Annual Reports

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  • 10-K (Oct 30, 2012)
  • 10-K (Jan 9, 2012)
  • 10-K (Nov 9, 2011)
  • 10-K (Nov 9, 2010)
  • 10-K (Nov 9, 2009)

 
Quarterly Reports

 
8-K

 
Other

PriceSmart 10-K 2012
form10ka.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended August 31, 2011
 
OR
 
 ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-22793

PRICESMART, INC.
 
(Exact name of registrant as specified in its charter)
DELAWARE
33-0628530
(State of other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
9740 SCRANTON RD, SAN DIEGO, CA 92121
(Address of principal executive offices, Zip Code)

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

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

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

Common Stock, $0.0001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ¨    No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.             Yes ¨    No þ
 
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 þ    No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨   No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer  ¨
Accelerated filer  þ
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
Smaller reporting company  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes ¨    No þ
 
The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant as of the last day of the Registrant's most recently completed second fiscal quarter was $375,639,815, based on the last reported sale price of $35.59 per share on the NASDAQ Global Select Market on February 28, 2011.
 
As of November 1, 2011, 29,900,030 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Annual Report for the fiscal year ended August 31, 2011 are incorporated by reference into Part II of this Form 10-K.
 
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 25, 2012 are incorporated by reference into Part III of this Form 10-K.
 
 

 

Explanatory Note

This amendment No. 1 is filed to amend the Annual Report on Form 10-K (the “Form 10-K”) of PriceSmart, Inc. (“PriceSmart” or the “Company”) for the year ended August 31, 2011, originally filed on November 9, 2011, to correct disclosures in the Form 10-K as discussed below.  The following items were amended (Dollar amounts in thousands):

·  
Item 8. Financial Statements and Supplementary Data.  The information required by Item 8 was incorporated by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2011 under the heading “Financial Statements and Supplementary Data.” Excerpts from the Annual Report, including “Financial Statements and Supplementary Data”, were filed with the Form 10-K on Exhibit 13.1.  The Company has corrected the total reported for comprehensive income for the fiscal year ended August 31, 2011 in the Consolidated Statements of Stockholders Equity.  The original amount for the total reported was $59,744.  This amount total was a typographical error and has been corrected to read $55,507.
·  
Item 15. Exhibits, Financial Statements Schedules. The Financial Statements and Supplementary Data have been updated as described above and a corrected Exhibit 13.1 is included with the amended filing.

      Except as described above, no other changes have been made to the Form 10-K.  The Form 10-K, as amended, continues to speak as of the date of the original filing, and the Company has not updated the disclosures contained therein to reflect any events that occurred subsequent to the original filing.  As part of the amended filing, Exhibits 31.1, 31.2, 32.1 and 32.2 containing the certifications of our Chief Executive Officer and Chief Financial Officer as well as Exhibit 23.1, containing the consent of our independent registered public accounting firm, that were filed as exhibits to the original filing have been re-executed and re-filed as of the date of this amended filing.

 
1

 

 

 
 
 
Item 15. Exhibits, Financial Statement Schedules
 
(a) The documents listed in the following table, which are included in its Annual Report to Stockholders, are incorporated herein by reference to the portions of this Annual Report on Form 10-K filed as Exhibit 13.1 hereto.
 
(1) and (2) Financial Statements
 
Index to Consolidated Financial Statements
 
Report of Independent Registered Public Accounting Firm
 
Consolidated Balance Sheets
 
Consolidated Statements of Income
 
Consolidated Statements of Stockholders’ Equity
 
Consolidated Statements of Cash Flows
 
Notes to Consolidated Financial Statements
 
Schedules not included herein have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
 
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
 
Exhibit
Number
Description
   
  3.1(1)
Amended and Restated Certificate of Incorporation of the Company.
   
  3.2(33)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
   
  3.3(30)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
   
  3.4(1)
Amended and Restated Bylaws of the Company.
   
  3.5(34)
Amendment to Amended and Restated Bylaws of the Company.
   
  4.1(36)
Specimen of Common Stock certificate.
   
10.1(1)**
1997 Stock Option Plan of PriceSmart, Inc.
   
10.2(a)(39)
Settlement Agreement and General Release of All Claims, entered into on August 5, 2005, by and among William Go, E-Class Corporation, PSMT Philippines, Inc., National Import and Export Company, San Marino International Corporation, Arcadia International Corporation, Christine Merchandising, Inc. and PriceSmart, Inc.
   
10.2(b)(48)
International Loan Swap Agreement with Citibank, N.A. dated as of February 13, 2008.
   
10.2(d)(53)
Loan Facility Agreement between PriceSmart (Trinidad) Limited and First Caribbean International Bank (Trinidad & Tobago) Limited dated February 19, 2009.
   
10.2(e)(55)
Loan Agreement dated August 13, 2009 between PriceSmart, SA. and the Bank of Nova Scotia.

 
 
 
 
 
2

 
 
10.3(a)(3)**
Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated September 20, 1994.
   
10.3(b)(4)**
Third Amendment to Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated April 28, 1997.
   
10.3(c)(1)**
Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 2, 1997.
   
10.3(d)(5)**
Fifth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 31, 1999.

10.3(e)(6)**
Sixth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 22, 1999.
   
10.3(f)(6)**
Seventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 18, 2000.
   
10.3(g)(7)**
Eighth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2001.
   
10.3(h)(7)**
Amendment of Employment Agreement between the Company and Robert M. Gans, dated as of October 16, 2001.
   
10.3(i)(8)**
Ninth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 19, 2002.
   
10.3(j)(9)**
Tenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 22, 2003.
   
10.3(k)(10)**
Eleventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 24, 2003.
   
10.3(l)(46)**
Twelfth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 24, 2004.
   
 10.3(m)(37)**
Thirteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of February 10, 2005.
   
10.3(n)(40)**
Fourteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2005.
   
10.3(o)(42)**
Fifteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 1, 2006.
   
10.3(p)(47)**
Sixteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 25, 2006.
   
10.3(q)(44)**
Seventeenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2007.
   
10.3(r)(50)**
Eighteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2007.
   
10.3(s)(48)**
Nineteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2008.
   
10.3(t)(51)**
Twentieth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2008.
 
10.3(u)(52)**
Twenty First Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 13, 2008.
   
10.3(v)(53)**
Twenty Second Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2009.
   
10.3(w)(56)**
Twenty Third Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2009.
   
10.3(x)(57)**
Twenty Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2010.
   
10.3(y)(60)**
Twenty Fifth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 6, 2010.
   
10.3(z)(61)**
Twenty Sixth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 10, 2011.
   
10.3(aa)(62)**
Twenty Seventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of April 1, 2011.
   
10.4(a)(61)**
Employment Agreement between the Company and John M. Heffner, dated January 31, 2011.
   
10.4(b)(62)**
First Amendment to Employment Agreement between the Company and John M. Heffner, dated April 1, 2011.
   
10.5(12)
Form of Indemnity Agreement.
   
10.8(a)(16)**
Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1998.
   
10.8(b)(5)**
First Amendment to Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1999.
   
10.8(c)(6)**
Second Amendment of Employment Agreement between the Company and Thomas D. Martin, dated November 22, 1999.
   
10.8(d)(13)**
Third Amendment of Employment Agreement between the Company and Thomas Martin dated January 11, 2000.
 
 
3

 
10.8(e)(17)**
Fourth Amendment of Employment Agreement between the Company and Thomas Martin dated January 24, 2001.
   
10.8(f)(7)**
Amendment of Employment Agreement between the Company and Thomas Martin dated October 16, 2001.
   
10.8(g)(14)**
Fifth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 16, 2002.
   
10.8(h)(10)**
Sixth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 22, 2003.
   
10.8(i)(34)**
Seventh Amendment to Employment Agreement between the Company and Thomas Martin, dated March 15, 2004.
   
10.8(j)(38)**
Eighth Amendment to Employment Agreement between the Company and Thomas Martin, dated March 3, 2005.
   
10.8(k)(42)**
Ninth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2006.
   
10.8(l)(44)**
Tenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2007.
 
10.8(m)(45)**
Eleventh Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2007.
   
10.8(n)(48)**
Twelfth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2008.
   
10.8(o)(49)**
Thirteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2008.
   
10.8(p)(52)**
Fourteenth Amendment to Employment Agreement between the Company and Thomas Martin dated November 13, 2008.
   
10.8(q)(53)**
Fifteenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2009.
   
10.8(r)(54)**
Sixteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2009.
   
10.8(s)(57)**
Seventeenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2010.
   
10.8(t)(57)**
Eighteenth Amendment to Employment Agreement between the Company and Thomas Martin dated February 1, 2010.
   
10.8(u)(58)**
Nineteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 15, 2010.
   
10.8(v)(61)**
Twentieth Amendment to Employment Agreement between the Company and Thomas Martin dated January 10, 2011.
   
10.8(w)(62)**
Twenty-First Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2011.
   
10.8(x)(62)**
Twenty-Second Amendment to Employment Agreement between the Company and Thomas Martin dated April 1, 2011.
   
10.9(19)**
1998 Equity Participation Plan of PriceSmart, Inc.
   
10.10(a)(52)
Letter Agreement between RBTT Bank Ltd. and PriceSmart (Trinidad) Limited dated November 20, 2008.
   
10.10(b)(56)
Line of Credit Agreement between PriceSmart and Bacbamer dated October 14, 2009.
   
10.11(52)
Shareholders’ Agreement between Pricsmarlandco, S.A. and JB Enterprises Inc. dated September 29, 2008.
   
10.12(52)
Shareholder Agreement between Fundacion Tempus Fugit and PriceSmart Panama, S.A. dated September 24, 2008.
   
10.13(18)
Trademark Agreement between the Company and Associated Wholesale Grocers, Inc., dated August 1, 1999.
   
10.23(17)
Master Agreement between the Company and Payless ShoeSource Holdings, Ltd., dated November 27, 2000.
   
 10.29(a)(14)**
Employment Agreement between the Company and William Naylon, dated January 16, 2002.
   
10.29(b)(9)**
First Amendment of Employment Agreement between the Company and William J. Naylon, dated January 22, 2003.
   
10.29(c)(33)**
Second Amendment to Employment Agreement between the Company and William Naylon, dated February 1, 2004.
 
4

 
 
10.29(d)(37)**
Third Amendment to Employment Agreement between the Company and William Naylon, dated as of February 16, 2005.
   
10.29(e)(41)**
Fourth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 11, 2006.
   
10.29(f)(42)**
Fifth Amendment to Employment Agreement between the Company and William Naylon, dated as of March 1, 2006.
   
10.29(g)(44)**
Sixth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2007.
   
10.29(h)(48)**
Seventh Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2008.
   
10.29(i)(52)**
Eighth Amendment to Employment Agreement between the Company and William Naylon, dated as of November 13, 2008.
   
10.29(j)(53)**
Ninth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2009.
   
10.29(k)(57)**
Tenth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2010.
   
10.29(l)(61)**
Eleventh Amendment to Employment Agreement between the Company and William Naylon, dated as of January 10, 2011.
   
10.29(m)(62)**
Twelfth Amendment to Employment Agreement between the Company and William Naylon, dated as of April 1, 2011.
   
10.30(a)(7)**
Employment Agreement between the Company and John D. Hildebrandt, dated as of June 1, 2001.

10.30(b)(7)**
Amendment to Employment Agreement between the Company and John Hildebrandt, dated as of October 16, 2001.
   
10.30(c)(14)**
First Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 16, 2002.
   
10.30(d)(10)**
Second Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 22, 2003.
   
10.30(e)(34)**
Third Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 15, 2004.
   
10.30(f)(38)**
Fourth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 9, 2005.
   
10.30(g)(42)**
Fifth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2006.
   
10.30(h)(44)**
Sixth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2007.
   
10.30(i)(45)**
Seventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2007.
   
10.30(j)(48)**
Eighth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2008.
 
10.30(k)(49)**
Ninth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2008.
   
10.30(l)(52)**
Tenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated November 13, 2008.
   
10.30(m)(53)**
Eleventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2009.
   
10.30(n)(54)**
Twelfth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2009.
   
10.30(o)(54)**
Thirteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated April 1, 2009.
   
10.30(p)(57)**
Fourteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2010.
   
10.30(q)(57)**
Fifteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated February 1, 2010.
   
10.30(r)(58)**
Sixteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 15, 2010.
   
10.30(s)(61)**
Seventeenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 10, 2011.
   
10.30(t)(62)**
Eighteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2011.
   
10.30(u)(62)**
Nineteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated April 1, 2011.
   
10.33(22)**
2001 Equity Participation Plan of PriceSmart, Inc.
   
10.44(a)(8)**
Employment Agreement between the Company and Brud Drachman, dated as of January 11, 2000.
 
 
5

 
 
10.44(b)(8)**
First Amendment to Employment Agreement between the Company and Brud Drachman, dated January 24, 2001.
   
10.44(c)(8)**
Second Amendment to Employment Agreement between the Company and Brud Drachman, dated June 1, 2001.
 
10.44(d)(8)**
Amendment to Employment Agreement between the Company and Brud Drachman, dated October 16, 2001.
   
10.44(e)(8)**
Third Amendment to Employment Agreement between the Company and Brud Drachman, dated January 16, 2002.
   
10.44(f)(10)**
Fourth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 19, 2002.
   
10.44(g)(10)**
Fifth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 22, 2003.
   
10.44(h)(34)**
Sixth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 15, 2004.
   
10.44(i)(38)**
Seventh Amendment to Employment Agreement between the Company and Brud Drachman, dated March 9, 2005.
   
10.44(j)(42)**
Eighth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2006.
   
10.44(k)(44)**
Ninth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2007.
   
10.44(l)(45)**
Tenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2007.
   
10.44(m)(48)**
Eleventh Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2008.
   
10.44(n)(49)**
Twelfth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2008.
 
10.44(o)(52)**
Thirteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 13, 2008.
   
10.44(p)(53)**
Fourteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2009.
   
10.44(q)(54)**
Fifteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2009.
   
10.44(r)(57)**
Sixteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2010.
   
10.44(s)(58)**
Seventeenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 15, 2010.
   
10.44(t)(61)**
Eighteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 10, 2011.
   
10.44(u)(62)**
Nineteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2011.
   
10.44(v)(62)**
Twentieth Amendment to Employment Agreement between the Company and Brud Drachman, dated April 1, 2011.
   
10.46(27)**
2002 Equity Participation Plan of PriceSmart, Inc.
   
10.54(a)(35)**
Employment Agreement by and between the Company and Jose Luis Laparte, dated as of June 3, 2004.
   
10.54(b)(35)**
First Amendment to Employment Agreement by and between the Company and Jose Luis Laparte, dated as of August 2, 2004.
   
10.54(c)(40)**
Second Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of September 26, 2005.
   
10.54(d)(42)**
Third Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of March 1, 2006.
   
10.54(e)(47)**
Fourth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of September 25, 2006.
   
10.54(f)(44)**
Fifth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2007.
   
10.54(g)(50)**
Sixth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2007.
   
10.54(h)(50)**
Seventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 31, 2007.
   
10.54(i)(48)**
Eighth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2008.
   
10.54(j)(51)**
Ninth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2008.
   
10.54(k)(52)**
Tenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of November 13, 2008.
 
6

 
 
10.54(l)(53)**
Eleventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2009.
   
10.54(m)(56)**
Twelfth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2009.
   
10.54(n)(57)**
Thirteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2010.
   
10.54(o)(63)**
Fourteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of July 15, 2010.
   
10.54(p)(60)**
Fifteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 6, 2010.
   
10.54(q)(61)**
Sixteenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 10, 2011.
   
10.54(r)(62)**
Seventeenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of April 1, 2011.
   
10.71(a)(48)
Lease Agreement between Flagler Development Company, LLC and PriceSmart, Inc.
   
10.71(b)(48)
Promissory Note entered into between PSMT Barbados and Citibank, N.A. dated November 15, 2007.
   
10.71(c)(48)
Loan Agreement entered into between PSMT Barbados and Citicorp Merchant Bank Limited dated November 15, 2007.
   
10.71(d)(56)
Loan Agreement entered into between PriceSmart and ScotiaBank El Salvador dated September 1, 2009.
   
10.71(e)(57)
Loan Agreement entered into between PriceSmart Honduras, S.A. de C.V. and ScotiaBank El Salvador S.A., dated January 12, 2010.
   
10.71(f)(58)
Loan Agreement entered into between PriceSmart Honduras, a subsidiary of PriceSmart Inc., and Banco del Pais, S.A. dated March 16, 2010.
   
10.71(g)(58)
PriceSmart Honduras S.A. de C.V. Certificate of Deposit, as security in favor of Banco del Pais, S.A. dated March 16, 2010.
   
10.71(h)(59)
Commercial Mortgage Loan Agreement dated August 31, 2010 between PriceSmart Panama, S.A. and Metrobank, S.A.
   
10.71(i)(60)
Loan Agreement between PriceSmart Colombia, S.A.S. and Citibank, N.A., dated as of November 1, 2010.
   
10.71(j)(60)
Deposit Agreement between PriceSmart, Inc. and Citibank, N.A., New York, dated as of November 24, 2010.
   
10.71(k)(60)
Purchase Agreement between PriceSmart Colombia S.A.S. and Cementos Argos S.A., dated as of May 16, 2010.
   
10.71(l)(60)
Addenda No. 1 to Purchase Agreement between PriceSmart Colombia S.A.S. and Cementos Argos S.A., dated as of July 26, 2010.
 
10.71(m)(60)**
Addenda No. 2 to Purchase Agreement between Colombia S.A.S. and Cementos Argos S.A., dated as of October 22, 2010.
   
10.71(n)(62)**
Loan Agreement between PriceSmart Colombia, S.A.S. and Scotiabank & Trust (Cayman) Ltd., dated March 14, 2011.
   
10.72(a)(43)**
Restricted Stock Award Agreement between the Company and Jose Luis Laparte dated December 7, 2006.
 
13.1*
Portions of the Company’s Annual Report to Stockholders for the year ended August 31, 2011.
   
21.1*
Subsidiaries of the Company.
   
23.1*
Consent of Independent Registered Public Accounting Firm.
   
31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1*#
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2*#
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
7

 
 
*
Filed herewith as an exhibit.
**
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
#
These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc. whether made before or after the date hereof, regardless of any general incorporation language in such filing.
(1)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.
(2)
Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed with the Commission on July 3, 1997.
(3)
Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the Commission on November 3, 1994.
(4)
Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Price Enterprises, Inc. for the quarter ended June 8, 1997 filed with the Commission on July 17, 1997.
(5)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 1999 filed with the Commission on July 15, 1999.
(6)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2000 filed with the Commission on November 29, 2000.
(7)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2001 filed with the Commission on November 29, 2001.
(8)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2002 filed with the Commission on November 29, 2002.
(9)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 filed with the Commission on April 14, 2003.
(10)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2003 filed with the Commission on December 16, 2003.
(11)
Incorporated by reference to the Current Report on Form 8-K filed September 12, 1997 by Price Enterprises, Inc.
(12)
Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed with the Commission on August 1, 1997.
(13)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2000 filed with the Commission on April 11, 2000.
(14)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2002 filed with the Commission on July 15, 2002.
(15)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on April 1, 2003.
(16)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1998 filed with the Commission on November 25, 1998.
(17)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001.
(18)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999.
(19)
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 filed with the Commission on April 14, 1999.
(20)        Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
(21)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed with the Commission on July 17, 2000.
(22)
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 7, 2001 for the Company’s 2002 Annual Meeting of Stockholders filed with the Commission on December 10, 2001.
(23)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002 filed with the Commission on April 15, 2002.
(24)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on April 18, 2002.
(25)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on July 19, 2002.
(26)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on October 25, 2002.
(27)
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 11, 2002 for the Company’s 2003 Annual Meeting of Stockholders filed with the Commission on December 11, 2002.
(28)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003 filed with the Commission on July 15, 2003.
(29)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
(30)
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.
(31)
Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 filed with the Commission on January 14, 2004.

 
 
8

 
(32)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on July 26, 2004.
(33)
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.
(34)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2004 filed with the Commission on July 15, 2004.
(35)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on October 8, 2004.
(36)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on December 2, 2004.
(37)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2005 filed with the Commission on April 14, 2005.
(38)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005 filed with the Commission on June 15, 2005.
(39)
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 18, 2005.
(40)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 filed with the Commission on January 17, 2006.
(41)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 filed with the Commission on April 14, 2006.
(42)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 filed with the Commission on July 14, 2006.
(43)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 filed with the Commission on January 9, 2007.
(44)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007 filed with the Commission on April 9, 2007.
(45)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2007 filed with the Commission on July 3, 2007.
(46)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2004 filed with Commission on January 14, 2005.
(47)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2006 filed with the Commission on November 13, 2006.
(48)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2008 filed with the Commission on April 9, 2008.
(49)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2008 filed  with the Commission on July 10, 2008.
(50)
Incorporated by reference to the Company’s Annual Report on Form 10-K/A amendment 2 for the year ended August 31, 2007 filed with the Commission on July 11, 2008.
(51)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2008 filed with the Commission on November 12, 2008.
(52)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended November 30, 2008 filed with the Commission on January 14, 2009.
(53)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 filed with the Commission on April 9, 2009.
(54)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2009 filed with the Commission on July 10, 2009.
(55)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2009 filed with the Commission on November 9, 2009.
(56)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2009 filed with the Commission on January 8, 2010.
(57)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010 filed with the Commission on April 9, 2010.
(58)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2010 filed with the Commission on July 9, 2010.
(59)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2010 filed with the Commission on November 9, 2010.
(60)
Incorporated by reference to the Company’s Quarterly report on Form 10-Q for the quarter ended November 30, 2010 filed with the Commission on January 7, 2011.
(61)
Incorporated by reference to the Company’s Quarterly report on Form 10-Q for the quarter ended February 28, 2011 filed with the Commission on April 7, 2011.
(62)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2011 filed with the Commission on July 8, 2011.
(63)
Incorporated by reference to the Company’s original filing of this Annual Report on Form 10-K for the year ended August 31, 2011 filed with the Commission on November 9, 2011.


   
Schedules not included herein have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
 
(b)               Financial Statement Schedules

1)  
Schedule II – Valuation and Qualifying Accounts and Reserves for each of the three years in the period ended August 31, 2011.

 
9

 
 
 


 


Report of Independent Registered Public Accounting Firm on Financial Statement Schedule>
 
 
The Board of Directors and Stockholders of PriceSmart, Inc.
 
We have audited the consolidated financial statements of PriceSmart, Inc. as of August 31, 2011 and 2010, and for each of the three years in the period ended August 31, 2011, and have issued our report thereon dated November 9, 2011. Our audits also included the financial statement schedule listed in Item 15(b)1. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
 
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as whole, presents fairly in all material respects the information set forth therein.
 
 
/s/ Ernst & Young LLP
 
 
San Diego, California
November 9, 2011
 

 
10

 

 
SCHEDULE II
 
PRICESMART, INC.
 
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)

 
 
Balance at
Beginning
of Period
 
Charged to
Costs and
Expenses
 
Deductions
 
Balance at
End of
Period
 
Allowance for doubtful accounts:
               
Year ended August 31, 2009
$
  11
 
$
  44
 
$
  (45
)
 
$
10
 
Year ended August 31, 2010
$
  10
 
$
  46
 
$
  (41
)
 
$
15
 
Year ended August 31, 2011
$
    15
 
$
  (12
$
    2
   
$
  5
 
 

 
11

 

 


 



 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: January 9, 2012
PRICESMART, INC.
     
 
By:
/s/     JOSE LUIS LAPARTE
   
Jose Luis Laparte
   
Director, Chief Executive Officer and President
   
(Principal Executive Officer)




 
 
 
 
 
12

 



Exhibit 13.1
 
PRICESMART, INC.
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION
AUGUST 31, 2011






 
 
 
 
 
i

 
 


 
SELECTED FINANCIAL DATA
 
The selected consolidated financial data presented below is derived from the Company's consolidated financial statements and accompanying notes. This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included elsewhere in this report.
 
 
Years Ended August 31,
 
 
2011
   
2010
   
2009
   
2008
   
2007
 
   
(in thousands, except income (loss) per common share)
 
OPERATING RESULTS DATA:
                             
                               
Net warehouse club sales
$
1,675,247
   
$
  1,365,801
   
$
1,224,331
   
$
1,097,510
   
$
869,102
 
Export sales
 
  8,831
     
  4,139
     
3,679
     
1,498
     
1,016
 
Membership income
 
  22,817
     
  19,742
     
17,903
     
16,042
     
13,857
 
Other income
 
  7,352
     
  6,209
     
5,715
     
4,826
     
4,826
 
Total revenues
 
  1,714,247
     
  1,395,891
     
1,251,628
     
1,119,876
     
888,801
 
Total cost of goods sold
 
1,430,704
     
  1,160,264
     
1,048,039
     
933,714
     
738,279
 
Total selling, general and administrative
 
191,255
     
  159,593
     
145,839
     
134,214
     
115,123
 
Preopening expenses
 
1,408
     
  1,123
     
515
     
1,010
     
373
 
Asset impairment and closure costs (gains)
 
     
  18
     
(249
)
   
1,142
     
1,550
 
Provision for settlement of pending litigation
 
 —
     
 —
     
     
1,370
     
5,500
 
Operating income
 
90,880
     
  74,893
     
57,484
     
48,426
     
27,976
 
Total other income (expense)(1)
 
(1,524
)
   
  (2,653
)
   
(1,782
)
   
(598
)
   
523
 
Income from continuing operations before provision for income taxes, losses of unconsolidated affiliates and net income attributable to noncontrolling interests
 
89,356
     
  72,240
     
55,702
     
47,828
     
28,499
 
Provision for income taxes
 
(27,468
)
   
  (22,787
)
   
(13,069
)
   
(9,124
)
   
(12,337
)
Losses of unconsolidated affiliates(2)
 
(52
)
   
  (22
)
   
(21
)
   
     
(2,903
)
Net income attributable to noncontrolling interests
 
— 
     
  (132
)
   
(265
)
   
(494
)
   
(476
)
Net income from continuing operations attributable to PriceSmart
 
61,836
     
  49,299
     
42,347
     
38,210
     
12,783
 
Discontinued operations income (loss), net of tax
 
(86
)
   
  16
     
(28
)
   
(104
)
   
143
 
Net income attributable to PriceSmart
$
61,750
   
$
  49,315
   
$
42,319
   
$
38,106
   
$
12,926
 
INCOME PER COMMON SHARE -BASIC:(3)
                                     
Income from continuing operations attributable to PriceSmart
$
2.07
   
$
  1.66
   
$
1.43
   
$
1.30
   
$
0.44
 
Discontinued operations, net of tax
$
 —
   
$
 —
   
$
   
$
   
$
0.01
 
Basic net income per common share attributable to PriceSmart
 
$
2.07
   
$
  1.66
   
$
1.43
   
$
1.30
   
$
0.45
 
INCOME PER COMMON SHARE -DILUTED:(3)
                                     
Income from continuing operations attributable to PriceSmart
2.07
   
$
  1.65
   
$
1.43
   
$
1.29
   
$
0.44
 
Discontinued operations, net of tax
 —
   
$
   
$
   
$
   
$
0.01
 
Diluted net income per common share attributable to PriceSmart
$
2.07
   
$
  1.65
   
$
1.43
   
$
1.29
   
$
0.45
 
Weighted average common shares - basic
 
29,441
     
  29,254
     
28,959
     
28,860
     
28,534
 
Weighted average common shares - diluted
 
29,450
     
  29,279
     
29,057
     
28,996
     
28,685
 



  
 
 
 
1

 
 

 
PRICESMART, INC.
 
SELECTED FINANCIAL DATA- (Continued)


   
As of August 31,
 
   
2011
   
2010
   
2009
   
2008
   
2007
 
   
(in thousands)
 
BALANCE SHEET DATA:
                             
Cash and cash equivalents
$
76,817
   
$
  73,346
   
$
44,193
   
$
48,121
   
$
32,065
 
Short-term restricted cash
 
  1,240
     
  1,240
     
10
     
536
     
8,046
 
Total assets
 
  664,328
     
  572,565
     
487,373
     
451,412
     
395,419
 
Long-term debt(4)
 
  60,451
     
  53,005
     
37,120
     
23,028
     
8,008
 
Total PriceSmart stockholders’ equity
 
  375,838
     
  336,043
     
300,398
     
274,506
     
245,316
 
Dividends paid on common stock(5)
$
17,934 
    $
  14,895
    $
19,551
   
9,463
   
4,659
 

(1)
Net interest and other income (expense) includes interest income and expense and gains and losses on disposal of assets.
(2)
Includes impairment charges of $2.6 million in fiscal year 2007.
(3)
Effective September 1, 2009 (fiscal year 2010), the Company adopted Financial Accounting Standards Board guidance that addresses whether instruments granted in share-based payment transactions are participating securities and, therefore, have a potential dilutive effect on earnings per share (“EPS”).  This guidance was applied retrospectively to all periods presented.  In previously reported periods, diluted net income per share was computed using the treasury stock method to calculate the dilutive common shares outstanding during the period.  The prior method resulted in diluted income per share from continuing operations attributable to PriceSmart, Inc. of $1.45, $1.30 and $0.44 for the fiscal years 2009, 2008 and 2007 respectively.
(4)
Long-term debt, net of current portion.
(5)
On January 19, 2011, January 27, 2010, January 29, 2009, January 24, 2008 and February 7, 2007, the Company declared a cash dividend on its common stock.
 





 
 
 
 
 
2

 
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Annual Report contains forward-looking statements concerning the Company's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “anticipated,” “scheduled,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company's financial performance is dependent on international operations which exposes the Company to various risks; any failure by the Company to manage its widely dispersed operations could adversely affect its business; the Company faces significant competition; the Company faces difficulties in the shipment of, and risks inherent in the acquisition and importation of, merchandise to its warehouse clubs; the Company is exposed to weather and other natural disaster risks; general economic conditions could adversely impact the Company's business in various respects; a few of the Company's stockholders own nearly 31.9% of the Company's voting stock, which may make it difficult to complete some corporate transactions without their support and may impede a change in control; the loss of key personnel could harm the Company's business; the Company is subject to volatility in foreign currency exchange rates; the Company faces the risk of exposure to product liability claims, a product recall and adverse publicity; a determination that the Company's long-lived or intangible assets have been impaired could adversely affect the Company's future results of operations and financial position; although the Company takes steps to continuously review, enhance, and implement improvements to its internal controls, there may be material weaknesses or significant deficiencies that the Company has not yet identified; as well as the other risks detailed in the Company's U.S. Securities and Exchange Commission (“SEC”) reports, including the Company's Annual Report on Form 10-K filed for the fiscal year ended August 31, 2010 filed pursuant to the Securities Exchange Act of 1934.
 
The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2011, 2010 and 2009 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report.
 
PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Latin America and the Caribbean that sell high quality goods and services to its retail and wholesale members at low prices, while providing good wages and benefits to PriceSmart employees and a fair return to PriceSmart stockholders. The Company sells U.S. brand-name, private label, locally sourced and imported products to its small business and consumer members in a warehouse club format, providing high value to its members. By focusing on providing high value on quality merchandise in a low-cost operating environment, the Company seeks to grow sales volume and membership, which in turn will allow for further efficiencies and price reductions and ultimately improved value to its members. 

PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation as of August 31, 2011 and 2010, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:
 
Country/Territory
 
Number of
Warehouse Clubs
in Operation
(as of August 31, 2011)
   
Number of
Warehouse Clubs
in Operation (as of
August 31, 2010)
   
Ownership (as of
August 31, 2011)
 
Basis of
Presentation
Colombia
   
1
     
     
100
%
Consolidated
Panama
   
4
     
4
     
100
%
Consolidated
Costa Rica
   
5
     
5
     
100
%
Consolidated
Dominican Republic
   
3
     
2
     
100
%
Consolidated
Guatemala
   
3
     
3
     
100
%
Consolidated
El Salvador
   
2
     
2
     
100
%
Consolidated
Honduras
   
2
     
2
     
100
%
Consolidated
Trinidad
   
4
     
4
     
100
%
Consolidated
Aruba
   
1
     
1
     
100
%
Consolidated
Barbados
   
1
     
1
     
100
%
Consolidated
U.S. Virgin Islands
   
1
     
1
     
100
%
Consolidated
Jamaica
   
1
     
1
     
100
%
Consolidated
Nicaragua
   
1
     
1
     
100
%
Consolidated
Totals
   
29
     
27
           

During fiscal year 2010, the Company completed construction of a new Panama warehouse club ("Brisas").  The Company closed another Panama warehouse club ("Los Pueblos") and relocated its operations to this new site.  The Company subsequently sold the land and building that previously housed the Los Pueblos warehouse club.  The Company completed construction of and opened, a new warehouse club in Trinidad ("San Fernando") in April 2010, bringing the number of warehouse clubs in Trinidad to four.  Also during fiscal year 2010 the Company constructed a new warehouse club in Santo Domingo, Dominican Republic ("Arroyo Hondo") which was acquired in December 2009.  The Company opened this new warehouse club on November 5, 2010.  It is the Company's second warehouse club in Santo Domingo and the third in the Domincan Republic.
 
In November 2010, the Company through its Colombian subsidiary acquired land in Barranquilla, Colombia and constructed a new membership warehouse club on this site that opened on August 19, 2011.
 
 
3

   
    At the end of August 2011, the Company had 29 warehouse clubs operating in 12 countries and one U.S. territory, in comparison to 27 warehouse clubs operating in 11 countries and one U.S. territory at the end of August 2010. The average age of the 29 warehouse clubs in operation was 107 months as of the end of August 31, 2011 and the average age of the 27 warehouse clubs included in operation was 102 months as of August 31, 2010.
 
During the third quarter of fiscal year 2010, the Company purchased the remaining 5% noncontrolling interest of its Trinidad subsidiary.

In addition to the warehouse clubs operated directly by the Company, there was one warehouse club in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earned a small royalty fee.  This agreement was terminated on August 9, 2011 in connection with the Company's termination of its lease of its former warehouse club located in Guam.  As a result, the Company will no longer receive royalty fees and now has no third party licensing agreements. 
 
In general, the Company’s earnings improve, and cash flows from operations increase, as sales increase.  Although the Company’s cost of goods sold is largely variable with sales, a portion of the Company’s selling, general and administrative expenses rise relatively slowly in relation to sales increases.  Therefore, the Company prioritizes initiatives that it expects will have the greatest impact on increasing sales.  Looking forward to the next several quarters, the following items are likely to have an impact on business and the results of operations:

General Economic Factors

As the U.S. economy provides mixed signals about whether a modest recovery is taking hold or whether another slow-down may occur (the so-called “double dip”), the Company continues to watch for signs as to what effect this may have in its markets.  The recession experienced in the U.S. in calendar year 2009 appeared to have had less effect on the Company’s markets, particularly Central America, than past U.S. recessions.  While there has been no specific indication of a change in the moderate economic growth of the past two years within most of the Company’s markets, the Company will continue to monitor the situation as a slow-down in the U.S. economy could have a negative impact on future sales growth.  Further, world economic events, such as the concerns over European debt, can have an impact on financial markets, which in turn can affect exchange rates of currencies compared to the U.S. dollar in the Company’s markets and also the interest rates paid by the Company on some of its long-term debt.

The Company continues to be concerned about the increasing price of oil and certain commodities that could have a negative effect on the Company’s operating costs and sales.  Higher oil prices can negatively impact the economic growth of the countries in which the Company operates, thereby reducing the buying power of our members.  Higher oil prices can also increase the Company’s operating costs, particularly utilities and distribution expenses.  Inflationary pressures on various commodities may also impact consumer spending.  The Company takes steps to buy competitively from its suppliers, but will pass through higher costs for items through increased pricing when necessary although, depending on the magnitude of the change, at a reduced gross margin percentage of sales.  Due to many factors, including the broad array of merchandise offered in our warehouse clubs, the changing mix of items between imported versus locally sourced, and the Company’s ongoing efforts to reduce prices through operational efficiencies, the Company believes that the current impact of inflation, if any, on the Company’s reported sales growth is small, but has determined that this is not quantifiable with any certainty.
 
In the countries in which the Company operates, the Company does not currently face direct competition from U.S. membership warehouse club operators.  However, it does face competition from various retail formats such as hypermarkets, supermarkets, cash and carry, and specialty stores, including those within Latin America that are owned and operated by a large U.S. based retailer.  The Company has competed effectively in these markets in the past and expects to continue to do so in the future due to the unique nature of the membership warehouse club format.  The Company has noted that certain retailers are making investments in upgrading their locations which may result in increased competition.  Further, it is possible that current U.S. warehouse club operators may decide to enter the Company’s markets and compete more directly with PriceSmart in a similar warehouse club format.
 
Many PriceSmart markets are susceptible to foreign currency exchange rate volatility.  Currency exchange rate changes either increase or decrease the cost of imported products which the Company purchases in U.S. dollars and prices in local currency. Price changes can impact the demand for those products in the market.  Currency exchange rates also affect the reported sales of the consolidated company when local currency-denominated sales are translated to U.S. dollars.  In addition, the Company revalues all U.S. dollar denominated assets and liabilities within those markets that do not use the U.S. dollar as its functional currency.  These assets and liabilities include, but are not limited to, excess cash permanently reinvested offshore and the value of items shipped from the U.S. to the Company’s foreign markets.  The gain or loss associated with this revaluation, net of reserves, is recorded in net warehouse sales cost of goods sold.  Approximately 49% of the Company’s net warehouse sales are comprised of products imported into the markets where PriceSmart warehouse clubs are located. Products imported for sale in PriceSmart markets are purchased in U.S. dollars, but approximately 79% of the Company’s net warehouse sales are in foreign currencies.  During fiscal year 2011, local currencies in PriceSmart markets have generally declined relative to the dollar, but the Barbados dollar, Colombian peso and Guatemalan quetzale have all appreciated relative to the U.S. dollar on a year-over-year basis recently which has had a positive impact on sales.  The Company seeks to manage its foreign exchange risk by (1) adjusting prices on U.S. dollar goods on a periodic basis to maintain its target margins after taking into account changes in exchange rates; (2) by obtaining local currency loans from banks within certain markets where it is economical to do so and where management believes the risk of devaluation and the level of U.S. dollar denominated liabilities warrants this action; and (3) reducing the time between the acquisition of product in U.S. dollars and the settlement of that purchase in local currency.  The Company has local currency-denominated long-term loans in Honduras and Guatemala; and has a cross-currency interest rate swap in Colombia.  At the start of fiscal year 2012, recent concerns about European debt has caused instability in the financial markets and a devaluation of many of the currencies in which the Company operates relative to the U.S. dollar, most notably the Colombian peso.  Future volatility and uncertainties regarding the currencies in the Company's countries could have a material impact on the Company’s operations in future periods.  However, there is no way to accurately forecast how currencies may trade in the future and, as a result the Company cannot accurately project the impact of the change in rates on the Company’s future demand for imported products, reported sales, or financial results.
 
4

 
 
 
Current and Future Management Actions

In general, the Company’s earnings improve and cash flows from operations increase as sales increase.  As sales volumes increase and the Company increases its purchases of products, the Company can obtain better pricing from its suppliers.   Higher volumes also provide increased operating efficiencies in the distribution operation as fixed costs are spread over this increased volume, with a resulting reduction in per unit distribution costs. Further, with increased sales, the Company can leverage its selling, general and administrative expenses which rise relatively slowly in relation to sales increases.  All of this, in turn, allows the Company to reduce prices to drive further increases in sales, greater gross profit margin dollars and increased operating income, even as gross profit margin percentage remains flat or decreases.  Reduced pricing also enhances the value of the PriceSmart membership which generates more membership income as new memberships are sold and current members are retained. Therefore, the Company prioritizes initiatives that it expects will have the greatest impact on increasing sales.  Sales growth in our existing locations (comparable warehouse club sales) creates the highest degree of cost leverage due to the operating efficiencies within our warehouse club format.  However, the Company also seeks to add additional warehouse clubs where we believe it is accretive to our business and is financially feasible.  In this regard, actions that the Company has taken, or is taking, actions to positively impact warehouse club sales growth and the results of operations include the following:
 
In several existing warehouse clubs, the Company has already undertaken expansions and related improvements, and the Company is planning several additional expansions, reconfigurations and/or fixture upgrades, all of which are designed to provide additional merchandise selling space and capacity.  For example, during fiscal year 2011, the Company completed the expansion of the bakeries in the Nicaragua and Tegucigalpa, Honduras warehouse clubs.  Also in August of fiscal year 2011, the Company leased space for additional member parking for the warehouse club located in Tegucigalpa, Honduras.  Future plans include the expansion of the Barbados warehouse club sales floor space and the remodel of the fresh food area; the expansion of the overstock freezers in the USVI and Zapote and Escazu, Costa Rica warehouse clubs; and upgrading and remodeling the fresh foods area in multiple warehouse clubs.  The Company expects to invest approximately $4.4 million in expansions, reconfigurations and/or upgrades during fiscal year 2012 and believes that these improvements will provide for more selling space and increased capacity for stocking and displaying merchandise in the Company's warehouse clubs, thereby contributing to an increase in sales.
 
The Company has also taken steps to increase the capacity and efficiency of its distribution of merchandise from the U.S. to its markets.  The Company renegotiated its existing lease for its primary distribution center in Miami, adding approximately 74,000 square feet of warehouse space. The Company invested approximately $3.5 million to upgrade this space, which was completed in June 2011.  The Company has now consolidated its dry, frozen and refrigerated merchandise distribution facilities. This has increased the capacity of its distribution operation and has also allowed the Company to more efficiently service the PriceSmart warehouse club locations, thereby generating savings in distribution expenses by improving the flow of merchandise through the facility and reducing handling costs. The Company continues to evaluate its distribution processes to enhance the efficiency and cost effectiveness of shipping merchandise from suppliers to the warehouse clubs.
 
With respect to growing sales by increasing the number of warehouse clubs, the Company has an on-going process to evaluate sites for additional PriceSmart warehouse club locations.  Although a specific target for new warehouse club openings in fiscal year 2012 and beyond has not been set, management believes that there may be opportunities to add locations in certain PriceSmart markets.  The Company opened a new warehouse club in Santo Domingo, Dominican Republic (“Arroyo Hondo”) on November 5, 2010, and a new membership warehouse club in Barranquilla, Colombia on August 19, 2011.   During May 2011, the Company entered into an agreement to acquire land in north Cali, Colombia, which is currently subject to the fulfillment of certain conditions prior to March, 2012. In the event the conditions are timely fulfilled, the Company plans to acquire the site to construct and operate upon it a new warehouse club. During July 2011, the Company also entered into an agreement to acquire land in south Cali, Colombia, which is currently subject to the fulfillment of certain conditions prior to January, 2012. In the event the conditions are timely fulfilled, the Company plans to also acquire this site to construct and operate upon it an additional new warehouse club. While it is currently unknown whether the north Cali conditions will be met in a timely manner, the Company currently anticipates that the south Cali site will be acquired by the Company in December 2011 and that a new warehouse club will open on that site in late calendar 2012.  The Company continues to explore other potential sites for future warehouse clubs in other major cities in Colombia.  The initial warehouse sales and membership results experienced with the opening of the Barranquilla warehouse club has reinforced the Company’s belief that Colombia could be a market for multiple PriceSmart warehouse clubs.
 
The Company seeks to enhance its long-term business performance by buying rather than leasing real estate which occasionally includes developing adjacent land either directly or through joint ventures.  Real estate ownership provides a number of advantages as compared to leasing, including lower operating expenses, flexibility to expand or otherwise enhance PriceSmart buildings, long-term control over the use of the property and the residual value that the real estate may have in future years.  In the course of acquiring sites, the Company sometimes has to purchase more land than is actually needed for the warehouse club operation.  As an example, when the Company acquired the Alajuela site in Costa Rica, it purchased land for the PriceSmart warehouse club and entered into a joint venture with the seller on the balance of the property.  PriceSmart entered into a similar real estate transaction with respect to its recently opened Brisas site in Panama City.  To the extent that the Company acquires property in excess of what is needed for a particular warehouse club, the Company generally plans to either sell or develop the excess property.  The excess land at Alajuela and Brisas is being held for development by the joint ventures, which commenced in fiscal year 2011.  A similar development strategy is being employed for the Company’s excess land at the new San Fernando, Trinidad and Arroyo Hondo, Dominican Republic locations where the properties are fully owned by PriceSmart. In this respect, the Company recently began developing and has executed lease agreements on part of the excess land in San Fernando, Trinidad.  The profitable sale or development of real estate is highly dependent on real estate market conditions.  The Company believes that it will find suitable tenants or acquirers in the future for its other property development projects.
 
 
 
 
 
5

 
 
Key items for fiscal year 2011 fourth quarter include:

·  
Net warehouse club sales increased 22.1% over the same quarter in the prior year, resulting from a 19.3% increase in comparable warehouse club sales (for the 13 weeks ending September 4, 2011) and the addition of two new warehouse clubs:  Santo Domingo, Dominican Republic (November 5, 2010) and Barranquilla, Colombia (August 19, 2011).

·  
The Company opened its 29th warehouse club and first in Colombia on August 19, 2011.  Warehouse sales for the 13 days in the quarter and fiscal year contributed 77 basis points of growth in the quarter.
 
·  
Gross profits (net warehouse club sales less associated cost of goods sold) were $64.6 million (14.8% of sales) compared to $55.5 million (15.6% of sales).  The increase in gross profits and decrease in gross margin percentage are consistent with the Company's strategy of lowering prices to enhance value to members and increase sales.
 
·  
Selling, general and administrative expenses, including preopening expenses, grew 26.6% to $53.8 million (12.3% of net warehouse sales) from $42.5 million (11.9% of net warehouse sales) from the same period last year.  The cost associated with Colombia, including the infrastructure established within the country, the pre-opening expenses for the warehouse club, and the initial costs to operate the warehouse club, added $2.1 million in operating expenses (0.5% of net warehouse sales) in the quarter.  Additionally, the Company recorded a charge in the current quarter to increase depreciation expense by $2.5 million in connection with the correction of an error from prior periods associated with the translation of depreciation expense from foreign currencies into U.S. dollars.  (See Notes to Consolidated Financial Statements - Note 1 - Company Overview and Basis of Presentation). 
 
·  
Provision for income taxes was $5.4 million for a tax rate of 29.9% of pre-tax income.  The rate in the current quarter was positively impacted by a decrease of $3.1 million in the quarter resulting from a correction of an error identified in the Company's reconciliation of net deferred tax assets associated with operating and capital loss carry-forwards to its tax returns (see Notes to Consolidated Financial Statements - Note 1 - Company Overview and Basis of Presentation).  Without this one-time benefit, the tax rate would have been 47.2% of pre-tax income compared to 30.7% of pre-tax income in the fourth quarter of fiscal year 2010 and a tax rate for the previous nine month period of 31.0%.  The higher rate in the current period (net of the $3.1 milion correction) resulted from (i) a $516,000 undistributed profits tax in Panama for accumulated retained earnings that the Company is not planning to repatriate to the U.S.; (ii) a $217,000 non-cash write-off a deferred tax asset associated with the sale of the Company’s Los Pueblos, Panama, warehouse club site, the gain of which was recognized in the third quarter of fiscal year 2011; (iii) uncertain tax positions of approximately $400,000; and (iv) a taxable loss incurred in the Company’s new Colombia entity associated with start-up costs and investment for which it did not recognize a tax benefit.  A full valuation allowance was recorded against the future tax benefit of those losses at this time.
 
·  
Net income for the quarter was $12.6 million, or $0.42 per diluted share, compared to $13.2 million, or $0.44 per diluted share, in the fourth quarter of fiscal year 2010.

Key items for fiscal year 2011 included:
 
·  
Net warehouse club sales increased 22.7% over the prior year, resulting from a 18.1% increase in comparable warehouse club sales (through the 52 weeks ending September 4, 2011) and the partial year effect of three new warehouse clubs:  San Fernando, Trinidad (April 30, 2010), Santo Domingo, Dominican Republic (November 5, 2010) and Barranquilla, Colombia (August 19, 2011).
 
·  
Membership income for fiscal year 2011 increased 15.6% to $22.8 million as the number of membership accounts grew to 832,500 and the 12-month renewal rate improved to 88% in fiscal year 2011 from 86% in fiscal year 2010.
 
·  
Gross profits (net warehouse club sales less associated cost of goods sold) increased 20.8% over the prior year.
 
·  
Selling, general and administrative expenses improved 27 basis points of net warehouse sales compared to the same twelve-month period last year despite the partial-year incremental costs of three additional warehouse clubs in operation and expenses associated with the Colombia country headquarters.  Additionally, the Company recorded a charge in the current year to increase depreciation expense by $2.3 million in connection with the correction of an error from prior periods associated with the translation of depreciation expense from foreign currencies into U.S. dollars from prior periods.  (See Notes to Consolidated Financial Statements - Note 1 - Company Overview and Basis of Presentation). 

·  
Operating income for fiscal year 2011 was $90.9 million, an increase of 21.3% over fiscal year 2010.
 
·  
Provision for income taxes was $27.5 million for a tax rate of 30.7% of pre-tax income.  In the same period last year, the income tax provision was $22.8 million, or 31.5% of pre-tax income.  The lower rate in the fiscal year is largely due to a decrease of $3.1 million for the income tax provision resulting from the correction of an error identified in the Company's reconciliation of net deferred tax assets related to Net Operating and Capital Loss Carry-forwards to its tax returns (see Notes to Consolidated Financial Statements - Note 1 - Company of Overview and Basis of Presentation) offset by increases in the income tax provision for (i) an increase in U.S. statutory tax rate from 34% to 35%; (ii) a $516,000 undistributed profits tax in Panama for accumulated retained earnings that the Company is not planning to repatriate to the U.S.; (iii) in fiscal year 2011, the Company accrued $581,000 income tax liability for uncertain tax positions; and (iv) due to a charge to taxes due to a taxable loss incurred in the Company’s new Colombia entity for which it did not recognize a tax benefit.  A full valuation allowance was recorded against the future tax benefit of losses generated by the Colombia operations which started in fiscal year 2010.  
 
·  
Net income attributable to PriceSmart for fiscal year 2011 was $61.8 million, or $2.07 per diluted share, compared to $49.3 million, or $1.65 per diluted share, in fiscal year 2010.

 
6

 
 
 


 
Comparison of Fiscal Year 2011 to 2010 and Fiscal Year 2010 to 2009

Certain percentages presented are calculated using actual results prior to rounding.  The Company’s fiscal year ends on August 31.  Unless otherwise noted, references to net income relate to net income attributable to PriceSmart. Unless otherwise noted, all tables present dollar amounts in thousands.

Net Warehouse Club Sales
 
Fiscal Years Ended August 31,
 
2011
   
2010
   
2009
   
 
Amount
 
% Change
   
Amount
 
 % Change
   
Amount
Net warehouse club sales
$
 1,675,247
 
  22.7
%
 
$
 1,365,801
 
11.6
%  
$
1,224,331
 
Comparison of 2011 to 2010

Net warehouse club sales grew 22.7% in fiscal year 2011 compared to fiscal year 2010.  The sales growth in the year was predominantly driven by transaction growth of 18.9%.  The average value of each transaction grew 3.1%.    Sales growth was evident across all major merchandise categories.  Changes in currency exchange rates had a net positive effect on sales.  Local currencies in three of the Company’s markets (Jamaica, Costa Rica and Guatemala) appreciated against the U.S. dollar compared to the same period last year, which made the imported merchandise relatively more affordable to our members.  The sales of local merchandise, when translated to U.S. dollars in those markets, also had a favorable impact.  The positive effects of currency appreciation in those markets more than offset the opposite effect in other markets where the local currency declined against the U.S. dollar.

The difference between total net warehouse club sales of 22.7% and the comparable warehouse club sales noted below of 18.1% was predominantly due to the effect of the San Fernando, Trinidad warehouse club which was open for a full year in fiscal year 2011, but only four months in fiscal year 2010; and the second Santo Domingo, Dominican Republic warehouse club which was open for 10 months in fiscal year 2011 but had no sales in fiscal year 2010.  The Barranquilla, Colombia warehouse club was only open for the last 13 days of fiscal year 2011 and had little effect on the consolidated year-over-year growth in net warehouse sales.

Comparison of 2010 to 2009

For fiscal year 2010, the Company’s warehouse club in Alajuela, Costa Rica was in operation for the full 12 months of the year, compared to approximately four months in fiscal year 2009.  In addition, the Company’s warehouse club in San Fernando, Trinidad opened on April 30, 2010 and contributed four full months of sales in fiscal year 2010.  Sales from these additional clubs contributed approximately 390 basis points to the overall sales growth of fiscal year 2010 from fiscal year 2009.  The Company experienced strong sales in a number of merchandise categories during the months of April, May and June of fiscal year 2010 as a result of the World Cup soccer tournament.  In addition, the strength of the Costa Rican currency relative to the U.S. dollar has made the imported merchandise relatively more affordable and contributed to increased demand in the Company’s largest single market.  The Costa Rican colon appreciated approximately 13.6% against the U.S. dollar from the end of fiscal year 2009 to the end of fiscal year 2010.  Sales of non-consumable merchandise continued to show improvement through the fiscal year and ended the year with growth of 11.7% compared to fiscal year 2009.   The Company had experienced negative sales growth in the last two quarters of fiscal year 2009 and the first quarter of fiscal year 2010 compared to the same quarter in the prior year in this merchandise category but saw growth of 8.5%, 16.4% and 27.0% in the second, third, and fourth quarters of fiscal year 2010, respectively, compared to the same quarters in the prior year.  Sales transactions in the year grew 10.2% compared to the prior year and the average dollar value of those transactions increased by 1.3%.

Comparable Sales

The Company reports comparable warehouse club sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month that is used for financial reporting purposes. This approach equalizes the number of weekend days and week days in each period for improved sales comparison, as the Company experiences higher warehouse club sales on the weekends. Further, each of the warehouse clubs used in the calculations was open for at least 13 1/2 calendar months before its results for the current period were compared with its results for the prior period. For example, the sales related to the new warehouse club opened in the Dominican Republic on November 5, 2010 will not be used in the calculation of comparable warehouse club sales until January 2012.  Similarly, the sales related to the new warehouse club opened in Trinidad on April 30, 2010 was not used in the calculation of comparable warehouse club sales until July 2011 and sales related the new warehouse club opened in Colombia on August 19, 2011 will not be used in the calculation of comparable warehouse club sales until November 2012.  

 Comparison of 2011 to 2010

Comparable warehouse club sales for the 52-week period ended September 4, 2011 increased 18.1% compared to the same 52-week period last year.

Comparison of 2010 to 2009

For fiscal year 2010, comparable warehouse club sales, increased 8.2% for the 53-week period ended September 5, 2010, compared to the same 53-week period for fiscal year 2009.

 
7

 
Net Warehouse Club Sales by Segments

The following tables indicate the net warehouse club sales and the percentage growth in net warehouse club sales during fiscal years 2011, 2010 and 2009 in the segments in which the Company operates.

As of August 31, 2010, the Company changed the “Central America” operating segment to the “Latin America” operating segment to reflect the inclusion of Colombia within the general geographic area of the Company’s operations.  The first warehouse club in Colombia opened on August 19, 2011.

   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
 
% of net
revenue
   
Amount
 
% of net
revenue
   
Amount
 
% of net
revenue
 
           
Latin America
$
  1,060,620
 
  63.3
%
 
$
838,864
   
61.4
%
 
$
724,964
   
59.2
%
Caribbean
 
  614,627
 
  36.7
%
   
526,937
   
38.6
%
   
499,367
   
40.8
%
Net warehouse club sales
$
  1,675,247
 
  100.0
%
 
$
1,365,801
   
100.0
%
 
$
1,224,331
   
100.0
%


 
Fiscal Years Ended August 31,
 
 
2011
   
2010
 
   
Year-over-year increase
 
% change
   
Year-over-year increase
 
% change
 
                         
Latin America
$
  221,756
 
  26.4
%
 
$
113,900
   
15.7
%
Caribbean
 
  87,690
 
  16.6
%
   
27,570
   
5.5
%
Net warehouse club sales
$
  309,446
 
  22.7
%
 
$
141,470
   
11.6
%

Comparison of 2011 to 2010

As with last year, the higher net warehouse club sales growth in Latin America compared to the Caribbean reflects improved economic conditions in those more diversified markets. The local currencies in Costa Rica and Guatemala continue to be strong compared to the US dollar, making the imported merchandise relatively more affordable to our members, contributing to higher sales in the current fiscal year.

Comparison of 2010 to 2009

The higher net warehouse club sales in Latin America compared to the Caribbean reflects improved economic conditions in those more diversified markets, particularly Costa Rica.  Also the opening of the Alajuela, Costa Rica warehouse club contributed an additional eight months of sales (420 basis points) to the Latin America segment in fiscal year 2010, compared to fiscal year 2009; whereas, the opening of the San Fernando, Trinidad warehouse club contributed only an additional four months of sales (350 basis points) in fiscal year 2010 compared to fiscal year 2009.
 
Net Warehouse Club Sales by Category
 
The following table indicates the approximate percentage of net sales accounted for by each major category of items sold by the Company during the fiscal years ended August 31, 2011, 2010 and 2009.(1)
 
   
Fiscal Years Ended
August 31,
 
   
2011
   
2010
   
2009
 
Sundries (including health and beauty aids, tobacco, alcoholic beverages, soft drinks, cleaning and paper products and pet supplies)
   
  26
%
   
  27
%
   
27
%
Food (including candy, snack foods, dry and fresh foods)
   
  52
%
   
  51
%
   
51
%
Hardlines (including major appliances, small appliances,  electronics, hardware, office supplies, garden and patio, sporting goods, business machines and automotive supplies)
   
  14
%
   
  14
%
   
14
%
Softlines (including apparel, domestics, cameras, jewelry, housewares, media, toys and home furnishings)
   
  6
%
   
  6
%
   
6
%
Other (including one-hour photo and food court)
   
  2
%
   
2
%
   
2
%
     
100
%
   
100
%
   
100
%

(1)
During fiscal year 2010, the Company reviewed and updated its product classification into major categories.  This review and update of the classification of products into categories was performed to better align the products and reporting on those products with the Company’s management oversight of these major categories.  The Company has retrospectively reclassified the approximate percentage of net sales accounted for by each major category for each of the periods presented based on the updated product assignment into these major categories.


 
8

 
Comparison of 2011 to 2010

The Company did not experience any significant shift in its merchandise mix when measured over the entire fiscal year.  

Comparison of 2010 to 2009

The Company did not experience any significant shift in its merchandise mix when measured over the entire fiscal year.  However, during the first quarter of fiscal year 2010, the Company saw a continuation of the shift toward more consumable items which started in fiscal year 2009. 

Export Sales 
   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
 
Increase from
prior year
 
%
Change
   
Amount
   
Increase from
prior year
 
 %
Change
   
Amount
 
Export sales
$
  8,831
 
  4,692
 
  113.4
%
 
$
4,139
   
 $
460
 
12.5
%
 
$
3,679
 

The increases in export sales in both years were due to increased direct sales to a single institutional customer (retailer) in the Philippines.

 
Membership Income
 
Fiscal Years Ended August 31,
 
 
2011
   
2010
   
2009
 
   
Amount
   
Increase from
prior year
 
%
Change
   
Amount
   
Increase from
prior year
 
%
Change
   
Amount
 
Membership income
$
  22,817
 
$
  3,075
 
  15.6
%
 
$
19,742
   
 $
1,839
 
10.3
%
 
$
17,903
 
Membership income % to net warehouse club sales
 
  1.4
%
             
1.4
%
               
1.5
%
Approximate number of total accounts
 
  832,500
   
  115,500
 
  16.1
%
   
717,000
     
66,000
 
10.1
%
   
651,000
 
 
Comparison of 2011 to 2010

The number of membership accounts increased 115,500 (16.1%) during fiscal year 2011.  Membership income, which is recognized ratably over the one-year life of the membership, grew 15.6% for the twelve months ended August 31, 2011 compared to same period in the prior year.  The average membership fee per membership account sold during fiscal year 2011 was $29.41, compared to $28.79 in fiscal year 2010.  The membership renewal rate for the 12-month periods ended August 31, 2011 and 2010 was 88% and 86%, respectively.

Comparison of 2010 to 2009

For fiscal year 2010, there were 10% increases over fiscal year 2009 in membership income and in the number of membership accounts.  There was a 0.5% decrease in the average membership fee.

Other Income

Other income consists of commission revenue, rental income, advertising revenue, construction revenue, fees for in-store product demonstrations, end-cap income, and fees earned from licensees.

 
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
   
Increase from
prior year
 
%
Change
   
Amount
   
Increase from
prior year
 
%
Change
   
Amount
 
Other Income
$
  7,352
 
$
1,143
 
  18.4
%
 
$
6,209
   
$
494
 
8.6
%
 
$
5,715
 
 


 
 
 
 
 
9

 
Comparison of 2011 to 2010

For fiscal year 2011 compared to the Company's fiscal year 2010, in-store product demonstration revenue increased $926,000 and rental income increased $214,000, primarily due to the leasing of the former warehouse club in Los Pueblos, Panama, which was sold in March 2011.  In both fiscal year 2010 and 2011, the Company received approximately $60,000 in royalty income from a licensee in Saipan.  That licensing agreement was terminated at the end of fiscal year 2011, and no more licensing fees will be recognized in the future.

Comparison of 2010 to 2009

For fiscal year 2010, the increase over fiscal year 2009 was due primarily to increased revenue received for in-store product demonstrations. 
 
Gross Margin

Warehouse Sales Gross Profit and Gross Margin

   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
   
Increase from
prior year
 
% to sales
   
Amount
   
Increase from
prior year
 
% to sales
   
Amount
 
% to sales
 
Warehouse club sales
$
  1,675,247
 
$
  309,446
 
  100.0
%
 
$
 1,365,801
   
 $
 141,470
 
 100.0
%
 
$
1,224,331
 
100.0
 %
Less associated cost of goods sold
 
  1,422,332
   
  265,958
 
  84.9
     
 1,156,374
     
 111,819
 
 84.7
     
1,044,555
 
85.3
 
Warehouse gross profit margin
$
  252,915
 
$
  43,488
 
  15.1
 %
 
$
 209,427
   
 $
 29,651
 
 15.3
 %
 
$
179,776
 
14.7
 %
 
Comparison of 2011 to 2010

For the fiscal year 2011, warehouse gross profit increased due to higher sales, but gross margin as a percentage of sales was lower than fiscal year 2010 by 24 basis points largely related to on-going price reductions on merchandise in line with the Company’s business model.  Foreign exchange gains or losses had little year-over-year effect on cost of goods sold as a percent of sales in the fiscal year 2011.

Comparison of 2010 to 2009

For fiscal year 2010, the increase in warehouse gross profit was due to higher sales and a 65 basis point improvement in gross profit margin as a percentage of sales, resulting from reduced markdowns on merchandise, strong end-cap activity, and improvements in inventory shrink results.  Foreign exchange effects also contributed positively.   In fiscal year 2010, the Company recorded $1.5 million (0.11% of sales) in foreign exchange related gains compared to $1.4 million (0.12% of sales) in foreign exchange related costs in fiscal year 2009. The countries that accounted for the majority of the year-over-year change in foreign exchange effect were Guatemala, Costa Rica and Jamaica.  The improving sales of non-consumable discretionary products did not itself have a material impact on the Company’s net warehouse margin as a percentage of sales during fiscal year 2010.

Export Sales Gross Profit Margin

   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
   
Increase from
prior year
 
% to sales
   
Amount
   
Increase from
prior year
 
% to sales
   
Amount
 
% to sales
 
Export sales
 $
  8,831
 
$
  4,692
 
  100.0
%
 
$
 4,139
   
 $
 460
 
 100.0
%
 
$
3,679
 
100.0
%
Less associated cost of goods sold
 
  8,372
   
  4,482
 
  94.8
     
 3,890
     
 406
 
 94.0
     
3,484
 
94.7
 
Export sales gross profit margin
$
  459
 
$
  210
 
  5.2
%
 
$
 249
   
 $
 54
 
 6.0
%
 
$
195
 
5.3
%
 
The increase in export sales gross margin dollars in each fiscal year was due to direct sales to an institutional customer (retailer) in the Philippines for which the Company generally earns lower margins than those obtained through its warehouse club sales.


 
 
 
 
 
10

 
 
 
Selling, General and Administrative Expenses

Warehouse Club Operations
 
   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
 
% to warehouse club sales
     
Increase from
prior year
 
%
Change
   
Amount
 
% to warehouse club sales
   
Increase from
prior year
 
%
Change
   
Amount
 
% to warehouse club sales
 
Warehouse club operations expense
 
$
  154,819
 
  9.2
 
%
 
 
$
  28,545
 
   22.6
%
 
$
 126,274
 
9.2
%
 
 $
11,317
 
 
9.8
%
 
$
114,957
 
9.4
%
 
Comparison of 2011 to 2010
 
   The partial year effect of two additional warehouse clubs (San Fernando, Trinidad and Arroyo Hondo, Dominican Republic) and the expenses associated with establishing a country headquarters in Colombia and the first few weeks of club operations at the Barranquilla, Colombia warehouse club accounted for $7.1 million of additional warehouse club operations expense in fiscal year 2011 compared to fiscal year 2010.  The remaining $21.4 million increase relates to warehouse club operation expense on a same club basis, of which $8.0 million was related to increased payroll related expenses, including stock-based compensation.  Credit card expense increased $2.0 million in line with sales growth and utilities, repair and maintenance, depreciation and other expenses added $1.5 million, $1.8 million, $4.1 million and $4.0 million, respectively.  Of the $4.1 million increase in depreciation, $2.3 million is related to the recordation of a charge in fiscal year 2011 to correct errors in the calculation of depreciation in prior periods, related to the translation of foreign currencies into U.S. dollars (see Notes in Consolidated Financial Statements - Note 1 - Company Overview and Basis of Presentation).  This correction will increase depreciation by approximately $300,000 per year going forward. 
 
Comparison of 2010 to 2009

The costs associated with operating two additional warehouse clubs in fiscal year 2010 were $3.9 million.  Of the $7.5 million increase in warehouse club operation expenses attributable to the 25 warehouse clubs operating in both fiscal years, $4.4 million was related to increased payroll-related expenses, including stock-based compensation expense.  Utilities costs increased $1.6 million due to an increase in utility rates after the Company experienced savings in fiscal year 2009.  Depreciation expense increased $577,000 from fiscal year 2009 related to ongoing capital investments made in the existing warehouse clubs, including expansions in Aruba and Nicaragua, and the completion of the new warehouse club in Panama City, Panama.  Increased costs for repairs and maintenance and security services added $397,000 and $246,000, respectively.  Credit card costs increased by a total of $720,000 resulting from higher sales. As a percentage of sales, credit card costs decreased from 0.82% of sales in fiscal 2009 to 0.79% of sales in fiscal 2010, reflecting ongoing savings resulting from the co-branded credit cards offered to the Company’s members.

General and Administrative Expenses

 
Fiscal Years Ended August 31,
 
 
2011
   
2010
   
2009
 
   
Amount
 
% to warehouse club sales
     
Increase from prior year
 
%
Change
   
Amount
 
% to warehouse club sales
   
Increase from prior year
 
%
Change
   
Amount
 
% to warehouse club sales
 
General and administrative expenses
$
  36,436
 
  2.2
%
 
$
  3,117
 
  9.4
%
 
$
33,319
 
2.4
%
 
    $
2,437
 
7.9
%
 
$
30,882
 
2.5
%
 
Comparison of 2011 to 2010
 
General and administrative expenses, increased $3.1 million from fiscal year 2010 to fiscal year 2011, with the additional expense primarily related to increased salaries, related benefits, deferred compensation expense associated with restricted stock grants, and travel expenses associated with the Company’s corporate and U.S. buying operations.  The decrease in general and administrative expenses as a percentage of warehouse club sales was due to sales increasing at a greater rate than general and administrative expenses.

Comparison of 2010 to 2009

Increased salaries and benefits for the Company’s corporate and U.S. buying operations, including expenses associated with stock compensation of $2.5 million, and additional travel expenses of approximately $800,000 accounted for the majority of the increase in general and administrative expenses in fiscal year 2010. This was offset by a decrease in professional fees associated with outside legal and tax consulting of $1.0 million.

 
 
 
 
 
11

 
 
 


Pre-Opening Expenses

Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses. 

 
Fiscal Years Ended August 31,
 
 
2011
   
2010
   
2009
 
   
Amount
 
Increase
from
prior year
 
 
%
Change
   
Amount
   
Increase
from
prior year
 
 
%
Change
   
Amount
 
Pre-opening expenses
 $
  1,408
 
$
 285
 
  25.4
%
 
$
1,123
   
 $
608
 
118.1
%
 
$
515
 

Comparison of 2011 to 2010

The Company incurred pre-opening expenses for the Barranquilla, Colombia warehouse club in the third and fourth quarter of fiscal year 2011 totaling $1.0 million. For fiscal year 2011, the Company also incurred $407,000 in pre-opening expenses related to the new Arroyo Hondo warehouse club, which opened in the Dominican Republic on November 5, 2010.  The Company incurred more pre-opening expense for Barranquilla as it was the first warehouse club in a new market requiring an enhanced level of marketing compared to openings in existing markets. Pre-opening expenses in fiscal year 2010 were related to the San Fernando, Trinidad club and the Brisas warehouse club which was relocated in Panama during that year.

Comparison of 2010 to 2009

For fiscal year 2010, pre-opening expenses were related to the new warehouse club in Trinidad which opened in April 2010, the relocated warehouse club in Panama and the new warehouse club under construction in the Dominican Republic.

Operating Income

   
Fiscal Years Ended August 31,
 
   
2011
   
2010
   
2009
 
   
Amount
 
% to warehouse club sales
   
Increase/
(decrease) from
prior year
 
 
%
Change
   
Amount
 
% to warehouse club sales
   
Increase/
(decrease) from
prior year
 
 
%
Change
   
Amount
 
% to warehouse club sales
 
Operating income
 $
  90,880
 
   5.4
 %
 
 15,987
 
  21.3
%
 
$
74,893
 
5.5
%
 
 $
17,409
 
30.3
%
 
$
57,484
 
4.7
%
 
Comparison of 2011 to 2010 and 2010 to 2009

Operating income improved from fiscal year 2009 to fiscal year 2010 and from fiscal year 2010 to fiscal year 2011, as a result of higher sales, improved margins and the leveraging of selling, general and administrative costs over increased sales, offset by construction costs and pre-opening expenses for the new Colombia market.

Interest Income
 
Interest income reflects earnings on cash and cash equivalent balances and restricted cash deposits.  In fiscal year 2011, restricted cash deposits included one certificate of deposit for $8.0 million with Scotia Bank and two certificates of deposit for $8.0 million and $2.0 million with Citibank and Scotia Bank, respectively, each as part of the Company’s loan agreements with these banks. In addition approximately $4.9 million in restricted cash was held as a certificate of deposit as part of the Company’s loan agreement with Banco Del Pais (Banco del Pais is a Honduras-based bank).   In fiscal year 2010, restricted cash deposits included a certificate of deposit of approximately $6.0 million as part of the Company’s loan agreement with Banco Del Pais (Banco del Pais is a Honduran based bank).

 
Fiscal Years Ended August 31,
 
   
2011
 
2010
 
2009
 
   
Amount
   
Increase
from prior year
 
Amount
   
Increase
from prior year
 
Amount
 
Interest Income
$
  852
 
$
  299
 
$
553
   
$
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