 

$

(383)

 

$

359 

 

$

(106,250)

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended February 28, 2017



 

Foreign
currency
translation
adjustments

 

Defined
benefit
pension
plans

 

Derivative
Instruments

 

Total

Beginning balance, September 1, 2016

 

$

(102,242)

 

$

(315)

 

$

(1,394)

 

$

(103,951)

Other comprehensive income (loss)

 

 

(1,629)

 

 

 —

 

 

783 

(1)

 

(846)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

 —

 

 

(14)

(2)

 

 —

 

 

(14)

Ending balance, February 28, 2017

 

$

(103,871)

 

$

(329)

 

$

(611)

 

$

(104,811)