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HomeAll NewsMost read newsBusiness Leaders Biography
Age : 53
Public asset : 72,367,408 USD
Biography : Currently, Mark D. McLaughlin is Chairman for QUALCOMM, Inc.
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PRICESMART : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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10/30/2020 | 06:17am EDT
The following discussion and analysis and the information under the heading Part
II. "Item 6. Selected Financial Data" 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. Forward-looking statements
concerning PriceSmart, Inc.'s ("PriceSmart", the "Company" or "we")
anticipated future revenues and earnings, adequacy of future cash flows,
omni-channel initiatives, proposed warehouse club openings, the Company's
performance relative to competitors and related matters. These forward-looking
statements include, but are not limited to, statements containing the words
"expect," "believe," "will," "may," "should," "project," "estimate,"
"anticipated," "scheduled," and like expressions, and the negative thereof.
These statements are subject to risks and uncertainties that could cause actual
results to differ materially including, but not limited to the risks detailed in
this Annual Report on Form 10-K under the heading Part I. "Item 1A. Risk
Factors."  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. In
addition, these risks are not the only risks that the Company faces. The Company
could also be affected by additional factors that apply to all companies
operating globally and in the U.S., as well as other risks that are not
presently known to the Company or that the Company currently considers to be
immaterial.

Overview

PriceSmart, headquartered in San Diego, 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 46
warehouse clubs in 12 countries and one U.S. territory (eight in Costa Rica;
seven each in Colombia and Panama; five in the Dominican Republic, four
in Trinidad and Guatemala; three in Honduras; two each in El
Salvador and Nicaragua; and one each in Aruba, Barbados, Jamaica and the United
States Virgin Islands). The Company is currently constructing and plans to open
a warehouse club in Bogota, Colombia in December 2020. 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.

Factors Affecting the Business

COVID-19 Updates


The COVID-19 pandemic resulted in significant challenges across our 13 markets
in the third and fourth quarters of fiscal 2020. Many markets imposed
limitations, varying by market and in frequency, on access to the Company's
clubs and on the Company's club operations, including in some cases frequent
temporary club closures, a reduction in the number of days during the week and
hours per day the Company's clubs are permitted to be open, restrictions on
segments of the population permitted to shop or circulate on particular days,
and limits on the number of people permitted to be in the club at the same time.
We have also experienced product mix shifts due to changing consumer habits,
decreases in purchases by many business members, particularly restaurants and
hotels, as well as sporadic supply chain challenges, which can impact inventory
levels. In response, early in calendar year 2020 we identified four main
priorities:

Protect the safety and well-being of our employees and our members. We remain
vigilant and continue to take proactive measures to provide a safe environment
for our employees and our members. We are closely tracking numerous decrees and
government mandates and are following all local guidelines. We have taken
preventative measures that include frequent and enhanced cleaning and sanitizing
protocols, providing personal protective equipment, installing protective
barriers for the cashiers and in other member-facing areas, implementing social
distancing measures, metering the number of customers in a club at any one time,
requiring masks to be worn by members in the club (where legally permitted),
taking temperatures of employees at the beginning of shifts, quickly identifying
and cooperating with local health officials about confirmed cases, promptly
implementing contact tracing protocols and mapping of potentially exposed
employees who are then immediately quarantined while continuing to be paid,
directing employees whose functions could be performed remotely to work off
site, offering vulnerable employees with underlying health conditions, employees
over 60 and pregnant employees paid leave and vigilantly educating our employees
about safe practices and enforcing best practices of good hygiene. We have also
expanded our efforts to educate family members of employees about safe practices
and to provide them with masks and sanitizing materials. We have modified our
sick leave policy to make sure that sick people can take paid time off. We have
built reserve teams of employees who do not overlap with each other so that they
can step in as needed. In the initial months of the pandemic, we reduced or
eliminated in-club food service and food sampling; however, later in the fiscal
year as infection rates decreased and restrictions eased, we resumed some
limited seating and capacity in-club food service in some of our markets and we
have begun to reintroduce sampling incrementally using hygienic methods.

Take proactive measures to protect our supply chain. We are working closely with
our suppliers to make sure that we have essential items available for our
members. This includes increasing the use of our regional and local distribution
centers and

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merchandise vendors to provide additional flexibility and reduce the risk of
interruption of the flow of merchandise to our markets. We have also placed
limits on the quantity of certain key items that members can purchase, such as
cleaning supplies, paper products and core shelf-stable groceries. We have also
activated alternative distribution systems and routing to ensure optionality in
the event of outbreak or restrictions on mobility in certain geographic areas.

Expand technology-enabled shopping. During the third fiscal quarter of 2020, we
launched our Click & Go™ curbside pickup service to allow for a contactless way
for our members to shop. As of August 31, 2020, we offered the Click & Go™
curbside pickup service in all 13 of our markets. Early in our fourth fiscal
quarter, we also added delivery to our Click & Go™ service, which was available
in six of our 13 markets as of August 31, 2020 and expanded into further markets
in early fiscal 2021. These services provide an alternative and convenient way
for our members to shop, while reducing physical contact. Our Click & Go™
service enables members to use our e-commerce platform to identify and select
merchandise, order and pay online, and then have their orders placed in their
cars at their chosen clubs or delivered to their homes or place of business. We
continue to work on improving and expanding our online initiatives, including
order fulfillment, in conjunction with optimizing our club operations to allow
members to shop safely, quickly and efficiently.

Manage cash and capital resources. Given the uncertainty surrounding the
potential impact of the outbreak on our results of operations and cash flows, we
are taking steps to secure and preserve available cash. Initially, we suspended
most of our capital projects and discretionary spending. As we closely monitored
and better understood the risks and opportunities of operating in this climate,
we restarted several of our previously postponed investments. We opened our
smaller format warehouse club in Liberia, Costa Rica in June 2020, and we have
resumed construction on our third club in the greater metropolitan area of
Bogota, the eighth in Colombia, which is expected to open in December 2020. We
continue to evaluate whether and when to restart previously announced
construction of future warehouse clubs on land that we acquired in Bucaramanga,
Colombia and in Jamaica, as well as other capital projects. In the third quarter
of fiscal 2020, we initially furloughed approximately 80 employees in the United
States and implemented temporary salary reductions for employees and executives
above a certain income level on a tiered basis increasing from 10% to 30% based
on compensation level. Additionally, the Board of Directors waived their cash
compensation for the calendar quarter ended June 30, 2020. In late fourth
quarter of fiscal 2020, we ended the furloughs and discontinued the temporary
salary reductions. Based on Company performance, at the end of the fourth
quarter we paid a special bonus for all employees up to and including Senior
Vice Presidents who had their salaries reduced. In addition, in the first
quarter of fiscal year 2021, the Board approved the restoration of their
compensation for the quarter for which they had previously waived it.
Furthermore, we initially negotiated extended payments with our vendors, but
since then we have begun to return to more normal payment term arrangements.
Lastly, we have taken advantage of tax deferral arrangements where available. In
the current environment, we believe cash flows from operations, our current cash
position and access to capital markets will continue to be sufficient to meet
our anticipated operating cash needs, which include any deferred liabilities,
funding seasonal buildups in merchandise inventories and funding our capital
expenditures, dividend payments and other financing requirements. Refer to Part
II. "Item 7. Management's Discussion and Analysis - Liquidity and Capital
Resources" for additional information.

We expect continued uncertainty and opportunities in the economies of our
markets because of the unpredictability of the duration and intensity of the
COVID-19 pandemic and the length and impact of stay-at-home orders and other
restrictions; volatility in employment trends and consumer confidence;
volatility in foreign currency exchange rates and commodity prices; and possible
fiscal austerity measures taken by governments in our markets, which will likely
impact our results in the near future.

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


Our sales and profits vary from market to market depending on general economic
factors, including GDP growth; consumer preferences; foreign currency exchange
rates; political policies and social conditions; local demographic
characteristics (such as population growth); the number of years we have
operated in a particular market; and the level of retail and wholesale
competition in that market. The economies of many of our markets are dependent
on foreign trade, tourism, and foreign direct investments. The global and local
travel restrictions and general slow-down in global economic activity as result
of COVID-19 have significantly impacted and may continue to impact the economies
our markets causing significant declines in GDP and employment and devaluations
of local currencies against the U.S. dollar. In general, positive conditions in
the broader economy promotes member spending in our warehouse clubs, while
economic weakness, which generally results in a reduction of customer spending,
may have a different or more extreme effect on spending at our clubs.

Currency fluctuations can be one of the largest variables affecting our overall
sales and profit performance, as we have experienced in prior fiscal years,
because many of our markets are susceptible to foreign currency exchange rate
volatility. During fiscal 2020, approximately 77.5% of our net merchandise sales
were in currencies other than the U.S. dollar. Of those sales, 48.2% were
comprised of sales of products we purchased in U.S. dollars.

A devaluation of local currency reduces the value of sales and membership income
that is generated in that country when translated to U.S. dollars for our
consolidated results. In addition, when local currency experiences devaluation,
we may elect to increase the local currency price of imported merchandise to
maintain our target margins, which could impact demand

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for the merchandise affected by the price increase. We may also modify the mix
of imported versus local merchandise and/or the source of imported merchandise
to mitigate the impact of currency fluctuations. Information about the effect of
local currency devaluations is discussed in Part II. "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Net
Merchandise Sales and Comparable Sales."

Our capture of total retail and wholesale sales can vary from market to market
due to competition and the availability of other shopping options for our
members. Demographic characteristics within each of our markets can affect both
the overall level of sales and future sales growth opportunities. Island
countries such as Aruba, Barbados and the U.S. Virgin Islands offer us limited
upside for sales growth given their overall market size. Countries with smaller
upper and middle class consumer populations, such as Honduras, El Salvador,
Jamaica and Nicaragua, offer growth potential but may have a more limited market
opportunity for sales growth as compared to more developed countries with larger
or growing upper and middle class consumer populations.

The membership model is a basic and critical operating characteristic in the
warehouse club industry that enables us to operate our business on lower
margins because of the membership fee income generated. Our twelve-month renewal
rate was 80.5% as of August 31, 2020, a decline from our 85.7% renewal rate as
of August 31, 2019. The mobility restrictions imposed by the local governments
in our markets in response to COVID-19, particularly in our Colombian and
Central American markets, significantly reduced in-club visits, which is when
most of our membership renewals occur.

Political and other factors in each of our markets may have significant effects
on our business. U.S. foreign policy can also have an impact on social and
economic stability in the countries where we operate. For example, the U.S.
State Department has announced varying strategies regarding if, when and how it
would authorize disbursement of foreign aid that had been previously approved by
the U.S. Congress to Guatemala, Honduras and El Salvador. Changes in U.S.
policies regarding financial assistance could cause political or financial
instability in the countries we serve.

In the past, we have experienced a lack of availability of U.S. dollars in
certain markets (U.S. dollar illiquidity), particularly in Trinidad. This can
impede our ability to convert local currencies obtained through merchandise
sales into U.S. dollars to settle the U.S. dollar liabilities associated with
our imported products, or otherwise redeploy these funds in our Company,
increasing our foreign exchange exposure to any devaluation of the local
currency relative to the U.S. dollar. We continued to experience limitations on
our ability to convert Trinidad dollars to U.S. dollars or other tradeable
securities during fiscal 2020, with a further deterioration and the problem
becoming more acute in August 2020 and into the first two months of fiscal year
2021. We are working with our banks in Trinidad to source tradeable currencies,
but until more U.S. dollars or other tradeable securities become available, this
illiquidity condition is likely to continue. As of August 31, 2020, our Trinidad
subsidiary had Trinidad dollar denominated cash and cash equivalents and short
and long-term investments measured in U.S. dollars of approximately $79.6
million, an increase of $54.7 million from August 31, 2019 when these same
balances were approximately $24.9 million. The Trinidad central bank manages the
exchange rate of the Trinidad dollar with the U.S. dollar. While the recently
elected government has publicly stated it has no intention to devalue the
Trinidad dollar, the Trinidad government could in the future decide to devalue
the currency to improve market liquidity, resulting in a devaluation in the U.S.
dollar value of these cash and investments balances. If, for example, a
hypothetical 20% devaluation of the Trinidad dollar were to occur, the value of
our Trinidad dollar cash and investments position, measured in U.S. dollars,
would decrease by approximately $15.9 million, with a corresponding increase in
Accumulated other comprehensive loss reflected on our consolidated balance
sheet. Separate from the Trinidad dollar denominated cash and investments
balances described above, as of August 31, 2020, we had a U.S. dollar
denominated monetary asset position of approximately $4.8 million in Trinidad
(net of U.S. dollar denominated liabilities) that would produce a gain from a
potential devaluation of Trinidad dollars. If, for example, a hypothetical 20%
devaluation of the Trinidad dollar occurred, the net effect on Other income
(expense), net on our consolidated statement of operations of revaluing these
U.S. dollar denominated net monetary assets would be an approximate $1.0 million
gain. However, following a significant additional decline of U.S. dollar
liquidity beginning in August 2020 and continuing into fiscal year 2021, this
net monetary asset position has shifted into a liability position in early 2021,
subjecting us to potential future losses in the case of a devaluation, which
would be recorded in Other income (expense), net on our consolidated statement
of operations.

We are carefully monitoring the situation and taking steps to mitigate the
risks. For example, as liquidity conditions have tightened, we have methodically
raised prices, initially on imported goods, and have sought to shift the
purchase of goods to local sources, where appropriate. Additionally, we are
actively monitoring our ability to exchange Trinidad dollars for tradeable
currencies, in order to manage our exposure to any potential devaluation, and in
early fiscal 2021 have begun to limit shipments of goods from the U.S. to
Trinidad in line with this ability. These actions may result in a decrease in
our sales and/or profitability in Trinidad.

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Mission and Business Strategy


Our mission is to be a model for how to operate a profitable company that
provides a good return to our investors, by serving our members in emerging and
developing markets, with safe, clean buildings and equipment, and by providing
good jobs, fair wages and benefits, quality merchandise and services at
compelling prices that are made accessible to a broader segment of the
population, while treating our suppliers right, empowering them where we can,
and conducting ourselves responsibly by local norms, and respecting the
environment and the laws of all the countries in which we operate. To do this,
we make available a wide range of high quality, curated merchandise sourced from
around the world at good value. The annual membership fee enables us to operate
our business with lower margins than traditional retail stores. Through the use
of technology and the development of an omni-channel platform, we are pursuing
opportunities to satisfy our members' shopping expectations, create additional
efficiencies in the supply chain and better understand and serve our members'
needs to play greater role in their lives. We strive to establish a relationship
with our members that enhances their lives with quality goods and services and
offers a shopping experience that blends the excitement and appeal of our brick
and mortar business with the convenience of online shopping and services.

Growth


We measure our growth primarily by the amount of the period-over-period activity
in our net merchandise sales, our comparable club net merchandise sales,
membership income and total revenues. Our investments are geared toward creating
greater efficiency, which enable us to offer lower prices, better services,
enhanced convenience and exciting experiences for our members, which we believe
will support membership renewals and sustained growth for the Company. However,
these investments can impact near-term results, such as when we invest in
technology and talent that are expected to yield long-term benefits or when we
incur fixed costs in advance of achieving full projected sales, negatively
impacting near-term operating profit and net income. When we open a new
warehouse club in an existing market, which may reduce reported comparable net
merchandise sales due to the transfer of sales from existing warehouse clubs, we
do so to enhance the member experience, grow membership and support long-term
sales growth and profitability.



Current and Future Management Actions


Logistics and distribution efficiencies are fundamental to delivering high
quality merchandise at compelling prices to our members. We continue to explore
ways to improve efficiency, reduce costs, secure additional high quality
sourcing alternatives and ensure a reliable and exciting flow of merchandise to
our warehouse clubs. As we continue to refine our logistics and distribution
infrastructure, we are exploring ways to improve our supply chain effectiveness
through regional distribution centers that maintain our merchandise closer to
our members. For example, in fiscal 2020, we opened fresh produce distribution
centers in two of our markets that enable us to quickly and efficiently bring
high quality and fresh produce from farm-to-table, which also enhances quality,
reduces waste and supports local farmers. We plan to search for additional space
to expand this concept throughout our markets.

Purchasing land and constructing warehouse clubs is generally our largest
ongoing capital investment. Securing land for warehouse club locations is
challenging within our markets, because suitable sites at economically feasible
prices are difficult to find. We believe real estate ownership provides a number
of advantages as compared to leasing, including lower operating expenses,
flexibility to expand or otherwise enhance our buildings, long-term control over
the use of the property and the residual value that the real estate may have in
future years. While our preference is to own rather than lease real estate, we
have entered into real estate leases in certain cases and will likely do so in
the future. We currently own undeveloped land in Guatemala City, Guatemala,
Bucaramanga, Colombia, and in Jamaica. We continue to evaluate the optimal
timing to begin warehouse club construction on these sites, given the general
economic conditions, our financial position, and feasibility of these projects
in light of the uncertainties caused by the COVID-19 pandemic.

In the third and fourth quarter of fiscal 2020, we launched our Click & Go™
service, which enables our members to place orders on our website and decide
whether to pick them up curbside at our warehouse clubs or have them delivered.
Our curbside service was available in all 13 of our markets and with delivery
was available in six as of August 31, 2020 and expanded into further markets in
early fiscal 2021. We plan to continue to make investments to scale and create
efficiencies for this service while also continuing to invest in other
omni-channel capabilities that enable e-commerce, by integrating technology,
talent, supply chain and operations to enhance the membership shopping
experience, drive efficiencies and fuel sales growth. We are developing and
implementing technologies that we believe will enhance customer service, provide
greater insight to consumer preferences, facilitate membership sign-ups and
renewals, and maximize use of sales floor space in our brick and mortar clubs.
Our focus will be on launching these additional omni-channel capabilities in a
methodical, phased manner.

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Financial highlights for the fourth quarter of fiscal year 2020 included:

?Total revenues increased 1.2% over the comparable prior year period.


?Net merchandise sales increased 0.5% over the comparable prior year period. We
ended the quarter with 46 warehouse clubs compared to 43 warehouse clubs at the
end of the fourth quarter of fiscal 2019. Foreign currency exchange rate
fluctuations impacted net merchandise sales negatively by 3.6% versus the same
three-month period.

?Comparable net merchandise sales (that is, sales in the 42 warehouse clubs that have been open for greater than 13 ½


calendar months) for the 13 weeks ended August 30, 2020 decreased 4.0%. Foreign
currency exchange rate fluctuations impacted comparable net merchandise sales
negatively by 3.6%.

?Membership income for the fourth quarter of fiscal 2020 decreased 2.2% to $13.1 million primarily due to the decline in the overall account base because of a decrease in in-club traffic from COVID-19.


?Total gross margins (net merchandise sales less associated cost of goods sold)
decreased 0.4% over the prior-year period, and merchandise gross profits as a
percent of net merchandise sales were 15.1%, a decrease of 10 basis points
(0.1%) from the same period in the prior year.

?Operating income for the fourth quarter of fiscal 2020 was $29.0 million, a decrease of 9.3%, or $3.0 million, compared to the fourth quarter of fiscal 2019.


?We recorded a $1.1 million net currency gain from currency transactions in the
fourth quarter of fiscal 2020 compared to a $454,000 net currency gain in the
same period last year, primarily due to a favorable foreign currency exchange
rate fluctuation in Jamaica.

?Our effective tax rate decreased in the fourth quarter of fiscal 2020 to 28.2%
from 34.1% in the fourth quarter of fiscal 2019. The decrease in the effective
tax rate is primarily related to recognition timing for the loss of benefit of
foreign tax credits, which are no longer recoverable as a result of U.S. Tax
Reform.

?Net income attributable to PriceSmart for the fourth quarter of fiscal 2020 was
$20.1 million, or $0.65 per diluted share, compared to $20.7 million, or $0.67
per diluted share, in the fourth quarter of fiscal 2019.

Financial highlights for fiscal year 2020 included:

?Total revenues increased 3.3% over the prior year.


?Net merchandise sales increased 3.2% over the prior year. We ended the year
with 46 warehouse clubs compared to 43 warehouse clubs at the end of the fiscal
2019. Foreign currency exchange rate fluctuations impacted net merchandise sales
negatively by 2.1%.

?Comparable net merchandise sales (that is, sales in the 42 warehouse clubs that have been open for greater than 13 ½


?calendar months) for the 52 weeks ended August 30, 2020 decreased 1.5%. Foreign
currency exchange rate fluctuations impacted comparable net merchandise sales
negatively by 1.9%.

?Membership income for the fiscal 2020 increased 4.5% to $54.5 million primarily due to new club member sign-ups in Panama, Guatemala and Costa Rica. Our expansion of the Platinum Membership program contributed to the increase.


?Total gross margins (net merchandise sales less associated cost of goods sold)
increased 5.6% over the prior year, and merchandise gross profits as a percent
of net merchandise sales were 14.7%, an increase of 40 basis points (0.4%) from
the prior year.

?Operating income for fiscal 2020 was $122.5 million, an increase of 6.3% or $7.3 million compared to fiscal 2019.

?We recorded a $1.4 million net currency loss from currency transactions in the current year compared to a $1.5 million net loss in the prior year.


?The effective tax rate for fiscal 2020 was 32.5% as compared to the effective
tax rate for fiscal 2019 of 33.8%. The decrease in the effective tax rate is
primarily related to the favorable impact from changes in income tax liabilities
from uncertain tax positions.

?Net income attributable to PriceSmart for fiscal year 2020 was $78.1 million, or $2.55 per diluted share, compared to $73.2 million, or $2.40 per diluted share, in the prior year.

Comparison of Fiscal Year 2020 to 2019


The following discussion and analysis compares the results of operations for
each of the three fiscal years ended August 31, 2020, 2019 and 2018 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, 2019 and 2018, 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, 2019 filed with the SEC on October 29, 2019. Unless otherwise noted,
all tables 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
geographic location, which are used by management and the Company's chief
operating decision maker in setting up management lines of responsibility,
providing support services, and making operational decisions and assessments of
financial performance. Segment amounts are presented after converting to U.S.
dollars and consolidating

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eliminations. From time to time, we revise the measurement of each segment's operating income, including certain corporate overhead 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 conform to the current period's presentation.




Net Merchandise Sales

The following tables 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 2020 and 2019.

                                                    Years Ended
                                      August 31, 2020                     August 31, 2019
                                                 Increase/
                                                ?(decrease)
                                    % of net       ?from                            % of net
                         Amount      ?sales     ?prior year   Change     Amount      ?sales
Central America        $ 1,855,538     58.1 %  $      65,595    3.7 %  $ 1,789,943     57.9 %
Caribbean                  978,021     30.7           58,626    6.4        919,395     29.7
Colombia                   358,203     11.2         (24,107)  (6.3)       

382,310 12.4 Net merchandise sales $ 3,191,762 100.0 % $ 100,114 3.2 % $ 3,091,648 100.0 %



Comparison of 2020 and 2019

Overall, net merchandise sales grew by 3.2% for fiscal year 2020 compared to
fiscal year 2019, resulting from a 9.5% increase in average ticket offset by a
5.7% decrease in transactions. Transactions represent the number of visits our
members make to our warehouse clubs and average ticket represents the amount our
members spend on each visit.

During the current fiscal year, net merchandise sales were positively impacted
by increases in average ticket, which were offset by decreases in transactions
due to capacity restrictions and other government restrictions as a result of
the COVID-19 pandemic. In the second half of fiscal 2020, governments in our
markets imposed restrictions of varying degrees on nearly all businesses,
including essential businesses such as ours. These governments have mandated
various protocols resulting in limitations on the number of people in our clubs,
reduced hours of operation, restrictions on or closure of dining and other
services areas, and, in some cases, closure of our clubs intermittently or on
certain days of the week. These, in combination with consumer trepidation about
the spread of COVID-19 and government restrictions limiting times when consumers
can leave their homes, have reduced traffic in our clubs and led to the
significant decline in transactions for the twelve month period ended August 31,
2020. In addition, we had 46 clubs in operation as of August 31, 2020 compared
to 43 clubs as of August 31, 2019.

Net merchandise sales in our Central America segment increased 3.7% for fiscal
2020 compared to fiscal year 2019. These increases had a 210 basis point (2.1%)
positive impact on total net merchandise sales growth. All markets within this
segment, with the exception of Honduras, showed increased net merchandise sales
year-on-year. Honduras had the most government restrictions with the longest
duration during the COVID-19 pandemic, which led to negative sales growth in the
year compared to the prior period. We added three new clubs to the segment when
compared to the comparable prior period. We opened our seventh club in Panama in
October 2019, our fourth club in Guatemala in November 2019 and we opened our
eighth club in Costa Rica in June 2020. In addition to the new club in Costa
Rica, the market also benefited from a significant foreign currency exchange
rate tailwind that contributed to increased U.S. dollar sales. Refer to Part II.
"Item 7. Management Discussion & Analysis - Currency Exchange Rate Fluctuations"
for more information on the impact of currency movements on net merchandise
sales.

Net merchandise sales in our Caribbean segment grew 6.4% for fiscal 2020 when
compared to fiscal 2019. This increase had a 190 basis point (1.9%) positive
impact on total net merchandise sales growth. Our Dominican Republic and Jamaica
markets led the way in this segment, with both having double digit
year-over-year growth with 19.0% and 10.3% increases in net merchandise sales,
respectively. In the Dominican Republic, we launched our fifth club in June
2019, while Jamaica continued its exceptional sales run with net merchandise
sales growth of 10.3%. This is the second straight year for Jamaica having
double-digit sales growth. With the exception of our Aruba and USVI markets, all
other markets within this segment showed increased net merchandise sales
year-on-year.

Net merchandise sales in our Colombia segment decreased 6.3% for fiscal 2020
when compared to fiscal 2019. This decrease had an 80 basis point (0.8%)
negative impact on total net merchandise sales growth. The declines during the
period are primarily due to significant unfavorable foreign currency devaluation
and government restrictions in response to the coronavirus outbreak.

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The following table indicates the impact that currency exchange rates had on our
net merchandise sales in dollars and as a percentage of net merchandise sales
for the year ended August 31, 2020.

                                Currency Exchange Rate Fluctuations for the
                                            Twelve Months Ended
                                              August 31, 2020
                                Amount                                    % change
Central America        $                 12,293                                0.7 %
Caribbean                              (30,425)                              (3.3)
Colombia                               (43,802)                             (11.5)
Net merchandise sales  $               (61,934)                              (2.1) %

Overall, the effects of currency fluctuations within our markets had an approximately $61.9 million or 210 basis point (2.1%) negative impact on net merchandise sales for the year ended August 31, 2020.


Currency fluctuations had a $12.3 million or 70 basis point (0.7%) positive
impact on net merchandise sales in our Central America segment for the year
ended August 31, 2020. The currency fluctuations contributed approximately 40
basis points (0.4%) of the total positive impact on total net merchandise sales.
The Costa Rica Colón appreciated significantly against the dollar as compared to
a year ago and was a significant factor in the contribution to the favorability
of currency exchange rate fluctuations in this segment.

Currency fluctuations had a $30.4 million or 330 basis point (3.3%) negative
impact on reported net merchandise sales in our Caribbean segment for the year
ended August 31, 2020. The currency fluctuations contributed approximately 100
basis points (1.0%) of the total negative impact on total net merchandise sales.
The Dominican Peso and Jamaican Dollar depreciated significantly against the
dollar as compared to a year ago and were the driving factors in the
contribution to the negative currency exchange rate fluctuations in this
segment.

Currency fluctuations had a $43.8 million or 1,150 basis point (11.5%) negative
impact on net merchandise sales in our Colombia segment for the year ended
August 31, 2020. The currency fluctuations contributed approximately 150 basis
points (1.5%) to the total negative impact on total net merchandise sales.

Net Merchandise Sales by Category

The following table indicates the approximate percentage of net sales accounted for by each major category of items sold during the fiscal years ended August 31, 2020 and 2019.

                        Years Ended August 31,
                      2020                     2019
Foods & Sundries         52 %                   51 %
Fresh Foods              29                     27
Hardlines                11                     12
Softlines                 4                      5
Other Business            4                      5
                        100 %                  100 %

Comparison of 2020 to 2019


During the second half of fiscal 2020 our member shopping patterns changed
significantly in reaction to the COVID-19 pandemic. Across our merchandise
categories, sales grew significantly in Food & Sundries and Fresh Foods, while
our non-food categories of Hardlines and Softlines declined. The decline in
other business is primarily due to restrictions in certain markets that did not
permit our food courts and ancillary services, such as optical, to operate
during the COVID-19 pandemic. Refer to Part II. "Item 8. Financial Statements
and Supplementary Data: Notes to Consolidated Financial Statements, Note 3 -
Revenue Recognition" for sales by category. In response to these changes, we
have taken many actions, including accelerating purchases of certain merchandise
in high volume categories and slowing or canceling certain merchandise purchases
in lower volume non-food categories.

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Comparable Merchandise Sales


We report comparable net merchandise sales on a "same week" basis with 13 weeks
in each quarter beginning on a Monday and ending on a Sunday. The periods are
established at the beginning of the fiscal year to provide as close of a match
as possible to the calendar month and quarter that is used for financial
reporting purposes. This approach equalizes the number of weekend days and
weekdays in each period for improved sales comparison, as we experience higher
merchandise club sales on the weekends. Each of the warehouse clubs used in the
calculations was open for at least 13 ½ calendar months before its results for
the current period were compared with its results for the prior period. As a
result, sales related to three of our four warehouse clubs opened during
calendar year 2019 and the one club opened during calendar year 2020, will not
be used in the calculation of comparable sales until they have been open for at
least the 13 ½ months. Therefore, comparable net merchandise sales include 42
warehouse clubs for the fifty-two week period ended August 30, 2020.

The following tables indicate the comparable net merchandise sales in the
reportable segments in which we operate and the percentage changes in net
merchandise sales by segment during the fifty-two week periods ended August 30,
2020 and September 1, 2019.

                                                  Fifty-Two Weeks Ended
                                       August 30, 2020            September 1, 2019
                                    % Increase/(decrease)       % Increase/(decrease)
                                        ?in comparable             ?in comparable
                                    ?net merchandise sales     ?net merchandise sales
Central America                                   (3.2) %                    (2.0) %
Caribbean                                           3.8                        2.2
Colombia                                          (6.4)                      (0.3)
Consolidated comparable net
merchandise sales                                 (1.5) %                    (0.6) %

Comparison of Fifty-Two Week Periods Ended August 30, 2020 and September 1, 2019


Comparable net merchandise sales for those warehouse clubs that were open for at
least 13 ½ months for some or all of the fifty-two week period ended August 30,
2020 decreased 1.5%.

Comparable net merchandise sales in our Central America segment decreased 3.2%
for the fifty-two week period ended August 30, 2020. This decrease contributed
approximately 190 basis points (1.9%) of the decrease in total comparable
merchandise sales.

For the fifty-two weeks ended August 30, 2020, decreases in comparable net
merchandise sales in Guatemala, Honduras and Panama contributed approximately
310 basis points (3.1%) of the decrease, which was partially offset by a 120
basis point (1.2%) increase in Costa Rica, El Salvador, and Nicaragua. The
decreases in Guatemala, Honduras, and Panama are primarily related to periodic
club closures and other government-mandated restrictions in response to the
coronavirus outbreak, which also include travel restrictions, "shelter in place"
advisories, curfews, and social distancing measures. Many of these government
policies and restrictions in response to the coronavirus outbreak have resulted
in limiting access for our members and impacted our club operations. These
include temporary club closures, limits on the number of days during the week
and hours per day our clubs can be open, restrictions on segments of the
population permitted to shop on particular days, and limits on the number of
people that can be in a club. We believe comparable net merchandise sales in the
segment were also adversely affected by transfers of sales from existing clubs
included in the calculation of comparable net merchandise sales to newly opened
clubs not included in the calculation, with one in Panama and one in Guatemala.
These decreases were partially offset by significant foreign currency
appreciation within our Costa Rica market as well as strong performance in our
El Salvador and Nicaragua markets.

Comparable net merchandise sales in our Caribbean segment increased 3.8% for the
fifty-two week period ended August 30, 2020. This increase contributed
approximately 120 basis points (1.2%) of positive impact in total comparable
merchandise sales.

For the fifty-two week period ended August 30, 2020, all markets in our
Caribbean segment, with the exception of the U.S. Virgin Islands and Aruba,
showed strong growth compared to the same period in the prior year. Investments
we made in our Jamaica market resulted in 10.2% growth in comparable net
merchandise sales for the fifty-two week period ended August 30, 2020. The
Dominican Republic also had strong comparable sales of 7.1% despite the transfer
of sales to our new club in that market. In our U.S. Virgin Islands market,
comparable net merchandise sales declined when compared to the same period in
the prior year. Hurricanes Irma and Maria had a severe impact on the
infrastructure of the islands in the fall of calendar year 2017. From that time
until the end the first quarter of fiscal 2020, the Company benefitted from the
difficulty other retailers had in becoming fully operational, but those same
retailers have rebuilt, contributing to increased competition in that market.

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Comparable net merchandise sales in our Colombia segment decreased 6.4% for the
fifty-two week period ended August 30, 2020. This decrease contributed
approximately 80 basis points (0.8%) of the decrease in total comparable
merchandise sales. These declines were largely due to the devaluation of the
Colombian peso relative to the U.S. dollar and government restrictions imposed
in response to the coronavirus outbreak.

The following table illustrates the impact that changes in foreign currency
exchange rates had on our comparable merchandise sales in dollars and as a
percentage of comparable merchandise sales for the fifty-two week period ended
August 30, 2020.

                                                 Fifty-Two Weeks Ended
                                                    August 30, 2020
                                                  Amount      % change
Central America                                $      11,557       0.6 %
Caribbean                                           (27,950)     (3.1)
Colombia                                            (42,951)    (11.3)

Consolidated comparable net merchandise sales $ (59,344) (1.9) %

Overall, the mix of currency fluctuations within our markets had an approximate $59.4 million, or 190 basis point (1.9%), negative impact on comparable net merchandise for the fifty-two week period ended August 30, 2020.


Currency fluctuations within our Central America segment accounted for
approximately 40 basis points (0.4%) of the positive impact on total comparable
merchandise sales for the fifty-two week period ended August 30, 2020. This is
primarily the result of significant appreciation in the Costa Rica Colón against
the U.S. dollar during the current periods compared to the same periods a year
ago.

Currency fluctuations within our Caribbean segment accounted for approximately
90 basis points (0.9%) of negative impact on total comparable merchandise for
the fifty-two week period ended August 30, 2020. Our Dominican Republic and
Jamaica markets experienced currency devaluation when compared to the same
period last year.

Currency fluctuations within our Colombia segment accounted for approximately
140 basis points (1.4%) of negative impact on total comparable merchandise sales
for the fifty-two week period ended August 30, 2020. This reflects the
devaluation of the Colombia peso when compared to the same period a year ago.



Membership Income

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

                                                           Years Ended
                                                     August 31,                           August 31,
                                                        2020                                 2019
                                            Increase/                    Membership
                                            (decrease)                  ?income % to
                                               from                   ?net merchandise
                               Amount       prior year    % Change       ?club sales        Amount
Membership income -
Central America              $    32,825   $      1,320       4.2 %            1.8 %      $    31,505
Membership income -
Caribbean                         14,814          1,144       8.4              1.5             13,670
Membership income -
Colombia                           6,862          (112)     (1.6)              1.9              6,974
Membership income - Total    $    54,501   $      2,352       4.5 %            1.7 %      $    52,149

Number of accounts -
Central America                  828,958       (32,511)     (3.8) %                           861,469
Number of accounts -
Caribbean                        426,383        (4,486)     (1.0)                             430,869
Number of accounts -
Colombia                         302,979       (39,682)    (11.6)                             342,661
Number of accounts - Total     1,558,320       (76,679)     (4.7) %                         1,634,999


Comparison of 2020 to 2019

The number of member accounts at the end of fiscal 2020 was 4.7% lower than the
prior year period. Membership income increased 4.5% compared to the comparable
prior-year period.

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The growth in membership income during fiscal 2020 in our Central America
segment is primarily the result of the opening of three new warehouse clubs -
Metropark in Panama, San Cristobal in Guatemala, and Liberia in Costa Rica. The
launch of Platinum membership in two Central American markets in calendar year
2019 also contributed to the increase in membership income for fiscal year 2020
compared to the prior year. Despite the new clubs in the segment, the membership
base has declined for two consecutive quarters due to the in-club traffic
decline because of COVID-19, which will have a negative impact on membership
income in the segment in future reporting periods.

In our Caribbean market, membership income growth was primarily attributable to
the opening of the new Bolivar warehouse club in the Dominican Republic in June
2019. The launch of Platinum membership in three Caribbean markets in calendar
year 2019 also contributed to the increase in membership income for the
twelve-month period.

Membership income in Colombia declined slightly in fiscal 2020 due to the decline in total Colombia membership accounts because of restrictions on in-club traffic from COVID-19 when most members renew or sign-up.


We began offering our Platinum membership program in Colombia in June 2020 and
we intend to expand our Platinum membership program to the remaining two markets
that do not currently offer platinum membership. The annual fee for a Platinum
membership in most markets is approximately $75. The Platinum membership program
provides members with a 2% rebate on most items, up to an annual maximum of
$500. We record the 2% rebate as a reduction on net merchandise sales at the
time of the sales transaction.

Our trailing twelve-month renewal rate was 80.5% and 85.7% for the periods ended
August 31, 2020 and August 31, 2019, respectively. We believe the renewal rate
decline is driven by a significant decline of in-club traffic in some of our
markets due to governmental COVID-19 movement restrictions on their respective
general populaces. Historically, membership renewals have primarily been
transacted in the club at the time of purchase of merchandise or services when a
membership has expired. Since COVID-19 and the notable increase of online
traffic due to our new online catalogue and Click & Go™ services, sign-ups and
renewals completed online have been increasing.



Other Revenue

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

                                                    Years Ended
                                        August 31, 2020                   August 31, 2019
                                   Increase/(Decrease) from
                          Amount          ?prior year         % Change        Amount
Non-merchandise revenue  $ 38,271  $                   1,434      3.9 %  $          36,837
Miscellaneous income        7,546                    (1,503)   (16.6)                9,049
Rental income               2,734                      (520)   (16.0)                3,254
Other revenue            $ 48,551  $                   (589)    (1.2) %  $          49,140


Comparison of 2020 to 2019

Other revenue for the year ended August 31, 2020 includes non-merchandise
revenue generated by the marketplace and casillero operations of a company we
acquired in March 2018, primarily from freight and handlings charges for online
orders placed from customers in Latin America to retailers in the United States
and delivered to locations throughout Latin America. The $1.4 million increase
in non-merchandise revenue compared to the prior year represents higher package
volume in the business we acquired in March 2018 during the current year. For
the year ended August 31, 2020, the net decrease of $1.5 million in
Miscellaneous income was primarily due to $3.1 million of non-recurring income
from credit card vendors in the prior year. In the current year we had an
increase of $0.9 million on our interest generating portfolio ("IGP") from our
co-branded credit cards and an increase of $0.4 million from Platinum membership
rebate compared to the prior year. For the year ended August 31, 2020, the net
decrease of $0.5 million in rental income was due to tenants not continuing to
lease our excess real estate and concessions we granted to our lessees in
response to the COVID-19 pandemic.

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Results of Operations

Results of Operations Consolidated

(Amounts in thousands, except percentages and number of warehouse clubs)


                                                             Years Ended
Results of Operations Consolidated              August 31, 2020       August 31, 2019
Net merchandise sales
Net merchandise sales                         $       3,191,762     $       3,091,648
Total gross margin                            $         467,820     $         442,983
Total gross margin percentage                              14.7 %                14.3 %

Revenues
Total revenues                                $       3,329,188     $       3,223,918
Percentage change from prior period                         3.3 %           

1.8 %


Comparable merchandise sales
Total comparable merchandise sales increase
(decrease)                                                (1.5) %               (0.6) %

Total revenue margin
Total revenue margin                          $         554,410     $         528,227
Total revenue margin percentage                            16.7 %           

16.4 %


Selling, general and administrative
Selling, general and administrative           $         431,942     $       

413,060

Selling, general and administrative
percentage of total revenues                               13.0 %                12.8 %


                                                         Years Ended
Results of Operations                            % of Total                         % of Total
Consolidated                   August 31, 2020    ?Revenue        August 31, 2019    ?Revenue
Operating income- by
segment
Central America              $         125,351          3.8 %   $         122,629          3.8 %
Caribbean                               57,217          1.7                50,724          1.6
Colombia                                18,071          0.6                14,909          0.5
United States                            3,873          0.1                 3,805          0.1
Reconciling items (1)                 (82,044)        (2.5)              (76,900)        (2.4)
Operating income - Total     $         122,468          3.7 %   $         115,167          3.6 %

Warehouse clubs
Warehouse clubs at period
end                                         46                                 43
Warehouse club sales
square feet at period end                2,270                              2,158

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


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

                                                         Years Ended
                                                 % of Total                         % of Total
                               August 31, 2020    ?Revenue        August 31, 2019    ?Revenue
Selling, general and
administrative detail:
Warehouse club and other
operations                   $         323,178          9.7 %   $         307,823          9.5 %
General and administrative             106,776          3.2               101,432          3.2
Pre-opening expenses                     1,545          0.1                 2,726          0.1
Loss on disposal of assets                 443          0.0                 1,079          0.0
Total Selling, general and
administrative               $         431,942         13.0 %   $         413,060         12.8 %


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Comparison of 2020 to 2019


Total gross margin is derived from our Revenue - Net merchandise sales less our
Cost of goods sold - Net merchandise sales and represents our sales and cost of
sales generated from the business activities of our warehouse clubs. We express
our Total gross margin percentage as a percentage of our Net merchandise sales.

On a consolidated basis, total gross margin for fiscal 2020 was 14.7%, 40 basis
points (0.4%) higher than fiscal 2019. This improvement is attributable to more
focused merchandising strategies and inventory management. Net merchandise
margins increased across all segments with the Central America segment
contributing 20 basis points (0.2%), the Caribbean segment contributing 10 basis
points (0.1%), and the Colombia segment contributing 10 basis points (0.1%) to
the overall 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 percentage of
Total revenues.

Total revenue margin increased 30 basis points (0.3%) for the twelve months
ended August 31, 2020 primarily due to improved total gross margins of 40 basis
points (0.4%). These total revenue margin improvements were offset by the
non-recurring reimbursement payment from one of our credit card vendors in the
prior year, which resulted in a 10 basis point (0.1%) decline in total revenue
margins.

Selling, general and administrative expenses consist of warehouse club and other
operations, general and administrative expenses, pre-opening expenses, and loss
on disposal of assets. In total, selling, general and administrative expenses
increased $18.4 million to 13.0% of total revenues for the twelve month period
ended August 31, 2020 compared to 12.8% for the same period during fiscal year
2019.

Warehouse club and other operations expense increased to 9.7% of total revenues
compared to 9.5% for the twelve-month period ended August 31, 2020. The increase
is due to operating an additional three warehouse clubs compared to the prior
year period. These thee clubs along with two other new clubs that were opened
late in fiscal 2019 have not reached sales maturity as of August 31, 2020, thus
increasing operational expenses by 20 basis points (0.2%) as a percentage of
total revenues.

General and administrative expenses, as a percentage of total revenues, remained
flat at 3.2% for the twelve-month periods ended August 31, 2020 and August 31,
2019. The increase in general and administrative expenses of $5.3 million (net
of the non-recurring fiscal 2019 charges mentioned below) is primarily due to
our investments to support our technology development, talent acquisition, and
employee development in fiscal 2020.

In the twelve months, ended August 31, 2019, two non-recurring transactions
contributed to general and administrative expenses. First was a $3.8 million
charge for separation and other related termination benefits for our former
Chief Executive Officer and President who resigned in October 2018 by mutual
agreement with the Board of Directors. The second was the final $2.3 million of
the amortization of post-combination compensation expense related to the
Aeropost business that we acquired in March 2018.

Pre-opening expense remained flat at (0.1%) of total revenues for fiscal 2020
and 2019. The decrease in overall expense is attributable to fewer non-recurring
costs associated with our current new club pipeline than we incurred to open our
five new clubs in the past 15 months.

Operating income for the twelve months ended August 31, 2020, increased to
$123.0 million, (3.7% of total revenue) compared to $115.2 million (3.6% of
total revenue) for the same period last year. Higher total gross margins as a
percent of total revenue and margin dollars, partially offset by incrementally
higher general and administrative expenses, were the primary factors for the
overall 10 basis point (0.1%) increase in operating income.

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Interest Expense

                                                           Years Ended
                                                     August 31,          August 31,
                                                        2020                2019
                                                           Increase/
                                                          ?(decrease)
                                                          ?from prior
                                               Amount        ?year         Amount
Interest expense on loans                     $   7,399  $       1,855  $      5,544

Interest expense related to hedging activity 2,416 1,905

511

Less: Capitalized interest                      (2,190)           (74)       (2,116)
Net interest expense                          $   7,625  $       3,686  $      3,939


Net interest expense reflects borrowings by PriceSmart, Inc. and our wholly
owned foreign subsidiaries to finance new land acquisition and construction for
new warehouse clubs, warehouse club expansions and distribution centers, the
capital requirements of warehouse club and other operations and ongoing working
capital requirements.

Comparison of 2020 to 2019

Net interest expense increased $3.7 million for the year ended August 31. 2020.
Interest expense related to loans increased $1.9 million primarily due to higher
average long-term loan balances to fund our capital projects and recent
drawdowns on short-term lines of credit as part of our COVID-19 related efforts
to secure cash. Interest expense related to hedging activity increased $1.9
million due to an increase in hedging activity as we seek to mitigate our
foreign currency exposure risk on our loan agreements entered into during fiscal
2020 to finance construction of future anticipated warehouse clubs.

Other Income (Expense), net


Other income (expense), net consists of currency gains or losses, as well as net
benefit costs related to our defined benefit plans and the one time settlement
of a business combination escrow account.

                                Years Ended
                          August 31,         August 31,
                             2020               2019
                               Increase
                                 ?from
                    Amount    ?prior year      Amount
Other expense, net  $ (834)  $         773  $    (1,607)


Monetary assets and liabilities denominated in currencies other than the
functional currency of the respective entity (primarily U.S. dollars) are
revalued to the functional currency using the exchange rate on the balance sheet
date. These foreign exchange transaction gains (losses) are recorded as currency
gains or losses. Additionally, gains or losses from transactions denominated in
currencies other than the functional currency of the respective entity also
generate currency gains or losses.

Comparison of 2020 to 2019


For the twelve-month period ended August 31, 2020 the primary driver of Other
income (expense), net included a $1.4 million loss associated with foreign
currency transactions and the revaluation of monetary assets and liabilities in
several of our markets. The foreign currency gains and losses resulted from the
revaluation of net U.S. dollar assets and liabilities in markets where the local
functional currency revalued or devalued against the U.S. dollar, and from
exchange transactions, net of any exchange reserve movements. There were also
$169,000 of expenses recorded for our defined benefit plans. These net expenses
were partially offset by a $705,000 gain resulting from a settlement payment we
received with respect to outstanding claims we made related to the acquisition
of the business that we purchased in March of 2018.

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Provision for Income Taxes

The tables below summarize the effective tax rate for the periods reported:

                                          Years Ended
                                    August 31,           August 31,
                                       2020                 2019
                                           Increase/
                                          ?(decrease)
                                            ? from
                              Amount      ?prior year      Amount
Current tax expense         $  41,168    $         615  $   40,553
Net deferred tax benefit      (3,404)            (411)     (2,993)

Provision for income taxes $ 37,764 $ 204 $ 37,560 Effective tax rate

               32.5 %                       33.8 %


Comparison of 2020 to 2019

For fiscal 2020, the effective tax rate was 32.5%. The decrease in the effective rate versus the prior year was primarily attributable to the following factors:


1.The comparably unfavorable impact of 1.3% due to the prior year's one-time
reversal of valuation allowances on net deferred tax assets in the Company's
Colombia subsidiary.

2.The comparably unfavorable impact of 1.3% resulting from valuation allowances
on deferred tax assets from foreign tax credits that, incidental to U.S. Tax
Reform, are no longer deemed recoverable.

3.The comparably favorable impact of 1.2% resulting from changes in income tax
liabilities from uncertain tax position for which the applicable statutes of
limitations have expired.

4.The comparably favorable impact of 1.1% resulting from the effect of the change in foreign currency value and related adjustments.

5.The comparably favorable impact of 0.4% due to a greater portion of income falling into lower tax jurisdictions.

6.The comparably favorable impact of 0.7% resulting from nonrecurrence of non-deductible severance compensation for our former Chief Executive Officer.

Other Comprehensive Loss


Other comprehensive loss for fiscal years 2020 and 2019 resulted primarily from
foreign currency translation adjustments related to the assets and liabilities
and the translation of the statements of income related to revenue, costs and
expenses of our subsidiaries 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
effect during the period. The corresponding translation gains and losses are
recorded as a component of accumulated other comprehensive income or loss. These
adjustments will not affect 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.

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                                                      Other Comprehensive Loss
                                                            Years Ended
                                        August 31,                               August 31,
                                           2020                                     2019
                                         Decrease                                 Decrease
                                        from prior                               from prior
                             Amount        year        % Change      Amount

year % Change Other comprehensive loss $ (32,481) $ (9,358) (40.5) % $ (23,123) $ (11,966) (107.3) %

Comparison of 2020 to 2019


Our other comprehensive loss of approximately $32.5 million for fiscal 2020
resulted primarily from the comprehensive loss of approximately $29.4 million
from foreign currency translation adjustments related to assets and liabilities
and the translation of revenue, costs and expenses on the statements of income
of our subsidiaries whose functional currency is not the U.S. dollar. During
fiscal 2020, the largest translation adjustments were related to the devaluation
of the local currencies against the U.S. dollar for our Colombia, Dominican
Republic and Jamaica subsidiaries, partially offset by the translation
adjustment for the appreciation of the local currency against the U.S. dollar of
our Costa Rica subsidiary. Additional losses of approximately $3.1 million
related to unrealized losses on changes in our derivative obligations.



LIQUIDITY AND CAPITAL RESOURCES

Financial Position and Cash Flow


Our operations have historically supplied us with a significant source of
liquidity. Our cash flows provided by operating activities, supplemented with
our long-term debt and short-term borrowings, have generally been sufficient to
fund our operations while allowing us to invest in activities that support the
long-term growth of our operations and to pay dividends on our common stock. We
evaluate our funding requirements on a regular basis to cover any shortfall in
our ability to generate sufficient cash from operations to meet our capital
requirements. We may consider funding alternatives to provide additional
liquidity if necessary. There is some uncertainty surrounding the continuing
potential impact of the novel coronavirus outbreak (COVID-19) on our results of
operations and cash flows. As a result, we have taken steps to increase cash
available on-hand, including, but not limited to, drawing funds on our
short-term facilities and lengthening vendor payment terms. Refer to Part II.
"Item 8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements, Note 11 - Debt" for additional information regarding our
drawdown on our short-term facilities and long-term borrowings.

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

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

                                                    August 31,         August 31,
                                                       2020               2019
Amounts held by foreign subsidiaries             $        203,598   $       

98,964

Amounts held domestically                                 100,173           

7,272

Total cash and cash equivalents, including
restricted cash                                  $        303,771   $       

106,236

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


                                       August 31,    August 31,
                                          2020          2019
Amounts held by foreign subsidiaries  $     46,509  $     17,045
Amounts held domestically                        -             -
Total short-term investments          $     46,509  $     17,045


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As of August 31, 2020, certificates of deposits with a maturity of over a year
held by our foreign subsidiaries and domestically were $1.5 million. There were
no certificates of deposits with a maturity of over a year held by our foreign
subsidiaries or domestically as of August 31, 2019.

From time to time, we have experienced a lack of availability of U.S. dollars in
certain markets (U.S. dollar illiquidity). This impedes our ability to convert
local currencies obtained through merchandise sales into U.S. dollars to settle
the U.S. dollar liabilities associated with our imported products. Since fiscal
2017, we have experienced this situation in Trinidad and have been unable to
source a sufficient level of tradeable currencies. We are working with our banks
in Trinidad to source tradeable currencies. We expect the illiquid market
conditions in Trinidad to continue. Refer to Part II. "Item 7. Management's
Discussion & Analysis - Factors Affecting Our Business" for our quantitative
analysis and discussion.

The following table summarizes our significant sources and uses of cash and cash
equivalents:

                                                           Years Ended
                                                     August 31,   August 31,
                                                        2020         2019
Net cash provided by operating activities            $   259,268  $   

170,332

Net cash used in investing activities                  (131,212)    

(124,704)

Net cash provided by (used in) financing activities 75,563 (31,955) Effect of exchange rates

                                 (6,084)      

(4,351)

Net increase in cash and cash equivalents            $   197,535  $     

9,322



Net cash provided by operating activities totaled $259.3 million and
$170.3 million for the twelve months ended August 31, 2020 and 2019,
respectively. Our cash flow provided by operations is primarily derived from net
merchandise sales and membership fees. Cash flows used in operations generally
consists of payments to our merchandise vendors, warehouse operating costs
(including payroll, employee benefits and utilities), as well as payments for
income taxes. The $89.0 million increase in net cash provided by operating
activities was primarily due to a net increase of $78.9 million in operating
assets and liabilities and a net increase of $10.1 million from changes in
non-cash reconciling items. The $78.9 million increase in operating assets and
liabilities is primarily due to net working capital improvements of $96.9
million, which resulted from a $32.0 million decrease in merchandise inventories
and a $64.9 million increase in accounts payable during the twelve-months ended
August 31, 2020 compared to the prior year. The decrease in merchandise
inventories is primarily the result of lower replenishment of certain items
within our non-food categories in response to changes in consumer preferences
toward purchases of more essential goods during the ongoing COVID-19 crisis in
addition to more focused merchandising strategies and inventory management. The
accounts payable increase resulted primarily from temporary extensions of vendor
terms negotiated as part of our response to the COVID-19 pandemic. The $96.9
million increase in working capital was offset by a $18.0 million decrease
year-over-year in all other balance sheet changes. The balance sheet changes
were primarily driven by increases in long-term assets and accounts receivable
of $11.7 million and $2.2 million, respectively. The increases in long term
assets is driven by the net movements of $5.5 million in long term tax
receivables and $5.2 million in net long term derivative assets. In addition,
there was a decrease of $4.1 million in deferred membership income due to the
decline in our membership base and our 12-month renewal rate. The $10.1 million
change in non-cash reconciling items was primarily due to the increase in net
income and depreciation for the twelve-month period ended August 31, 2020
compared to the prior year.

Net cash used in investing activities totaled $131.2 million and $124.7 million
for the twelve months ended August 31, 2020 and 2019, respectively. Our cash
used in investing activities is primarily for the construction of and
improvements to our warehouse clubs and management of our cash investments. The
$6.5 million increase in cash used in investing activities is primarily the
result of a net $46.2 million increase in short-term and long-term certificate
of deposit purchases and fewer settlements compared to the same twelve-month
period a year-ago. The increase in purchases and fewer settlements is the result
of additional Trinidad dollars we have on-hand and that we have invested into
certificates of deposit to generate interest income while we actively work to
convert those Trinidad dollars into U.S. dollars as availability allows. Refer
to Part II. "Item 7. Management's Discussion and Analysis - Factors Affecting
Our Business" for additional information regarding the current U.S. dollar
illiquidity we are experiencing in that market. We also had a $39.7 million
decrease in construction expenditures due to fewer warehouse clubs currently
being constructed compared to the same twelve-month period a year ago.

Net cash provided by financing activities totaled $75.6 million versus net cash
used in financing activities of $32.0 million for the twelve months ended August
31, 2020 and 2019, respectively. Our cash flows provided by or used in financing
activities are used primarily to fund our working capital needs and our
warehouse club expansions and investments. The $107.6 million increase in cash
provided by financing activities is primarily the result of a net increase of
proceeds from long-term borrowings of $55.7 million compared to a year ago and a
net $50.6 million increase in cash provided by additional short-term borrowings,
compared to the same twelve-month period a year ago. We have increased our
short-term borrowings to increase

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available cash on hand to meet current and any future potential operational cash
needs as a result of COVID-19. We may pay down these short-term borrowings in
the future should we determine we have sufficient cash availability.

Short-Term Borrowings and Long-Term Debt


Our financing strategy is to ensure liquidity and access to capital markets
while minimizing our borrowing costs. The proceeds of these borrowings were or
will be used for general corporate purposes, which may include, among other
things, funding for working capital, capital expenditures, acquisitions, and
repayment of existing debt. Refer to Part II. "Item 8. Financial Statements and
Supplementary Data: Notes to Consolidated Financial Statements, Note 11 - Debt."
for further discussion.

Contractual
Obligations                                      Payments due in:
Contractual            Less than        1 to 3         4 to 5         After
obligations             ?1 Year         ?Years         ?Years        ?5 Years        Total
Long-term debt and
interest(1)          $      19,437   $     41,549   $     32,350   $     38,711   $    132,047
Operating
leases(2)                   15,001         29,738         28,199        167,775        240,713
Warehouse club
construction
commitments (3)              5,100              -              -              -          5,100
Total                $      39,538   $     71,287   $     60,549   $    206,486   $    377,860


(1)Long-term debt includes debt with both fixed and variable interest rates. We
have used rates as of August 31, 2020 to calculate future estimated payments
related to the variable rate items. For the portion of the loans subject to
interest rate swaps and cross-currency interest rate swaps, we have used the
fixed interest rate as set by the interest rate swaps.

(2)Operating lease obligations have been reduced by approximately $0.9 million
to reflect the amounts net of expected sublease income. Certain obligations
under leasing arrangements are collateralized by the underlying asset being
leased. Future minimum lease payments include $0.6 million of lease payment
obligations for the prior leased Miami distribution center. For the purposes of
calculating the minimum lease payments, a reduction is reflected for the actual
sub-lease income the Company expects to receive during the remaining lease term.
This sub-lease income was also considered, for the purposes of calculating the
exit obligation, which was immaterial as of August 31, 2020.

(3)The amounts shown represent contractual obligations for construction services not yet rendered.

Off-Balance Sheet Arrangements

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

Repurchase of Equity Securities and Reissuance of Treasury Shares


At the vesting dates for restricted stock awards to our employees, we repurchase
a portion of the shares that have vested at the prior day's closing price
per share, with the funds used to pay the employees' minimum statutory tax
withholding requirements related to the vesting of restricted stock awards. We
do not have a stock repurchase program.

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

The following table summarizes the shares repurchased during fiscal years 2020,
2019 and 2018:

                                                           Years Ended
                                              August 31,    August 31,    August 31,
                                                 2020          2019          2018
Shares repurchased                                56,503        75,462        37,414

Cost of repurchase of shares (in thousands) $ 3,651 $ 4,604 $

3,183

We reissued 234,400 treasury shares as part of our stock-based compensation programs during fiscal 2020 and 63,000 treasury shares during fiscal 2019, but we did not reissue any treasury shares during fiscal 2018.

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Dividends


Refer to Part II. "Item 8. Financial Statements and Supplementary Data: Notes to
Consolidated Financial Statements, Note 6 - Stockholders' Equity" for further
discussion.



Derivatives

Refer to Part II. "Item 8. Financial Statements and Supplementary Data: Notes to
Consolidated Financial Statements, Note 13 - Derivative Instruments and Hedging
Activities" for further discussion.

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 affect 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 difficult and subjective judgments, often as a result of the
need to make estimates of matters that are inherently uncertain. We evaluate our
accounting policies and significant estimates on an ongoing basis, including
those related to business acquisitions, contingencies and litigation, income
taxes, value added taxes, and long-lived assets. We base our estimates on
historical experience and on other assumptions that management believes to be
reasonable under the present circumstances. Using different estimates could have
a material impact on our financial condition and results of operations.

We believe that the accounting policies described below involve a significant
degree of judgment and complexity. Accordingly, we believe these are the most
critical to aid in fully understanding and evaluating our consolidated financial
condition and results of operations. For further information, refer to Part II.
"Item 8. Financial Statements and Supplementary Data: Notes to Consolidated
Financial Statements, Note 2 - Summary of Significant Accounting Policies."

Income Taxes


We account 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 differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences and carry-forwards are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when necessary to reduce
deferred tax assets to amounts expected to be realized. As of August 31, 2020,
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 significant negative objective 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 sufficient to realize the related deferred tax assets. We also
specifically considered whether foreign tax credit balances could be utilized in
the foreseeable future in light of current and future U.S. tax liabilities. We
have historically applied foreign tax credits, generated from taxes withheld on
certain payments PriceSmart receives from our foreign subsidiaries, 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 foreseeable future. Therefore, for the twelve-month period
ended August 31, 2020 and August 31, 2019, we have recorded valuation allowance
of $8.5 million and $6.7 million against our foreign tax credits.

We are required to file federal and state income tax returns in the United
States and various other tax returns in foreign jurisdictions. The preparation
of these tax returns requires us to interpret the applicable tax laws and
regulations in effect in such jurisdictions, which could affect the amount of
tax 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 therefore 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 significant judgment, the use of
estimates, and the interpretation and application of complex tax laws. When
facts and circumstances change, we reassess these probabilities and record any
changes in the consolidated financial statements as appropriate. During fiscal
2020, we released $2.4 million of certain income tax contingency

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accruals due to the expiration of the statute of limitations. There were no material changes in our uncertain income tax positions for the period ended on August 31, 2019.


Tax Receivables

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

In most countries where we operate, there are defined and structured processes
to recover VAT receivables via refunds or offsets. However, in one country
without a clearly defined refund process, the Company is actively engaged with
the local government to recover VAT receivables totaling $7.0 million and $5.1
million as of August 31, 2020 and August 31, 2019, respectively. In addition, in
two other countries where the Company operates, there have been changes in the
method of computing minimum tax payments, under which the governments have
sought to require the Company to pay taxes based on a percentage of sales rather
than taxable income. As a result, we have made and may continue to make income
tax payments substantially in excess of those we would expect to pay based on
taxable income. The Company had income tax receivables of $10.4 million and $7.8
million and deferred tax assets of $2.8 million and $2.7 million as of August
31, 2020 and August 31, 2019, respectively, in these countries. While the rules
related to refunds of income tax receivables in these countries are either
unclear or complex, the Company has not placed any type of allowance on the
recoverability of these tax receivables or deferred tax assets, because the
Company believes that it is more likely than not that it will ultimately succeed
in its refund requests. Similarly, we have not placed any recoverability
allowances on tax receivables that arise from payments we are required to make
originating from tax assessments that we are appealing, as we believe it is more
likely than not that we will ultimately prevail in the related appeals.

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


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

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

Long-lived Assets

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

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

?loss of legal ownership or title to the asset;

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

?the impact of significant negative industry or economic trends.


Management's judgments are based on market and operational conditions at
the time of the evaluation and can include management's best estimate of
future business activity, which in turn drives estimates of future cash flows
from these assets. These periodic evaluations could cause management to conclude
that impairment factors exist, requiring an adjustment of these assets to their
then-current fair market value. Future business conditions and/or activity could
differ materially from the

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projections made by management causing the need for additional impairment
charges. No impairment charges have been recorded during fiscal 2020 related to
the loss of legal ownership or title to assets; significant changes in the
Company's strategic business objectives or utilization of assets; or the
impact of significant negative industry or economic trends. Loss on disposal of
assets recorded during the years reported resulted from improvements to
operations and normal preventive maintenance.

Goodwill and Other Indefinite-Lived Intangibles


Goodwill and other indefinite-lived acquired intangible assets are not
amortized, but are evaluated for impairment annually or whenever events or
changes in circumstances indicate that the value of a certain asset may be
impaired. Generally, this evaluation begins with a qualitative assessment to
determine whether a quantitative impairment test is necessary. If we determine,
after performing an assessment based on the qualitative factors, that the fair
value of the reporting unit is more likely than not less than the carrying
amount, or that a fair value of the reporting unit substantially in excess of
the carrying amount cannot be assured, then a quantitative impairment test would
be performed. The quantitative test for impairment requires management to make
judgments relating to future cash flows, growth rates and economic and market
conditions. These evaluations are based on determining the fair value of a
reporting unit or asset using a valuation method such as discounted cash flow or
a relative, market-based approach. Historically, our reporting units and other
indefinite-lived acquired intangible assets have generated sufficient returns to
recover the cost of goodwill and other indefinite-lived acquired intangible
assets. Because of the nature of the factors used in these tests, if different
conditions occur in future periods, future operating results could be materially
impacted. For approximately $45.2 million of certain acquired indefinite-lived
intangible assets, the fair value approximated the carrying value; any
deterioration in the fair value may result in an impairment charge.

Seasonality 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 effects on the cost of
U.S.-sourced products which may make these products more or less expensive in
local currencies and therefore more or less affordable. Because of such
fluctuations, the results of operations of any quarter are not indicative of the
results that may be achieved for a full fiscal year or any future quarter. In
addition, there can be no assurance that our future results will be consistent
with past results or the projections of securities analysts.

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