PriceSmart
Annual Report 2023

Plain-text annual report

Decembem r 19, 2023 Chairman letter Dear Stockholders, Congratulations to our management team and emplm oyees in San Diego, Miami, and the countries where we operate for r strong perforff mance in fiscal year 2023. We achieved another record year in revenues--$4.4 billion--along with record anothet earnings of $109 million, or $3.50 per diluted share, despite non-recurring charges during the year of $24 million. Our financial metrics remained strong with operating cash flow of $257 million, a current ratio of 138%, total third- partytt year-ending debt of $148 million, and $1.1 billion of total stockholder equiq ty. During fiscal year 2023, we opened a new club in San Miguel, El Salvador, and on September 1 we opened another club in Medellin, Colombia. In Februarr We are now well into the fiscal year 2024. We recently opened our sixth location in Guatemala, in the city of Escuintla, ry 2024, we plan to open our fourth location in El Salvador in the city of which is located in the south of the country.rr Santa Ana in the northwest part of the country. Afteff r the Santa Ana club opening, we will operate 54 clubs. Although most of you have probabla y never visited a PriceSmart location, you would feel right at home shopping in any of our locations, including l products, our “Member’s Escuintla and Santa Ana. Similar to Costco, PriceSmart has a wide assortment of private labea Selection®” brand. Our locations are about one-half the size of a typical Costco. We carryrr a similar range of products, although with a much more limited selection of clothit ng and furniturt e. Another differff ence between PriceSmart and Costco is that we impom rt a much larger proportion of products, because the countries where we operate generally have small economies and limited ing. In addition, our imports differff entiate us from our competitors and are an important part of the experience we aim manufacturtt to offeff r our Members a “U.S.” shopping experience in terms of value and quality. Our goal is clear: to continue to strengthen the member value proposition in terms of pricing and range of offeff r our Members. Our mission in operating our business is to, as nearly as possible, offeff rings in both merchandise and services. PriceSmart is doing much more than running a warehouse club business. I want to highlight for our stockholders that PriceSmart is the only U.S. membership warehouse club doing business in our markets. We are making a significff ant positive differff ence in the markets where we operate. PriceSmart is an important wholesale supplier for small businesses, a large purchaser of locally produced producd ts, a majoa r emplm oyer payia ng excellent wages and benefits and a significant taxpayer providing important revenues to local governments. Through the PriceSmart Foundation and Aprender y Crecer, PriceSmart has a robust philanthropic presence in our markets, providing school suppl ies and eyeglasses to thousands of children in publu ic schools and u investing in workforce development to provide meaningfulff jobs to men and women entering the workforce. At PriceSmart, we pride ourselves on being the most trusrr ted and respected brand in the countries where we operate. t and become an even more integral part of our Members' lives. To achieve this, we are enhancing Our aim is to deepen this trusrr tegic investments in distribution our suppu ly chain effiff ciencies through technology to suppu ort our workforce, coupled with stratt ly lines. Additionally,yy recognizing the significant impact of traffiff c and urbar n density centers to reduce costs and to shorten suppu rs more on our Members in Latin American cities, we are continuously upgrading our digital channels. This enhancement offeff accessible and convenient online shopping options, enabling our Members to purchase our merchandise and services online and offlff ine. We remain committed to introducd ing new producd ts and services tailored to our Members' needs, as evidenced by the recent introducd tion of pharmar cies in our Costa Rica and Panama PriceSmart clubs. As a stockholder myself,ff I and our board are focused on strett ngthening the value of stock ownership for our investors. First and foremost, I believe excellence in operating our business is the foundation for enhancing investor value. In addition to the day-a to-day operations of the business, our board and I will continue to address the best and most creative waysa to enhance investor value. We recently completed a $75 million stock buyback program and will continue to consider all alternatives for enhancing stockholder value. In conclusion, I would like to thank our employees for their commitment to PriceSmart. Everyrr one of our emplm oyees, groupu of from the most senior executives to the sheet cake decorators, is amazing. We are so luckykk to have such a wonderfulff people working in our offiff ces, distribution centers and at our PriceSmart clubs. On behalf of myself and our board, best wishes for a joyous holiday and a healthy and prosperous new year. Sincerely, Robert E. Price [THIS PAGE INTENTIONALLY LEFT BLANKAA ] PRICESMART, INC. INDEX TO CONSOLIDATED FINANCIAL STATTT EMENTS AND OTHER INFORMATION August 31, 2023 Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of August 31, 2023, and 2022 Consolidated Statements of Income for each of the three years in the period ended August 31, 2023 Consolidated Statements of Comprehensive Income for each of the three years in the period ended August 31, 2023 Consolidated Statements of Equity for each of the three years in the period ended August 31, 2023 Consolidated Statements of Cash Flows for each of the three years in the period ended August 31, 2023 Notes to Consolidated Financial Statements Market for Registrant’s Common Equiq ty, Related Stockholder Matters and Issuer Purchases of Equiq ty Securities Additional Information Directors & Offiff cers of PriceSmart, Inc. Page 1 3 31 33 35 36 37 38 40 79 83 84 i [THIS PAGE INTENTIONALLY LEFT BLANKAA ] PRICESMART, INC. 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. SELEEE CTEE ED FINANCI II ALII DATATT Years Ended August 31, 2023 2022 (in thousands,dd excepte 2021 income per common share) 2020 2019 OPERATRR ING RESUEE LTUU S DATA:TT Net merchandise sales $ 4,300,706 $ 3,944,817 $ 3,465,442 $ 3,191,762 $ 3,091,648 Expoxx rt sales Membership income Other revenue and income Total revenues Total cost of goods sold Selling, general and adminiii strativeii Reserve for AMT settlement Separation costs associated withii Chief Execxx utive Offiff cer departure Pre-opening expexx nses Asset impamm irmerr costs Loss on disposal of assets nt and closure Operating income Total other expexx nse Income before provision for income taxes and loss of unconsolidated affiff liates Provision for income taxes Loss of unconsolidated affiff liates Net income Less: net income attribrr utable to noncontrollingii interest Net income attribr utable to Pricr eSmart, Inc. $ $ 31,741 66,048 13,347 4,411,842 3,652,511 45,217 60,887 15,172 4,066,093 3,384,945 41,520 56,030 56,879 3,619,871 2,975,338 34,374 54,501 48,551 3,329,188 2,774,778 30,981 52,149 49,140 3,223,918 2,695,691 552,055 511,346 484,637 429,954 409,255 7,179 7,747 1,432 5,658 744 184,516 (15,305) — — 1,471 — 1,265 167,066 (10,645) — — 849 — 1,027 158,020 (10,834) — — 1,545 — 443 122,468 (6,428) — — 2,726 — 1,079 115,167 (4,057) 169,211 156,421 147,186 116,040 111,110 (59,951) (55) (51,858) (10) (48,969) (58) (37,764) (95) (37,560) (61) 109,205 $ 104,553 $ 98,159 $ 78,181 $ 73,489 - (19) (196) (72) (298) 109,205 $ 104,534 $ 97,963 $ 78,109 $ 73,191 NETEE INCOME ATTRIBRR UTABTT LE TO PRICRR ESMARTAA , INC. PEREE SHAREHH : AVAILAII BLE FOR DISTII RIBUII TIUU ONII Basic Diluted Weighted average common shares - basic Weighted average common shares - diluted $ $ 3.51 3.50 $ $ 3.38 3.38 $ $ 3.18 3.18 $ $ 2.55 2.55 $ $ 2.40 2.40 30,763 30,591 30,403 30,259 30,195 30,786 30,600 30,403 30,259 30,195 1 SELEEE CTEE ED FINAII NCIAA ALII DATATT - (Continued)dd As of August 31, 2023 2022 2021 2020 2019 (in thousands)dd $ 239,984 $ 237,710 $ 202,060 $ 299,481 $ 102,653 91,081 12,218 11,160 13,663 50,233 13,419 46,509 4,290 17,045 3,583 $ 2,005,608 $ 1,808,400 $ 1,705,790 $ 1,656,825 $ 1,296,411 139,680 1,107,043 137,271 991,073 129,505 915,345 132,047 831,719 89,586 797,351 $ 28,540 $ 26,559 $ 21,531 $ 21,426 $ 21,341 BALANCAA E SHEEHH TEE DATA:TT Cash and cash equivaii lents Short-rr term investments Short-rr term and long-term restricted cash Total Assets (1) Long-termrr debt Total Pricr eSmart stockholders’ equityii attribrr utable to Pricrr eSmart, Inc. stockholders Diviii dends paid on commonmm stock attribr utable to Pricr eSmart, Inc. stockholders (2) (1) Effeff ctive September 1, 2019, we adopted the requirements of Accounting Standards Update (ASU) 2016-02, "Leases (TopiTT c 842)" (ASC 842) using the modified retrospective approach, under which financial results reporterr d in prior periods were not restated. As a result, the Total Assets as of August 31, 2023, August 31, 2022, August 31, 2021, and August 31, 2020, are not comparable with that as of August 31, 2019. (2) On Februarr ry 3, 2023, Februarr ry 3, 2022, Februarr ry 4, 2021, Februarr ry 6, 2020, and January 30, 2019, the Company declared cash dividends on its common stock. 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements concernirr ng PriceSmart, Inc.'s ("PriceSmart", the "Compam ny", "we" or “our”) anticipated future revenues and earnings, adequaq cy of future cash flows, omni-channel initiatives, proposed warehouse club openings, and the Company's perforff mance relative to competitors and related matters. These forward-looking statements include, but are not limited “should,” “projeo ct,” “estimate,” “anticipated,” to, statements containing the words “expect,” “believe,” “will,” “may,”yy “scheduled,” “intend,” and like expressions, and the negative thereof. Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements, except as required by law. These statements are subject to risks andd uncertainties that could causa e actual results to differff materially including, but not limited to the risks detailed in this Annual Report on Form 10-K under the heading Part I. “Item 1A. Risk Factors.” These risks are not the only risks that the Company faces. The Company could also be affeff cted by additional factors that apply to all companies operating globally and in the U.S., as well as other risks that are not presentlyy known to the Companyy or that the Companyy currentlyy considers to be immaterial. Overview PriceSmart, headquartered in San Diego, California, owns and operates U.S.-style membership shopping warehouse clubs in Latin America and the Caribbean, selling high quality merchandise and services at low prices to our Members. We operate 53 warehouse clubs in 12 countries and one U.S. territory (ten in Colombia; eight in Costa Rica; seven in Panama; six in Guatemala; five in the Dominican Republic; four in Trinidad; three each in in Honduras and El Salvador, two each in Nicaragua and Jamaica; and one each in Aruba, Barbados, and the United States Virgin Islands). We have also purchased land and plan to open our fourth warehouse club in El Salvador, located in Santa Ana, approximately 40 miles west from the nearest club in the capital of San Salvador. The club is being built on a five-acre property and is anticipated to open in early 2024. Once this new club is open, we will operate 54 warehouse clubs. Our corporate headquarters, U.S. buying operations and regional distribution centers are located primarily in the United States. Our operating segments are the United States, Central America, the Caribbean, and Colombia. All intercompany balances and transactions have been eliminated in consolidation. Mission and Business Strategy PriceSmart exists to improve the lives and businesses of our Members, our emplm oyees and our communities through the responsible delivery of the best quality goods and services at the lowest possible prices. Our mission is to serve as a model company, which operates profitabla y and provides a good return to our investors, by providing Members in emerging andd developing markets with exciting, high-quality merchandise sourced from around the world and valuable services at compelling pprices in safe U.S. styltt e clubs and through PriceSmart.com. We prioritize the well-being and safety of our Members andd employees. We provide good jobs, fair wages and benefits and opportunt ities for advancement. We strive to treat our suppliers rigght and empom wer them when we can, includi gng both our reggional suppliers and those from around the world. We conducd tt ourselves in a socially responsible manner as we endeavor to improve the quality of the lives of our Members and their businesses, while respecting the environment and the laws of all the countries in which we operate. We also believe in facilitating pphilanthrt opic contritt butions to communities in which we do business. We charge Members an annual membership fee that enables us to operate our business with lower margins than traditional retail stores. As we continue to invest in technological capaaa bia lities, we are increasing our tools to drive sales and operational effiff ciencies. We believe we are well positioned to blend the exciteme tnt and appeal of our brick-and-mortar business with the convenience and additional benefits of online shoppi gng and services and, meanwhile, enhance Member experience and enggaggement. 3 Factors Affeff cting the Business Overall economic trends, ffore gign currencyyc exch gange volatili yty,yy and othett r ffactorsrr impacm ti gng the business. Our sales and profits vary from market to market depending on general economic factors, including GDP growth; consumer preferff ences; foreign currency exchange rates; political and social conditions; local demographic characteristics (such as population growth); the number of years we have operated in a particular market; and the level of retail and wholesale competition in that market. The economies of many of our markets are dependent on foreign trade, tourism, and foreign dire tct investments. Uncertain economic conditions and slowdown in global economic growth and investment may impam ct the economies in our markets, causingg siggnificff ant declines in GDP and emplm yoyment and devaluations of local currencies gagainst the U.S. dollar. For fiscal year 2023, inflation in all of our markets and devaluations of local currencies, especially in Colombia for pa trt of the year, created significff ant headwinds. However, some markets, especially Costa Rica, benefited from currency appreciation which helped offsff et the currency devaluations we experienced in other countries. Subsu tantial product cost increases due to inflation or commodity price increases have and could continue to impam ct our financial results and could lead to reduced sales, fewer units sold, and/or margin pressure. Events directly or indirectly related to the novel coronavirus outbrt eak (COVID-19) tions. These factors have increased the complexity of managing our inventory have resulted in market and supply-chain disrupr flow and business; however, during fiscal year 2023, we saw a general improvement in transit daysa and a reduction in freight rates of our shipping containers. We are working to hold down and/or mitigate the price increases passed on to our Members while maintaining the right inventoryrr mix to grow sales. One key mitigating factor has been our expanded networkr of distribution centers, which has facilitated alternative shippi gng routes, increased thro gughput, and provided flexibilityy to mitiggate our suppu yly chain challe gnges and risks more effeff ctivelyy. Currency fluctuation can be one of the largest variables affeff cting our overall sales and profitff perforff mar nce, as we have experienced in prior fiscal years, because many of our markets are susceptible to foreign currency exchange rate volatility. During fiscal year 2023, approximately 78.8% of our net merchandise sales were in currencies othet r than the U.S. dollar. Of those sales, 48.4% consisted of sales of producd ts we purchased in U.S. dollars. A devaluation of local currency reduces the value of sales and membership income that is generated in that countrytt when translated to U.S. dollars for our consolidated results. In addition, when local currency experiences devaluation, we may elect to increase the local currency price of imported merchandise to maintain our target margins, which could impam ct demand for the merchandise affeff cted by the price increase. We may also modify the mix of imporm ted versus local merchandise and/or the source of imported merchandise to mitigate the impam ct of currency fluctuations. Our Colombia market experienced significantt foreign currency devaluation during the first three quarters of fiscal year 2023 compared to fiscal year 2022. Notwithstanding inflation and this currency devaluation in Colombia, beginning in the third quarter of fiscal year 2023, we strategically decreasedd sales prices in select items across all of our imported merchandise categories in Colombia. During the fourth quarter of fiscal year 2023, the Colombian peso began to appreciate against the U.S. dollar and stabilize, but we continue to maintain our pricing actions in the meantime. Despite the foreign currency difficff ulties, we continue to see Colombia as a key market for growth and have continued to invest in this market, recently opening our tenth warehouse club in the country,rr located in Medellín. Informationn about the effeff ct of local currency devaluations is discussed furthet r in “Management’s Discussion and Analyysis of Financial Condition and Results of Operations - Net Merchandise Sales and Comparable Sales.” Our wallet-share capta urtt e of total retail and wholesale sales can vary from market to market due to competition and the availabia lity of other shopping options for our Members. Demographic characteristics within each of our markets can affeff ct botht the overall level of sales and future sales growth opportuni a, Barbados and the U.S. Vi grgin Islands, offeff r limited upside for sales ggrowth ggiven their overall market size. ties. Certain island markets, such as Arubrr t We continue to face the risk of political instability which may have significant effeff cts on our business. For examplm e, roadbld ocks were set up in Guatemala in October 2023 due to election results, limiting access to certain of our warehouse clubs. ting traffiff c to our clubs throughout most of the market as aa In addition, roadbld ocks also arose in Panama in October 2023 disrupr reaction to an agreement between the Panamanian government and a mining company. Civil unrest in Colombia in response to tax reform and austerity measures paralyzed significff ant portions of the country’rr ed normal economic activity during the third quarter of fiscal year 2021. Nicaragua and Honduras experienced anti-government pprotests in 2019; Costa Rica also had a ggeneral strike gagainst tax reform measures that siggnificant yly impeded reggular economic activityy in 2018. ture as roadbld ocks and riots disrupt s infrastrucrr rr 4 Our operations are subject to volatile weather conditions and natural disasters. In November 2020, Hurricanes Eta andd ded Iota brought severe rainfall, winds, and flooding to a significant portion of Central America, especially Honduras, which causa significant damage to parts of that country’rr ture. Although our warehouse clubs were not significff antly affeff cted and we were able to manage our supply chain to keep our warehouse clubs stocked with merchandise, similar natural disasters could adverselyy impam ct our overall sales, costs and profitff perforff mance in the future. s infrastrucrr Changes in tax laws, increases in the enacted tax rates, adverse outcomes in connection with tax audits in any jurisdiction, or any change in the pronouncements relating to accounting for income taxes could have a material adverse effeff ct on our financial condition and results of operations. In one of the countries where we operate, the government made changes several years ago in ents, under which the government sought to require retailers to paya taxes based on the method of computing minimum tax payma tive Minimumm a percentage of sales if the resulting tax were greater than the tax payabla e based on a percentage of income (Alternar s Tax or "AMT"). We, together with our tax and legal advisers, appealed these interpretations and litigated our cases in the country’rr court system. However, in the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle the AMT payma entt dispute in this country.rr Of this amount, $1.0 is related to the reserve for an income tax receivabla e for one of the tax years forr which we sought a refund and the remaining $6.2 million is an accruarr l for the unpan id years of the dispute. As part of the settlement, rd basis, including for fiscal year 2023 for which the amount accruerr d was $2.0 million. To we will payaa AMT on a go-forff warr in which significff ant tax legislation changes can significff antly impam ct our low address the inherent risk of operating in a countryrr margin business model and limitations on our ability to successfulff ly appeal these burdensome taxes, we have increased prices in this market to offsff et or partial yly offsff et the rise in costs to comp yly with the annual AMT payyment. Periodically, we experience a lack of availabia lity of U.S. dollars in certain markets (U.S. dollar illiquidity)tt . This can and has impeded our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. doll rar liabilities associated with our imported products and to othet rwise redeploy these funds in our Company. This illiquidity also increases our foreign exchange exposure to any devaluation of the local currency relative to the U.S. dollar. For instance, during fiscal year 2021, we experienced significff ant limitations on our ability to convert Trinidad dollars to U.S. dollars or other tradable currencies. Our balance as of August 31, 2023 of Trinidad dollar denominated cash and cash equivalents and short and long-termm investments measured in U.S. dollars was $18.2 million, a decrease of $82.3 million from the peak of $100.5 million as fof NNovember 30, 2020. However, as the Trinidad central bank strictly manages the exchange rate of the Trinidad dollar with the U.S. dollar and affeff cts the level of U.S. Dollar liquidity in the market through its interventions, we are subju ect to continued challenges in converti gng our Trinidad dollars to U.S. dollars, as well as beingg exposed to the risk of a potential devaluation of the curren ycy. During the third quarter of fiscal year 2023, the Honduran Central Bank began limiting the availabia lity and controlling the allocation of U.S. dollars for the conversion from Honduran lempiras to U.S. dollars. As of August 31, 2023, our Honduran subsidiary had approximately $19.6 million of cash and cash equivalents denominated in lempiras, which cannot be readily converted to U.S. dollars for general use within the Companyy. We are active yly workingg with our bankingg partnett rs and ggovernme tnt authorities to address this situation. We face difficff ulties in the shipment of, and the risks inherent in the impom rtation of,ff merchandise to our warehouse clubs. One of those difficulties is possible governmental restrictions on the impom rtation of merchandise. In late Maya 2023, disputes with NNicaraguan customs and tax authorities resulted in delays in the issuance of our importation clearance, and general delays in the customs inspection process. While this situation has occurred frequently in the last few years, we generally have been able to pplan around these import blockagges and resume within a manner of dayysa . However, the most recent delayya in obtainingg impom rtationn clearance, resulted in us being unabla e to import merchandise into Nicaragua for several weeks in June. While at this time our tax clearances and impom rts seem to have returned to a more normal cadence, we continue to monitor this situation closely and are workingg with local offiff cials to seek continui yty of impom rts into Nicaraggua as well as the other jjurisdictions in which we operate. 5 Financial highlights for the fourth quarter of fiscal year 2023 included: Total revenues increased 9.5% over the comparable prior year period. • • Net merchandise sales increased 10.0% over the comparable prior year period. We ended the quarter with 51 warehouse clubs compared to 50 warehouse clubs at the end of the fourth quarter of fiscal year 2022. Net merchandise sales - constant currency increased 6.4% over the comparable prior year period. Comparable net merchandise sales (that is, sales in the 50 warehouse clubs that have been open for greater than 13 ½ ) for the 13 weeks ended Septembem r 3, 2023 increased 8.8%. Comparable net merchandise sales - calendar monthst constant currency for the 13 weeks ended September 3, 2023 increased 5.2%. • • Membership income for the fourth quarter of fiscal year 2023 increased 10.6% to $17.2 million over the comparable • • prior year period. Total gross margins (net merchandise sales less associated cost of goods sold) increased 10.6% over the prior-year period, and merchandise gross profitff s as a percent of net merchandise sales were 15.6%, an increase of 10 basis points or 0.1% from the same period in the prior year. Selling, general and administrative expenses increased $25.2 million or 18.8% compared to the fourth quarter of fiscal year 2022, primarily due to $9.2 million of costs associated with the reserve for the AMT settlement and $5.7 million of asset impairmer nt and closure costs as well as higher compensation, depreciation, and profesff sional fees. • Operating income for the fourth quarter of fiscal year 2023 was $32.1 million, a decrease of 17.5%, or $6.9 million, compared to the fourth quarter of fiscal year 2022, primarily due to costs associated with the reserve for the AMT settlement and asset impairmer nt and closure costs. • We recorded a $1.5 million net loss in total other expense, net in the fourth quarter of fiscal year 2023 compared to a $3.5 million net loss in total othet r expense, net in the same period last year primarily due to an increase in interest income of $3.0 million, comparatively, becausa e of significff antly more investments of surplus cash at higher yields, and partially offsff et by an increase in other expense of $1.0 million, primarily due to an increase in total foreign currency transaction losses. • Our effeff ctive tax rate increased in the fourth quarter of fiscal year 2023 to 49.9% from 34.2% in the fourth quarter of fiscal year 2022. The increase in the effeff ctive rate versus the prior year was primarily attributable to the comparably unfavorabla e impam ct of 11.6% due to the AMT settlement and 5.4% unfavorabla e impam ct from asset impam irmer nt and related closure costs. • Net income attributable to PriceSmart for the fourth quarter of fiscal year 2023 was $15.4 million, or $0.49 per diluted share, inclusive of a negative impact of $0.30 per diluted share for costs related to the reserve for the AMT settlement and $0.18 per diluted share of asset impairment and closure costs, compared to $23.3 million, or $0.75 per diluted share, in the fourth quarter of fiscal year 2022. • Adjud sted net income attributable to PriceSmart for the fourth quarter of fiscal year 2023 was $20.4 million, or an adjud sted $0.65 per diluted share, inclusive of a negative impam ct of $0.30 per diluted share for costs related to the reserve for the AMT settlement, compared to adjud sted net income of $23.3 million, or $0.75 per diluted share, in the comparable prior year period. • Adjud sted EBITDA for the fourth quarter of fiscal year 2023 was $57.2 million compared to $56.6 million in the same period last year. 6 Financial highlights for fiscal year 2023 included: Total revenues increased 8.5% over the comparable prior year period. • • Net merchandise sales increased 9.0% over the comparable prior year period. We ended the year with 51 warehouse clubs compared to 50 warehouse clubs at the end of fiscal year 2022. Net merchandise sales - constant currency increased 8.3% over the comparable prior year period. Comparable net merchandise sales (that is, sales in the 50 warehouse clubs that have been open for greater than 13 ½ ) for the 52 weeks ended Septembem r 3, 2023 increased 7.1%. Comparable net merchandise sales - calendar monthst constant currency for the 52 weeks ended September 3, 2023 increased 6.3%. • • Membership income increased 8.5% to $66.0 million. • Total gross margins (net merchandise sales less associated cost of goods sold) increased 12.2% over the prior-year period, and merchandise gross profitff s as a percent of net merchandise sales were 15.8%, an increase of 50 basis points or 0.5% from the same period in the prior year. Selling, general and administrative expenses increased $60.7 million or 11.8% compared to fiscal year 2022. We incurred $7.7 million of CEO departurtt e-related costs, $9.2 million of costs related to the reserve for the AMT settlement, and $5.7 million of asset impam irment and closure costs in the current-year period. • • Operating income was $184.5 million, an increase of 10.4%, or $17.4 million, compared to fiscal year 2022, primarily due to costs associated with the reserve for the AMT settlement and asset impairment and closure costs. • We recorded a $15.3 million net loss in total other expense, net in fiscal year 2023 compared to a $10.6 million net loss r expense, net in the same period last year primarily due to an increase of $10.9 million of other expense, in total othet which is primarily foreign currency transaction losses, partially offsff et by an increase of $7.7 million in interest income comparatively. The effeff ctive tax rate for fiscal year 2023 was 35.4% as compared to the effeff ctive tax rate for fiscal year 2022 of 33.2%. The increase is primarily driven by the comparably unfavorabla e impact of write-offsff of VAT receivabla es, Aeropost and asset impairment and related closure costs of 2.2% and a 1.8% unfavorabla e impam ct due to the AMT write-offsff settlement. This was partially offsff et by a greater portion of income falling into lower tax jurisdictions which resulted in a 2.0% favorabla e impact. • • Net income attributable to PriceSmart for fiscal year 2023 was $109.2 million, or $3.50 per diluted share, inclusive of a negative impam ct of $0.30 per diluted share for costs related to the reserve for the AMT settlement and $0.18 per diluted share of asset impairmer nt and closure costs, compared to $104.5 million, or $3.38 per diluted share, in the comparable prior year period. • Adjud sted net income attributable to PriceSmart for fiscal year 2023 was $126.5 million, or an adjud sted $4.06 per diluted share, inclusive of a negative impact of $0.30 per diluted share for costs related to the reserve for the AMT settlement, compared to adjud sted net income of $103.1 million, or an adjud sted $3.33 per diluted share, in the comparable prior year period. • Adjud sted EBITDA for fiscal year 2023 was $275.7 million compared to $234.9 million in the same period last year. Non - GAAP (Generally Accepted Accounting Principles) Financial Measures The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with U.S. GAAP (General yly Accepted Accounti gng Principles). In addition to relevant GAAP measures, we also provide non-GAAP measures including adjud sted net income, adjud sted net income per diluted share, adjud sted EBITDA and net merchandise sales - constant currency because management believes these metrics are usefulff to investors and analysts by excluding items that we do not believe are indicative of our core operating perforff mance. These measures are customary for our industry and commonly us ded byby competitors. These non-GAAP financial measures should not be reviewed in isolation or considered as an alternative to any other perforff mar nce measure derived in accordance with GAAP and mayy not be comparable to similarlyy titled measures used yby other companies in our indust yrytt or across differff ent industries. Adjudd sted Net Income and Adjudd sted Net Income per Diluted Sharerr The adjud sted net income and adjud sted net income per diluted share metrics are important measures used by manageme tnt to compare the perforff mance of core operating results between periods. We define adjud sted net income as net income, as reported, adjud sted for: separation costs associated with the departurt e of our former Chief Executive Offiff cer, gain on the sale of our Aeropostt subsidiary,yy the write-offff of certain Aeropost receivabla es, the write-offff of certain VATAA receivabla es following unfavorabla e courtt rulings, asset impairmer nt on our assets held for sale and closure costs, the gain on the acquisition of a building, and the tax impa tct of the foregoing adjud stments on net income. We define adjjud sted net income per diluted share as adjjud sted net income divided yby the we gighted-averagge diluted shares outstandi gng. 7 We believe adjud sted net income and adjud sted net income per diluted share are usefulff metrics to investors and analysts bbecause they present more accurate year-over-year comparisons for our net income and net income per diluted share because adjjud sted items are not the result of our normal operations. Three Months Ended Years Ended August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022 NNet income attributable to PriceSmart as reported $ 15,381 $ 23,304 $ 109,205 $ 104,534 Adjud stments: Separation costs associated with Chief Executive Offiff cer departurt e (1) Gain on sale of Aeropost subsidiary (2) (3) Aeropost-related write-offsff VATAA receivabla e write-offff (4) Asset impam irment and closure costs (5) Gain on acquisition of building (6) Tax impam ct of adjud stments to net income (7) Adjud sted net income attributable to PriceSmart NNet income attributable to PriceSmart per diluted share Separation costs associated with Chief Executive Offiff cer departurt e Gain on sale of Aeropost subsidiary Aeropost-related write-offsff VATAA receivabla e write-offff Asset impam irment and closure costs Gain on acquisition of building $ $ — — — — 5,658 (948) 266 20,357 0.49 — — — — 0.18 (0.02) $ $ — — — — — — — 7,747 — 2,786 2,309 5,658 (948) (284) — (2,736) — — — — 1,280 23,304 $ 126,473 $ 103,078 0.75 $ 3.50 $ 3.38 — — — — — — 0.23 — 0.09 0.08 0.18 (0.02) — (0.05) — — — — Adjud sted net income attributable to PriceSmart per diluted share $ 0.65 $ 0.75 $ 4.06 $ 3.33 (1) Reflects $7.7 million of separation costs associated with the departurtt e of our former Chief Executive Offiff cer in Februarr (2) Reflects a gain of $2.7 million associated with the sale of our Aeropost subsu idiary in October 2021. (3) Reflects $2.1 million of Aeropost-related write-offsff in the first quarter of fiscal year 2023 and $660,000 of a receivable written-off in ry 2023. connection with the settlement in the third quarterr business. r of fiscal year 2023 of a claim for indemnificff ation from the buyer of the Aeropost (4) Reflects $2.3 million of VATAA receivables related to prior periods deemed not recoverable and written-offff in the third quarter of fiscal year 2023 following unfavff orable courtrr rulings. (5) Reflects $5.7 million of impairment charges primarily related to the write down of assets in connection with our decision in the fourth quarter of fiscal year 2023 to seek to sell our Trinidad sustainable packaging plant. (6) Reflects a $950,000 gain related to a building we acquired upon the early termination of a lease in which we were the lessor of the land on which the building was construcrr ted by and abandoned by one of our tenants. (7) Reflects the tax effeff ct of the above-mentioned adjud stments. 8 Adjudd sted EBITBB DATT Adjud sted EBITDA is defined as net income before interest expense, net, provision for income taxes and depreciation r items, including interest income; other income (expense), net; separation and amortization, adjud sted for the impam ct of certain othet costs associated with Chief Executive Offiff cer departurtt e; asset impairment and closure costs; Aeropost write-offsff fof certain VATAA receivabla es followingg unfavorabla e court ruli gng .s The following is a reconciliation of our Net income to Adjud sted EBITDA for the periods presented: ; the write-offff Three Months Ended Years Ended August 31, 2023 August 31, 2022 August 31, 2023 August 31, 2022 NNet income attributable to PriceSmart as reported $ 15,381 $ 23,304 $ 109,205 $ 104,534 Adjud stments: Interest expense Provision for income taxes Depreciation and amortization Interest income Other expense, net (1) Separation costs associated with Chief Executive Offiff cer departurt e (2) Aeropost-related write-offsff VATAA receivabla e write-offff (4) Asset impam irment and closure costs (5) (3) Adjud sted EBITDA 2,710 15,304 19,434 (3,611) 2,361 — — — 5,658 2,787 12,129 17,610 (661) 1,402 — — — — 11,020 59,951 72,698 (9,871) 14,156 7,747 2,786 2,309 5,658 9,611 51,858 67,868 (2,201) 3,235 — — — — $ 57,237 $ 56,571 $ 275,659 $ 234,905 (1) Primarily consists of foreign currency losses or gains due to the revaluation of monetary assets and liabilities (primarily U.S. dollars). This line item includes a gain of $950,000 associated with the acquisition of a building upon a lease termination in the fourth quarter of fiscal year 2023 and a gain of $2.7 million associated with the sale of our Aeropost subsu idiary in October 2021. (2) Reflects $7.7 million of separation costs associated with the departurtt e of our former Chief Executive Offiff cer in Februarr (3) Reflects $2.1 million of Aeropost-related write-offsff in the first quarter of fiscal year 2023 and $660,000 of a receivable written-offff in connection with the settlement in the third quarter of fiscal year 2023 of a claim for indemnificff ation from the buyer of the Aeropost business. ry 2023. (4) Reflects $2.3 million of VATAA receivables related to prior periods deemed not recoverable and written-offff in the third quarter of fiscal year 2023 following unfavff orable courtrr rulings. (5) Reflects $5.7 million of impairment primarily related to the write down of assets in connection with our decision in the fourth quarter of fiscal year 2023 to seek to sell our Trinidad sustainable packaging plant. Net Merchandise Sales - Constant Currenrr cy As a multinational enterprise, we are exposed to changes in foreign currency exchange rates. The translation of the operations of our foreign-based entities from their local currencies into U.S. dollars is sensitive to changes in foreign currency exchange rates and can have a significant impact on our reported financial results. We believe that constant currency is a usefulff measure, indicating the actual growth of our operations. When we use the term "net merchandise sales - constant currency", it means that we have translated current year net merchandise sales at prior year monthlt y average exchanges rates. Net merchandise sales - constant currency results exclude the effeff cts of foreign currency translation. Impact of foreign currency is the effeff ct of currency fluctuations on our net merchandise sales. Refer to “Management’s Discussion & Analysis – Net Merchandise Sales” and Refer to “Management’s Discussion & Analysis – Comparable Net Merchandise Sales” for our quantitative analysis and discussion. Reconciliations between net merchandise sales - constant currency and comparable net merchandise sales - constant currency and the most directly comparable GAAP measure are included where applicable. 9 Comparison of Fiscal Year 2023 to 2022 The following discussion and analysis compare the results of operations for the fiscal years ended August 31, 2023 and 2022 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report. For a comparison of the fiscal years ended August 31, 2022, and 2021, please see Part II. “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2022, filed with the SEC on October 31, 2022. Unless otherwise noted, all tabla es present U.S. dollar amounts in thousands. Certain percentages presented are calculated using actual results prior to rounding. Our operations consist of four reportable segments: Central America, the Caribbean, Colombia and the United States. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographi c location, which are used by management and the Company's chief operating decision maker in setting up management lines of nce. Segment responsibility, providing support services, and making operational decisions and assessments of financial perforff mar r converting to U.S. dollars and consolidating eliminations. From time to time, we revise the amounts are presented afteff measurement of each segment's operating income, including certain corporate overher ad allocations, and other measures as determined by the information regularly reviewed by our chief operating decision maker. When we do so, the previous period amounts and balances are reclassified to conforff m to the current period's presentation. a Net Merchandise Sales The following tabla es indicate the net merchandise club sales in the reportable segments in which we operate and the percentage growth in net merchandise sales by segment during fiscal years 2023 and 2022. Years Ended August 31, 2023 August 31, 2022 Amount % of net sales Increase/ (Decrease) from prior year Change Amount % of net sales Central America $ 2,620,002 60.9 % $ 283,502 12.1 % $ 2,336,500 59.2 % Caribbean Colombia 1,250,700 430,004 29.1 10.0 111,377 (38,990) 9.8 (8.3) 1,139,323 468,994 28.9 11.9 NNet merchandise sales $ 4,300,706 100.0 % $ 355,889 9.0 % $ 3,944,817 100.0 % Overall, net merchandise sales grew by 9.0% for fiscal year 2023 compared to fiscal year 2022, driven by a 3.6% increase in transactions and a 5.2% increase in average ticket. Transactions represent the total number of visits our Members make to our warehouse clubs resulting in a sale and the total number of PriceSmart.com curbside pickupk and delivery service transactions. Average ticket represents the amount our Members spend on each visit or PriceSmart.com order. We had 51 clubs in operation as of August 31, 2023 compared to 50 clubs as of August 31, 2022. Net merchandise sales in our Central America segment increased 12.1% during fiscal year 2023. This increase had a 720 basis point (7.2%) positive impam ct on total net merchandise sales growth. All markets within this segment had positive net merchandise sales growth for the twelve-montht period ended August 31, 2023. We added one new club to the segment when compared to the comparable prior-year period. We opened our third warehouse club in El Salvador in Maya 2023. Net merchandise sales in our Caribbean segment increased 9.8% during fiscal year 2023. This increase had a 280 basis point (2.8%) positive impam ct on total net merchandise sales growth. All of our markets in this segment had positive net merchandise sales growth. Net merchandise sales in our Colombia segment decreased 8.3% during fiscal year 2023. This decrease had a 100 basis point (1.0%) negative impact on total net merchandise sales growth. The primary driver of the decreased sales for the year was due to the significant devaluation of the Colombian peso during the first three quarters of fiscal year 2023. During the fourth quarter of fiscal year 2023, the Colombian peso appreciated compared to the comparable prior year period and net merchandise sales grew 2.1% in the fourth quarter of fiscal year 2023 compared to the same period in the prior year. 10 The following tabla e indicates the impact that currency exchange rates had on our net merchandise sales in dollars and the percentage change from the twelve-month period ended August 31, 2023. When we use the term "net merchandise sales - constant currency", it means that we have translated current year net merchandise sales at prior year monthly average exchanges rates. Net merchandise sales - constant currency results exclude the effeff cts of foreign currency translation. Impact of foreign currency is the effeff ct of currency fluctuations on our net merchandise sales. Net Merchandise Sales 2,620,002 $ 1,250,700 430,004 4,300,706 $ $ $ Net Merchandise Sales - Constant y Currency 2,534,980 $ 1,245,517 492,581 4,273,078 $ Year Ended g August 31, 2023 Net Merchandise Sales Growth/ (Decline) Net Merchandise Sales - Constant Currency Growth 12.1 % 9.8 (8.3) 9.0 % 8.5 % 9.3 5.0 8.3 % Impact of Foreign Currency g Exchange 85,022 5,183 (62,577) 27,628 % Impact of Foreign Currency g Exchange 3.6 % 0.5 (13.3) 0.7 % Central America Caribbean Colombia Consolidated total Overall, the effeff cts of currency fluctuations within our markets had an approximately $27.6 million, or 70 basis point (0.7%), positive impact on net merchandise sales for the twelve-months ended Auggust 31, 2023. Currency fluctuations had a $85.0 million, or 360 basis point (3.6%), positive impam ct on net merchandise sales in our Central America segment for the twelve months ended August 31, 2023. These currency fluctuations contritt buted approximately 220 basis points (2.2%) of positive impact on total net merchandise sales for fiscal year 2023. The Costa Rica colón appreciated significantly against the dollar as compared to the same period a year ago, which was a significff ant contritt buting factor to the favorabla e currency fluctuations in this segment. Currency fluctuations had a $5.2 million, or 50 basis point (0.5%), positive impact on net merchandise sales in our Caribbean segment for the twelve months ended August 31, 2023. These currency fluctuations contributed approximately 10 basis points (0.1%) of positive impact on total net merchandise sales growth for the current fiscal year period. The positive impact was primarily driven by the appreciation of the Dominican peso as compared to the same period last year. Currency fluctuations had a $62.6 million, or 1,330 basis point (13.3%), negative impact on net merchandise sales in ended August 31, 2023. These currency fluctuations contributed approximately 160 our Colombia segment for the twelve monthst basis points (1.6%) of negative impact on total net merchandise sales for the current fiscal year period. Net Merchandise Sales by Category The following tabla e indicates the approximate percentage of net sales accounted for by each majoa r categoryrr of items sold during the fiscal years ended August 31, 2023 and 2022: Foods & Sundries Fresh Foods Hardlines Softlines Other Business NNet Merchandise Sales Years Ended August 31, g 2023 2022 50 % 29 11 5 5 100 % 49 % 29 11 6 5 100 % The mix of sales by majoa r category changed slightly. Foods & Sundries increased approximately 1%, while Softlines in consumer preferff ences contrit buted to the changes in decreased approximately 1% between fiscal year 2023 and 2022. Shiftsff category mix. 11 Comparable Merchandise Sales We report comparable warehouse club sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday.aa The periods are establa ished at the beginning of the fiscal year to provide as close a match as ppossible to the calendar montht and quarter that is used for financial reporting purposes. This approach equalizes the number fof weekend days and weekdays in each period for imprm oved sales comparison, as we experience higher warehouse club sales on the weekends. Approximately every five years, the Company uses a 53-week year and a six-week “August” to account for the fa tct that 52 weeks is only 364 days. For fiscal year 2022, we used a 53-week year and a six-week “August.” However, for fiscal ye rar 2023, we have 52 weeks as per the standard calendar year. Furthet r, each of the warehouse clubs used in the calculations was open for at least 13 ½ calendar months before its results for the current period were compared with its results for the prior peri dod. As a result, sales related to one of our warehouse clubs opened during fiscal year 2023 will not be used in the calculation fof comparable sales until th yey have been open for at least 13 ½ months. Thereforff e, comparable net merchandise sales include 50 warehouse clubs for the fifty-two week period ended September 3, 2023. The following tabla es indicate the comparable net merchandise sales in the reportable segments in which we operate and the percentage changes in net merchandise sales by segment during the fifty-tt two week period ended September 3, 2023, compared to the same fifty-two week period of the prior year and the fiftyy-three week period ended Septembem r 4, 2022 compared to the fiftyy-three week period of the prior year: Central America Caribbean Colombia Consolidated comparable net merchandise sales % Increase/(Decrease) in Comparable Net Merchandise Sales Fifty-Two Weeks Ended Fifty-Three Weeks Ended September 3, 2023 September 4, 2022 10.9 % 5.9 (9.2) 7.1 % 10.4 % 12.7 4.5 10.4 % the fifty-tt Comparable net merchandise sales for those warehouse clubs that were open for at least 13 ½ monthst two week period ended Septembem r 3, 2023 increased 7.1%. for some or all of Comparable net merchandise sales in our Central America segment increased 10.9% for the fifty-two week period ended Septembem r 3, 2023. The positive comparable net merchandise sales growth for our Central America segment contritt buted approximately 650 basis points (6.5%) of positive impact in total comparable merchandise sales. For the fifty-tt two weeks ended Septembem r 3, 2023, strong perforff mance in our largest market, Costa Rica, contributed approximately 340 basis points (3.4%) of positive impact on total comparable net merchandise sales. During the year, Costa Rica experienced significant appreciation of the Costa Rica colón versus the comparable prior year period, which positively affeff cted comparable net merchandise sales. The relatively smaller markets of Hondurdd as, Guatemala, Nicaragua, and El Salvador, along with our second largest market, Panama, contributed approximately 310 basis points (3.1%) of positive impact on total comparable net merchandise sales. Our Caribbean segment increased 5.9% for the fifty-tt two week period ended September 3, 2023. This increase contritt buted approximately 170 basis points (1.7%) of positive impam ct in total comparable net merchandise sales. Our Dominicanaa Republu ic market continued its strong perforff mar nce in the fifty-two week period, with 12.4% comparable net merchandise sales growth. Comparable net merchandise sales in our Colombia segment decreased 9.2% for the fifty-tt two week period ended Septembem r 3, 2023. This decrease contributed approximately 110 basis points (1.1%) of negative impam ct to the increase in total comparable net merchandise sales. The year-to-date decrease is primarily due to the foreign currency devaluation. When we use the term "compam rabla e net merchandise sales - constant currency", it means that we have translated current year comparable net merchandise sales at prior year monthly average exchanges rates. Comparable net merchandise sales - constant currency results exclude the effeff cts of foreign currency translation. Impact of foreign currency is the effeff ct of currency fluctuations on our comparable net merchandise sales. The following tabla es illustrate the comparable net merchandise sales - constant currency percentage growth and the impact that changes in foreign currency exchange rates had on our comparable merchandise sales percentage growth for the fifty-two week period ended Septembem r 3, 2023: 12 Central America Caribbean Colombia Consolidated comparable net merchandise sales Fifty-Two Weeks Ended September 3, 2023 Comparable Net Merchandise Sales Growth/ (Decline) Comparable Net Merchandise Sales - Constant Currency Growth % Impact of Foreign Currency Exchange 10.9 % 5.9 (9.2) 7.1 % 7.3 % 5.5 3.9 6.3 % 3.6 % 0.4 (13.1) 0.8 % Overall, the mix of currency fluctuations within our markets had an 80 basis point (0.8%) positive impact on comparable net merchandise sales for the fifty-two week period ended September 3, 2023. Currency fluctuations within our Central America segment accounted for approximately 240 basis points (2.4%) of the positive impact on total comparable net merchandise sales for the fifty-tt two week period ended September 3, 2023. Our Costa Rica market was the main contributor as the market experienced currency appreciation when compared to the same periods last year. Currency fluctuations within our Caribbean segment accounted for approximately 10 basis points (0.1%) of positive two week period ended September 3, 2023. Our Dominican impact on total comparable net merchandise sales for the fifty-tt Republu ic market experienced currency appa reciation when compared to the same period last year. Currency fluctuations within our Colombia segment accounted for approximately 170 basis points (1.7%) of negative impact on total comparable net merchandise sales for the fifty-two week period ended September 3, 2023. This reflects the devaluation of the Colombia peso throughout fiscal year 2023 when compared to the same period a year ago. 13 Membership Income Membership income is recognized ratabla y over the one-year life of the membership. Years Ended August 31, 2023 August 31, 2022 % of Totala tiaa ng Operapp Amoum nt Income Increase/ (Decrease) from prior year % Change Memberbb ship income % to net merchandise salea s % of Totala tiaa ng Operapp Amoumm nt Income Membership income - Central Amermm icrr a $39,707 $3,698 10.30% 1.50% $36,009 Membership income - Caribbii ean Membership income - Colombia 17,635 8,706 1,290 173 7.9 2 1.4 2 16,345 8,533 Membership income - Total $66,048 35.80% $5,161 8.50% 1.50% $60,887 36.40% Number of accounts - Central Amermm icr a 1,005,609 Number of accounts - Caribbii ean Number of accounts - Colombia Number of accounts - Total 467,661 334,345 1,807,615 53,780 13,964 (22,920) 44,824 5.70% 3.1 -6.4 2.50% 951,829 453,697 357,265 1,762,791 The number of Member accounts at the end of fiscal year 2023 was 2.5% higher than the prior year period. Membership income increased 8.5% compared to the comparable prior-year period. Membership income increased in our Central America, Caribbean, and Colombia segments in the twelve months ended August 31, 2023. The consolidated increase in membership income is primarily due to an increase in the membership base since the comparable prior year period. Since August 31, 2022, our Central America and Caribbean segments have increased their membership base while our Colombia segment has faced a decline in its membership base. Inflation and significff ant foreign currency devaluation have adversely impam cted our Members in that market. Despite the decline in membership base, our Colombia segment saw an increase in membership income due to an increase in the membership fees charged to Members. We offeff r the Platinum Membership program in all locations where PriceSmart operates. The annual fee for a Platinum Membership in most markets is approximately $75. The Platinum Membership program provides Members with a 2% rebate on most items, up to an annual maximum of $500. We record the 2% rebate as a reduction on net merchandise sales at the time of the sales transaction. Platinum Membership accounts are 8.9% of our total membership base as of August 31, 2023, an increase from 7.4% as of August 31, 2022. Platinum Members tend to have higher renewal rates than our Diamond Members. For fiscal year 2023, our auto-renewal process accounted for approximately 6.9% of our total membership renewals. Our trailing twelve-month renewal rate was 86.9% and 88.9% for the periods ended August 31, 2023 and August 31, 2022, respectively. 14 Other Revenue r revenue primarily consists of non-merchandise revenue from freight and handling fees generated from the marketplt ace and casillero operations we sold in October 2021, our interest-generating portfolio from our co-branded credit cards, and rental income from operating leases where the Company is the lessor. Othet Years Ended August 31, 2023 Increase/ (Decrease) from prior year Amount $ $ — $ 11,173 2,174 13,347 $ (3,307) 1,776 (294) (1,825) August 31, 2022 % Change Amount (100.0)% $ 18.9 (11.9) 3,307 9,397 2,468 (12.0)% $ 15,172 NNon-merchandise revenue Miscellaneous income Rental income Other revenue Comparison of 2023 to 2022 The primaryrr driver of the decrease in othet r revenue for the year ended August 31, 2023 was the sale of our Aeropostt subsidiary and its marketplt ace and casillero operations on October 1, 2021. This was partially offsff et by an increase in Miscellaneous revenue due to an increase in incentive fee revenue on our co-branded credit cards. For additional information on the results of the disposition, refer to “Index to Consolidated Financial Statements: Notes to Consolidated Financial Statements, NNote 2 – Summaryyrr of Siggnificff ant Accounti gng Policies.” 15 Results of Operations Resultstt of Operatiott ns Consolidll atdd edtt (Amounts in thousands, except percentages and number of warehouse clubs) Net merchandise sales NNet merchandise sales Total gross margin Total gross margin percentage Revenues Total revenues Percentage change from comparable period Comparable net merchandise sales Total comparable net merchandise sales increase Total revenue margin Total revenue margin Total revenue margin percentage Selling, general and administrative Selling, general and administrative Selling, general and administrative percentage of total revenues Operational data Adjud sted EBITDA (1) Warehouse clubs at period end Warehouse club sales floor squaq re feet at period end Years Ended August 31, 2023 August 31, 2022 $ $ 4,300,706 $ 3,944,817 678,352 $ 604,755 15.8% 15.3% $ 4,411,842 $ 4,066,093 8.5% 12.3% 7.1% 10.4% $ 759,331 $ 681,148 17.2% 16.8% $ 574,815 $ 514,082 13.0% 12.6% $ 275,659 $ 234,905 51 2,524 50 2,484 (1) See Part II. “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non - GAAP Financial Measures” for the definition of Adjud sted EBITDA and a reconciliation to GAAP net income attributable to PriceSmart as reported. 16 Resultstt of Operatiott ns Consolidll atdd edtt Operating income- by segment Central America Caribbean Colombia United States Reconcilingg Items (1) Operating income - Total Years Ended August 31, 2023 % of Total Revenue August 31, 2022 % of Total Revenue $ 191,721 4.3 % $ 171,119 4.2 % 87,223 15,467 29,844 2.0 0.4 0.7 79,022 22,526 23,364 (139,739) (3.2) (128,965) $ 184,516 4.2 % $ 167,066 1.9 0.6 0.6 (3.2) 4.1 % (1) The reconciling items reflect the amount eliminated upon consolidation of intersegment transactions. The following tabla e summarizes the selling, general and administrative expense for the periods disclosed: Years Ended August 31, 2023 % of Total Revenue August 31, 2022 % of Total Revenue Selling, general and administrative detail: Warehouse club and othet r operations $ General and administrative Reserve for AMT settlement Separation costs associated with Chief Executive Offiff cerr departurt e Pre-opening expenses Asset impam irment and closure costs Loss on disposal of assets 417,272 134,783 7,179 7,747 1,432 5,658 744 9.4 % $ 3.1 0.2 0.2 — 0.1 — 378,161 133,185 — — 1,471 — 1,265 9.3 % 3.3 — — — — — Total Selling, general and administrative $ 574,815 13.0 % $ 514,082 12.6 % Total gross margin is derived from our Revenue – Net merchandise sales less our Cost of goods sold – Net merchandise sales and represents our sales and cost of sales generated from the business activities of our warehouse clubs. We express our Total gross margin percentage as a percentage of our Net merchandise sales. On a consolidated basis, total gross margin as a percent of net merchandise sales for the twelve months ended August 31, 2023 was 15.8%, 50 basis points (0.5%) higher than the comparable prior year period, respectively. Approximately 30 basis points (0.3%) of this increase was due to lower markdowns when compared to the comparable prior year period. We took significant markdowns in the third quarter of fiscal year 2022 when we had excessive amounts of slow-moving inventory because of changing consumer preferff ences as Members began to resume buying patterns similar to our pre-pandemic sales mix. In addition, supply chain disrupr tions and shipping delays in the prior-year period led to our having excess out-of-sff eason merchandise that we chose to liquidate to free up sales floor space for the holiday season last year. Our food service and bakery margins increased in fiscal year 2023 compared to the prior year period contritt buting another 30 basis points (0.3%) to the increase and our freight and handling costs decreased during fiscal year 2023 which contritt buted an additional 10 basis points (0.1%) to the increase. This was partially offsff et by our elimination of a COVID premium we included in the price of merchandise we sold and services we provided, contributing negative 20 basis points (0.2%) to the increase. Total revenue margin is derived from Total revenues, which includes our Net merchandise sales, Membership income, Export sales, and Other revenue and income less our Cost of goods sold for net merchandise sales, Export sales, and Non- merchandise revenues. We express our Total revenue margin as a percentage of Total revenues. Total revenue margin increased 40 basis points (0.4%) for the twelve months ended August 31, 2023 compared to the prior-year period, which is primarily the result of higher total gross margin as a percent of net merchandise sales of 50 basis points (0.5%). 17 Selling, general, and administrative expenses consist of warehouse club and other operations, general and administrative expenses, separation costs associated with the Chief Executive Offiff cer departurtt e, pre-opening expenses, asset impairment and closure costs, reserve for settlement of AMT, and loss (gain) on disposal of assets. In total, Selling, general and administrative expenses increased $60.7 million compared to the prior year and increased 40 basis points (0.4%) to 13.0% of total revenue for fiscal year 2023 compared to 12.6% of total revenues for fiscal year 2022 offsff et, in part, by our Interim Chief Executive Offiff cer's election not to receive compensation. Warehouse club and othet r operations expenses increased to 9.4% of total revenues for fiscal year 2023 compared to 9.3% for fiscal year 2022, primarily due to our Costa Rica market which increased 20 basis points (0.2%) as a percentage of revenue year over year due to the appreciation of the Costa Rica colón, and partially offsff et by our Colombia market which decreased 10 basis points (0.1%) as a percentage of revenue year over year due to the devaluation of the Colombian peso. General and administrative expenses decreased to 3.1% of total revenues for the current year compared to 3.3% for the prior fiscal year. The 20 basis point (0.2%) decrease is primarily due to leveraging of general and administrative expenses while revenues increased in fiscal year 2023 compared to the prior year. In the second quarter of fiscal year 2023, we recorded $7.7 million for separation and other related termination benefits ry 3, 2023. Of this amount $4.2 million in net charges for our former Chief Executive Offiff cer who resigned effeff ctive Februarr related to adjud stments to non-cash stock-based compensation. We subsu tantially fulfilff led all payma ent obligations by the end of the second quarter of fiscal year 2023; however, some vesting of perforff mance stock units will occur in the first quarter of fiscal year 2024. On a go-forff ward basis, our Interim Chief Executive Offiff cer has declined to receive compensation for his services during his term; thereforff e, we expect Selling, general and administrative expenses will be positively impacted by $2.5 million of savings each quarter during his term, reduced by salary increases for othet r executives related to the change in leadership. In the fourth quarter of fiscal year 2023, we recorded $5.7 million of asset impairmer nt and closure costs primarily related to the write down of the assets held for sale of our Trinidad sustainabla e packaging plant to their estimated fair value upon ouru decision to seek to sell the plant. We planned to use the plant to increase effiff ciencies by eliminating intermediaries in packaging ing some of our packaging materials using compostabla e or recyclable inputs. However, we found and labea that achieving economic feasibility for this business proved challenging. Thereforff e, we decided to refocus our effoff rts on our core competencies as a retailer and redeploy assets we could use in our club business and seek a buyer for the remainder. ling and manufacturtt Additionally,yy in the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle litigation regarding several AMT cases in one of our markets where the application of complex tax laws are subju ect to interpretation. In that country, we had challenged AMT rules requiring us to paya taxes based on a percentage of sales if the percentage of sales method resulted rate. Of this amount, $1.0 in a higher amount of tax payaa bla e than the amount payabla e based on taxabla e income at the statutt oryrr million relates to our write-offff of an income tax receivable we had recorded with respect to taxes we previously paid on the percentage of sales basis in one tax year and for which we had sought a refund that we now no longer expect to receive. We will make a payment of $6.2 million to resolve amounts due for tax years in which we made tax payments using the original computation based on taxabla e income rather than the percentage of sales method. As part of the settlement, going forward we will paya the higher of the minimum tax or the amount based on taxabla e income at the statutt oryrr rate. As a result, we have accruer d an additional $2.0 million of AMT for fiscal year 2023. For the three and twelve-months ended August 31, 2023, net income attributable to PriceSmart was negatively impam cted by $9.2 million in total and diluted earnings per share was negatively impacted by $0.30. Operating income in fiscal year 2023 increased to $184.5 million (4.2% of total revenue) compared to $167.1 million (4.1% of total revenue) for the same period last year. Operating income was impacted negatively by $9.2 million (0.2% of total revenue) for costs related to the reserve for the AMT settlement and $5.7 million (0.1% of total revenue) of asset impairmer nt and closure costs. 18 Interest Income Net interest income represents the earnirr ngs generated from interest-bearing assets held by PriceSmart, Inc. and our wholly owned foreign subsu idiaries. These assets include investments in fixed income securities and deposits held with financial institutt ents received on these assets, which serve to enhance our overall financial returns. ions. The interest income is derived from the interest payma Interest income Years Ended August 31, 2023 August 31, 2022 Amount Change Amount $ 9,871 $ 7,670 $ 2,201 Net interest income increased for the twelve-month period ended Auggust 31, 2023 primarily due to an increase in investments at higher yields when compared to the comparable prior year period. Interest Expense Interest expense on loans Interest expense related to hedging activity Less: Capia talized interest NNet interest expense Years Ended August 31, 2023 August 31, 2022 Amount Change Amount $ $ 11,898 $ 4,258 $ 1,205 (2,083) (2,029) (820) 11,020 $ 1,409 $ 7,640 3,234 (1,263) 9,611 Net interest expense reflects borrowings by PriceSmart, Inc. and our wholly owned foreign subsu idiaries to finance new tion for new warehouse clubs and distribution centers, warehouse club expansions, the capia tal land acquisition and construcrr requirements of warehouse club and other operations, and ongoing working capia tal requirements. NNet interest expense increased for the twelve-montht period ended August 31, 2023, prp imarily due to higher interest rates on short-term borrowings and higher long-term borrowings outstanding when compared to the comparable prior year period. In addition, the Company had less interest expense related to hedging activity becausa e of fewer outstanding swaps for the twelve- month period ended August 31, 2023. Other Expense, net Other expense, net consists of curren ycy ggains or losses, as well as net benefit costs related to our defined benefit plans r items considered to be non-operati gng in nature. and othet Other expense, net Years Ended August 31, 2023 Amount Change August 31, 2022 Amount $ (14,156) $ (10,921) $ (3,235) Monetary assets and liabilities denominated in currencies other than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gains/(losses) are recorded as currency gains or losses. Additionally, gains or losses from transactions denominated in currencies othet r than the functional currency of the respective entity also generate currency gains or losses. 19 For the twelve-months ended August 31, 2023 the primaryrr driver of Othet r expense, net included $8.5 million of losses due to revaluation of monetary assets and liabilities (primarily U.S. dollars) in several of our markets. Of those amounts, Costa Rica contributed a $3.5 million revaluation loss, due to the impact of the appreciation of the Costa Rican Colón on our U.S. dollar monetary net assets in Costa Rica. In addition, we incurred transaction costs in some of our countries with liquidity issues of $7.6 million during the twelve months ended August 31, 2023, associated with increased spreads and converting the local currencies into availabla e tradable currencies before converting them to U.S. dollars. Provision for Income Taxes The tabla es below summarize the effeff ctive tax rate for the periods reported: Current tax expense NNet deferred tax benefitff Provision for income taxes Effeff ctive tax rate Years Ended August 31, 2023 August 31, 2022 Amount Change Amount $ $ 63,243 (3,292) 59,951 35.4 % $ $ 8,085 $ 55,158 8 (3,300) 8,093 $ 51,858 33.2 % For fiscal year 2023, the effeff ctive tax rate was 35.4% compared to 33.2% for fiscal year 2022. The increase is primarily and asset impairment and driven by the comparably unfavorabla e impact of write-offsff related closure costs of 2.2% and a 1.8% unfavorabla e impact due to the AMT settlement. This was partially offsff et by a greater portion of income falling into lower tax jurisdictions which resulted in a 2.0% favorabla e impact. of VAT receivables, Aeropost write-offsff Other Comprehensive Income (Loss) Other comprehensive loss for fiscal years 2023 and 2022 resulted primarily from foreign currency translation adjud stments related to the assets and liabilities and the translation of the statements of income related to revenue, costs and expenses of our subsu idiaries whose functional currency is not the U.S. dollar. When the functional currency in our international subsidiaries is the local currency and not U.S. dollars, the assets and liabilities of such subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and revenue, costs and expenses are translated at average rates of exchange in effeff ct during the period. The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss. These adjud stments will not affeff ct net income until the sale or liquidation of the underlying investment. The reported other comprehensive income or loss reflects the unrealized increase or decrease in the value in U.S. dollars of the net assets of the subsidiaries as of the date of the balance sheet, which will vary from period to period as exchange rates fluctuate. Years Ended August 31, 2023 Change From Prior Year Amount August 31, 2022 % Change Amount Other Comprehensive Income (Loss) $ 31,594 $ 44,672 341.6 % $ (13,078) Other comprehensive income for fiscal year 2023 of approximately $31.6 million was primarily the result of the comprehensive gain of $33.7 million from foreign currency translation adjud stments along with approximately $1.7 million related to unrealized losses on changes in the fair value of accrued pension obligations and $0.5 million related to unrealized losses on changes in the fair value of our derivative obligations. During fiscal year 2023, the largest translation adjud stments were related to the appreciation of the local currency against the U.S. dollar of our Costa Rica and Colombia subsidiaries, partially offsff et by the devaluation of the local currencies against the U.S. dollar for our Dominican Republic subsu idiary. 20 LIQUIDITY AND CAPITAL RESOURCES Financial Position and Cash Flow Our operations have historically suppu lied us with a significff ant source of liquidity. We generate cash from operations primarily through net merchandise sales and membership fees. Cash used in operations generally consist of payments to our merchandise vendors, warehouse club and distribution center operating costs (including payroll, emplm oyee benefits and utilities), ents for income taxes. Our cash flows provided by operating activities, supplemented with our long-term debt as well as payma and short-term borrowings, have generally been sufficff ient to fund our operations while allowing us to invest in activities that support the long-termr growth of our operations. We also have returned cash to stockholders through a semiannual dividend and by repurchasing shares of our common stock pursuant to the stock repurchase program we commenced in the fourth quarter of fiscal year 2023 and completed in the first quarter of fiscal year 2024. We evaluate our funding requirements on a regular basis to cover any shortfalff ient cash from operations to meet our capia tal requirements. We may consider funding alternatives to provide additional liquidity if necessary. Refer to Part II. “Item 8. Financial Statements and Supplementaryrr Data: Notes to Consolidated Financial Statements, Note 11 - Debt” for additional information regarding amounts outstanding on our short-term facilities and our long-term borrowings, and any repayma l in our ability to generate sufficff ents. Repatriation of cash and cash equivalents held by foreign subsu idiaries may require us to accruer and paya taxes for certain jurisdictions. If we decide to repatriate cash through the payment of cash dividends by our foreign subsidiaries to our domestic operations, we will accruer taxes if and when appropriate. The following tabla e summarizes the cash and cash equiq valents, including restricted cash, held by our foreign subsu idiaries and domestically (in thousands): Amounts held by foreign subsidiaries Amounts held domestically Total cash and cash equiq valents, including restricted cash August 31, 2023 August 31, 2022 $ $ 139,050 $ 203,952 113,152 47,421 252,202 $ 251,373 The following tabla e summarizes the short-term investments held by our foreign subsidiaries and domestically (in thousands): Amounts held by foreign subsidiaries Amounts held domestically Total short-term investments August 31, 2023 August 31, 2022 $ $ 74,294 $ 11,160 16,787 — 91,081 $ 11,160 As of August 31, 2023 and August 31, 2022, there were no certificff ates of deposit with a maturity of over a year held by our foreign subsu idiaries or domestically. From time to time, we have experienced a lack of availabia lity of U.S. dollars in certain markets (U.S. dollar illiquidity). This impem des our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported producd ts or otherwise fund our operations. Since fiscal year 2017, we have experienced this situation in Trinidad and have been unable to source a sufficff ient level of tradable currencies. We are working with our banks in Trinidad and governmrr ent offiff cials to convert all of our Trinidad dollars into tradable currencies. During the third quarter of fiscal year 2023, the Hondurdd an Central Bank began limiting the availabia lity and controlling the allocation of U.S. dollars for the conversion from Hondurd an lempiras to U.S. dollars. We are actively working with our banking partners and governmrr ent authorities to address this situation. We have and continue to take additional actions in this respect. Refer to “Management’s Discussion & Analysis – Factors Affeff cting Our Business” for our quantitative analysis and discussion. 21 Our cash flows are summarized as follows (in thousands): Years Ended August 31, 2023 August 31, 2022 Change NNet cash provided by operating activities $ 257,331 $ 121,829 $ 135,502 NNet cash used in investing activities NNet cash used in financing activities Effeff ct of exchange rates (222,082) (41,055) 6,635 (74,756) (12,209) 1,030 (147,326) (28,846) 5,605 NNet increase (decrease) in cash, cash equiq valents $ 829 $ 35,894 $ (35,065) ended Net cash provided by operating activities totaled $257.3 million and $121.8 million for the twelve monthst August 31, 2023 and 2022, respectively. The increase in net cash provided by operating activities is primarily the result of a net positive change in working capia tal generated from changes in our merchandise inventory and accounts payaaa bla e positions, which contrit buted $84.9 million, and net a positive change in our other various operating assets and liabilities. Specificff ally,yy changes in our various operating assets and liabilities resulted in $17.6 million cash provided for fiscal year 2023 compared to $13.8 million use of cash in the same accounts for fiscal year 2022. Net cash used in investing activities totaled $222.1 million and $74.8 million, respectively, for the years ended August 31, 2023 and August 31, 2022. The increase is primarily the result of an increase in purchases of certificates of deposits compared to the same twelve-montht period a year-ago. Additionally, the increase included higher property and equipment expenditurt es compared to the same twelve-month period a year-ago to suppu ort growth of our real estate footprtt int. Net cash used in financing activities totaled $41.1 million and $12.2 million for the twelve monthst ended August 31, 2023 and 2022, respectively. We use cash flows provided by financing primarily to fund our working capia tal needs, our warehouse club and distribution center acquisitions and expansions, and investments in technology to suppu ort our omni-channel initiatives. The $28.8 million increase in cash used in financing activities is primarily the result of a net decrease of proceeds from short- term borrowings compared to the same period a year-ago. The following tabla e summarizes the dividends declared and paid during fiscal years 2023, 2022 and 2021 (amounts are per share): Declared 2/3/2023 2/3/2022 2/4/2021 First Payment Second Payment Amount $ $ $ 0.92 0.86 0.70 Record Date 2/16/2023 2/15/2022 2/15/2021 Date Paid 2/28/2023 $ 2/28/2022 $ 2/26/2021 $ Amount 0.46 0.43 0.35 Record Date 8/15/2023 8/15/2022 8/15/2021 Date Paid 8/31/2023 $ 8/31/2022 $ 8/31/2021 $ Amount 0.46 0.43 0.35 Short-Ttt erTT mrr Borrowings and Long-Tgg erTT mrr Debt Our financing strategy is to ensure liquidity and access to capia tal markets while minimizing our borrowing costs. The r things, ent of existing debt. Refer to Part II. “Item 8. Financial proceeds of these borrowings were or will be used for general corporate purposes, which maya include, among othet funding for working capiaa tal, capia tal expenditurt es, acquisitions, and repayma Statements and Suppu lementaryrr Data: Notes to Consolidated Financial Statements, Note 11 - Debt.” for furthet r discussion. Future Lease Commitmett ntstt We place a strong empham sis on managing future lease commitments related to various facilities and equipment that suppu ort our operations. We believe our current liquidity and cash flow projections can cover future lease commitments. As of August 31, 2023, we have signed one lease agreement which has not yet commenced. Refer to Part II. "Item 8. Financial Statements and nts and Contingencies" for further u Suppl discussion. ementary Data: Notes to Consolidated Financial Statements, Note 9 - Commitmet 22 Repuee rchase of Common Stoctt k and Reissuance of Treasury Shares Related to Emplm oyll ee Stoctt k Awards At the vesting dates for restricted stock awards to our emplm oyees, we repurchase a portion of the shares that have vested tax withholding at the prior day's closing price per share and apply the proceeds to paya the employees' minimum statutt oryrr requirements related to the vesting of restritt cted stock awards. The Company expects this practice going forward. Shares of common stock repurchased by us are recorded at cost as treasury stock and result in the reduction of stockholders’ equity in our consolidated balance sheets. We may reissue these treasuryrr shares. The following tabla e summarizes the equiq ty securities repurchased as part of the Company's stock-based compensation programs during fiscal years 2023, 2022 and 2021: Shares repurchased Cost of repurchase of shares (in thousands) Years Ended August 31, 2023 August 31, 2022 August 31, 2021 99,998 88,415 $ 7,245 $ 6,259 $ 62,282 5,542 We reissued 6,333 treasuryrr shares as part of our stock-based compensation programs during fiscal year 2023, 8,300 treasury shares during fiscal year 2022 and 96,400 treasury shares during fiscal year 2021. Share Repuee rchase Program In July 2023 we announced a program authorized by our Board of Directors to repurchase up to $75 million of our ly completed the share repurchase common stock. Subsu equeq nt to our fiscal year that ended on August 31, 2023, we successfulff program. We purchased a total of approximately 1,007,000 shares of our common stock under the program. The repurchases were made on the open market pursuant to a trading plan establa ished pursuant to Rule 10(b)5-1 under the Securities Exchange Act of 1934, as amended, which permits common stock to be repurchased at a time that we might othet rwise be precluded from doing so under insider trading laws or self-iff mposed trading restrictions. We do not expect to continue repurchases or adopt a new repurchase plan at this time. However, the Board of Directors could choose to commence another program in the future at its discretion afteff r its review of the Company’s financial perforff mance and anticipated capia tal requirements. Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands): NNumber of common shares acquired Average price per common share acquiq red Total cost of common share acquired Years Ended August 31, 2023 August 31, 2022 71,530 78.54 $ 5,618 $ $ $ — — — For furthet r information, refer to Part II. “Item 5. Market for Registrant’s Common Equiq ty,yy Related Stockholder Matters and Issuer Purchases of Equity Securities.” 23 Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP in the United States. The preparation of our consolidated financial statements requires that management make estimates and judgments that affeff ct the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Some of our accounting policies require management to make difficff ult and subjective judgments, ofteff n as a result of the need to make estimates of matters that are inherently uncertain. We evaluate our accounting policies and significff ant estimates on an ongoing basis, including those related to contingencies and litigation, income taxes, value added taxes, and long-lived assets. We base our estimates on historical experience and on otht er assumptions that management believes to be reasonabla e under the present circumstances. Using differff ent estimates could have a material impact on our financial condition and results of operations. We believe that the accounting policies described below involve a significff ant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our consolidated financial r information, refer to Part II. “Item 8. Financial Statements and Suppu lementaryrr condition and results of operations. For furthet Data: Notes to Consolidated Financial Statements, Note 2 - Summaryrr of Significant Accounting Policies.” Income Taxeaa s We account for income taxes using the asset and liability method. Under the asset and liabia lity method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differff ences between the financial statement carryirr ng amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured -forff wards using enacted tax rates expected to apply to taxabla e income in the years in which those temporary differff ences and carryr are expected to be recovered or settled. The effeff ct on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is establa ished when necessary to reduce deferred tax assets to amounts expected to be realized. As of August 31, 2023, we evaluated our deferred tax assets and liabilities and determined that a valuation allowance was necessary for certain deferred tax asset balances, primarily because of the existence of significff ant negative objeb ctive evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, indicating that certain net operating loss carry-forward periods are not sufficff ient to realize the related deferred tax assets. We also specifically considered r foreign tax credit balances could be utilized in the foreseeabla e future in light of current and future U.S. tax liabilities. We whethet have historically applied foreign tax credits, generated from taxes withheld on certain payments PriceSmart receives from our foreign subsu idiaries, to reduce U.S. income tax liabilities. However, as an incidental result of U.S. tax reform, following the reduction of the U.S. corporate income tax rate from 35% to 21%, we expect foreign tax credits generated to exceed U.S. income tax liability for the foreseeabla e future. Thereforff e, for the twelve-month period ended August 31, 2023 and August 31, 2022, we have recorded valuation allowances of $12.6 million and $11.8 million against our foreign tax credits, respectively. We are required to file federal and state income tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effeff ct in such jurisdictions, which could affeff ct the amount of tax paid by us. We, in consultation with our tax advisors, base our tax returns on interpretations that we believe to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various taxing authorities in the jurisdictions in which we file our tax returns. As part of these reviews, a taxing authority may disagree with respect to the interpretations we used to calculate our tax liability and thereforff e require us to pay additional taxes. We accrue an amount for our estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has 50% or less likelihood of being sustained. This requires significff ant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, we reassess these probabilities and record any changes in the consolidated financial statements as appropriate. There were no material changes in our uncertain income tax positions for the period ended on August 31, 2023. 24 Taxaa Receivablesll We paya Value Added Tax (“VAT”AA ) or similar taxes, income taxes, and other taxes within the normal course of our business in most of the countries in which we operate related to the procurement of merchandise and/or services we acquiq re and/or on sales and taxabla e income. VATAA is a form of indirect tax applied to the value added at each stage of producdd tion (primary,yy manufacturtt ing, wholesale and retail). This tax is similar to, but operates somewhat differff ently than, sales tax paid in the United States. We generally collect VATAA from our Members upon sale of goods and services and pay VATAA to our vendors upon purchase it VATAA reports to governmental agencies and reconcile the VATAA paid and VATAA of goods and services. Periodically,yy we submu received. The net overpaid VATAA maya be refunded or applied to subsu equeq nt returns, and the net underparr id VATAA must be remitted to the government. With respect to income taxes paid, if the estimated income taxes paid or withheld exceed the actuat l income tax due this creates an income tax receivabla e. In most countries where we operate, the governments have implm emented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit and debit cards directly to the government as advance payma ents of VATAA and/or income tax. This collection mechanism generally leaves us with net VATAA and/or income tax receivables, forcing us to process significff ant refund claims on a recurring basis. These refund or offsff et processes can take anywhere from several monthst to several years to complete. In two countries where the Company operates, minimum income tax rules require the Company to paya taxes based on a percentage of sales if the resulting tax were greater than the tax payabla e based on a percentage of income (AMT). As a result, the Company is making AMT payma ents substantially in excess of those it would expect to paya based on taxabla e income. The Company had income tax receivables of $10.7 million and $11.0 million as of August 31, 2023 and August 31, 2022, respectively, and deferred tax assets of $3.7 million and $3.5 million as of August 31, 2023 and August 31, 2022, respectively,yy in these countries. In the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle the AMT payma ent dispute in one of the aforff ementioned countries. Of this amount, $1.0 million is a reserve we recorded against an income tax receivable for one of the tax years for which we sought a refund and the remaining $6.2 million is an accruarr l for the unpaid years of the dispute in which we made tax payments using the original computation based on taxabla e income. While the rules related to refunds of income tax receivabla es in these countries are either unclear or complex, the Company has not placed any typeyy of allowance on the recoverabia lity of the remaining tax receivabla es, deferred tax assets or amounts that may be deemed under-paid, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests and appeals of these rules. In one of the countries with a significff ant VATAA receivabla e balance, the Company received unfavorable rulings at the r denying a portion of the Company’s appeals for refund of over-withholdings of VAT.AA Afteff supreme court level of that countrytt evaluating the merits of the Company’s arguments, the court’s decision, and probabia lity that the other related refund appeals would receive the same judgment, the Company concluded that a total of $2.3 million of related VATAA receivable would not be recoverabla e and this amount was written-offff in the third quarter of fiscal year 2023. These charges were recorded in the Warehouse club and other expenses line item under the Selling, general and administrative capta ion within the consolidated statements of income. The Company's various outstanding VATAA receivables and/or income tax receivables are based on cases or appeals with their own set of facts and circumstances. The Company consults and evaluates with legal and tax advisors regularly to understand outcomes in addition to its own experience handling complex tax the strength of its legal arguments and probability of successfulff issues. Based on those evaluations, the Company has not placed any typeyy of allowance on the recoverabia lity of the remaining tax receivabla es or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. 25 follows: are: Our policy for classification and presentation of VATAA receivabla es, income tax receivables and other tax receivabla es is as • • Short-term VATAA and Income tax receivabla es, recorded as Prepaid expenses and other current assets: This classification is used for any countries where our subsidiary has generally demonstrated the ability to recover the VATAA or income tax receivabla e within one year. We also classify as short-term any approved refunds or credit notes to the extent that we expect to receive the refund or use the credit notes within one year. Long-term VATAA and Income tax receivabla es, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countritt es where our subsu idiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subju ect to outstanding disputes. An allowance is provided against VATAA and income tax receivable balances in dispute when we do not expect to eventually prevail in our recovery of such balances. We do not currently have any allowances provided against VATAA and income tax receivabla es. Long-lgg ivll ed Assets We periodically evaluate our long-lived assets for indicators of impam irment. Indicators that an asset may be impam ired • • • • the asset's inability to continue to generate income from operations and positive cash flow in future periods; loss of legal ownership or title to the asset; significant changes in its strategic business objeb ctives and utilization of the asset(s); and the impact of significant negative industry or economic trends. Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity, which in turn drives estimates of future cash flows from these assets. These periodic evaluations could causa e management to conclude that impairment factors exist, requiring an adjud stment of these assets to their then-current fair market value. Future business conditions and/or activity could differff materially from the projections made by management causa ing the need for additional impairmer nt charges. During fiscal year 2023, we recorded asset impairment and closure cost charges of $5.7 million primarily related to our Trinidad sustainabla e packaging plant to mark our availabla e-for-sale assets down to their fair market value because we decided to discontinue its operations. We did not record any other impam irment charges during fiscal year 2023 related to the loss of legal ownership or title to assets; significff ant changes in the Company's strategic business objeb ctives or utilization of assets; or the impact of significff ant negative industry or economic trends. Loss on disposal of assets recorded during the years reported resulted from improvements to operations and normal preventive maintenance. Seasonality and Quarterly Fluctuations Historically, our merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, our operating results fluctuate quarter-to-quarter as a result of economic and political events in markets that we serve, the timing of holidays, weather, the timing of shipments, product mix, and currency effeff cts on the cost of U.S.- sourced producd ts which maya make these products more or less expensive in local currencies and thereforff e more or less affoff rdable. Because of such fluctuations, the results of operations of any quarter are not indicative of the results that may be achieved for a full fiscal year or any future quarter. In addition, there can be no assurance that our future results will be consistent with past results or the projections of securities analysts. Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity price risk. These market risks arise in the normal course of business. We do not engage in speculative trading activities. To manage the risk arising from these exposures, we utilize interest rate swaps, cross-currency interest rate swaps, non-deliverabla e foreign currency forward contracts and loans denominated in foreign currencies. Information about the change in the fair value of our hedges and the financial impact thereof for the twelve-montht period ended August 31, 2023 is disclosed in Part II. “Item 8. Financial Statements and Supplementaryrr Data: Notes to Consolidated Financial Statements, Note 13 - Derivative Instruments and Hedging Activities.” Information about the movements in currency exchange rates and the related impam ct on the translation of the balance sheets of our subsidiaries whose functional currency is not the U.S. dollar for the twelve-month period ended August 31, 2023 is disclosed in “Item 7. Management’s Discussion & Analysis – Other Comprehensive Loss.” 26 Each market risk sensitivity analysis presented below is based on hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes. The effeff ct of a change in a particular assumption is calculated without adjud sting any other assumption. In reality, however, a change in one factor could causa e a change in anothet r factor, which may magnifyff or negate other sensitivities. Interest Rate Riskii We are exposed to changes in interest rates as a result of our short-term borrowings and long-term debt borrowings. We have mitigated a portion of our interest rate risk by managing the mix of fixed and variable rate debt and by entering into interest rate swaps and cross-currency interest rate swaps to hedge interest rate risk. The notional amount, interest payment and maturity dates of the swap match the terms of the associated debt. The tabla e below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the tabla e represents the principal cash flows and related weighted-average interest rates by expected maturity dates. For interest rate swaps, including cross-currency interest rate swaps, the tabla e represents the contractuat l cash flows and weighted-average interest rates by the contractuat rwise noted. The notional amounts are used to l cash flows to be exchanged under the contracts. The weighted-average variable rates are based upon calculate contractuat prevailing market interest rates and the outstanding balances as of August 31, 2023. l maturity date, unless othet Annual maturities of long-termr debt and derivatives are as follow (in thousands): Twelve Months Ended August 31, (Amounts in thousands) 2024 2025 2026 2027 2028 Thereafter Total Long-TermTT Debt (Unhedged): Long-term debt with fixed interest rate $ 12,869 $ 13,263 $ 10,199 $ 6,944 $ 17,512 $ 14,186 $ 74,973 Weighted-average interest rate 6.50 % 6.50 % 6.50 % 6.20 % 6.20 % 6.60 % 6.40 % Long-term debt with variable interest rate $ 7,324 $ 22,888 $ 8,251 $ 26,244 $ — $ — $ 64,707 Weighted-average interest rate Total long-term debt 6.00 % 6.00 % 4.90 % 3.70 % — % — % 5.40 % $ 20,193 $ 36,151 $ 18,450 $ 33,188 $ 17,512 $ 14,186 $ 139,680 Derivatives: Interest Rate Swaps: Variable to fixed interest Weighted-average pay rate Weighted-average receive rate Cross-Currency Interest Rate Swaps: Variable to fixed interest Weighted-average pay rate Weighted-average receive rate $ $ $ 1,275 3.65 % 7.02 % $ 1,275 3.65 % 7.02 % 1,275 3.65 % 7.02 % $ 26,244 $ 3.65 % 7.02 % — $ — % — % — $ 30,069 — % — % 3.65 % 7.02 % 3,329 7.92 % 7.80 % $ 19,770 $ 7.92 % 7.79 % $ — — % — % — $ — % — % — $ — % — % — $ 23,099 — % — % 7.92 % 7.79 % (1) (1) (2) (2) Debt Payments with Fixed Long-TermTT Interest or Subject to Financial Derivatives: Long-term debt with fixed interest rate or with variable to fixed interest rate swaps Portion of long-term debt with fixed interest rate or with variable to fixed interest rate swaps Portion of long-term debt with variable interest rates and no swaps $ 17,473 $ 34,308 $ 11,474 $ 33,188 $ 17,512 $ 14,186 $ 128,141 86.5 % 94.9 % 62.2 % 100.0 % 100.0 % 100.0 % 91.7 % 13.5 % 5.1 % 37.8 % — % — % — % 8.3 % (1) The Company has disclosed the future annual maturities of long-term debt, for which it has entered into cross-currency interest rate swaps by using the derivative obligation as of August 31, 2023 to estimate the future commitments. Thereforff e, the total annual commitments reflects these obligations, including the effeff ct of the cross-currency interest rate swaps on the total-long term debt as disclosed on the consolidated balance sheet. (2) The derivative obligations of the interest rate swaps and cross-currency interest rate swaps are included in the Total long-term debt section of this table. 27 Foreign Currenrr cy Riskii We have foreign currency risks related to sales, operating expenses and financing transactions in currencies other than the U.S. dollar. As of August 31, 2023, we had a total of 51 consolidated warehouse clubs operating in 12 foreign countries and one U.S. territory,yy 40 of which operate under currencies othet r than the U.S. dollar. Approximately 48.4% of our net merchandise sales are comprised of products we purchased in U.S. dollars that were sold in countritt es whose currencies were other than the U.S. dollar. Approximately 78.8% of our net merchandise sales are in markets whose functional currency is other than the U.S. dollar. We may enter into additional foreign countries in the future or open additional locations in existing countritt es, which mayaa increase the percentage of net merchandise sales denominated in foreign currencies. Currency exchange rate changes either increase or decrease the cost of imported products that we purchase in U.S. dollars and price in local currency. Price changes can impact the demand for those products in the market. Currency exchange rates also affeff ct the reported sales of the consolidated company when local currency-denominated sales are translated to U.S. dollars. In addition, we revalue all U.S. dollar denominated assets and liabilities within those markets that do not use the U.S. dollar as the functional currency. These assets and liabilities include, but are not limited to, excess cash permanently reinvested offsff hore and the value of items shipped from the U.S. to our foreign markets. The gain or loss associated with this revaluation, net of reserves, is recorded in other income (expense). Foreign currencies in most of the countries where we operate have historically devalued against the U.S. dollar and are expected to continue to devalue. The following tabla es summarize by country, for those countries with functional currencies other than the U.S. dollar, the weakening of the countries' currency against the U.S. dollar (devaluation) or the strengthet ning of their currencies (revaluation): Country Colombia Costa Rica Dominican Repubu lic Guatemala Honduras Jamaica NNicaragua Trinidad Revaluation/(Devaluation) Twelve Months Ended August 31, 2023 % Change 2022 % Change 7.15 % 18.30 (7.06) (1.72) (0.48) (2.29) (1.42) (0.09)% (15.58)% (5.25) 6.87 (0.11) (2.37) 0.40 (2.00) 0.67 % We seek to manage foreign exchange risk by (1) adjud sting prices on goods acquired in U.S. dollars on a periodic basis to maintain our target margins afteff r taking into account changes in exchange rates; (2) 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; (3) reducing the time between the acquisition of product in U.S. dollars and the settlement of that purchase in local currency; (4) maintaining a balance between assets held in local currency and in U.S. dollars; and (5) by entering into cross-currency interest rate swaps and forward currency derivatives. We have local-currer ncy- denominated long-term loans in Barbados, Honduras and Guatemala; we have cross-currency interest rate swaps in Colombia; and we have interest rate swaps in the United States. Turbulence in the currency markets can have a significant impam ct on the value of the foreign currencies within the countries in which we operate. We report the gains or losses associated with the revaluation of these monetary assets and liabilities on our consolidated statements of income under the heading “Other income (expense), net.” Future volatility and uncertainties regarding the currencies in the countries that we operate in could have a material impact on our operations in future periods. However, there is no way to accurately forecast how currencies may trade in the future and, as a result, we cannot accurately project the impam ct of the change in rates on our future demand for impom rted products, reported sales, or financial results. 28 We are exposed to foreign exchange risks related to U.S. dollar-denominated and other foreign-denominated cash, cash equivalents and restritt cted cash, to U.S. dollar-denominated intercompam ny debt balances and to other U.S. dollar-denominated debt/att sset balances (excluding U.S. dollar-denominated debt obligations for which we hedge a portion of the currency risk inherent in the interest and principal payments), within entities whose functional currency is not the U.S. dollar. As part of the adoption of the new leasing standard, we recorded several monetary liabilities on the consolidated balance sheet that are exposed to foreign exchange movements. These monetary liabilities arise from leases denominated in a currency that is not the functional currency of the Company’s local subsu idiary. The monetary liability for these leases as of August 31, 2023 was $32.5 million. Due to the mix of foreign currency exchange rate fluctuations during fiscal year 2023, the impact to the consolidated statements of income of revaluing this liability was immaterial. The following tabla e discloses the net effeff ct on othet r foreign- denominated accounts relative to a hypoy thetical simultaneous currency revaluation based on balances as of August 31, 2023 (in thousands) including the lease-related monetary liabilities described above: r expense, net for U.S. dollar-denominated and othet Overall weighted negative currency movement 5% 10% 20% Losses based on change in U.S. dollar denominated and other foreign denominated cash, cash equivalents and restricted cash balances $ $ $ (2,477) $ (4,955) $ (9,909) $ Gains based on change in U.S. dollar denominated inter-company balances Gains based on change in U.S. dollar denominated other asset/liability balances 1,201 $ 2,402 $ 4,803 $ 508 1,016 2,031 Net Loss(1) $ $ $ (768) (1,537) (3,075) (1) Amounts are before consideration of income taxes. Information about the financial impact of foreign currency exchange rate fluctuations for the twelve monthst ended August 31, 2023 is disclosed in Part II. “Item 7. Management’s Discussion and Analysis – Other Expense, net.” Examplm es of where we have significant U.S. dollar net asset positions subjecting us to exchange rate losses if the local currency strengthens against the U.S. dollar are our Trinidad, Costa Rica, and Nicaragua subsu idiaries, with balances of $35.7 million, $35.5 million, and $30.3 million, respectively, as of August 31, 2023. Examples where we have significff ant U.S. dollar net liability positions subjecting us to exchange rate losses if the local currency weakens against the U.S. dollar are our Honduras, Guatemala, and Dominican Republu ic subsu idiaries, with balances of $26.3 million, $24.8 million, and $12.1 million, respectively, as of August 31, 2023. We are also exposed to foreign exchange risks related to local-currerr ncy-denominated cash and cash equiq valents, to local- currency-denominated debt obligations, to local-currency-denominated current assets and liabilities and to local-currency- denominated long-term assets and liabilities within entities whose functional currency is not the U.S. dollar. The following tabla e discloses the net effeff ct on other comprehensive loss for these local currency denominated accounts relative to hypoy thetical simultaneous currency devaluation in all the countries listed in the tabla e above, based on balances as of August 31, 2023: Other comprehensive loss on the decline in local currency denominated cash and cash equivalents and restricted cash (in thousands) Other comprehensive gain on the decline in foreign currency denominated debt obligations (in thousands) Other comprehensive loss on the decline in all other foreign currency denominated current assets net of current liabilities (in thousands) Other comprehensive loss on the decline in all other foreign currency denominated long- term assets net of long- term liabilities (in thousands) $ $ $ 3,078 $ 6,156 $ 12,313 $ (4,904) $ (9,807) $ (19,614) $ 5,772 $ 11,544 $ 23,089 $ 31,741 63,482 126,965 Overall weighted negative currency movement 5% 10% 20% 29 In addition, we are exposed to foreign currency exchange rate fluctuations associated with our U.S. dollar-denominated debt obligations that we hedge. We hedge a portion of the currency risk inherent in the interest and principal paymaa ents associated with this debt through the use of cross-currency interest rate swaps. The terms of these swap agreements are commensurate with the underlying debt obligations. The aggregate fair value of these swaps was in a net asset position of approximately $2.3 million at August 31, 2023 and approximately $12.9 million at August 31, 2022. A hypot tical 10% increase in the currency exchange rates underlying these swaps from the market rates at August 31, 2023 would have resulted in a further increase in the value of the swaps of approximately $3.3 million. Conversely,yy a hypothetical 10% decrease in the currency exchange rates underlying these swaps from the market rates at August 31, 2023 would have resulted in a net decrease in the value of the swaps of approximately $4.1 million. het yy From time to time, we use non-deliverabla e forward foreign exchange contracts primarily to address exposure to U.S. dollar merchandise inventoryrr expenditures made by our international subsu idiaries whose functional currency is other than the U.S. dollar. The net increase or decrease in the fair value of these derivative instruments would be economically offsff et by the gains or losses on the underlying transactions. From time to time, we have experienced a lack of availabia lity of U.S. dollars in certain markets (U.S. dollar illiquidity). This impem des our ability to convert local currencies obtained through merchandise sales into U.S. dollars to settle the U.S. dollar liabilities associated with our imported producd ts and to otherwise redeploy these funds in our Company. Since fiscal year 2017, we have experienced this situation in Trinidad and have been unable to source a sufficff ient level of tradable currencies. We are working with our banks in Trinidad to source tradable currencies. During the third quarter of fiscal year 2023, the Honduran Central Bank began limiting the availabia lity and controlling the allocation of U.S. dollars for the conversion from Honduran lempiras to U.S. dollars. WWe are active yly workingg with our bankingg partners and ggovernment authorities to address this situation. Refer to “Item 7. Management’s Discussion & Analysis – Factors Affeff cting Our Business” and “Item 7. Management’s Discussion & Analysis – Liquidity: Financial Position and Cash Flow” for our quantitative analysis and discussion. Commoditytt Price Riskii The increasing price of oil and certain commodities could have a negative effeff ct on our operating costs and sales. Higher oil prices can negatively impam ct the economic growth of the countries in which we operate, thereby reducing the buying power of our Members. Higher oil prices can also increase our operating costs, particularly utilities and merchandise transportation expenses. Inflationary pressures on various commodities also may impact consumer spending. We do not currently seek to hedge commodity price risk. 30 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of PriceSmart, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of PriceSmart, Inc. (thet Company) as of August 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended August 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,yy in all material respects, the financial position of the Company at August 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2023, in conforff mity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Publu ic Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of August 31, 2023, based on criteria establa ished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)r and our report dated October 30, 2023 expressed an unqualifieff d opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. the We conducdd ted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perforff mr r due to audit to obtain reasonabla e assurance about whethet . Our audits included perforff ming procedurd es to assess the risks of material misstatement of the financial statements, error or frauda whethet , and perforff ming procedurdd es that respond to those risks. Such procedurd es included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significff ant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. r the financial statements are free of material misstatement, whethet r due to error or frauda Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any waya our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 31 Taxaa receivablesll and contintt gen ncies Descripti ion of the Matter As discussed in Note 2 and in Note 10 to the consolidated financial statements, the Company pays Value Added Tax (“VAT”AA ) or similar indirect taxes, income taxes, and other taxes within the normal course of the Company’s business in the United States and numerous foreign jurisdictions. The differff ent interpretations of sometimes complex tax regulations create uncertainty and necessitate the use of significant judgment in the determination of the income tax and VATAA Company’s income and other tax liabilities and the recoverabia lity of botht receivabla es. As of August 31, 2023, the Company had $6.3 million accruerr d for potential income and other tax liabilities and had income tax and VATAA receivabla es of $36.9 million and $38.8 million, respectively. How We Addrdd esrr Matter in Our Audit sed the Auditing the recognition and measurement of the Company’s income and VATAA receivables and income and othet r tax contingencies was challenging becausaa e the evaluation of the various tax positions can be complex, highly judgmental and based on international tax laws, interpretations and legal rulings which can vary significantly between the countries in which the Company has operations. We tested contrott ls, including key management review controls, over the Company’s process to assess the technical merits of its income and other tax receivables and contingencies, including management’s process to measure the benefit of its income tax positions and other tax contingencies, and evaluate the recoverabia lity of the receivabla es. For examplm e, we tested ls over management’s review of the uncertain tax positions and the significant contrott assumptions surrounding more-likely-than-not conclusions, as well as controls over management’s review of the tax receivables and the significff ant assumptions surrounding the recoverabia lity of such assets or measurement of othet r tax contingencies. r tax receivables. Depending on the nature of the specificff We involved our international and other tax profesff sionals to assist in our assessment of the technical merits of certain of the Company’s income and other tax positions and the Company’s understanding and documentation of the respective international laws and regulations related to recoverabia lity of income, and othet tax position and, as applicable, developments with the relevant tax authorities, our procedures included obtaining and reviewing the Company’s correspondence with such tax authorities and evaluating income tax opinions or other third-partytt advice obtained by the Company. We used our knowledge of and experience with the application of international and other tax laws by the relevant income tax authorities to evaluate the Company’s accounting for its tax contingencies and receivabla es. We evaluated developments in the applicable regulatory environments to assess potential effeff cts on the Company’s positions. We considered the Company’s historical experiences with the differff ent taxing authorities and their historical results in evaluating and concluding on the likely impam ct of differff ent tax cases. In this manner, we analyzed the Company’s assumptions used to determine the amounts of income tax benefits and contingencies to recognize and the recoverabia lity of the tax receivabla es. We also tested the data s to internal data and used by the Company in determining these amounts by comparing input testing the accuracy of the calculations. n /s/ Ernst & Young LLP We have served as the Company’s auditor since 1997. San Diego, California October 30, 2023 32 PRICESMART, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current Assets: Cash and cash equivalents Short-term restritt cted cash Short-term investments Receivabla es, net of allowance for doubtfulff as of August 31, 2022, respectively Merchandise inventories accounts of $67 as of Auggust 31, 2023 and $103 Prepaid expenses and other current assets (includes $0 and $2,761 as of Auggust 31, 2023 and August 31, 2022, respectively, for the fair value of derivative instruments) Total current assets Long-term restritt cted cash Property and equipment, net Operating lease right-of-uff se assets, net Goodwill Deferred tax assets Other non-current assets (includes $7,817 and $11,884 as of August 31, 2023 and August 31, 2022, respectively, for the fair value of derivative instruments) Investment in unconsolidated affiff liates Total Assets LIABILITIES AND EQUITY Current Liabilities: Short-term borrowings Accounts payabla e Accruerr d salaries and benefits Deferred income Income taxes payabla e Other accruerr d expenses and other current liabilities (includes $1,913 and $82 as of Auggust 31, 2023 and Auggust 31, 2022, respective yly,yy for the fair value of derivative instruments) Operating lease liabilities, current portion Long-term debt, current portion Total current liabilities Deferred tax liabia lity Long-term income taxes payaa bla e, net of current portion Long-term operating lease liabilities Long-term debt, net of current portion liabilities (includes $3,321 and $0 for the fair value of derivative Other long-termr instruments and $12,105 and $8,440 for post-employment plans as of August 31, 2023 and August 31, 2022, respectively) Total Liabilities 33 August 31, 2023 2022 $ 239,984 $ 237,710 2,865 91,081 17,904 471,407 53,866 877,107 9,353 850,328 114,201 43,110 32,039 68,991 10,479 3,013 11,160 13,391 464,411 43,894 773,579 10,650 757,241 111,810 43,303 28,355 72,928 10,534 $ 2,005,608 $ 1,808,400 $ 8,679 $ 453,229 45,441 32,613 9,428 57,273 7,621 20,193 10,608 408,407 44,097 29,228 7,243 38,667 7,491 33,715 634,477 579,456 1,936 5,045 122,195 119,487 15,425 898,565 2,165 5,215 118,496 103,556 8,439 817,327 Stockholders' Equiq ty: Common stock $0.0001 par value, 45,000,000 shares authorized; 31,934,900 and 31,697,590 shares issued and 30,976,941 and 30,904,826 shares outstandi gng (net of treasu yry shares) as of August 31, 2023 and August 31, 2022, respectively Additional paid-in capia tal Accumulated other comprehensive loss Retained earnings Less: treasuryyrr stock at cost, 957,959 shares as of Auggust 31, 2023 and 792,764 shares as of August 31, 2022 Total Stockholders' Equity Total Liabilities and Equiq ty See accompanying notes. 3 497,434 (163,992) 817,559 (43,961) 1,107,043 3 481,406 (195,586) 736,894 (31,644) 991,073 $ 2,005,608 $ 1,808,400 34 PRICESMART, INC. CONSOLIDATED STATTT EMENTS OF INCOME (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: NNet merchandise sales Export sales Membership income Other revenue and income Total revenues Operating expenses: Cost of goods sold: Net merchandise sales Export sales Non-merchandise Selling, general and administrative: Warehouse club and othet r operations General and administrative Reserve for AMT settlement Separation costs associated with Chief Executive Offiff cer departurtt e Pre-opening expenses Asset impam irment and closure costs Loss on disposal of assets Total operating expenses Operating income Other expense: Interest income Interest expense Other expense, net Total other expense Income before provision for income taxes and loss of unconsolidated Provision for income taxes Loss of unconsolidated affiff liates NNet income Less: net income attributable to noncontrott lling interest NNet income attributable to PriceSmart, Inc. NNet income attributable to PriceSmart, Inc. per share availabla e for di Basic ib i Diluted Shares used in per share computations: Basic Diluted Dividends per share Years Ended August 31, 2023 2022 2021 $ 4,300,706 $ 3,944,817 $ 3,465,442 31,741 66,048 13,347 45,217 60,887 15,172 41,520 56,030 56,879 4,411,842 4,066,093 3,619,871 3,622,354 3,340,062 2,912,489 30,157 — 417,272 134,783 7,179 7,747 1,432 5,658 744 43,074 1,809 378,161 133,185 — — 1,471 — 1,265 4,227,326 3,899,027 184,516 167,066 9,871 (11,020) (14,156) (15,305) 169,211 (59,951) (55) 2,201 (9,611) (3,235) (10,645) 156,421 (51,858) (10) 109,205 104,553 — (19) 109,205 $ 104,534 3.51 3.50 $ $ 30,763 30,786 3.38 3.38 30,591 30,600 $ $ $ 0.92 $ 0.86 $ $ $ $ $ 39,513 23,336 359,221 125,416 — — 849 — 1,027 3,461,851 158,020 1,979 (7,210) (5,603) (10,834) 147,186 (48,969) (58) 98,159 (196) 97,963 3.18 3.18 30,403 30,403 0.70 See accompanying notes. 35 PRICESMART, INC. CONSOLIDATED STATTT EMENTS OF COMPREHENSIVE INCOME (AMOUNTS IN THOUSANDS) NNet income Less: net income attributable to noncontrott lling interest NNet income attributable to PriceSmart, Inc. Other Comprehensive Income, net of tax: Foreign currency translation adjud stments (1) Defined benefit pension plan: Net loss arising during period Amortization of prior service cost and actuarial gains included in net periodic pensions cost Total defined benefit pension plan Derivative instruments:(2) Unrealized gains (losses) on change in derivative obligations Unrealized gains (losses) on change in fair value of interest rate swaps Amounts reclassified from accumulated other comprehensive income to othet r expense, net for settlement of derivatives Total derivative instruments Other comprehensive income (loss) Comprehensive income Less: comprehensive income attributable to noncontrott lling interest Years Ended August 31, 2023 2022 2021 $ $ 109,205 $ 104,553 $ 98,159 — (19) (196) 109,205 $ 104,534 $ 97,963 33,708 (19,034) (7,837) (1,819) 148 (1,671) 6,000 (9,177) 2,734 (443) 31,594 140,799 — (341) 127 (214) (4,021) 10,191 — 6,170 (13,078) 91,456 3 (230) 127 (103) (140) 2,392 — 2,252 (5,688) 92,275 117 Comprehensive income attributable to PriceSmart, Inc. $ 140,799 $ 91,453 $ 92,158 (1) Translation adjud stments arising in translating the financial statements of a foreign entity have no effeff ct on the income taxes of that foreign entity. They may, however, affeff ct: (a) the amount, measured in the parent entity's reporting currency,yy of withholding taxes assessed on dividends paid to the parent entity and (b) the amount of taxes assessed on the parent entity by the government of its country. The Company has determined that the reinvestment of earnings of its foreign subsu idiaries are permanently reinvested for any jurisdiction where distribution from a foreign affiff liate would cause additional tax cost because of the long-term nature of the Company's foreign investment plans. Thereforff e, deferred taxes are not provided for on translation adjud stments related to non-remitted earnings of the Company's foreign subsu idiaries. (2) Refer to “Note 13 - Derivative Instruments and Hedging Activities.” See accompanying notes. 36 y t i u q E l a t o T t s e r e t n I . c n I , t r a m S e c i r P t n u o m A s e r a h S - n o N y t i u q E g n i l l o r t n o c o t e l b a t u b i r t t A k c o t S y r u s a e r TT T l a t o T ' s r e d l o h k c o t S d e n i a t e R s g n i n r a E e v i s n e h e r p m o C s s o L n i d i a p l a t i p a c d e t a l u m u c c A r e h t O l a n o i t i d d A t n u o m A s e r a h S k c o t S n o m m o C . C N I , T R A M S E C I R P Y T I U Q E F O S T N E M E T A AA T S D E T A D I L O S N O C ) S D N A S U O H T N I S T N U O M A ( — — — 2 3 7 , 2 3 8 ) 2 4 5 , 5 ( 4 2 4 , 8 1 ) 8 8 9 , 1 2 ( 9 5 1 , 8 9 ) 1 7 5 , 5 ( 4 1 2 , 6 1 9 ) 9 5 2 , 6 ( — — — 3 0 8 , 6 1 ) 9 5 5 , 6 2 ( 3 5 5 , 4 0 1 ) 5 7 0 , 3 1 ( ) 4 0 6 ( 3 7 0 , 1 9 9 ) 3 6 8 , 2 1 ( — — — 4 7 5 , 6 1 ) 0 4 5 , 8 2 ( 5 0 2 , 9 0 1 4 9 5 , 1 3 3 1 0 , 1 — — — — — 6 9 1 7 1 1 9 6 8 ) 7 5 4 ( — — — — — — 9 1 3 — $ ) 1 9 8 ( — — — — — — — — — — — 9 1 7 , 1 3 8 ) 2 4 5 , 5 ( 4 2 4 , 8 1 ) 1 3 5 , 1 2 ( 3 6 9 , 7 9 ) 8 8 6 , 5 ( 5 4 3 , 5 1 9 ) 9 5 2 , 6 ( — — — 3 0 8 , 6 1 ) 9 5 5 , 6 2 ( 4 3 5 , 4 0 1 ) 8 7 0 , 3 1 ( 7 8 2 3 7 0 , 1 9 9 ) 3 6 8 , 2 1 ( — — — 4 7 5 , 6 1 ) 0 4 5 , 8 2 ( 5 0 2 , 9 0 1 4 9 5 , 1 3 — — — — — — 4 6 8 , 7 ) 2 4 5 , 5 ( ) 6 0 4 , 8 2 ( 9 9 6 ) 9 5 2 , 6 ( ) 4 8 0 , 6 2 ( — — — — — — — — — — — — — 6 4 5 ) 4 4 6 , 1 3 ( ) 3 6 8 , 2 1 ( 2 6 7 4 7 ) 6 9 ( — — — — — — 3 1 7 8 8 ) 8 ( — — — — — — — 3 9 7 2 7 1 ) 7 ( — — — — — — — — — — — — 3 6 9 , 7 9 ) 1 3 5 , 1 2 ( — — — — — — — ) 8 8 6 , 5 ( 7 8 4 , 2 8 5 ) 0 2 8 , 6 7 1 ( 5 5 4 , 4 5 4 — ) 4 6 8 , 7 ( — — 4 2 4 , 8 1 — — — 9 1 9 , 8 5 6 ) 8 0 5 , 2 8 1 ( 5 1 0 , 5 6 4 — — — — — — — ) 9 5 5 , 6 2 ( 4 3 5 , 4 0 1 — — — — — — — — ) 8 7 0 , 3 1 ( — — — ) 9 9 6 ( 3 0 8 , 6 1 — — — 7 8 2 4 9 8 , 6 3 7 ) 6 8 5 , 5 9 1 ( 6 0 4 , 1 8 4 — — — — — — ) 0 4 5 , 8 2 ( 5 0 2 , 9 0 1 — — — — — — — 4 9 5 , 1 3 — — — ) 6 4 5 ( 4 7 5 , 6 1 — — — 3 4 0 , 7 0 1 , 1 — $ 3 4 0 , 7 0 1 , 1 ) 1 6 9 , 3 4 ( 8 5 9 9 5 5 , 7 1 8 ) 2 9 9 , 3 6 1 ( 4 3 4 , 7 9 4 . s e t o n g n i y n a p m o c c a e e S 3 — — — — — — — — 3 — — — — — — — — — 3 — — — — — — — — 3 8 1 4 , 1 3 0 2 0 2 , 1 3 t s u gg g u A t a e c n a l a B — ) 6 9 ( 4 5 1 ) 8 ( — — — — s d r a w a k c o t s d e t c i r t s e r f o e r u uu t i e ff f r o F d r a w a k c o t s d e t c i r t s e r f o e c n a uu u s s I ) s s o l ( e m o c n i e v i s n e h e r p m o c r e h t O s r e d l o h k c o t s o t d i a p d n e d i v i D n o i t a s n e p m o c d e s a b - k c o t S e m o c n i t e N k c o t s y r uu u s a e r t f o e s a h c r uu u P k c o t s y r uu u s a e r t f o e c n a uu u s s I 8 6 4 , 1 3 1 2 0 2 , 1 3 t s u gg g u A t a e c n a l a B — ) 8 ( 7 4 2 ) 9 ( — — — — — ) s s o l ( e m o c n i e v i s n e h e r p m o c r e h t O k c o t s t s o p o r e A f o e l a S s r e d l o h k c o t s o t d i a p d n e d i v i D n o i t a s n e p m o c d e s a b - k c o t S e m o c n i t e N s d r a w a k c o t s d e t c i r t s e r f o e r u uu t i e ff f r o F d r a w a k c o t s d e t c i r t s e r f o e c n a uu u s s I 37 k c o t s y r uu u s a e r t f o e s a h c r uu u P k c o t s y r uu u s a e r t f o e c n a uu u s s I 8 9 6 , 1 3 2 2 0 2 , 1 3 t s u gg g u A t a e c n a l a B — ) 7 ( 9 1 3 ) 5 7 ( — — — — s d r a w a k c o t s d e t c i r t s e r f o e r u uu t i e ff f r o F d r a w a k c o t s d e t c i r t s e r f o e c n a uu u s s I k c o t s y r uu u s a e r t f o e s a h c r uu u P k c o t s y r uu u s a e r t f o e c n a uu u s s I s r e d l o h k c o t s o t d i a p d n e d i v i D n o i t a s n e p m o c d e s a b - k c o t S e m o c n i t e N e m o c n I e v i s n e h e r p m o C r e h t O 5 3 9 , 1 3 3 2 0 2 , 1 3 t s u gg g u A t a e c n a l a B PRICESMART,TT INC. CONSOLIDATED STATTT EMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) Operating Activities: NNet income Adjud stments to reconcile net income to net cash provided by operating activities: Depreciation and amortizrr ation Allowance for doubtful accounts Reserve for AMT settlement Asset impairment and closure costs Loss on sale of property and equipment Deferred income taxes Equity in losses of unconsolidated affiff liates Stock-based compensation Change in operating assets and liabilities: Receivables, prepaid expenses and other current assets, non-current assets, accruerr d salaries and bbenefits, deferred membership income and other accruals Merchandise inventories Accounts payable NNet cash provided by operating activities Investing Activities: Additions to property and equipment Purchases of short-term investments Proceeds from settlements of short-term investments Purchases of long-term investments Proceeds from settlements of long-term investments Proceeds from disposal of propertyrr and equipment Proceeds from the disposal of Aeropost, net of divested cash NNet cash used in investing activities Financing Activities: Proceeds from long-term bank borrowings Repayment of long-term bank borrowings Proceeds from short-term bank borrowings Repayment of short-term bank borrowings Cash dividend payments Purchase of treasuryrr stock Other financing activities NNet cash used in financing activities Effeff ct of exchange rate changes on cash and cash equivalents and restricted cash NNet increase (decrease) in cash, cash equivalents Cash, cash equivalents and restricted cash at beginning of period Cash, cash equivalents and restricted cash at end of period u Suppl emental disclosure of noncash investing activities: Capital expenditures accruerr d, but not yet paid Cash paid during the period for: Interest Income taxes 38 Years Ended August 31, 2023 2022 2021 $ 109,205 $ 104,553 $ 98,159 72,698 67,868 64,983 (36) 7,179 5,658 744 (5,583) 55 63 — — 1,265 (3,300) 10 (53) — — 1,027 (3,853) 58 16,574 16,803 18,424 17,589 (13,785) 13,097 (10,173) (74,706) (80,202) 43,421 23,058 257,331 121,829 15,526 127,166 (142,511) (120,660) (113,174) (138,784) (22,469) (69,460) 58,852 61,733 65,528 — — 361 — — 1,488 193 4,959 (1,478) 1,478 385 — (222,082) (74,756) (116,721) 38,713 30,633 17,565 (35,984) (22,697) (19,993) 848 23,829 (3,229) (11,156) (28,540) (26,559) (12,863) (6,259) — — (41,055) (12,209) 6,635 829 1,030 35,894 — (64,983) (21,988) (5,542) (196) (95,137) (3,600) (88,292) 251,373 215,479 303,771 $ 252,202 $ 251,373 $ 215,479 $ 4,530 $ 10,558 $ $ 3,129 9,392 $ 77,925 $ 67,143 $ $ $ 3,497 7,774 58,571 The following tabla e provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same amounts shown in the statement of cash flows: Cash and cash equivalents Short-term restritt cted cash Long-term restritt cted cash Years Ended August 31, 2023 2022 2021 $ 239,984 $ 237,710 $ 202,060 2,865 9,353 3,013 10,650 3,647 9,772 Total cash, cash equivalents, and restritt cted cash shown in the consolidated statements of cash flows $ 252,202 $ 251,373 $ 215,479 See accompanying notes. 39 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) NOTE 1 – COMPANPP Y OVERVIRR EW AND BASIS OF PRESENTATIAA ON PriceSmart, Inc.’s (“PriceSmart,” the “Company,”yy “we” or “our”) business consists primarily of international membership shopping warehouse clubs similar to, but typically smaller in size than, warehouse clubs in the United States. As of August 31, 2023, the Company had 51 warehouse clubs in operation in 12 countries and one U.S. territory (nine in Colombia; eight in Costa Rica; seven in Panama; five in the Dominican Republic and Guatemala; four in Trinidad; three each in El Salvador and Honduras; two each in Jamaica and Nicaragua; and one each in Arubrr a, Barbados, and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summaryrr of Significant Accounting Policies). In Septembem r 2023, we opened a new warehouse club in Medellín, Colombia, bringing the total number of warehouse clubs in operation by the Company to 52. In addition, the Company plans to open a warehouse club in Escuintla, Guatemala on November 30, 2023 and a warehouse club in Santa Ana, El Salvador in early 2024. Once these two new clubs are open, the Company will operate 54 warehouse clubs. Our operating segments are the United States, Central America, the Caribbean, and Colombia. PriceSmart continues to invest in technologygy and talent to suppu ort the followingg three majjoa r drivers of ggrowth: 1. Invest in Remodeling Current PriceSmart Clubs, Adding New PriceSmart Locations and Opening More Distribution Centers; 2. Increase Membership Value; and 3. Increase Sales via PriceSmart.com and Enhanced Online, Diggital and Technologgical Capabilities. Basis of Presentation – The consolidated financial statements have been prepared in accordance with the instructions to Form 10-K for annual financial reporting pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and U.S. generally accepted accounting principles (“GAAP”) for annual financial information. The consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. Inter-company transactions between the Company and its subsu idiaries have been eliminated in consolidation. NOTE 2 – SUMMARYRR OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation – The consolidated financial statements of the Company included herein include the assets, liabilities and results of operations of the Company’s wholly owned subsidiaries, subsu idiaries in which it has a lling interest, and the Company’s joint venturtt es for which the Company has determined that it is the primaryrr contrott beneficiary. The Company’s net income excludes income attrt ibutable to non-controlling interests. The Company reports non- contrott lling interests in consolidated entities as a component of equiq ty separate from the Company’s equity. The consolidated financial statements also include the Company's investment in, and the Company's share of the income (loss) of,ff joint venturtt es recorded under the equity method. All significff ant inter-company accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC and reflect all adjud stments (consisting of normal recurring adjud stments) that are, in the opinion of management, necessary to fairly present the financial position, results of operations and cash flows for the periods presented. The Company determines whether any of the joint venturt es in which it has made investmet nts is a Variable Interest Entity (“VIE”) at the start of each new venturtt e and if a reconsideration event has occurred. At this time, the Company also considers whethet r it must consolidate a VIE and/or disclose information about its involvement in a VIE. A reporting entity must consolidate a VIE if that reporting entity has a variable interest (or combination of variable interests) and is determined to be the primary beneficff iary. If the Company determines that it is not the primaryrr beneficiary of the VIE, then the Company records its investment in, and the Company's share of the income (loss) of,ff joint venturtt es recorded under the equity method. Due to the nature of the joint venturt es that the Company participates in and the continued commitments for additional financing, the Company determined these joint venturt es are VIEs. In the case of the Company's ownership interest in real estate development joint venturt es, botht parties to each joint venturtt e share all rights, obligations and the power to direct the activities of the VIE that most significff antly impact the VIE's economic perforff mar nce. As a result, the Company has determined that it is not the primaryrr beneficiary of the VIEs and, thereforff e, has accounted for these entities under the equiq ty method. Under the equiq ty method, the Company's investments in nt in the stock of an investee at cost and are adjud sted for the unconsolidated affiff liates are initially recorded as an investmet carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee afteff r the date of the initial investment. The Company's ownership interest in real estate development joint venturt es the Company has recorded under the equiq ty method as of August 31, 2023 are listed below: 40 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Real Estate Development Joint Ventures Countries Ownership GolfPaff rk Plaza, S.A. Price Plaza Alajuela PPA,PP S.A. Panama Costa Rica 50.0% 50.0% (1) Joint venture interests are recorded as investment in unconsolidated affiff liates on the consolidated balance sheets. Basis of Presentation Equiq ty(1) Equiq ty(1) Use of Estimates – The preparation of financial statements in conforff mi ty with U.S. GAAP requires management the amounts reported in the consolidated financial statements and to make estimates and assumptions that affeff ct accompanying notes. These estimates and assumptions take into account historical and forward-looking factors that the Company believes are reasonable. Actual results could differff from those estimates and assumptions. r Cash and Cash Equivalents – The Company considers as cash and cash equiq valents all cash on deposit, highly liquid investments with a maturity of three months or less at the date of purchase and proceeds due from credit and debit card transactions in the process of settlement. In addition, the Company invests some of our cash in money market funds which are considered equity securities and are held at fair value in Cash and cash equiq valents on the Consolidated Balance Sheets. The fair value of money market funds held was $100.2 million as of August 31, 2023 and $6.6 million as of August 31, 2022. We receive interest payments from the money market funds which are recorded in the Interest income line item under the Other expense capta ion within the Consolidated Statements of Income. Restricted Cash – The following tabla e summarizes the restricted cash reported by the Company (in thousands): Short-term restritt cted cash Long-term restritt cted cash Total restricted cash(1) August 31, 2023 August 31, 2022 $ $ 2,865 $ 9,353 12,218 $ 3,013 10,650 13,663 (1) Restricted cash consists of cash deposits held within banking instituttt ions in compliance with federal regulatory requirements in Costa Rica and Panama. In addition, the Company is required to maintain a certificff ate of deposit and/or security deposits of Trinidad dollars, as measured in U.S dollars, of approximately $6.4 million with a few of its lenders as compensating balances for several U.S. dollar and euro denominated loans payabla e over several years. The certificff ates of deposit will be reduced annually commensurate with the loan balances. Short-TerTT m Investments – The Company considers as short-term investmet nts, certificff ates of deposit and similar time-based deposits with financial institutt ions with maturities over three months and up to one year. time-based deposits with financial institutt Investments – The Company considers as long-termr ions with maturities over one year. Long-TermTT investmet nts, certificff ates of deposit and similar Goodwill – Goodwill totaled $43.1 million as of August 31, 2023 and $43.3 million as of August 31, 2022. The Company reviews reported goodwill at the reporting unit level for impam irmer nt. The Company tests goodwill for impairment at least annually or when events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The changes in the carryirr ng amount of goodwill for the year ended August 31, 2023 are as follows (in thousands): Goodwill at August 31, 2022 Foreign currency exchange rate changes Goodwill at August 31, 2023 Amount $ $ 43,303 (193) 43,110 41 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Other intangibles at August 31, 2022 Amortization NNet othet r intangibles at August 31, 2023 Total goodwill and othet r intangibles, net August 31, 2023 Amount 765 (765) — 43,110 $ $ $ Receivables – Receivabla es consist primarily of credit card receivabla es and receivabla es from vendors and are stated net of allowances for credit losses. The determination of the allowance for credit losses is based on the Company’s assessment of collectability along with the consideration of current and expected market conditions that could impam ct collectability. Tax Receivables – The Company pays Value Added Tax (“VAT”AA ) or similar taxes, income taxes, and other taxes within the normar l course of business in most of the countries in which it operates related to the procurement of merchandise and/or services the Company acquires and/or on sales and taxabla e income. VATAA is a form of indirect tax applied to the value ing, wholesale and retail). This tax is similar to, but operates added at each stage of producd tion (primary,yy manufacturtt somewhat differff ently than, sales tax paid in the United States. The Company generally collects VATAA from its Members upon sale of goods and services and pays VATAA to its vendors upon purchase of goods and services. Periodically,yy the Company submits VATAA reports to governmental agencies and reconciles the VATAA paid and VATAA received. The net overpaid VATAA may be refunded or applied to subsu equeq nt returns, and the net underpaid VATAA must be remitted to the government. With respect l income tax due this creates an income to income taxes paid, if the estimated income taxes paid or withheld exceed the actuat tax receivabla e. In most countries where the Company operates, the governments have implemented additional collection procedures, such as requiring credit card processors to remit a portion of sales processed via credit and debit cards directly to the government as advance payments of VATAA and/or income tax. This collection mechanism generally leaves the Company with net VATAA and/or income tax receivabla es, forcing the Company to process significff ant refund claims on a recurring basis. These refund or offsff et processes can take anywhere from several months to several years to complete. Additionally, we are occasionally required to make payma ents for tax assessments that we are appealing, because we believe it is more likely than not we will ultimately prevail. In two countritt es where the Company operates, minimum income tax rules require the Company to pay taxes based on a percentage of sales if the resulting tax were greater than the tax payaa bla e based on a percentage of income (Alternar tive Minimum Tax or "AMT"). As a result, the Company is making AMT payments substantially in excess of those it would expect to payaa based on taxabla e income. The Company had income tax receivables of $10.7 million and $11.0 million and deferred tax assets of $3.7 million and $3.5 million as of August 31, 2023 and August 31, 2022, respectively,yy in these countries. In the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle the AMT payma ent dispute in one of the aforff ementioned countries. Of this amount, $1.0 million relates to the reserve for an income tax receivable for one of the tax years for which we sought a refund and the remaining $6.2 million is an accruar l for the unpan id years of the dispute in which the Company made tax payma ents using the original computation based on taxabla e income. While the rules related to refunds of income tax receivabla es in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverabia lity of these tax receivabla es. Deferred tax assets or amounts that maya be deemed under-paid, becausa e the Company believes that it is more likely than not that it will ultimately succeed in its refund requests and appeals of these rules. r evaluating the merits of the Company’s arguments, the court’s decision, and probabia lity that the othet In one of the countries with a significff ant VATAA receivable balance, the Company received unfavff orable rulings at the supreme court level of that countryrr denying a portion of the Company’s appeals for refund of over-withholdings of VAT.AA Afteff r related refund appeals would receive the same judgment, the Company concluded that a total of $2.3 million of related VATAA receivables would not be recoverabla e and this amount was written-offff in the third quarter of fiscal year 2023. These charges were recorded in the Warehouse club and other expenses line item under the Selling, general and administrative capta ion within the consolidated statements of income. 42 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The Company's various outstanding VATAA receivables and/or income tax receivables are based on cases or appeals with their own set of facts and circumstances. The Company consults and evaluates with legal and tax advisors regularly to understand the strengtht of its legal arguments and probability of successfulff outcomes in addition to its own experience of allowance on the handling complex tax issues. Based on those evaluations, the Company has not placed any typeyy recoverabia lity of the remaining tax receivabla es or deferred tax assets, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests. The Company’s policy for classification and presentation of VATAA receivabla es, income tax receivables and othet r tax receivables is as follows: • • Short-term VATAA and Income tax receivables, recorded as Prepaid expenses and other current assets: This classification is used for any countries where the Company’s subsu idiary has generally demonstrated the ability to recover the VATAA or income tax receivabla e within one year. The Company also classifies as short-term any approved refunds or credit notes to the extent that the Company expects to receive the refund or use the credit notes within one year. Long-term VATAA and Income tax receivabla es, recorded as Other non-current assets: This classification is used for amounts not approved for refund or credit in countritt es where the Company’s subsu idiary has not demonstrated the ability to obtain refunds within one year and/or for amounts which are subject to outstanding disputes. An allowance is provided against VATAA and income tax receivabla e balances in dispute when the Company does not expect to eventually prevail in its recovery. The Company does not currently have any allowances provided against VATAA and income tax receivables. The following tabla e summarizes the VATAA receivables reported by the Company (in thousands): Prepaid expenses and other current assets Other non-current assets Total amount of VATAA receivabla es reported August 31, 2023 August 31, 2022 $ $ 2,774 $ 36,060 38,834 $ 3,890 32,460 36,350 The following tabla e summarizes the Income tax receivabla es reported by the Company (in thousands): Prepaid expenses and other current assets Other non-current assets Total amount of income tax receivables reported August 31, 2023 August 31, 2022 $ $ 17,749 $ 19,176 36,925 $ 12,077 19,985 32,062 Lease Accounting – The Company’s leases are operating leases for warehouse clubs and non-warehouse club facilities such as corporate headquarters, regional offiff ces, and regional distribution centers. The Company determines if an arrangement is a lease and classifies it as either a finance or operating lease at lease inception. Operating leases are included in Operating lease right-of-uff se assets, net; Operating lease liabilities, current portion; and Long-term operating lease liabilities on the consolidated balance sheets. The Company does not have finance leases. Operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease paymaa ents over the lease term. The Company’s leases generally do not have a readily determinable implicit rate; thereforff e, the Company uses a collateralized incremental borrowing rate at the commencement date in determining the present value of future payments. The incremental borrowing rate is based on a yield curve derived from publicly traded bond offeff rings for companies with credit characteristics that approximate the Company's market risk profilff e. In addition, we adjud st the incremental borrowing rate for jurisdictional risk derived from quoted interest rates from financial institutt ions to reflect the cost of borrowing in the Company’s local markets. The Company’s lease terms may include options to purchase, extend or terminate the lease, which are recognized when it is reasonably certain that the Company will exercise that option. The Company does not combine lease and non-lease components. 43 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The Company measures Right-of-use (“ROU”) assets based on the corresponding lease liabilities, adjud sted for any ents made to the lessor before or at the commencement date (net of lease incentives). initial direct costs and prepaid lease payma The lease expense for minimum lease payma ight-line basis over the lease term. Variable lease payments are not included in the calculation of the ROU asset and the related lease liability and are recognized as incurred. for additional contingent rent based ents generally relate to amounts the Company paysa The Company’s variable lease paymaa on a contrat ctuat lly stipulated percentage of sales. ents is recognized on a stratt Merchandise Inventories – Merchandise inventories, which include merchandise for resale, are valued at the lower of cost (average cost) or net realizable value. The Company provides for estimated inventory losses and obsolescence based on a percentage of sales. The provision is adjud sted everyrr reporting period to reflect the trend of actual physical inventoryrr and cycle count results. In addition, the Company mayaa be required to take markdowns below the carrying cost of certain inventory to expedite the sale of such merchandise. Stock Based Compensation – The Company utilizes three typey s of equity awards: restritt cted stock awards (“RSAs”), restritt cted stock units (“RSUs”) and perforff mar nce-based restricted stock units (“PSUs”). Compensation related to RSAs, RSUs and PSUs is based on the fair market value at the time of grant. The Company recognizes the compensation cost related to RSAs and RSUs over the requisite service period as determined by the grant, amortized ratabla y or on a straight- line basis over the life of the grant. The Company also recognizes compensation cost for PSUs over the perforff mance period of each tranche, adjud sting this cost based on the Company's estimate of the probabia lity that perforff mance metrics will be achieved. If the Company determines that an award is unlikely to vest, any previously recorded expense is then reversed. The Company accounts for actual forfeiff tures as they occur. The Company records the tax savings resulting from tax deductions in excess of expense for stock-based compensation and the tax deficiency resulting from stock-based compensation in excess of the related tax deduction as income tax expense or benefit. In addition, the Company reflects the tax savings (deficff iency) resulting from the taxation of stock-based compensation as an operating cash flow in its consolidated statement of cash flows. r shares RSAs are outstanding shares of common stock and have the same cash dividend and voting rights as othet of common stock. Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock. However, all outstanding RSUs have accompanying dividend ent to the employees and directors with unvested RSUs of amounts equaq l to the dividend they equivalents, requiring payma would have received had the shares of common stock underlying the RSUs been actually issued and outstanding. Payments of dividend equiq valents to emplm oyees are recorded as compensation expense. PSUs, similar to RSUs, are awarded with dividend equiq valents, provided that such amounts become payaa bla e only if nce metric has been the perforff mance metric is achieved. At the time the Compensation Committee confirff ms the perforff mar achieved, the accruer d dividend equivalents are paid on the PSUs. Treasury Stock – Shares of common stock repurchased by the Company are recorded at cost, including transaction costs and excise taxes, as treasury stock and result in the reduction of stockholders’ equity in the Company’s consolidated balance sheets. The Company maya reissue these treasury shares as part of its stock-based compensation programs. When treasury shares are reissued, the Company uses the first in/firff st out (“FIFO”) cost method for determining cost of the reissued shares. If the issuance price is higher than the cost, the excess of the issuance price over the cost is credited to additional paid-in capital (“APIC”). If the issuance price is lower than the cost, the differff ence is first charged against any credit balance ended August 31, in APIC from treasury stock and the balance is charged to retained earnings. During the twelve monthst 2023, the Company reissued approximately 6,333 treasury shares. Fair Value Measurements – The Company measures the fair value for all financial and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring or nonrecurrirr ng basis. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transferff the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor. 44 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) ASC 820, Fair Value Measurements and Disclosures, sets forth a fair value hierarchy that categorizes inputs to valuation techniques used to measure and revalue fair value. These tiers include: Level 1, defined as observable inputn s such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, definff ed as unobservable input s in which little or no market data exists, thereforff e requiring an entity to develop its own assumptions. The Company was not required to revalue any assets or liabilities utilizing Level 1 or Level 3 inpun ts at the balance sheet dates. The Company's Level 2 assets and liabilities revalued at the balance sheet dates, on a recurring basis, consisted of cash flow hedges (interest rate swaps and cross-currency interest rate swaps) and forward foreign exchange contracts. In addition, the Company utilizes Level 2 input s in determining the fair value of long-termr debt. n n Non-financial assets and liabilities are revalued and recognized at fair value subsu equent to initial recognition when nt charges of $4.8 million to mark our nt. During fiscal year 2023, we recorded impairmer there is evidence of impam irmer availabla e-for-sale assets down to their fair market value. The disclosure of fair value of certain financial assets and liabilities recorded at cost is as follows: Cash and cash equivalents:tt The carryirr ng value approximates fair value due to the short maturity of these ing value of our money market funds is the fair value based on quoted prices in active markets instruments. The carryr at the measurement date and thereforff e are classified as Level 1 inputs. The fair value of money market funds held was $100.2 million as of August 31, 2023 and $6.6 million as of August 31, 2022. Short-term restritt cted cash: The carryrr instruments. ing value approximates fair value due to the short maturity of these nts:tt Short-term investments consists of certificff ates of deposit and similar time-based deposits Short-term investmett with financial institutt . The carrying value ions with maturity dates over three months and up to twelve monthst approximates fair value due to the maturity of the underlying certificff ates of deposit within the normal operating cycle of the Company. Long-term investmett with financial institutt maturity of the underlying certificates of deposit. nts:tt Long-termr investments consists of certificff ates of deposit and similar time-based deposits ions with maturity dates over one year. The carryirr ng value approximates fair value due to the Long-term restritt cted cash: Long-term restricted cash primarily consists of certificff ates of deposit with maturity dates of over a year, which are held as collateral against our long-term debt. The carryirr ng value approximates fair value due to the maturity of the underlying certificff ates of deposit. Accounts receivable: Receivabla es consist primarily of credit card receivables and receivabla es from vendors and are stated net of allowances for credit losses. The determination of the allowance for credit losses is based on the Company’s assessment of collectabia lity along with the consideration of current and expected market conditions that could impam ct collectabia lity. Short-term VAT and income taxaa receivables: The carryirr ng value approximates fair value due to the short maturity of these accounts. Long-term VAT and income taxaa receivables: The fair value of long-term receivabla es would normally be measured using a discounted cash flow analysis based on the current market interest rates for similar types of financial instruments, with an estimate of the time these receivabla es are expected to be outstanding. The Company is not able to provide an estimate as to the time these receivables owed to the Company by various government agencies are expected to be outstanding; thereforff e, the Company has not presented a fair value on the long-term VATAA and income tax receivabla es. Short-term debt: The carryrr ing value approximates fair value due to the short maturity of these instrutt ments. Long-term debt: The fair value of debt is generally measured using a discounted cash flow analysis based on current s are not quoted prices in active markets market interest rates for similar typey s of financial instruments. These inputn but they are either directly or indirectly observable; thereforff e, they are classified as Level 2 inpun ts. The carryrr ing value and fair value of the Company’s debt as of August 31, 2023 and August 31, 2022 is as follows (in thousands): 45 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) August 31, 2023 August 31, 2022 Carrying Value Fair Value(1) Carrying Value Fair Value(1) Long-term debt, including current portion $ 139,680 $ 133,150 $ 137,271 $ 136,479 (1) The Company has disclosed the fair value of long-term debt, including debt for which it has entered into cross-currency interest rate swaps, using the derivative obligation as of August 31, 2023 to estimate the fair value of long-term debt, which includes the effeff cts that the cross-currency interest rate swaps have had on the fair value of long-term debt. Derivative Instruments and Hedging Activities – The Company uses derivative financial instruments for hedging and non-trading purposes to manage its exposure to changes in interest and currency exchange rates. In using derivative financial instruments for the purpose of hedging the Company’s exposure to interest and currency exchange rate risks, the l terms of a hedged instrument closely mirror those of the hedged item and are intended to provide a high degree contrat ctuat of risk reduction and correlation. Contracts that are effeff ctive at meeting the risk reduction and correlation criteria (effect ive hedge) are recorded using hedge accounting. If a derivative financial instrument is an effeff ctive hedge, changes in the fair value of the instrument will be reported in accumulated othet r comprehensive loss until the hedged item completes its contrat ctuat l term. Instrut ments that do not meet the criteria for hedge accounting, or contracts for which the Company has not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of the change. ff The Company did not change valuation techniques utilized in the fair value measurement of assets and liabilities presented on the Company’s consolidated balance sheets from previous practice during the reporting period. The Company seeks to manage counterparty risk associated with these contratt cts by limiting transactions to counterparr rties with which the Company has an establa ished banking relationship. There can be no assurance, however, that this practice effeff ctively mitigates counterparty risk. Cash Flowl Instrutt ments.tt The Company is a partytt to receive floating interest rate, paya fixed-rate interest rate swaps to hedge the interest rate risk of certain U.S. dollar denominated debt within its international subsu idiaries. The swaps are designated as cash flow hedges of interest expense risk. These instruments are considered effeff ctive hedges and are recorded using hedge accounting. The Company is also a party to receive variable interest rate, payaa fixed interest rate cross-currency interest rate swaps to hedge the interest rate and currency exposure associated with the expected payments of principal and interest of U.S. denominated debt within its international subsu idiaries whose functional currency is other than the U.S. dollar. The swaps are designated as cash flow hedges of the currency risk and interest-rate risk related to payma ents on the U.S. denominated debt. These instrutt ments are also considered to be effeff ctive hedges and are recorded using hedge accounting. Under cash flow hedging, the entire gain or loss of the derivative, calculated as the net present value of the future cash flows, is reported on the consolidated balance sheets in accumulated othet r comprehensive loss. Amounts recorded in accumulated other comprehensive loss are released to earnings in the same period that the hedged transaction impacts consolidated earnings. Refer to “Note 13 - Derivative Instruments and Hedging Activities” for information on the fair value of interest rate swaps and cross-currency interest rate swaps as of August 31, 2023 and August 31, 2022. Fair Value Instrutt ments.tt The Company is exposed to foreign currency exchange rate fluctuations in the normal course of business. This includes exposure to foreign currency exchange rate fluctuations on U.S. dollar denominated liabilities within the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non-deliverabla e forward foreign-exchange contracts that are intended to offsff et changes in cash flows attributable to currency exchange movements. The contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventoryrr expenditurt es made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts are treated for accounting purposes as fair value instruments and do not qualify for derivative hedge accounting, and as such the Company does not apply derivative hedge accounting to record these transactions. As a result, these contracts are valued at fair value with unrealized gains or losses reported in earnings during the period of the change. The Company seeks to mitigate foreign currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contrat cts do not contain any credit-risk-related contingent featurt es and are limited to less than one year in duration. 46 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Revenue Recognition – The accounting policies and othet r disclosures such as the disclosure of disaggregated revenues are described in “Note 3 – Revenue Recognition.” Cost of Goods Sold – The Company includes the cost of merchandise and food service and bakery raw materials in cost of goods sold - net merchandise sales. The Company also includes in cost of goods sold - net merchandise sales the external and internal distribution and handling costs for supplying merchandise, raw materials and supplu ies to the warehouse clubs, and, when applicable, costs of shipping to Members. External costs include inbon und freight, duties, drayage, fees, insurance, and non-recoverabla e value-added tax related to inventoryrr shrink, spoilage and damage. Internal costs include payroll and related costs, utilities, consumable supplies, repair and maintenance, rent expense and building and equiq pment depreciation at the Company's distribution facilities and payra oll and other direct costs for in-club demonstrations. costs for suppl For export sales, the Company includes the cost of merchandise and external and internal distribution and handling u ying merchandise in cost of goods sold - exports. Until the disposal of Aeropost in the first quarter of fiscal year 2022, the Company included the costs for the r direct costs incurred to provide marketplt ace and casillero operations of external and internal shipping, handling and othet delivery,yy insurance and customs processing services in cost of goods sold - non-merchandise. Vendor consideration consists primarily of volume rebates, time-limited producd t promotions, cooperative marketing effoff rts, digital advertising, slotting fees, demonstration reimbum rsements and prompt payment discounts. Volume rebates and time-limited promotions are recognized on a systematic and rational allocation of the cash consideration as the Company progresses toward earning the rebate, provided the amounts to be earned are probabla e and reasonably estimabla e. Cooperative rts and digital advertising are related to consideration received by the Company from vendors for non-distinct marketing effoff online advertising services on the Company’s website and social media platforms. Slotting fees are related to consideration received by the Company from vendors for preferff ential "end cap"a placement of the vendor's producd ts within the warehouse club. Demonstration reimbum rsements are related to consideration received by the Company from vendors for the in-clubu promotion of the vendors' producd ts. The Company records the reduction in cost of goods sold on a transactional basis for these programs. On a quarterly basis, the Company calculates the amount of rebates recorded in cost of goods sold that relates to inventoryrr on hand and this amount is reclassified as a reduction to inventory, if significff ant. Promptm payment discounts are taken in substantially all cases and thereforff e are applied directly to reduce the acquisition cost of the related inventory,rr with the resulting effeff ct recorded to cost of goods sold when the inventory is sold. Selling, General and Administrative – Selling, general and administrative costs consist primarily of expenses associated with operating warehouse clubs and freight forwarding operations. These costs include payra oll and related costs, including separation costs associated with the Chief Executive Offiff cer departurt e, utilities, consumable supplies, repair and maintenance, rent expense, building and equiq pment depreciation, bank, credit card processing fees, and amortization of intangibles. Also included in selling, general and administrative expenses are the payra oll and related costs for the Company’s U.S. and regional management and purchasing centers. In Decembem r 2022, the Company announced that Sherryrr Bahrambeygui would resign as Chief Executive Offiff cer effeff ctive Februarr ry 3, 2023. In connection with her departurt e, the Company recognized a one-time separation charge of approximately $7.7 million ($7.2 million net of tax) in the second quarter of fiscal year 2023. This amount consists of approximately $4.2 million of non-cash charges related to the acceleration of certain equity awards and approximately $3.5 million for other separation costs. Given that Ms. Bahrambem ygui had subsu tantially rendered the required services per her separation agreement, the Company recorded these charges in the second quarter of fiscal year 2023. These charges were recorded in the Separation costs associated with Chief Executive Offiff cer departurt e line item under the Selling, general and administrative capta ion within the Consolidated Statements of Income and are recorded in the Company’s United States segment. The Company subsu tantially fulfilff led all paymaa ent obligations by the end of the second quarter of fiscal year 2023; however, some vesting of PSUs will occur in the first quarter of fiscal year 2024. Pre-Opening Costs – The Company expenses pre-opening costs (thet costs of start-up activities, including organization costs and rent) for new warehouse clubs as incurred. 47 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Asset Impairment and Closure Costs – The Company periodically evaluates its long-lived assets for indicators of impairment. Management's judgments are based on market and operational conditions at the time of the evaluation and can include management's best estimate of future business activity. These periodic evaluations could causa e management to conclude that impairmer nt factors exist, requiring an adjud stment of these assets to their then-current fair value. Future business conditions and/or activity could differff materially from the projections made by management causa ing the need for additional impairment charges. In the fourth quarter of fiscal year 2023, the Company recorded a $5.7 million charge primarily related to remeasurement of the assets of our Trinidad sustainabla e packaging plant to their estimated fair value upon our decision to seek to sell the plant. We planned to use the plant to increase effiff ciencies by eliminating intermediaries in packaging and ts. However, we found ing some of our packaging materials using compostabla e or recyclable inpun labea that achieving economic feasibility proved challenging. Thereforff e, we decided to refocus our effoff rts on our core competencies as a retailer and redeploy plant assets we could use in our club business and seek a buyer for the remainder. The assets were written down to their estimated fair value less costs to sell and are presented within the Prepaid expenses nt charges are recorded within the Asset and othet impairment and closure costs line item within the Consolidated Statements of Income and are recorded in the Company's Caribbean segment. We believe the sale of the assets held for sale is probable within one year. r current assets line within the Consolidated Balance Sheets. The impairmer ling and manufacturt Loss Contingencies and Litigation – The Company records and reserves for loss contingencies if (a) information availabla e prior to issuance of the consolidated financial statements indicates that it is probable that an asset had been impam ired or a liability had been incurred at the date of the consolidated financial statements and (b) the amount of loss can be reasonabla y estimated. If one or both criteria for accrual are not met, but there is at least a reasonable possibility that a material loss will occur, the Company does not record and reserve for a loss contingency but describes the contingency within a note and provides detail, when possible, of the estimated potential loss or range of loss. If an estimate cannot be made, a statement to that effeff ct is made. Foreign Currency Translation – The assets and liabilities of the Company’s foreign operations are translated to U.S. dollars when the functional currency in the Company’s international subsidiaries is the local currency and not U.S. dollars. Assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date, and revenue, costs and expenses are translated at average rates of exchange in effeff ct during the period. The corresponding translation gains and losses are recorded as a component of accumulated other comprehensive income or loss. These adjud stments will affeff ct net income upon the sale or liquidation of the underlying investment. The following tabla e discloses the net effeff ct of translation into the reporting currency on other comprehensive loss for these local currency denominated accounts for the years ended August 31, 2023, 2022 and 2021: Years Ended August 31, 2023 2022 2021 Effeff cts on other comprehensive income (loss) due to foreign currency restatement $ 33,708 $ (19,034) $ (7,837) Monetary assets and liabilities denominated in currencies othet r than the functional currency of the respective entity (primarily U.S. dollars) are revalued to the functional currency using the exchange rate on the balance sheet date. These foreign exchange transaction gains (losses), including transactions recorded involving these monetary assets and liabilities, are recorded as Other income (expense) in the consolidated statements of income. Currency loss Years Ended August 31, 2023 2022 2021 $ (15,396) $ (7,414) $ (5,395) Income Taxes – The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differff ences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxabla e income in the years in which those temporaryrr differff ences and carry-rr forwards are expected to be recovered or settled. The effeff ct on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance to reduce deferred tax assets to amounts expected to be realized. is establa ished when necessaryrr 48 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The Company is required to file federal and state income tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effeff ct in such jurisdictions, which could affeff ct the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subju ect to routine reviews by the various federal, state and foreign taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority maya disagree with respect to the interpretations the Company used to calculate its tax liability and thereforff e require the Company to paya additional taxes. The Company accruer s an amount for its estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more- likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has a 50% or less likelihood of being sustained. This requires significff ant judgment, the use of estimates, and the interpretation and application of complex tax laws. When facts and circumstances change, the Company reassesses these probabilities and records any changes in the consolidated financial statements as appropriate. Other Taxes – The Company is subju ect to tax examinations for value added, sales-based, payra oll and other non- income taxes and the Company is subject to ongoing examinations in various jurisdictions. In certain cases, the Company has received assessments and judgments from the respective tax authorities in connection with these examinations. Unless otherwise indicated, the Company considers based on its interpretation and application of complex tax laws, that a material liability is not probable or the possible losses or range of possible losses associated with these cases are immaterial; however, if decided adversely to the Company, could result in a liability material to the Company's consolidated financial statements. In certain countries, the Company is required to pay taxes based on a percentage of sales (Alternarr tive Minimum Tax or "AMT") if the percentage of sales method results in a higher amount of tax payabla e than the amount payaaa bla e based on taxabla e income at the statutt oryrr income tax rate. The portion of taxes based on a percentage of sales that is greater than the amount based on taxabla e income at the statutt ory income tax rate, are recorded in the Warehouse club and other expenses line item under the Selling, general and administrative capta ion within the consolidated statements of income. Recent Accounting Pronouncements Adopted There were no new accounting standards that had a material impact on the Company’s consolidated financial statements during the twelve-montht period ended August 31, 2023, and there were no other new accounting standards or pronouncements that were issued but not yet effeff ctive as of August 31, 2023 that the Company expects to have a material impact on its consolidated financial statements. NOTE 3 – REVENUE RECOGNITION The Company uses the five-step model to recognize revenue according to Accounting Standards Codification (ASC) Topic 606, “Revenue Recognition from Contracts with Customers.” The five steps are: • • • • • Identify the contract with the customer; Identity the perforff mance obligation(s); Determine the transaction price; Allocate the transaction price to each perforff mar Recognize the revenue as the perforff mance obligations are satisfieff d. nce obligation if multiple obligations exist; and Perforff marr nce Obligai tions The Company identifies each distinct perforff mar nce obligation to transferff The Company recognizes revenue when (or as) it satisfieff s a perforff mar services to the customer. nce obligation by transferff goods (or bundle of goods) or services. rirr ng control of the goods or Net Merchandise Sales. The Company recognizes merchandise sales revenue, net of sales taxes, on transactions where the Company has determined that it is the principal in the sale of merchandise. These transactions may include shipping commitments and/or shipping revenue if the transaction involves delivery to the customer. 49 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Non-merchandiseii Sales. Until the disposal of Aeropost in the first quarter of fiscal year 2022, the Company recognized non-merchandise revenue, net of sales taxes, on transactions where the Company had determined that it was the agent in the transaction. These transactions primarily consisted of contracts the Company entered into with its customers to provide delivery,yy insurance and customs processing services for products its customers purchased online in the United States either directly from other vendors utilizing the vendor’s website or through the Company’s marketplt ace site. Revenue was recognized when the Company’s perforff mar nce obligations were completed (that is when delivery of the items have been made to the destination point) and was recorded in “non-merchandise revenue” on the consolidated statements of income. Prepayment for orders for which the Company had not fulfilff led its perforff mance obligation were recorded as deferred income. Additionally,yy the Company recorded revenue at the net amounts retained, i.e., the amount paid by the customer less amounts remitted to the respective merchandise vendors, as the Company was acting as an agent and was not the principal in the sale of those goods being purchased from the vendors by the Company’s customers. Membershrr ip Fee Revenue. Membership income represents annual membership fees paid by the Company’s warehouse club Members, which are recognized ratabla y over the 12-month term of the membership. Our membership policy allows for Members to cancel their membership in the first 60 days and receive a full refund. Afteff r the 60-day period, membership refunds are prorated over the remaining term of the membership. The Company has significff ant experience with membership refunff d patternsr and expects membership refunds will not be material. Thereforff e, no refund reserve was required for the periods presented. Membership fee revenue is included in membership income in the Company's consolidated statements of income. The deferred membership fee is included in deferred income in the Company's consolidated balance sheets. Platl inum Points Reward Progrr ragg ms. The Company currently offeff rs Platinum Memberships in all of its markets. The annual fee for a Platinum Membership is approximately $75. The Platinum Membership provides Members with a 2% rebate on most items, up to an annual maximum of $500. The rebate is issued annually to Platinum Members on March 1 and expires August 31. Platinum Members can apply this rebate to future purchases at the warehouse club during the redemption period. The Company records this 2% rebate as a reduction of revenue at the time of the sales transaction. Accordingly, the r accruerr d expenses and other current liabilities, Company has reduced warehouse sales and has accruerr d a liability within othet platinum rewards. The Company has determined that breakage revenue is 5% of the awards issued; thereforff e, it records 95% of the Platinum Membership liability at the time of sale. Annually,yy the Company reviews for expired unused rebates outstanding, and the expired unused rebates are recognized as “Other revenue and income” on the consolidated statements of income. Credrr Co-brandeddd it Card Points Reward Progrr rams. Most of the Company’s subsidiaries have points reward programs related to co-branded credit cards. These points reward programs provide incremental points that can be used at a future time to acquire merchandise within the Company’s warehouse clubs. This results in two performance obligations, the first perforff mance obligation being the initial sale of the merchandise or services purchased with the co-branded credit card and the second performance obligation being the future use of the points rewards to purchase merchandise or services. As a result, upon the initial sale, the Company allocates the transaction price to each perforff mar nce obligation with the amount allocated to the future use points rewards recorded as a contract liability within other accruer d expenses and other current liabilities on the consolidated balance sheet. The portion of the selling price allocated to the reward points is recognized as Net merchandise sales when the points are used or when the points expire. The Company reviews on an annual basis expired points rewards outstanding, and the expired rewards are recognized as Net merchandise sales on the consolidated statements of income within markets where the co-branded credit card agreement allows for such treatment. Gifti Cardsdd . Members’ purchases of gift cards to be utilized at the Company's warehouse clubs are not recognized as sales until the card is redeemed and the customer purchases merchandise using the gift card. The outstanding gift cards are reflected as othet r accruerr d expenses and other current liabilities in the consolidated balance sheets. These gift cards generally have a one-year stated expiration date from the date of issuance and are generally redeemed prior to expiration. However, the absence of a large volume of transactions for gift cards impairs the Company's ability to make a reasonable estimate of the redemption levels for gift cards; thereforff e, the Company assumes a 100% redemption rate prior to expiration of the gift card. The Company periodically reviews unredeemed outstanding gift cards, and the gift cards that have expired are recognized as “Other revenue and income” on the consolidated statements of income. 50 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Co-brandeddd Credrr it Card Revenue Sharing Agreements. As part of the co-branded credit card agreements that the Company has entered into with financial institutt ions within its markets, the Company ofteff n enters into revenue sharing agreements. As part of these agreements, in some countries, the Company receives a portion of the interest income generated from the average outstanding balances on the co-branded credit cards from these financial institutt ions (“interest generating portfolio” or “IGP”). The Company recognizes its portion of interest received as revenue during the period it is earned. The Company has determined that this revenue should be recognized as “Other revenue and income” on the consolidated statements of income. Determining the Transaction Price The transaction price is the amount of consideration the Company expects to receive under the arrarr ngement. The Company is required to estimate variable consideration (if any) and to factor that estimate into the determination of the r sales incentives to customers, including discounts. For retail transactions, the transaction price. The Company may offeff and relied on this experience in its determination that Company has significant experience with returns and refund patternsr expected returns are not material; thereforff e, returns are not factored when determining the transaction price. Discounts given to customers are usually in the form of coupons and instant markdowns and are recognized as revenue accounts, as they are part of the transaction price of the merchandise sale. redeemed and recorded in contratt Manufacturt er coupons that are availabla e for redemption at all retailers are not recorded as a reduction to the sale price of merchandise. Manufacturt er coupons or discounts that are specific to the Company are recorded as a reduction to the cost of sales. Agent Relationshipsi The Company evaluates the criteria outlined in ASC 606-10-55, Principal versus Agent Considerations, in determining whether it is appropriate in these arrangements to record the gross amount of merchandise sales and related costs, or the net amount earned as commissions. When the Company is considered the principal in a transaction, revenue is recorded gross; otherwise, revenue is recorded on a net basis. The Company's Non-merchandise Sales revenues are recorded on a net basis. Signi ificff ant Judgmeg ntstt For arrangements that contain multiple perforff mance obligations, the Company allocates the transaction price to each perforff mance obligation on a relative standalone selling price basis. During fiscal year 2023, there were no revenue transactions that required significff ant judgement. Incremental costs to obtain contracts are not material to the Company. Policy Elections In addition to those previously disclosed, the Company has made the following accounting policy elections and practical expedients: • • • Taxes - The Company excludes from the transaction price any taxes collected from customers that are remitted to taxing authorities. Shipping and Handling Charges - Charges that are incurred afteff r the customer obtains control of goods are deemed costs required to complete our perforff mance obligation. Thereforff e, the Company considers the act of shipping afteff nce obligation. These shipping and handling costs are classified as “Costs of goods sold” in the consolidated statements of income because they are incurred to fulfilff l a revenue obligation. Time Value of Money - The Company's payment terms are less than one year from the transferff of goods. Thereforff e, the Company does not adjud st promised amounts of consideration for the effeff cts of the time value of money. l of goods to not be a separate perforff mar r the customer obtains controt 51 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Contratt ct Perforff mance Liabilities Contract perforff mar nce liabilities as a result of transactions with customers primarily consist of deferred membership income, other deferred income, deferred gift card revenue, Platinum points programs, and liabilities related to co-branded credit card points rewards programs and are included in deferred income and other accrued expenses and other current liabilities in the Company’s consolidated balance sheets. The following tabla e provides these contratt ct balances from transactions with customers as of the dates listed (in thousands): Deferred membership income Other contract perforff mance liabilities Contract Liabilities August 31, 2023 August 31, 2022 $ $ 31,079 $ 12,347 $ 28,000 10,473 Disaii ggregg gat e ed Revenues In the following tabla e, net merchandise sales are disaggregated by merchandise categoryrr (in thousands): Foods & Sundries Fresh Foods Hardlines Softlines Other Business NNet Merchandise Sales Years Ended August 31, 2023 August 31, 2022 August 31, 2021 $ 2,148,584 $ 1,947,734 $ 1,736,509 1,262,132 1,145,920 1,003,694 454,207 230,950 204,833 443,311 227,371 180,481 409,644 175,505 140,090 $ 4,300,706 $ 3,944,817 $ 3,465,442 52 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) NOTE 4 – PROPERTYRR AND EQUIPMENT Property and equipment are stated at historical cost. The historical cost of acquiring an asset includes the costs incurred to bring it to the condition and location necessary for its intended use. Depreciation is computed on the straight-line life of fixturtt es and equiq pment ranges from 3 to 15 years and basis over the estimated usefulff that of certain components of building imprm ovements and buildings from 10 to 40 years. Leasehold improvements are amortized over the shorter of the lifeff of the improvement or the expected term of the lease. In some locations, leasehold improvements are amortized over a period longer than the initial lease term where management believes it is reasonably certain that the renewal option in the underlying lease will be exercised because an economic penalty may be incurred if the option is not exercised. The sale or purchase of property and equipment is recognized upon legal transferff lives of the assets. The usefulff of property. Property and equipment consist of the following (in thousands): Land Building and improvements Fixturt es and equipment Construcr tion in progress Total property and equiq pment, historical cost Less: accumulated depreciation Property and equipment, net August 31, 2023 August 31, 2022 $ 238,374 $ 650,060 385,100 99,545 1,373,079 (522,751) 224,278 592,749 343,859 42,602 1,203,488 (446,247) $ 850,328 $ 757,241 Depreciation and amortization expense (in thousands): Depreciation expense, Property and equiq pment Amortization expense, Intangible assets Total depreciation and amortization expense Years Ended August 31, 2023 2022 2021 $ $ 71,933 $ 66,255 $ 765 1,613 72,698 $ 67,868 $ 62,579 2,404 64,983 The Company capitalizes interest on expenditures for qualifyiff ng assets over a period that covers the duration of the activities required to get the asset readydd for its intended use, provided that expenditurt es for the asset have been made and interest cost is being incurred. Interest capia talization continues as long as those activities and the incurrence of interest cost continue. The amount capia talized in an accounting period is determined by applying the Company’s consolidated capitalization rate (average interest rate) to the average amount of accumulated expenditurt es for the qualifyiff ng asset, for each country,rr during the period. The capitalization rates are based on the interest rates applicable to borrowings outstanding during the period. Total interest capia talized (in thousands): Total interest capia talized Total interest capia talized (in thousands): Interest capitalized 53 Balance as of August 31, 2023 August 31, 2022 $ 15,426 $ 12,934 Years Ended August 31, 2023 2022 2021 $ 2,083 $ 1,263 $ 2,282 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) A summaryrr of asset disposal activity for fiscal years 2023, 2022 and 2021 is as follows (in thousands): Fiscal Year 2023 Fiscal Year 2022 Fiscal Year 2021 Historical Cost Accumulated Depreciation $ $ $ 11,484 $ 12,785 $ 10,946 $ 10,379 $ 11,327 $ 9,534 $ Proceeds from disposal Loss recognized 361 $ 193 $ 385 $ (744) (1,265) (1,027) The Company also recorded within accounts payaaa bla e and other accrued expenses approximately $3.9 million and $0.6 million, respectively, as of August 31, 2023 and $2.2 million and $0.9 million, respectively,yy as of August 31, 2022 of liabilities related to the acquisition and/or construcr tion of property and equipment. NOTE 5 – EARNINGS PER SHARE The Company presents basic net income per share using the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been availabla e to common stockholders and that determines basic net income per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings that would have been availabla e to common stockholders. A participating security is defined as a security that may participate in undistributed earnings with common stock. The Company’s capia tal structurt e includes securities that participate with common stock on a one-forff -one basis for distribution of dividends. These are the restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and perforff mance stock units (“PSUs”) issued pursuant to the 2013 Equiq ty Incentive Award Plan, provided that the Company does not include PSUs as participating securities until the perforff mar nce conditions have been met. RSAs are outstanding shares of common stock and have the same cash dividend and voting rights as other shares of common stock. Shares of common stock subject to RSUs are not issued nor outstanding until vested, and RSUs do not have the same dividend and voting rights as common stock. However, all outstanding RSUs have accompanying dividend equivalents, requiring payment to the employees and directors with unvested RSUs of amounts equaq l to the dividend they would have received had the shares of common stock underlying the RSUs been actually issued and outstanding. PSUs, similar to RSUs, are awarded with dividend equivalents, provided that such amounts become payaa bla e only if the performance metric is achieved. At the time the Compensation Committee confirff ms the perforff mance metric has been achieved, the corresponding dividend equivalents are paid on the PSUs. The Company determines the diluted net income per share by using the more dilutive of the two class-method or the treasury stock method and by including the basic weighted average of outstanding perforff mar nce stock units in the calculation of diluted net income per share under the two-class method and including all potential common shares assumed issued in the calculation of diluted net income per share under the treasury stock method. The following tabla e sets fortht the computation of net income per share attributable to PriceSmart for the twelve months ended August 31, 2023, 2022 and 2021 (in thousands, except per share amounts): NNet income attributable to PriceSmart, Inc. Less: Allocation of income to unvested stockholders NNet income attributable to PriceSmart, Inc. availabla e for distribution Basic weighted average shares outstanding Add dilutive effeff ct of perforff mance stock units (two-class method) Diluted average shares outstanding Basic net income per share Diluted net income per share Years Ended August 31, 2023 2022 2021 $ $ $ $ 109,205 $ 104,534 $ (1,311) (1,245) 107,894 $ 103,289 $ 30,763 23 30,786 30,591 9 30,600 3.51 $ 3.50 $ 3.38 $ 3.38 $ 97,963 (1,282) 96,681 30,403 — 30,403 3.18 3.18 54 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) NOTE 6 – STOCKHOLDERS’ EQUITY Dividei ndsdd The following tabla e summarizes the dividends declared and paid during fiscal years 2023, 2022 and 2021 (amounts are per share): Declared 2/3/2023 2/3/2022 2/4/2021 First Payment Second Payment Amount $ $ $ 0.92 0.86 0.70 Record Date 2/16/2023 2/15/2022 2/15/2021 Date Paid 2/28/2023 $ 2/28/2022 $ 2/26/2021 $ Amount 0.46 0.43 0.35 Record Date 8/15/2023 8/15/2022 8/15/2021 Date Paid Amount 8/31/2023 $ 8/31/2022 $ 8/31/2021 $ 0.46 0.43 0.35 The Company anticipates the ongoing payma ent of semi-annual dividends in subsu equent periods, although the actual declaration of future dividends, if any, the amount of such dividends, and the establa ishment of record and payment dates is subject to final determination by the Board of Directors at its discretion afteff r its review of the Company’s financial perforff mance and anticipated capia tal requirements, taking into account the uncertain macroeconomic conditions on our results of operations and cash flows. Othett r Comprehensive Income (Loss) and Accumulated Othett r Comprehensive Loss The following tabla es disclose the effeff cts on accumulated other comprehensive loss of each component of other comprehensive income (loss), net of tax (in thousands): Ending balance, August 31, 2020 Foreign currency translation adjud stments Defined benefit pension plans (1) Derivative instruments (2) Amounts reclassified from accumulated other comprehensive loss Ending balance, August 31, 2021 Foreign currency translation adjud stments Defined benefit pension plans (1) Derivative instruments (2) Amounts reclassified from accumulated other comprehensive loss Sale of Aeropost Ending balance, August 31, 2022 Foreign currency translation adjud stments Defined benefit pension plans (1) Derivative instruments (2) Amounts reclassified from accumulated other comprehensive loss Attributable to PriceSmart $ (176,820) $ (7,837) (230) 2,252 127 Non- controlling Interests 134 117 — — — Total $ (176,686) (7,720) (230) 2,252 127 $ (182,508) $ 251 $ (182,257) (19,034) (341) 6,170 127 — 3 — — — (254) (19,031) (341) 6,170 127 (254) $ (195,586) $ — $ (195,586) 33,708 (1,819) (443) 148 — — — — 33,708 (1,819) (443) 148 Ending balance, August 31, 2023 $ (163,992) $ — $ (163,992) (1) Amounts reclassified from accumulated other comprehensive income (loss) related to the minimum pension liability are included in warehouse club and other operations in the Company's consolidated statements of income. (2) Refer to “Note 13 - Derivative Instruments and Hedging Activities.” 55 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Retained Earnings Not Availaii blell for Distii ritt buii tion The following tabla e summarizes retained earnir ngs designated as legal reserves of various subsidiaries which cannot be distributed as dividends to PriceSmart, Inc. according to applicable statutt ory regulations (in thousands): Retained earnings not availabla e for distribution Share Repuee rchase Program August 31, 2023 August 31, 2022 $ 9,110 $ 8,648 In July 2023 we announced a program authorized by our Board of Directors to repurchase up to $75 million of our common stock. Subsequeq nt to our fiscal year that ended on August 31, 2023, we successfully completed the program. We purchased a total of approximately 1,007,000 shares of our common stock under the program. The repurchases were made on the open market pursuant to a trading plan establa ished pursuant to Rule 10(b)5-1 under the Securities Exchange Act of 1934, as amended, which permits common stock to be repurchased at a time that we might othet rwise be precluded from doing so under insider trading laws or self-iff mposed trading restrictions. We do not expect to continue repurchases or adopt a new repurchase plan at this time. However, the Board of Directors could choose to commence another program in the future at its discretion afteff r its review of the Company’s financial perforff mance and anticipated capital requirements. Share repurchase activity under the Company’s repurchase programs for the periods indicated was as follows (total cost in thousands): NNumber of common shares acquired Average price per common share acquiq red Total cost of common share acquired NOTE 7 – POST EMPLOYMENT PLANS Defie neii d Contritt buii tion Planll s Years Ended August 31, 2023 August 31, 2022 71,530 78.54 $ 5,618 $ $ $ — — — PriceSmart offeff rs a defined contritt bution 401(k) retirement plan to its U.S. emplm oyees, including warehouse club employees in the U.S. Virgin Islands, which auto-enrolls employees in the plan immediately on the first daya of emplm oyment. The Company makes non-discretionary contritt butions to the 401(k) plan with a 4% “Company Contribution” based on the employee’s salary regardless of the emplm oyee’s own contritt butions to the plan up to the IRS maximum allowed. The Company also makes incremental non-discretionaryrr contritt butions to the 401(k) plan to the emplm oyees who defer up to 2% of their salary. Emplm oyer contritt butions to the 401(k) plan for the Company's U.S. emplm oyees were $2.9 million during fiscal years 2023 and 2022, and $2.6 million during fiscal year 2021. PriceSmart also offeff rs defined contribution retirement plans in many of its subsu idiaries. The Company makes non- discretionaryrr contritt butions to these plans based on the emplm oyee’s salary,yy regardless of the employee’s own contributions to the plan, up to the maximum allowed. The expenses associated with the plans for the Company’s non-U.S. employees were $4.5 million, $3.6 million and $3.0 million during fiscal years 2023, 2022 and 2021, respectively. 56 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Defie neii d Benefie tii Planll s The Company's subsu idiaries located in three countries have unfunded post-employment benefit plans (definff ed benefit plans) in which the subsu idiary is required to paya a specifieff d benefit upon retirement, voluntary departurtt e or death of the emplm oyee. The amount of the benefit is predetermined by a formula based on the emplm oyee's earnings history, tenure of service and age. Because the obligation to provide benefits arises as emplm oyees render the services necessary to earn the benefits pursuant to the terms of the plan, the Company recognizes the cost of providing the benefits over the projected employee service periods. These payments are only due if an employee reaches certain thresholds, such as tenure and/or age. Thereforff e, these plans are treated as defined benefit plans. For these defined benefit plans, the Company has engaged actuat ries to assist with estimating the current costs associated with these future benefits. The liabilities for these unfunded plans are recorded as non-current liabilities. The following tabla e summarizes the amount of the funding obligation and the line items in which it is recorded on the consolidated balance sheets as of August 31, 2023 and 2022 and consolidated statements of income for the fiscal years ended August 31, 2023, 2022 and 2021 (in thousands): Other Long-TermTT Liability Accumulated Other Comprehensive Loss August 31, Operating Expenses Year Ended August 31, 2023 2022 2023 2022 2023 2022 2021 Start of period $ (2,976) $ (2,298) $ 1,205 $ 897 $ — $ — $ Service cost Interest cost Prior service cost (including amortization) Actuarial gains/(losses) (303) (139) — (2,425) (205) (129) — (344) — — (26) 2,425 — — (36) 344 365 139 26 122 315 129 36 92 — 229 104 55 72 Totals $ (5,843) $ (2,976) $ 3,604 $ 1,205 (1) $ 652 $ 572 $ 460 (1) The Company has recorded a deferred tax asset of $1,106,000 and $377,000 as of August 31, 2023 and 2022, respectively, relating to the unrealized expense on defined benefit plans. The Company also recorded accumulated other comprehensive loss, net of tax, for $(2,500,000) and $(829,000) as of August 31, 2023 and 2022, respectively. The primaryr driver of the recorded accumulated other comprehensive loss was a change in assumption for our Trinidad and Tobago post-employment benefit plan in which we expect less turnover from our employees. The valuation assumptions used to calculate the liability for the defined benefit plans differff based on the country where the plan applies. These assumptions are summarized as follows: Valuation Assumptions: Discount rate Future salary escalation Percentage of employees assumed to withdraw from Company without a benefit (“turnover”) Percentage of employees assumed to withdraw from Company with a benefit (“disabia lity”) Year Ended August 31, 2023 2022 4.6% to 6.4% 3.5% to 6.4% 3.0% to 5.2% 3.0% to 4.5% 6.7% to 15.0% 6.7% to 15.0% 0.5% to 1.5% 0.5% to 6.6% For the fiscal year ending August 31, 2024, the Company expects to recognize, as components of net periodic benefit cost, the following amounts currently recorded in accumulated othet r comprehensive loss (in thousands): Prior service cost Amortization of actuarial loss $ $ 26 539 565 57 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Othett r Post-Ett mpEE loymo s ent Benefie tii Planll Some of the Company’s subsu idiaries are parties to funded and unfunff ded post-emplm oyment benefit plans based on services that the emplm oyees have rendered. These plans require the Company to pay a specifieff d benefit on retirement, ents to an external fund manager. The amount of these voluntary departurt e or death of the employee, or monthly payma payments is predetermi ned by a formula based on the employee's earnirr ngs history and tenure of service. Becausa e the obligation to provide benefits arises as emplm oyees render the services necessary to earn the benefits pursuant to the terms of the plan, the cost associated with providing the benefits is recognized as the emplm oyee provides those services. The employees' rights to receive payment on these plans are not dependent on their reaching certain thresholds like age or tenure. Thereforff e, these plans are not treated as defined benefit plans. For these post-employment benefit plans, the Company has accruer d liabilities that are recorded as accruerr d salaries and benefits and othet r long-term liabia lities. r The following tabla e summarizes the amounts recorded on the balance sheet and amounts expensed on the consolidated statements of income (in thousands): Accrued Salaries and Benefits Other Long-TermTT Liability Restricted Cash Held (1) Operating Expenses Years Ended August 31, 2023 2022 2023 2022 2023 2022 2023 2022 2021 Other Post Emplm oyment Plans $ 738 $ 522 $ 5,077 $ 4,567 $ 4,859 $ 4,382 $ 1,754 $ 1,423 $ 1,447 (1) With some locations, local statutes require the applicable Company subsu idiary to deposit cash in its own name with designated fund managers. The funds earn interest, which the Company recognizes as interest income. NOTE 8 – STOCK BASED COMPENSATIAA ON Stock Based Compensation – The Company utilizes three typey s of equity awards: restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and perforff mance based restricted stock units (“PSUs”). Refer “Note 2 - Summaryrr of Significff ant Accounting Policies.” The Company adopted the 2013 Equiq ty Incentive Award Plan (thet "2013 Plan") for the benefit of its eligible employees, consultants and non-emplm oyee directors on Januaryrr 22, 2013. The 2013 Plan provides for awards covering up to 1.1 million shares of common stock plus the number of shares that remained availabla e for issuance as of Januaryrr 22, 2013 under three equiq ty participation plans previously maintained by the Company. The 2013 plan was amended in fiscal years 2021 to increase the number of shares of Common Stock availabla e for the grant of awards by 500,000 shares and furthet r amended in fiscal year 2023 to increase the number of shares of Common Stock availabla e for the grant of awards by an additional 750,000 shares. The number of shares reserved for issuance under the 2013 Plan increases during the term of the plan by the number of shares relating to awards outstanding under the 2013 Plan or any of the prior plans that expire, or are ted, terminated, canceled or repurchased, or are settled in cash in lieu of shares. However, in no event will more than forfeiff an aggregate of 2,966,867 shares of the Company’s common stock be issued under the 2013 Plan. The following tabla e summarizes the shares authorized and shares availabla e for future grants: Shares authorized for issuance as of August 31, 2023 (including shares originally authorized for issuance under prior plans) August 31, 2023 August 31, 2022 2013 Plan 2,317,923 1,223,574 549,319 Shares available to grant 58 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e summarizes the components of the stock-based compensation expense for the twelve-month periods ended August 31, 2023, 2022 and 2021 (in thousands), which are included in general and administrative expense and warehouse club and othet r operations in the consolidated statements of income: Restricted stock awards Restricted stock units Perforff mance-based restricted stock units Stock-based compensation expense Years Ended August 31, 2023 2022 2021 $ $ 10,641 $ 9,378 $ 11,010 3,701 2,232 3,519 3,906 3,939 3,475 16,574 $ 16,803 $ 18,424 The following tabla es summarize other information related to stock-based compensation: Balance as of August 31, 2023 August 31, 2022 August 31, 2021 Remaining unrecognized compensation cost (in thousands) $ 15,386 $ 18,478 $ 16,349 Weighted average period of time over which this cost will be recognized (years) 2 2 2 Years Ended August 31, 2023 2022 2021 Excess tax benefit (deficff thousands) iency) on stock-based compensation (in $ (2,787) $ (2,259) $ (778) The restricted stock awards and units generally vest over a three-year period and the unvested portion of the award ted if the emplm oyee or non-employee director leaves the Company before the vesting period is completed. is forfeiff Restricted stock awards, restricted stock units, and perforff mance-based restritt cted stock units activity for the twelve- months ended August 31, 2023, 2022 and 2021 was as follows: Grants outstanding at beginning of period Granted Forfeiff ted Vested Grants outstanding at end of period Years Ended August 31, 2023 August 31, 2022 August 31, 2021 361,822 365,850 (118,577) (266,354) 342,741 375,622 261,204 (16,184) 415,869 166,160 (12,436) (258,820) (193,971) 361,822 375,622 The following tabla e summarizes the weighted average per share grant date fair value for restricted stock awards, restricted stock units, and perforff mar nce based restricted stock units for fiscal years 2023, 2022 and 2021: Weighted Average Grant Date Fair Value RSAs, RSUs, and PSUs granted RSAs, RSUs, and PSUs vested RSAs, RSUs, and PSUs forfeiff ted 59 Years Ended August 31, 2023 August 31, 2022 August 31, 2021 $ $ $ 63.93 $ 70.26 $ 66.14 $ 76.85 $ 72.69 $ 69.70 $ 79.02 70.03 70.56 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e summarizes the total fair market value of restricted stock awards, restricted stock units, and perforff mance based restricted stock units vested for the period (in thousands): Years Ended August 31, 2023 August 31, 2022 August 31, 2021 Total fair market value of restricted stock awards and units vested (in thousands) $ 19,325 $ 18,422 $ 17,478 At the vesting dates for restricted stock awards to emplm oyees, the Company repurchases a portion of the shares that have vested at the prior day'a s closing price per share, with the funds used to payaa the emplm oyees' tax withholding requirements related to the vesting of restritt cted stock awards. The Company expects to continue this practice going forward. Shares of common stock repurchased by the Company are recorded at cost as treasury stock and result in the reduction of stockholders’ equiq ty in the Company’s consolidated balance sheets. The Company maya reissue these treasury shares. The following tabla e summarizes the equity securities repurchased during fiscal years 2023, 2022 and 2021 as part of the Company's stock-based compensation programs: Years Ended August 31, 2023 August 31, 2022 August 31, 2021 Shares repurchased 99,998 88,415 Cost of repurchase of shares (in thousands) $ 7,245 $ 6,259 $ 62,282 5,542 The Company reissues treasury shares as part of its stock-based compensation programs. The following tabla e summarizes the treasuryrr shares reissued during the period: Reissued treasuryrr shares Years Ended August 31, 2023 August 31, 2022 August 31, 2021 6,333 8,314 96,400 60 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) NOTE 9 – COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company and its subsidiaries are subju ect to legal proceedings, claims and litigation arising in the ordinary course of business related to the Company’s operations and property ownership. The Company evaluates such matters on a case by case basis, and vigorously contests any such legal proceedings or claims which the Company believes are without merit. The Company believes that the final disposition of these matters will not have a material adverse effeff ct on its financial position, results of operations or liquidity. It is possible, however, that the Company's results of operations for a particular quarter or fiscal year could be impam cted by changes in circumstances relating to such matters. The Company establa ishes an accruarr l for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimabla e. In such cases, there maya be a possible exposure to loss in excess of any amounts accruerr d. The Company monitors those matters for developments that would affeff ct the likelihood of a loss and the accruer d amount, if any, thereof, and adjud sts the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimabla e, the Company does not establa ish an accruar l, but will continue to monitor the matter for developments that will make the loss contingency both probable and reasonably estimabla e. If it is at least a reasonable possibility that a material loss will occur, the Company will provide disclosure regarding the contingency. Income Taxes The Company is required to file federal and state tax returns in the United States and various other tax returns in foreign jurisdictions. The preparation of these tax returns requires the Company to interpret the applicable tax laws and regulations in effeff ct in such jurisdictions, which could affeff ct the amount of tax paid by the Company. The Company, in consultation with its tax advisors, bases its tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subju ect to routine reviews by the various taxing authorities in the jurisdictions in which the Company files its returns. As part of these reviews, a taxing authority may disagree with the interpretations the Company used to calculate its tax liabia lity and thereforff e require the Company to paya additional taxes. The Company accruer s an amount for its estimate of probable additional income tax liability. In certain cases, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more- likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be to “Note 10 - Income Taxes for additional information”). recognized if it has less than 50% likelihood of being sustained (referff In evaluating the exposure associated with various non-income tax filing positions, the Company accruer s for probable and estimabla e exposures for non-income tax related tax contingencies. As of August 31, 2023 and 2022, the Company has recorded within other accrued expenses and other current liabilities a total of $9.6 million and $1.1 million, respectively, for various non-income tax related tax contingencies. In the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle an AMT payment dispute in one of the aforff ementioned countries. Of this amount, $1.0 million is a reserve recorded against an income tax receivabla e for one of the tax years for which we sought a refund and the remaining $6.2 million is an accruarr ents using the original l for the unpan id years of the dispute in which the Company made tax payma computation based on taxabla e income. Additionally, as part of the settlement, the Company agreed to pay AMT on a go- forward basis and accruerr d $2.0 million for fiscal year 2023. While the Company believes the recorded liabilities are adequaq te, there are inherent limitations in projecting the outcome of litigation, in estimating probable additional income tax liability taking into account uncertain tax positions and in evaluating the probable additional tax associated with various non-income tax filing positions. As such, the Company is unabla e to make a reasonable estimate of the sensitivity to change of estimates affeff cting its recorded liabilities. As additional information becomes availabla e, the Company assesses the potential liabia lity and revises its estimates as appropriate. Other Commitments The Company is committed under non-cancelable operating leases for the rental of facilities and land. Refer to “Note 12 – Leases”. The Company also committed to non-cancelabla e construcrr tion service obligations for various warehouse club developments and expansions. As of August 31, 2023 and August 31, 2022, the Company had approximately $11.3 million and $16.5 million, respectively, in contractuatt tion services not yet rendered. l obligations for construcr 61 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) As of August 31, 2023, the Company has signed one lease agreement which has not commenced related to the relocation of its warehouse club in Miraflores, Guatemala. As part of the agreement, the landlord has agreed to build a shell building which is estimated to be delivered in the first half of calendar year 2025. The lease will have a term of approximately 20 years and will commence upon delivery of the shell building to the Company. Per the lease agreement, the Company will pay monthly fixed base rent payments which increase annually based on the Consumer Price Index. The Company will also pay variable rent payments if the yearly warehouse sales for the location are in excess of a certain threshold. A collateralized incremental borrowing rate was used to determine the present value of estimated future minimum lease commitments. The present value of estimated future minimum lease commitments for this lease are as follows (in thousands): Years Ended August 31, 2024 2025 2026 2027 2028 Thereafter Total future lease payma ents Amount — 276 1,604 1,558 1,513 20,013 24,964 $ $ From time to time, the Company has entered into general land purchase and land purchase option agreements. The Company’s land purchase agreements are typiy cally subju ect to various conditions, including, but not limited to, the ability to obtain necessary governmental permits or approvals. A deposit under an agreement is typically returned to the Company if all permits or approvals are not obtained. Generally, the Company has the right to cancel any of its agreements to purchase land without causa e by forfeiturt e of some or all of the deposits it has made pursuant to the agreement. As of August 31, 2023, the Company had entered into four land purchase agreements that, if completed, would result in the use of approximately $14.0 million in cash. Lastly,yy the Company has one lease option agreement for one additional warehouse club. Refer to “Note 15 - Unconsolidated Affiff liates” for a description of additional capia tal contritt butions that may be required in connection with joint venturt es to develop commercial centers adjad cent to PriceSmart warehouse clubs in Panama and Costa Rica. NOTE 10 – INCOME TAXES Income from continuing operations beforff e provision for income taxes and loss of unconsolidated affiff liates includes the following components (in thousands): United States Foreign Income from continui gng operations beforff e provision for income taxes and loss of unconsolidated affiff liates Years Ended August 31, 2023 2022 2021 57,941 $ 55,667 $ 111,270 100,754 33,818 113,368 169,211 $ 156,421 $ 147,186 $ $ 62 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Significant components of the income tax provision are as follows (in thousands): Current: U.S. tax expense Foreign tax expense Total Deferred: U.S. tax benefit U.S. valuation allowance change Foreign tax benefit Foreign valuation allowance change Total Provision for income taxes Years Ended August 31, 2023 2022 2021 $ $ $ $ $ 21,604 $ 20,824 $ 41,639 34,334 63,243 $ 55,158 $ 16,904 35,918 52,822 (11,958) $ (11,894) $ (10,212) 12,598 (3,935) 3 11,823 (3,259) 30 (3,292) $ (3,300) $ 59,951 $ 51,858 $ 9,777 (3,125) (293) (3,853) 48,969 The reconciliation of income tax computed at the Federal statutt oryrr tax rate to the provision for income taxes is as follows (in percentages): Federal tax provision at statutt oryrr rates State taxes, net of federal benefit Differff ences in foreign tax rates Permanent items and othet r adjud stments Increase in valuation allowance Provision for income taxes Years Ended August 31, 2023 2022 2021 21.0 % 21.0 % 21.0 % 0.3 6.8 (0.1) 7.4 0.2 7.1 (2.6) 7.5 0.1 6.9 (2.2) 7.5 35.4 % 33.2 % 33.3 % 63 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Significant components of the Company’s deferred tax assets as of August 31, 2023 and 2022 are shown below (in thousands): Deferred tax assets: Foreign tax credits Deferred compensation U.S. timing differff ences Foreign net operating losses Foreign timing differff ences: Accruerr d expenses and other timing differff ences Depreciation and amortization Deferred income Gross deferred tax assets U.S. deferred tax liabia lities (depreciation and other timing differff ences) Foreign deferred tax liabilities netted against deferred tax assets U.S. valuation allowance Foreign valuation allowance NNet deferred tax assets August 31, 2023 2022 $ 43,632 $ 32,322 1,664 6,845 4,911 9,365 15,160 7,338 88,915 (3,035) (5,552) (43,860) (4,430) $ 32,038 $ 1,782 7,746 5,026 9,937 13,019 7,749 77,581 (2,273) (8,697) (33,824) (4,432) 28,355 For fiscal year 2023, the effeff ctive tax rate was 35.4%. The increase in the effeff ctive rate versus the prior year was primarily attributable to the comparably favorabla e impam ct of 2.0% due to a greater portion of income falling into lower tax jurisdictions, offsff et by the comparably unfavorabla e impact of 1.8% from the AMT settlement and 2.2% from asset impairment and related closure costs. For fiscal year 2023, management concluded that a valuation allowance continues to be necessary for certain U.S. and foreign deferred tax assets primarily becausa e of the existence of negative objective evidence, such as the fact that certain subsidiaries are in a cumulative loss position for the past three years, and the determination that certain net operating loss carryforward periods are not sufficff ient to realize the related deferred tax assets. The Company factored into its analysis the inherent risk of forecasting revenue and expenses over an extended period of time and also considered the potential risks associated with its business. The Company had net foreign deferred tax assets of $26.8 million and $22.6 million as of August 31, 2023 and 2022, respectively. The Company does not provide for income taxes which would be payaa bla e if undistributed earnings of its foreign subsidiaries were remitted to the U.S. The Company considers earnings to be permanently reinvested for any jurisdiction where distribution from a foreign affiff liate would causa e additional tax cost, and management has no plans to repatriate the related undistributed earnings and profitff s from these foreign affiff liates. As of August 31, 2023 and 2022 the undistributed earnings of these foreign subsu idiaries are approximately $369.6 million and $335.5 million, respectively. The Company accruerr s for the estimated additional amount of taxes for uncertain income tax positions if the likelihood of sustaining the tax position does not meet the more-likely-than-not-standard for recognition of tax benefits. These positions are recorded as unrecognized tax benefits. 64 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): Balance at beginning of fiscal year Gross increase - tax positions in prior period Gross decrease - tax positions in prior period Additions based on tax positions related to the current year Expiration of the statutt e of limitations for the assessment of taxes Years Ended August 31, 2023 2022 2021 $ 5,041 $ 3,911 $ 4,573 35 — 143 (474) 264 — 1,356 (490) 135 (306) 333 (824) Balance at end of fiscal year $ 4,745 $ 5,041 $ 3,911 As of August 31, 2023, the liability for income taxes associated with unrecognized tax benefits was $4.7 million and can be reduced by $1.4 million of tax benefits recorded as deferred tax assets and liabilities. The total $4.7 million unrecognized tax benefit includes $300,000 of associated timing adjud stmet nts. The net amount of $4.4 million would, if recognized, favorabla y affeff ct the Company's financial statements and favorabla y affeff ct the Company's effeff ctive income tax rate. The Company recognizes interest and/or penalties related to unrecognized tax benefits in income tax expense. As of August 31, 2023 and 2022, the Company had accruerr d an additional $1.6 million and $1.5 million, respectively,yy for the payment of interest and penalties related to the above-mentioned unrecognized tax benefits. The Company expects changes in the amount of unrecognized tax benefits in the next 12 months as the result of a e of statutt es of limitations in the twelve-montht period ending August 31, e in various statutt es of limitations. The lapsa lapsa 2023 could result in a total income tax benefitff amounting up to $600,000. The Company has various appeals pending before tax courts in its subsidiaries' jurisdictions. Any possible settlement could increase or decrease earnings but is not expected to be significff ant. Audit outcomes and the timing of audit settlements are subject to significff ant uncertainty. In two countritt es where the Company operates, minimum income tax rules require the Company to pay taxes based on a percentage of sales if the resulting tax were greater than the tax payaa bla e based on a percentage of income (AMT). As a result, the Company is making AMT payments subsu tantially in excess of those it would expect to paya based on taxabla e income. The Company had income tax receivabla es of $10.7 million and $11.0 million as of August 31, 2023 and August 31, 2022, respectively, and deferred tax assets of $3.7 million and $3.5 million as of August 31, 2023 and August 31, 2022, respectively, in these countries. In the fourth quarter of fiscal year 2023, we recorded a $7.2 million charge to settle the AMT payma ent dispute in one of the aforff ementioned countries, $1.0 million of which was a reserve for an income tax receivabla e for one of the tax years for which we sought a refund and the remaining $6.2 million is an accruar l for the unpaid years of the dispute in which the Company made tax payma ents using the original computation based on taxabla e income. While the rules related to refunds of income tax receivabla es in these countries are either unclear or complex, the Company has not placed any type of allowance on the recoverabia lity of the remaining tax receivables, deferred tax assets or amounts that may be deemed under-paid, because the Company believes that it is more likely than not that it will ultimately succeed in its refund requests and appeals of these rules. 65 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The Company and its subsu idiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in its majoa r jurisdictions except for the fiscal years subject to audit as set forth in the tabla e below: Tax Jurisdiction U.S. federal California (U.S.) (state return) Florida (U.S.) (state return) a Arubrr Barbados Costa Rica Colombia Dominican Republu ic El Salvador Guatemala Honduras Jamaica Mexico NNicaragua Panama Trinidad U.S. Virgin Islands Spain Chile *Aeropost only Fiscal Years Subject to Audit 2005, 2007, 2014* to 2017*, 2018, 2020 to the present 2005 and 2019 to the present 2011* to 2018*, 2020 to the present 2018 to the present 2017 to the present 2011 to 2012, 2015 to 2016, 2019 to the present 2017 to the present 2011 to 2012, 2016, 2020 to the present 2019 to the present 2012 to 2013, 2019 to the present 2018 to the present 2017 to the present 2019 to the present 2019 to the present 2018 to the present 2016 to the present 2001 to the present 2020 to the present 2020* to the present Generally for U.S. federal and U.S. Virgin Islands tax reporting purposes, the statutt e of limitations is three years from the date of filing of the income tax return. If and to the extent the tax year resulted in a taxabla e loss, the statutt e is extended to three years from the filing date of the income tax return in which the carryforff warr rd tax loss was used to offsff et rd year. Given the historical losses in these jurisdictions and the Section 382 change in taxabla e income in the carryfrr orff warr contrott rds, there is uncertainty and significant variation as to when a tax year is no longer subju ect to audit. l limitations on the use of the tax loss carryfrr orff warr 66 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) NOTE 11 – DEBT Short-term borrowings consist of unsecured lines of credit and short-term overdraftff borrowings. The following tabla e summarizes the balances of total facilities, facilities used and facilities availabla e (in thousands): Facilities Used Total Amount of Facilities Short-term Borrowings Letters of Credit Facilities Available Weighted average interest rate August 31, 2023 - Committed August 31, 2023 - Uncommitted August 31, 2023 - Overdraftff Used (Uncommitted) August 31, 2023 - Total August 31, 2022 - Committed August 31, 2022 - Uncommitted August 31, 2022 - Total $ $ $ $ 75,000 91,000 — — 8,376 303 — — — 75,000 82,624 — 166,000 $ 8,679 $ — $ 157,624 75,000 91,000 — 10,608 73 — 74,927 80,392 166,000 $ 10,608 $ 73 $ 155,319 —% 13.2 12.0 12.7% —% 5.3 5.3% As of August 31, 2023 and August 31, 2022, the Company was in compliance with all covenants or amendedd covenants for each of its short-term facility agreements. These facilities generally expire annual yly or bi-annually and are normally renewed. One of these facilities is a committed credit agreement with one bank for $75.0 million. In exchange forr the bank’s commitment to fund any drawdowns the Company requests, the Company pays an annual commitment fee fof 0.25%, ppayaa bla e quarterly,yy on any unused portion of this facility. Additionally,yy the Company has uncommitted facilities in most of the countries where it operates, with drawdown requests su jbject to approval yby the individual banks each time a drawdown is requested. 67 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e provides the changes in long-termr debt for the twelve months ended August 31, 2023: (Amountstt in thousands)dd Balances as of August 31, 2021 Proceeds from long-term debt received during the period: Guatemala subsu idiary Trinidad subsu idiary Total proceeds from long-term debt received during the period Repayments of long-term debt: Reclassifications of long-term debt due in the next 12 months Translation adjud stments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar(2) Balances as of August 31, 2022 Proceeds from long-term debt received during the period: Guatemala subsu idiary Barbados subsidiary Honduras subsu idiary Trinidad subsu idiary Total proceeds from long-term debt received during the period Repayments of long-term debt: Reclassifications of long-term debt due in the next 12 months Translation adjud stments on foreign currency debt of subsidiaries whose functional currency is not the U.S. dollar(2) Balances as of August 31, 2023 Current portion of long-term debt Long-term debt (net of current portion) Total $ 19,395 $ 110,110 $ 129,505 (1) — 4,924 4,924 (8,110) 17,618 (112) 33,715 — — 1,001 750 1,751 (17,541) 1,729 4,204 21,505 25,709 (14,587) (17,618) (58) 103,556 12,454 7,460 12,798 4,250 36,962 (18,443) (1,729) 4,204 26,429 30,633 (22,697) — (170) 137,271 (3) 12,454 7,460 13,799 5,000 38,713 (35,984) — 539 (859) $ 20,193 $ 119,487 $ (320) 139,680 (4) (1) The carrying amount of non-cash assets assigned as collateral for these loans was $153.5 million. The carrying amount of cash assets assigned as collateral for these loans was $7.0 million. (2) These foreign currency translation adjud stments are recorded within other comprehensive loss. (3) The carrying amount of non-cash assets assigned as collateral for these loans was $155.6 million. The carrying amount of cash assets assigned as collateral for these loans was $5.3 million. (4) The carrying amount of non-cash assets assigned as collateral for these loans was $156.2 million. The carrying amount of cash assets assigned as collateral for these loans was $3.5 million. 68 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e provides a summaryrr of the long-termr loans entered into by the Company: Loans entered into by the Company's subsidiaries for which the subsidiary has entered into a cross-currency interest rate swap with non-cash assets and/or cash or cash equivalents assigned as collateral and with/without establa ished debt covenants Loans entered into by the Company's subsidiaries for which the subsidiary has entered into an interest rate swap with non-cash assets and/or cash or cash equivalents assigned as collateral and with/without establa ished debt covenants Unhedged loans entered into by the Company's subsu idiaries with non-cash assets and/or cash or cash equiq valents assigned as collateral and with/without establa ished debt covenants Total long-termr debt Less: current portion Long-term debt, net of current portion August 31, 2023 August 31, 2022 $ 23,099 $ 33,853 30,069 39,969 86,512 139,680 20,193 63,449 137,271 33,715 $ 119,487 $ 103,556 As of August 31, 2023 and August 31, 2022, the Company had approximately $91.2 million and $110.7 million, respectively, of long-termr loans in several foreign subsu idiaries which require these entities to comply with certain annual or quarterly financial covenants, which include debt service and leverage ratios. The Company was in compliance with all covenants or amended covenants for both periods. The net increase in long-termr ended August 31, 2023 is primarily attributable to loans entered into by the Company’s Honduras, Guatemala, Barbados, and Trinidad subsu idiaries, and offsff et by payments on its long-term debt. debt during the twelve monthst Annual maturities of long-termr debt are as follows (in thousands): Twelve Months Ended August 31, 2024 2025 2026 2027 2028 Thereafter Total NOTE 12 – LEASES $ Amount 20,193 36,151 18,450 33,188 17,512 14,186 $ 139,680 In accordance with ASC 842, the Company determines if an arrangement is a lease at inception or modification of a contract and classifies each lease as either operating or finance lease at commencement. The Company only reassesses lease classification subsu equeq nt to commencement upon a change to the expected lease term or the contract being modified. As of August 31, 2023, the Company only has operating leases for its clubs, distribution centers, offiff ce space, and land. Operating leases, net of accumulated amortization, are included in operating lease right of use (“ROU”) assets, and current and non-current operating lease liabilities, on the Company’s consolidated balance sheets. Lease expense for operating leases is included in selling, general and administrative expense on the Company’s consolidated statements of income. Leases with an initial term of twelve monthst or less are not recorded on the Company’s consolidated balance sheet. The Company is generally obligated for the cost of property taxes, insurance, and maintenance relating to its leases, ents. Such costs are included in selling, general and administrative expense in the which are ofteff n variable lease payma consolidated statements of income. 69 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Certain of the Company's lease agreements provide for lease payments based on future sales volumes at the leased location, or include rental payma ents adjud sted periodically for inflation or based on an index, which are not measurable at the inception of the lease. The Company expenses such variable amounts in the period incurred, which is the period in which it becomes probable that the specifieff d target that triggers the variable lease payments will be achieved. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the reasonably certain lease term. The operating lease terms maya include options to extend or terminate the lease when it is reasonabla y certain that the Company will exercise that option or if an economic penalty may be incurred if the option is not exercised. The initial lease term of the Company’s operating leases range from two to 41 years. Where the Company's leases do not provide an implm icit rate, a collateralized incremental borrowing rate ("IBR") is ents. The IBR is based on a yield curve derived by publu icly traded bond rings for companies with similar credit characteristics that approximate the Company's market risk profilff e. In addition, ions to reflect the cost of used to determine the present value of lease payma offeff we adjud st the IBR for jurisdictional risk derived from quoted interest rates from financial institutt borrowing in the Company’s local markets. The following tabla e is a summaryrr of the Company’s components of total lease costs for fiscal year 2023 and 2022 (in thousands): Operating lease cost Short-term lease cost Variable lease cost Sublu ease income Total lease costs Years Ended August 31, 2023 2022 $ 15,753 $ 15,632 162 5,034 (91) 49 4,376 (180) $ 20,858 $ 19,877 The weighted average remaining lease term and weighted average discount rate for operating leases as of August 31, 2023 and August 31, 2022 were as follows: Weighted average remaining lease term in years Weighted average discount rate percentage Years Ended August 31, 2023 2022 17.8 6.8 % 18.3 6.7 % u Suppl (amounts in thousands): emental cash flow information related to leases under which the Company is the lessee was as follows Operating cash flows paid for operating leases Years Ended August 31, 2023 2022 $ 15,753 $ 14,885 70 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The Company is committed under non-cancelable operating leases for the rental of facilities and land. Future minimum lease commitments for facilities under these leases with an initial term in excess of one year are as follows (in thousands): Years Ended August 31, 2024 2025 2026 2027 2028 Thereafter Total future lease payma ents Less imputm ed interest Total operating lease liabilities NOTE 13 – DERIVATIAA VE INSTRUMENTS AND HEDGING ACTIVITIES $ Leased Locations 15,502 15,244 13,711 11,520 11,028 166,398 233,403 (103,587) $ 129,816 The Company is exposed to interest rate risk relating to its ongoing business operations. To manage interest rate exposure, the Company enters into hedge transactions (interest rate swaps) using derivative financial instruments. The objeb ctive of entering into interest rate swaps is to eliminate the variability of cash flows in the LIBOR or SOFR interest payments associated with variable-rate loans over the life of the loans. As changes in interest rates impam ct the future cash flow of interest payma tic offsff et to interest rate movements. ents, the hedges provide a synthet In addition, the Company is exposed to foreign currency and interest rate cash flow exposure related to non- functional currency long-termr debt of one of its wholly owned subsidiaries. To manage this foreign currency and interest rate cash flow exposure, the Company’s subsu idiaries entered into cross-currency interest rate swaps that convert their U.S. dollar denominated floating interest payments to functional currency fixed interest payma ents during the life of the hedging instrument. As changes in foreign exchange and interest rates impact the future cash flow of interest payments, the hedges are intended to offsff et changes in cash flows attributable to interest rate and foreign exchange movements. These derivative instruments (cash flow hedging instruments) are designated and qualifyff as cash flow hedges, with the entire gain or loss on the derivative reported as a component of other comprehensive loss. Amounts are deferred in other comprehensive loss and reclassified into earnings in the same income statement line item that is used to present the earnings effeff ct of the hedged item when the hedged item affeff cts earnings. The Company is exposed to foreign-currency exchange-rate fluctuations in the normal course of business, including foreign-currency exchange-rate fluctuations on U.S. dollar denominated liabilities within its international subsu idiaries whose functional currency is othet r than the U.S. dollar. The Company manages these fluctuations, in part, through the use of non- deliverabla e forward foreign-exchange contratt cts (NDFs) that are intended to offsff et changes in cash flow attributable to currency exchange movements. These contracts are intended primarily to economically address exposure to U.S. dollar merchandise inventory expenditurt es made by the Company’s international subsidiaries whose functional currency is other than the U.S. dollar. Currently, these contracts do not qualify for derivative hedge accounting. The Company seeks to mitigate foreign-currency exchange-rate risk with the use of these contracts and does not intend to engage in speculative transactions. These contracts do not contain any credit-risk-related contingent featurt es. Cash Flow Hedgesee As of August 31, 2023, all of the Company’s interest rate swap and cross-currency interest rate swap derivative as cash flow hedges. The Company formally documents the hedging financial instruments are designated and qualifyff relationships for its derivative instruments that qualifyff for hedge accounting. 71 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e summarizes agreements for which the Company has recorded cash flow hedge accounting for the twelve months ended August 31, 2023: Date Entered into 12-Apr-23 Derivative Financial Counter- party Citibank, NN.A. ("Citi") Entity Colombia subsu idiary Derivative Financial Instruments Cross curren ycy interest rate swap Initial US$ Notional Amount Bank US$ loan Held with Floating Leg (swap counter- party) Fixed Rate for PSMT Subsidiary Settlement Dates Effeff ctive Period of swap $10,000,000 PriceSmart, Inc. Colombia subsu idiary 26-Sep-22 Citibank, NN.A. ("Citi") Cross currency interest rate swap $12,500,000 PriceSmart, Inc. Colombia subsu idiary 3-May-aa 22 Citibank, NN.A. ("Citi") Cross currency interest rate swap $10,000,000 PriceSmart, Inc. Colombia subsu idiary 17-Nov-21 Citibank, NN.A. ("Citi") Cross currency interest rate swap $10,000,000 PriceSmart, Inc. 3.00% Colombia subsu idiary 03-Dec-19 Citibank, NN.A. ("Citi") Cross currency interest rate swap $7,875,000 Citibank, aa NN.A. Colombia subsu idiary 27-Nov-19 Citibank, NN.A. ("Citi") Cross currency interest rate swap $25,000,000 Citibank, aa NN.A. PriceSmart , Inc. 07-Nov-16 MUFG Union Bank, N.A. ("Union Bank") Interest rate swap $35,700,000 Union Bank Variable rate 3- month Libor pplus 2.45% Variable rate 3- month Libor pplus 2.45% Variable rate 3- month Libor pplus 1.70% 4.00% 11.40 % 11th dayyaa of each July, October, Januaryrr and April, bbegginningg on Ju yly 11, 2023 3.00% 10.35 % 24th dayaa of each December, March, June and Septembem r bbeginning December 26, 2022 3.00% 9.04 % 3rd dayaa of each May,aa April 12, 2023 - April 11, 2028 Septembem r 26, 2022 - Septembem r 24, 2024 May 3, 2022 - Mayaa 3, 2027 NNovember 17, 2021 - NNovember 18, 2024 December 3, 2019 - December 3, 2024 NNovember 27, 2019 - NNovember 27, 2024 ry, August, November and Februarr bbeginning on August 3, 2022 ry, 8.40 % 17th dayaa of each Februarr ry, May,aa August, and NNovember, beginning ry 17, 2022 on Februarr 7.87 % 3rd dayaa of each December, March, June and Septembem r bbegginningg March 3, 2020 7.93 % 27th dayaa of each NNovember, Februarr May and August bbegginningg Februarr 27, 2020 yry 3.65 % 1st day of each month beginning on April 1, 2017 March 1, 2017 - March 1, 2027 For the twelve-month periods ended August 31, 2023, 2022 and 2021, the Company included the gain or loss on the t is, variable-rate borrowings) in the same line item—imm nterest expense—as the offsff etting gain or loss on the hedged items (that related interest rate swaps as follows (in thousands): Income Statement Classification Interest expense for the year ended August 31, 2023 Interest expense for the year ended August 31, 2022 Interest expense for the year ended August 31, 2021 Interest expense on borrowings(1) Cost of swaps(2) Total $ $ $ 4,630 $ 2,577 $ 2,619 $ 1,205 $ 3,234 $ 3,655 $ 5,835 5,811 6,274 (1) This amount is representative of the interest expense recognized on the underlying hedged transactions. (2) This amount is representative of the interest expense recognized on the interest rate swaps and cross currency swaps designated as cash flow hedging instruments. 72 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The total notional balance of the Company’s pay-fixed/re// ceive-variabla e interest rate swaps and cross-currency interest rate swaps was as follows (in thousands): Floating Rate Payer (Swap Counterparty) Union Bank Citibank N.A. Scotiabaa nk Total Notional Amount as of August 31, 2023 August 31, 2022 $ $ 30,069 $ 65,599 — 31,344 66,353 8,625 95,668 $ 106,322 Derivatives listed on the tabla e below were designated as cash flow hedging instruments. The tabla e summarizes the effeff ct of the fair value of interest rate swap and cross-currency interest rate swap derivative instruments that qualifyff for derivative hedge accounting and its associated tax effeff ct on accumulated other comprehensive (income)/loss (in thousands): Derivatives designated as cash flow hedging instruments Cross-currency interest rate swaps August 31, 2023 August 31, 2022 Balance Sheet Classification Fair Value Net Tax Effeff ct Net OCI Fair Value Net Tax Effeff ct Net OCI Other current assets $ — $ — $ — $ 2,736 $ (348) $ 2,388 Cross-currency interest rate swaps Other non-current assets Cross-curren ycy interest rate swaps Other current liabilities Cross-currency interest rate swaps Other long-termr liabilities 5,574 (1,950) 3,624 10,289 (4,559) 5,730 — — — (82) (3,321) 1,162 (2,159) — 25 — (57) — Interest rate swaps NNet fair value of derivatives desiggnated as he gdgingg instruments Fair Value Instrutt mentstt Other non-current assets 2,243 (501) 1,742 1,596 (6) 1,590 $ 4,496 $ (1,289) $ 3,207 $ 14,539 $ (4,888) $ 9,651 From time to time the Company enters into non-deliverable forward foreign-exchange contratt cts. These contracts are treated for accounting purposes as fair value contracts and do not qualifyff for derivative hedge accounting. The use fof non-deliverabla e forward foreign-exchange contrat cts is intended to offsff et changes in cash flow attributable to currency exchange movements. These contratt cts are intended primarily to economically hedge exposure to U.S. dollar merchandise r than the U.S. inventoryy expenditurt es made yby the Companyy’s international subsidiaries whose functional curren ycy is othet dollar. 73 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla e summarizes the non-deliverable forward foreign exchange contrat cts that are open as fof Auggust 31, 2023: Financial Derivative (Counterparty) Dates Entered into (Range) Derivative Financial Instrument Total Notional Amounts (in thousands) Settlement Dates (Range) Subsidiary Scotiabaa nk Colpatria, S.A. Colomb aia 11-Jan-2023 - 19-Jul-2023 Citibank, N.A. ("Citi") Colomb aia 18-Jan-2023 - 31-Aug-2023 Forward foreign exchangge contratt cts (USD) Forward foreign exchange contratt cts (USD) $ $ 8,500 8-Sep-2023 - 24-Jan-2024 13,000 18-Sep-2023 - 24-Apr-2024 rr Forward derivative gains and (losses) on non-deliverabla e forward foreign-exchange contracts are included in Othet income (expense), net in the consolidated statements of income in the period of changge, but the amounts were immaterial forr the twelve months ended Auggust 31, 2023, 2022, and 2021. NOTE 14 – RELATEDAA -PARPP TYRR TRANRR SACTIONS Relationships with Edgad r Zurcher: Mr. Zurcher is also a director of a company that owns 40% of Paylaa ess ShoeSource Holdings, Ltd., which rents retail space from the Company. The Company recorded approximately $718,000, $927,000, and $1.4 million in rental income for this space during the fiscal years ended 2023, 2022 and 2021. Additionally,yy Mr. Zurcher is a director of Molinos de Costa Rica S.A. The Company paid approximately $1.9 million for producd ts purchased from this entity for the fiscal year ended August 31, 2023, and $1.1 million for products purchased for each of the fiscal years ended August 31, 2022, and 2021, respectively. tt e Orgar nizaii Relationshipi s with Price Family Charitabl tions: During the years ended August 31, 2023, 2022 and 2021, the Company sold approximately $1.0 million, $438,000, and $1.6 million, respectively, of suppu lies to Price Philanthropies Foundation. Robert Price, Chairman of the Company's Board of Directors and Interim Chief Executive Offiff cer of the Company, is the Chairman of the Board and President of the Price Philanthropies Foundation. Sherry S. Bahrambeygui, a director of the Company, serves as a director of the Board of the Price Philanthropies Foundation. Jeffreff y R. Fisher, a director of the Company, serves as the Chief Financial Offiff cer and as a director of the Board of the Price Philanthropies Foundation. David Price, a director and the Executive Vice President and Chief Transforff mar tion Offiff cer of the Company, serves as a Vice President and a Vice Chair of the Board of the Price Philanthropies Foundation. Relationship with Golf Park Plazl a, S.A.: Golf Park Plaza, S.A. is a real estate joint venturt e located in Panama, entered by the Company in 2008 (see Note 15 - Unconsolidated Affiff liate). On Decembem r 12, 2013, the Company entered into a lease agreement for approximately 17,976 square feet (1,670 square meters) of land with Golf Park Plaza, S.A. upon which the Company construcr ted its central offiff ces in Panama. The lease term is for 15 years with three options to renew for five years each at the Company's discretion. On July 14, 2017, the Company entered into a lease agreement for approximately 2,992 squaq re feet (278 squaq re meters) of a building with Golf Park Plaza, S.A. for warehouse storage space. The agreement was recently renewed for an additional five years during fiscal year 2022. Combined, the Company recognized $140,000 in rent expense for the fiscal year ended August 31, 2023, $149,000 in rent expense for the fiscal year ended August 31, 2022, and $149,800 in rent expense for the fiscal year ended August 31, 2021. Relationshipi with Robert Price: On Februarr ry 3, 2023, Robert E. Price, a Company founder and Chairman of the Board, became Interim Chief Executive Offiff cer. Mr. Price has elected not to receive compensation for his role as Interim Chief Executive Offiff cer. Thereforff e, the financial statements do not include compensation charges for his services. We have estimated the fair value of these services, based on a number of factors, to be approximately $5.1 million on an annual basis. We acknowledge that this maya not be representative of what ultimately could be the cost to the Company when a replacement Chief Executive Offiff cer is hired. 74 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS NOTE 15 – UNCONSOLIDATEDAA AFFILIATES The Company determines whether any of the joint venturtt es in which it has made investments is a Variable Interest Entity (“VIE”) at the start of each new venturt e and if a reconsideration event has occurred. At this time, the Company also considers r it must consolidate a VIE and/or disclose information about its involvement in a VIE. A reporting entity must consolidate whethet a VIE if that reporting entity has the power to direct the VIE’s activities that most significff antly impact the VIE’s economic perforff mance and has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The reporting entity that consolidates a VIE is called the primary beneficiaryrr of that VIE. In 2008, the Company entered into real estate joint venturt es to jointly own and operate separate commercial retail centers adjad cent to warehouse clubs in Panama (GolfParkr Plaza, S.A.) and Costa Rica (Price Plaza Alajuela PPA,PP S.A.). Due to the initial nature of the joint ventut res and the continued commitments for additional financing, the Company determined these joint venturt es are VIEs. Since all rights, obligations and the power to direct the activities of a VIE that most significff antly impam ct the VIE's nce is shared equaq lly by botht parties within each joint venturtt e, the Company has determined that it is not the economic perforff mar primary beneficiary of the VIEs and, thereforff e, has accounted for these entities under the equity method. Under the equiq ty method, the Company's investments in unconsolidated affilff iates are initially recorded as an investmet nt in the stock of an investee at cost and are adjud sted for the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee afteff r the date of the initial investment. On December 12, 2013, the Company entered into a lease agreement for approximately 17,976 squaq re feet (1,670 squaq re meters) of land with Golf Park Plaza, S.A. upon which the Company construcr tion of the offiff ces was completed in October 2014. The lease term is for 15 years with three options to renew for five years each at the Company's discretion. On July 14, 2017, the Company entered into a lease agreement for approximately 2,992 squaq re feet (278 square meters) of a building with Golf Park Plaza, S.A. for warehouse storage space. The agreement was recently renewed for an additional five years during fiscal year 2022. Combined, the Company recognized $140,000 in rent expense for the fiscal year ended August 31, 2023, $149,000 in rent expense for the fiscal year ended August 31, 2022, and $149,800 in rent expense for the fiscal year ended August 31, 2021. ted its central offiff ces in Panama. Construcrr The tabla e below summarizes the Company’s interest in these VIEs and the Company’s maximum exposure to loss as a result of its involvement with these VIEs as of August 31, 2023 (in thousands): Entity % Ownership Initial Investment Additional Investments Net Income (Loss) Inception to Date Company’s Variable Interest in Entity Commitment to Future Additional Investments(1) Company's Maximum Exposure to Loss in Entity(2) GolfPaff rk Plaza, S.A. 50 % $ 4,616 $ 2,402 $ (98) $ 6,920 $ 99 $ 7,019 Price Plaza Alajuela PPA,PP S.A. Total 50 % 2,193 1,236 130 3,559 785 4,344 $ 6,809 $ 3,638 $ 32 $ 10,479 $ 884 $ 11,363 (1) The parties intend to seek alternate financing for the project, which could reduce the amount of investments each party would be required to provide. The parties may mutually agree on changes to the project, which could increase or decrease the amount of contributions each party is required to provide. (2) The maximum exposure is determined by adding the Company’s variable interest in the entity and any explicit or implicit arrangements that t. could require the Company to provide additional financial suppor u 75 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The summarized financial information of the unconsolidated affiff liates is as follows (in thousands): Current assets NNoncurrerr nt assets Current liabilities NNoncurrerr nt liabilities August 31, 2023 August 31, 2022 $ $ $ $ 1,654 $ 10,324 $ 158 $ 9 $ 1,839 10,109 175 8 Years Ended August 31, 2023 2022 2021 PriceSmart’s share of the net loss of unconsolidated affiff liates $ (55) $ (10) $ (58) NOTE 16 – SEGMENTS that are located in Centratt The Company and its subsidiaries are principally engaged in the international operation of membership shopping in 51 warehouse clubs located in 12 countries and one U.S. territoryrr l America, the Caribbean and Colombia. In addition, the Company operates distribution centers and corporate offiff ces in the United States. The Company has aggregated its warehouse clubs, distribution centers and corporate offiff ces into reportable segments. The Company’s reportable segments are based on management’s organization of these locations into operating segments by general geographa ic location, which are used by management in setting up management lines of responsibility,yy providing support services, and making operational decisions and assessments of financial perforff mance. Segment amounts are presented afteff r converting to U.S. dollars and consolidating eliminations. Certain revenues, operating costs and inter-company charges included in the United States segment are not allocated to the segments within this presentation, as it is impractical to do so, and they appear as reconciling items to reflect the amount eliminated on consolidation of intersegment transactions. From time to time, the Company revises the measurement of each segment's operating income and net income, including certain corporate overher ad allocations, and other measures as determined by the information regularly reviewed by management. When the Company does so, the previous period amounts and balances are reclassified to conforff m to the current period's presentation. 76 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) The following tabla es summarize by segment certain revenues, operating costs and balance sheet items (in thousands): Year Ended August 31, 2023 Revenue from external customers $ 31,741 $ 2,671,083 $ 1,269,307 $ 439,711 $ — $ 4,411,842 United States Operations Central American Operations Caribbean Operations(1) Colombia Operations Reconciling Items(2) Total Intersegment revenues Depreciation, Property and equipment Amortization, Intangibles Operating income (loss) Interest income from external sources Interest income from intersegment sources Interest expense from external sources Interest expense from intersegment sources Provision (benefit)ff for income taxes NNet income attributable to PriceSmart, Inc. Long-lived assets (other than deferred tax assets) Goodwill Investment in unconsolidated affiliaff tes Total assets Capiaa tal expenditures, net Year Ended August 31, 2022 1,538,588 5,482 765 29,844 3,604 2,454 1,165 75 23,283 9,540 71,919 8,981 — 302,115 10,204 27,709 37,053 — 191,721 3,977 1,603 2,664 1,258 28,045 159,014 566,139 24,083 10,479 995,881 79,526 5,621 19,188 — 87,223 2,135 253 3,251 1,041 9,873 68,635 210,000 10,046 — 425,145 24,234 4,466 10,210 — 15,467 155 — 3,940 1,939 (1,250) 11,755 205,295 — — 282,467 29,948 (1,576,384) — — (139,739) — (4,310) — (4,313) — (139,739) — — — — — — 71,933 765 184,516 9,871 — 11,020 — 59,951 109,205 1,053,353 43,110 10,479 2,005,608 143,912 Revenue from external customers $ 48,716 $ 2,382,163 $ 1,156,607 $ 478,607 $ — $ 4,066,093 Intersegment revenues Depreciation, Property and equipment Amortization, Intangibles Operating income (loss) Interest income from external sources Interest income from intersegment sources Interest expense from external sources Interest expense from intersegment sources Provision for income taxes NNet income attributable to PriceSmart, Inc. Long-lived assets (other than deferred tax assets) Intangibles, net Goodwill Investment in unconsolidated affiliaff tes Total assets Capiaa tal expenditures, net Year Ended August 31, 2021 1,492,648 4,719 1,613 23,364 147 1,789 1,225 27 19,629 8,292 70,978 765 8,981 — 230,411 5,119 22,119 34,155 — 171,119 1,115 1,954 3,107 1,187 23,396 144,159 498,204 — 24,250 10,534 867,898 46,959 5,857 17,061 — 79,022 863 255 2,163 1,821 8,106 62,799 218,021 — 10,072 — 474,411 36,610 3,600 10,320 — 22,526 76 — 3,116 899 727 18,268 175,194 — — — 235,680 33,654 (1,524,224) — — (128,965) — (3,998) — (3,934) — (128,984) — — — — — — — 66,255 1,613 167,066 2,201 — 9,611 — 51,858 104,534 962,397 765 43,303 10,534 1,808,400 122,342 Revenue from external customers $ 88,397 $ 2,105,856 $ 1,004,793 $ 420,825 $ — $ 3,619,871 Intersegment revenues Depreciation, Property and equipment Amortization, Intangibles Operating income (loss) Interest income from external sources Interest income from intersegment sources Interest expense from external sources Interest expense from intersegment sources Provision for income taxes NNet income (loss) attributable to PriceSmart, Inc. Long-lived assets (other than deferred tax assets) Intangibles, net Goodwill Investment in unconsolidated affiliaff tes Total assets Capiaa tal expenditures, net 1,280,236 6,970 2,404 12,687 13 2,130 1,606 34 15,919 (4,777) 79,404 7,762 10,695 — 246,896 9,061 17,861 31,319 — 151,933 878 2,393 2,831 1,286 22,661 127,879 490,099 — 24,332 10,544 795,940 45,524 77 5,087 15,432 — 74,769 985 483 427 2,647 8,006 61,025 197,030 — 10,068 — 434,428 23,342 3,869 8,858 — 21,932 103 — 2,346 298 2,383 17,333 164,970 — — — 228,526 28,181 (1,307,053) — — (103,301) — (5,006) — (4,265) — (103,497) — — — — — — — 62,579 2,404 158,020 1,979 — 7,210 — 48,969 97,963 931,503 7,762 45,095 10,544 1,705,790 106,108 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) (1) Management considers its club in the U.S. Virgin Islands to be part of its Caribbean operations. (2) The reconciling items reflect the amount eliminated on consolidation of intersegment transactions. NOTE 17 – SUBSEQUENT EVENTS The Company has evaluated all events subsu equeq nt to the balance sheet date of August 31, 2023 through the date of issuance of these consolidated financial statements and has determined that there are no subsequeq nt events that require disclosure. 78 PRICESMART,TT INC. NOTES TO CONSOLIDATED FINANCIAL STATTT EMENTS—(Continued) Market for Registrant’s Common Equity,yy Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common stock has been quoted and traded on the NASDAQ Global Select Market under the symbol “PSMT” since Septembem r 2, 1997. As of October 25, 2023, there were approximately 385 holders of record of the common stock. This number does not include beneficff ial owners whose shares were held in street name. 2023 FISCAL QUARTERR RS First Quarter Second Quarter Third Quarter Fourth Quarter 2022 FISCAL QUARTERR RS First Quarter Second Quarter Third Quarter Fourth Quarter Dates Stock Price From To High Low 9/1/2022 12/1/2022 3/1/2023 6/1/2023 9/1/2021 12/1/2021 3/1/2022 6/1/2022 11/30/2022 $ 73.76 $ 2/28/2023 5/31/2023 8/31/2023 75.92 79.55 82.63 11/30/2021 $ 86.16 $ 2/28/2022 5/31/2022 8/31/2022 76.13 88.30 74.74 56.29 60.01 66.54 69.08 70.10 66.77 69.53 63.14 Recent Sales of Unregistered Securities In Septembem r 2022, the Company issued restricted stock awards (RSAs) and perforff mance stock units (PSUs) covering 156,225 shares of the Company’s common stock, $0.0001 par value per share. The RSAs and PSUs were issued from the pool of shares availabla e for issuance under the Company’s Amended and Restated 2013 Equity Incentive Award Plan, as amended. The securities were exemptm from registration under the Securities Act of 1933, as amended (the "Securities Act") in reliance upon Section 4(a)(2) of the Securities Act as transactions not involving any public offeff ring. The recipients of the securities in each of these transactions are accredited investors, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequaq te access, through their relationships with us, to information about the Company. Resale of these shares by the holders has since been registered under the Securities Act. 79 Performance Graph The graph below matches PriceSmart, Inc.'s cumulative 5-Year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index and the NASDAQ Retail Trade index. The graph tracks the perforff mance of a $100 investment in our common stock and in each index (with the reinvestmet nt of all dividends) from 8/31/2018 to 8/31/2023. PriceSmart, Inc. NASDAQ Composite S&P 500 Consumer Discretionary Distribution & Retail 100.00 100.00 100.00 70.41 99.28 97.84 77.46 148.26 152.00 100.44 193.47 171.71 76.06 150.92 137.10 96.72 180.87 156.33 8/18 8/19 8/20 8/21 8/22 8/23 The stock price perforff mance includeddd in this graph is not necessarily indicative of fuff ture stock price perforff mance. 80 Dividends The following tabla e summarizes the dividends declared and paid during fiscal years 2023, 2022 and 2021 (amounts are per share): Declared 2/3/2023 2/3/2022 2/4/2021 First Payment Second Payment Amount $ $ $ 0.92 0.86 0.70 Record Date 2/16/2023 2/15/2022 2/15/2021 Date Paid 2/28/2023 $ 2/28/2022 $ 2/26/2021 $ Amount 0.46 0.43 0.35 Record Date 8/15/2023 8/15/2022 8/15/2021 Date Paid 8/31/2023 $ 8/31/2022 $ 8/31/2021 $ Amount 0.46 0.43 0.35 The Company anticipates the ongoing payment of semi-annual dividends in subsu equent periods, although the actual declaration of future dividends, if any, the amount of such dividends, and the establa ishment of record and payment dates is subject to final determination by the Board of Directors at its discretion afteff nce and anticipated capia tal requirements, taking into account the uncertain macroeconomic conditions on our results of operations and cash flows. r its review of the Company’s financial perforff mar Repurchase of Equity Securities Upon vesting of restricted stock awarded by the Company to employees, the Company repurchases shares and withholds the amount of the repurchase payment to cover employees’ tax withholding obligations. Additionally,yy we announced in July 2023 that the Board of Directors authorized a program to repurchase up to $75 million of our common stock. Subsu equeq nt to our fiscal year that ended on August 31, 2023, we successfulff ly completed the share repurchase program. We purchased a total of approximately 1,007,000 shares of our common stock under the program. The repurchases were made on the open market pursuant to a trading plan establa ished pursuant to Rule 10(b)5-1 under the Securities Exchange Act of 1934, as amended, which permits common stock to be repurchased at a time that we might otherwise be precluded from doing so under insider trading laws or self-iff mposed trading restrictions. We do not expect to continue repurchases or adopt a new repurchase plan at this time. However, the Board of Directors could choose to commence another program in the future, at its discretion, afteff r its review of the Company’s financial perforff mance and anticipated capia tal requirements. 81 The following tabla e sets fortht information on our common stock repurchase activity for the fiscal year 2023 (dollars in thousands, except per share data): Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs —— —— —— —— —— —— —— —— —— —— —— 71,530 $ 71,530 —— —— —— —— —— —— —— —— —— —— —— 69,382 Total Number of Shares Purchased Average Price Paid Per Share —— $ 20,621 —— —— 20,329 40,895 774 526 1,094 —— 2,650 84,639 171,528 $ — 63.05 — — 71.42 75.00 70.15 74.90 73.52 — 78.61 78.71 74.99 Period Septembem r 1, 2022 - Septembem r 30, 2022 October 1, 2022 - October 31, 2022 NNovember 1, 2022 - November 30, 2022 Decembem r 1, 2022 - Decembem r 31, 2022 Januaryrr 1, 2023 - January 31, 2023 ry 1, 2023 - Februarr Februar March 1, 2023 - March 31, 2023 April 1, 2023 - April 30, 2023 May 1, 2023 - May 31, 2023 June 1, 2023 - June 30, 2023 July 1, 2023 - July 31, 2023 August 1, 2023 - August 31, 2023 Total ry 28, 2023 82 ADDITIONAL INFORMATION Corporate Offiff ces 9740 Scranton Road San Diego, CA 92121 (858) 404-8800 Stock Exchange Listing NASDAQ Global Select Market Stock Symbol: PSMT Annual Meeting (cid:55)(cid:75)(cid:88)(cid:85)sday, February 1, 2024 at (cid:27):30 (cid:68)(cid:17)(cid:80)(cid:17) (cid:38)(cid:17)(cid:54)(cid:17)(cid:55)(cid:17) (cid:71) (cid:43)(cid:72)(cid:79)(cid:71) (cid:89)(cid:76)(cid:68)(cid:3)(cid:79)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:69)(cid:70)(cid:68)(cid:86)(cid:87)(cid:29) (cid:75)(cid:87)(cid:87)(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90)(cid:17)(cid:89)(cid:76)(cid:85)(cid:87)(cid:88)(cid:68)(cid:79)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:51)(cid:54)(cid:48)(cid:55)(cid:21)(cid:19)(cid:21)(cid:23) Transferff Agent Computershare Inc. 462 South 4th Street, Suite 1600 Louisville, KY,YY 40202 Telephone: (888) 867-6003 TDD for Hearing Impaired: (800) 490-1493 Outside U.S.: (201) 680-6578 Independent Registered Public Accounting Firm Ernst & Young U.S. LLP 4365 Executive Drive, Suite 1600 San Diego, CA 92121 PriceSmart's annual reports to the Securities and Exchange Commission on Form 10-K and any quarterly reports on Form 10-Q, as amended, will be provided free of charge upon written request to Investor Relations, PriceSmart, Inc., 9740 Scranton Road, San Diego, CA 92121. Internet users can access PriceSmart's web site at http://www.investors.pricesmart.com. 83 DIRECTORS & OFFICERS OF PRICESMART,TT INC. As of December 19, 2023 , Robert E. Price David R. Snyder Sherry S. Bahrambeygui Jeffreff y Fisher Gordon H. Hanson Beatriz V. Infante Leon C. Janks Patricia Márquez David N. Price John D. Thelan Edgar Zurcher Chairman Vice Chairman & Lead Independent Director Director Director Director Director Director Director Director Director Director Robert E. Price John D. Hildebrandt Michael L. McClearyrr Francisco Velasco Ana Luisa Bianchi Rodrigo Calvo Brudr E. Drachman Diana Pacheco David N. Price Wayne Sadin Laura Santana Christopher Souhrada Jesus Von Chong George Burkle Eduardo Franceschi Robert Johnson Patricia M. Klassen Paul Kovaleski Dhanraja Mahabia r Wende Oliverio Atul Patel Rafael Rodriguez Eric Torres Melissa Twohey John Wang Pedro Vera Alma Adajar-Aban Guadalupe Cefalu David Hahn Andres Ortiz Briana Anderson Adriana Betancur Alexa Bodden Interim Chief Executive Offiff cer President & Chief Operating Offiff cer Executive Vice President & Chief Financial Offiff cer Executive Vice President – General Counsel, Chief Ethics & Compliance Offiff cer and Corporate Secretaryrr Executive Vice President – Chief Merchandising Offiff cer Executive Vice President – Real Estate Executive Vice President – Environmental Responsibility,yy Construcrr Facilities Executive Vice President – Human Resources Executive Vice President – Chief Transforff mation Offiff cer Executive Vice President – Chief Information Offiff cer Executive Vice President – Information Technology Executive Vice President – Club Operations Executive Vice President – Regional Merchandising tion & Senior Vice President – US Export Sales Senior Vice President – Regional Operations Senior Vice President – IT Service Delivery Senior Vice President – Deputy General Counsel and Assistant Corporate Secretaryrr Senior Vice President – Merchandising Senior Vice President – Suppl Senior Vice President – Finance Senior Vice President – Treasurer Senior Vice President – Logistics & Distribution Senior Vice President – Facilities Maintenance & Equipment Senior Vice President – Merchandising – Corporate Foods Senior Vice President – Payment Solutions Senior Vice President – Regional Operations y Chain Management u First Vice President – Internal Audit and Controls First Vice President – Forecasting & Planning First Vice President – IT Client Services Logistics First Vice President – Compensation & Benefits and HR Operations Vice President – Buying Non-Foods Vice President – Buying Vice President – Club Member Services 84 Alonso Castro Gustavo Camacho Juliana Correa Sergio Cuevas Jonathan Darcangelo George Dawson Gerardo Delgado Andrea De Lima José Antonio Esquivel Daniel Fairbar nks Michael Mahler Terrance Mahon Lorely Marte Samantha Mejiae Jonathan Mendoza Hana Nizel Kelly Orme Dennis Palma Meshach Ramkissoon Emma Reyes Ronald Rodriguez Christina Santmyre Matthew Schifferff Marco Torres Robert Uno Vice President – Legal Vice President – Wellness Vice President – Membership Vice President – Regional Operations Vice President – Other Business Vice President – E-Commerce Vice President – Software Architecture Vice President – Regional Counsel Vice President – Infrastructure Vice President – Private Labea l Vice President – E-Commerce Vice President – Human Resources Business Partner Vice President – Payments Vice President – Merchandising Regulatoryrr Vice President – Construcrr Vice President – Merchandising, Corporate Fresh Foods Vice President – Buying Non-Foods Vice President – Business Services Vice President – Merchandising, Regional Fresh Foods Vice President – International Logistics & Trade Compliance Vice President – Logistics, Planning & Implm ementation Vice President – Buying Non-Foods Vice President – Transportation Vice President – Operations Vice President – Information Security tion & Facilities 85 [THIS PAGE INTENTIONALLY LEFT BLANKAA ] [THIS PAGE INTENTIONALLY LEFT BLANKAA ] [THIS PAGE INTENTIONALLY LEFT BLANKAA ] 

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