Attached files

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EX-32.1 - CERTIFICATION CEO ROBERT PRICE - PRICESMART INCex32-1.htm
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - PRICESMART INCex23-1.htm
EX-10.2(E)* - PANAMA LOAN AGREEMENT - PRICESMART INCex10-2.htm
EX-31.1 - CERTIFICATION ROBERT PRICE - PRICESMART INCex31-1.htm
EX-31.2 - CERTIFICATION JOHN HEFFNER - PRICESMART INCex31-2.htm
EX-21.1 - LIST OF SUBSIDIARIES OF PRICESMART - PRICESMART INCex21-1.htm
EX-32.2 - CERTIFICATION CFO JOHN HEFFNER - PRICESMART INCex32-2.htm


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

FORM 10-K
   
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 2009

OR
   
 ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 000-22793

PRICESMART, INC.
 
(Exact name of registrant as specified in its charter)
   
DELAWARE
33-0628530
(State of other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)

9740 SCRANTON RD, SAN DIEGO, CA 92121
(Address of principal executive offices, Zip Code)

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

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

Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.0001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ¨    No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.             Yes ¨    No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes þ    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨
Accelerated filer  þ
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
Smaller reporting company  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).         Yes ¨    No  þ

The aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates of the Registrant as of the last day of the Registrant's most recently completed second fiscal quarter was $251,537,285, based on the last reported sale price of the $16.72 per share on the NASDAQ Global Select Market on February 28, 2009.

As of October 30, 2009, 29,714,033 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Company’s Annual Report for the fiscal year ended August 31, 2009 are incorporated by reference into Part II of this Form 10-K.

Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 27, 2010 are incorporated by reference into Part III of this Form 10-K.
 

 
PRICESMART, INC.
 
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED AUGUST 31, 2009
 
TABLE OF CONTENTS


   
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i

 

PART I
 
 
This Form 10-K contains forward-looking statements concerning PriceSmart, Inc.'s (“PriceSmart” or the “Company”) anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “scheduled” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements, including foreign exchange risks, political or economic instability of host countries, and competition as well as those risks described in the Company's U.S. Securities and Exchange Commission reports, including the risk factors referenced in this Form 10-K. See Part I, Item 1A “Risk Factors.”
 
PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation, as of August 31, 2009 and 2008, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:  
 
Country/Territory
 
Number of
Warehouse Clubs
in Operation (as of
August 31, 2009)
 
Number of
Warehouse Clubs
in Operation (as of
August 31, 2008)
 
Ownership (as of
August 31, 2009)
 
Basis of
Presentation
Panama
 
4
 
4
 
100%
 
Consolidated
Costa Rica
 
5
 
4
 
100%
 
Consolidated
Dominican Republic
 
2
 
2
 
100%
 
Consolidated
Guatemala
 
3
 
3
 
100%
 
Consolidated
El Salvador
 
2
 
2
 
100%
 
Consolidated
Honduras
 
2
 
2
 
100%
 
Consolidated
Trinidad
 
3
 
3
 
 95%
 
Consolidated
Aruba
 
1
 
1
 
 100%
 
Consolidated
Barbados
 
1
 
1
 
100%
 
Consolidated
U.S. Virgin Islands
 
1
 
1
 
100%
 
Consolidated
Jamaica
 
1
 
1
 
100%
 
Consolidated
Nicaragua
 
1
 
1
 
 100%
 
Consolidated
Totals
 
26
 
25  
       

During fiscal year 2007, the Company purchased land in Guatemala and Trinidad, where it completed construction and opened new warehouse clubs in November and December 2007 (fiscal year 2008), respectively. 

 During fiscal year 2008, as part of a litigation settlement, the Company purchased the remaining 49% minority interest of its Nicaragua subsidiary from PSC, S.A.  Also, during the fourth quarter of fiscal year 2008, the Company acquired the remaining 10% minority interest of its Aruba subsidiary from Nithyananda Enterprises, thereby increasing its ownership percentage in its Aruba subsidiary to 100%.

At the end of August 2009 and 2008, the total number of the Company’s warehouse clubs in operation was 26 and 25, respectively, operating in 11 countries and one U.S. territory. The average age of the 26 and 25 warehouse clubs in operation as of August 31, 2009 and 2008 was 94 months and 86 months, respectively.

 In addition to the warehouse clubs operated directly by the Company (or through a joint venture in the case of Trinidad), there is one facility in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a royalty fee. 

 
1

 

International Warehouse Club Business
 
The Company owns and operates U.S.-style membership shopping warehouse clubs through majority or wholly owned ventures operating in Central America and the Caribbean using the trade name “PriceSmart.” In addition, there is one facility in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a royalty fee. The warehouse clubs sell basic high quality consumer goods at low prices to individuals and businesses. Sales are typically comprised of approximately 48% U.S. and Asian sourced merchandise and approximately 52% locally sourced merchandise. By offering low prices on brand name and private label merchandise, the warehouse clubs seek to generate sufficient sales volumes to operate profitably at relatively low gross profit margins.
 
The Company ships its U.S. and Asian sourced merchandise directly to our warehouse clubs or to the Company’s consolidation points (“distribution centers”). The goods are allocated for container-based shipment via ocean freight from the distribution centers to our individual warehouse clubs thereby maximizing freight volume per shipment in order to lower supply chain costs.  
 
The typical no-frills warehouse club-type buildings range in size from 48,000 to 78,000 square feet and are located primarily in urban areas to take advantage of dense populations and relatively higher levels of disposable income. Product selection includes perishable foods and basic consumer products. Ancillary services include food courts, tire centers, and photo centers. All shoppers pay an annual membership fee.
 
Business Strategy
 
PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Central America and the Caribbean that sell high quality merchandise at low prices to PriceSmart members and that provide fair wages and benefits to PriceSmart employees, as well as a fair return to PriceSmart stockholders. The Company sells U.S. brand-name, private label, and locally sourced products to its small business and consumer members in a warehouse club format providing high value to its members. By focusing on providing high value on quality merchandise in a low cost operating environment, the Company seeks to grow sales volume and increase membership which in turn will allow for further efficiencies, resulting in price reductions and improved value to our members.
 
Membership Policy
 
PriceSmart believes that membership reinforces customer loyalty. In addition, membership fees provide a continuing source of revenue, which is passed on to our members in the form of lower prices on merchandise. PriceSmart has two types of members: Business and Diamond (individual).
 
Businesses qualify for Business membership. PriceSmart promotes Business membership by selling institutional products and through its marketing programs primarily targeting small businesses like restaurants, hotels and convenience stores. Business members pay an annual membership fee of approximately $25 for a primary and secondary membership card and approximately $10 for additional add-on membership cards. Diamond (individual) members pay an annual membership fee of approximately $20 and approximately $10 for an add-on membership card.  Currently, the average fee per membership account is approximately $29.
 
The Company recognizes membership income over the 12 month term of the membership. Deferred membership income is presented separately on the consolidated balance sheet and totaled $8.3 million and $7.8 million as of August 31, 2009 and 2008, respectively. PriceSmart's membership agreements contain an explicit right to refund if its customers are dissatisfied with their membership. The Company's historical rate of membership fee refunds has been approximately 0.5% of membership income.
 
Expansion Plans
 
The Company is currently focusing its management attention on improving the operations of its current locations and believes that its existing sites provide the opportunity for improved sales and profitability. However, the Company continues to evaluate various options for expansion, particularly in the countries in which it has already established a strong market presence. In that regard, the Company announced on October 1, 2008 that it had entered into agreements to acquire properties in Panama and Costa Rica for the construction of new warehouse clubs.  The new Costa Rica warehouse club, the fifth PriceSmart warehouse club in that country, opened in April 2009.  In Panama, the Company will relocate an existing warehouse club to this new site and close (and subsequently lease) the existing warehouse club after the relocation has been completed, which is expected in the spring of 2010.  In December 2008, the Company acquired approximately 31,000 square meters of land in Trinidad upon which it is currently constructing a new warehouse club and an adjacent commercial center which will bring the number of warehouse clubs in that country to four. This new warehouse club is expected to be open in the spring of 2010.  The Company was not successful in completing the acquisition of the land in the Dominican Republic on which it had an option to purchase.  The Company is currently seeking an alternative site in the Santo Domingo, Dominican Republic market.  In addition, the Company is closely examining Colombia as a potential new market for multiple PriceSmart warehouse clubs. Related to the acquired sites in Panama and Costa Rica, the Company purchased a 50% interest in additional land adjacent to the warehouse club sites which will be developed as community shopping centers by the joint venture. 
 
2

Warehouse Club Closings and Asset Impairment

During fiscal year 2007, the Company recorded $1.6 million in asset impairment and closure costs. These costs were primarily due to the write down of the vacated San Pedro Sula, Honduras location and the loss on the sale of the East Side Santo Domingo, Dominican Republic location. In addition there were closure costs recorded in Guatemala for the closed Plaza warehouse, and closure costs in the Dominican Republic and Honduras incurred in operating and preparing the respective properties for sale. In September 2007 (fiscal year 2008), the Company finalized the sale of the vacated San Pedro Sula, Honduras location at the net book value of the asset.

During fiscal year 2008, the Company recorded approximately $1.1 million in asset impairment and closure costs.  These were primarily due to the write down of bulk packaging equipment for approximately $449,000, as this packaging is now substantially performed in vendor installations.  In addition, the Company recorded closing costs in Guatemala for the closed Plaza warehouse club.  The major costs associated with this location was the revaluation of the Guatemala Plaza lease liability for approximately $605,000 to reflect the increase in rental costs over the remaining period of the lease.  In addition the Company recorded additional closure costs in Honduras, associated with the final closure and sale of the San Pedro Sula warehouse club location, and Guatemala for approximately $205,000.  The Company recorded interest income generated from the note receivable related to the sale of the East Side Santo Domingo warehouse club which was located in the Dominican Republic for approximately $127,000 that is also included within the asset impairment and closure costs reported in fiscal year 2008.
 
During fiscal year 2009, the Company recorded a gain of approximately $249,000 in asset impairment and closure costs.  These were primarily due to the transfer of all rights and obligations of the subleased location in Guatemala for the closed “Plaza warehouse” for which the Company recorded a gain of approximately $651,000 and interest income of approximately $144,000 from the note receivable related to the East Side Santo Domingo warehouse club located in the Dominican Republic.  These were offset by costs of approximately $377,000 associated with the sublease of the closed Guatemala Plaza warehouse club incurred prior to the transfer of all rights and obligations.  The Company also recorded impairment charges of approximately $169,000 related to the write down to market value of other discontinued equipment.

Discontinued Operations
 
With the disposition of the Company's interest in PSMT Philippines, Inc. in fiscal 2005, this entity, as well as the Company's Guam operation, which was closed in fiscal 2004, qualify for treatment as “discontinued operations” in the Company's consolidated financial statements. The Company presents these operations under discontinued operations for all periods presented.
 
International Licensee Business
 
There is one facility in operation in Saipan, Micronesia licensed to and operated by local business people at the end of fiscal year 2009, through which the Company earns a royalty fee.
 
Intellectual Property Rights
 
It is the Company's policy to obtain appropriate proprietary rights protection for trademarks by filing applications for registration eligible trademarks with the U.S. Patent and Trademark Office, and in certain foreign countries. In addition, the Company relies on copyright and trade secret laws to protect its proprietary rights. The Company attempts to protect its trade secrets and other proprietary information through agreements with its joint ventures, employees, consultants and suppliers and other similar measures. There can be no assurance, however, that the Company will be successful in protecting its proprietary rights. While management believes that the Company's trademarks, copyrights and other proprietary know-how have significant value, changing technology and the competitive marketplace make the Company's future success dependent principally upon its employees' technical competence and creative skills for continuing innovation.
 
There can be no assurance that third parties will not assert claims against the Company with respect to existing and future trademarks, trade names, domain names, sales techniques or other intellectual property matters. In the event of litigation to determine the validity of any third-party's claims, such litigation could result in significant expense to the Company and divert the efforts of the Company's management, whether or not such litigation is concluded in favor of the Company.
 
In August 1999, the Company and Associated Wholesale Grocers, Inc. (“AWG”) entered into an agreement regarding the trademark “PriceSmart” and related marks containing the name “PriceSmart.” The Company agreed not to use the “PriceSmart” mark or any related marks containing the name “PriceSmart” in connection with the sale or offer for sale of any goods or services within AWG's territory of operations, including the following ten states: Kansas, Missouri, Arkansas, Oklahoma, Nebraska, Iowa, Texas, Illinois, Tennessee and Kentucky. The Company, however, may use the mark “PriceSmart” or any mark containing the name “PriceSmart” on the internet or any other global computer network whether within or outside such territory, and in any national advertising campaign that cannot reasonably exclude the territory, and the Company may use the mark in connection with various travel services. AWG has agreed not to oppose any trademark applications filed by the Company for registration of the mark “PriceSmart” or related marks containing the name “PriceSmart,” and AWG has further agreed not to bring any action for trademark infringement against the Company based upon the Company's use outside the territory (or with respect to the permitted uses inside the territory) of the mark “PriceSmart” or related marks containing the name “PriceSmart.”

Competition

The Company’s international merchandising business competes with other membership warehouse operators and a wide range of international, regional, national and local retailers and wholesalers, including supermarkets, supercenters, general merchandise chains and specialty chains.  The Company’s industry is highly competitive, based on factors such as price, merchandise quality and selection, warehouse location and member service.  Some of the Company’s competitors may have greater resources, buying power and name recognition.  Additional competitors might decide to enter the markets in which the Company operates, and the Company’s existing competitors might compete more effectively against the Company. The Company might be required to implement price reductions in order to remain competitive if any of the Company’s competitors reduce prices in any of the Company’s markets.
 
3

 
Employees
 
As of August 31, 2009, the Company and its consolidated subsidiaries had a total of 4,385 employees. Approximately 95% of the Company's employees were employed outside of the United States.
 
Seasonality
 
Historically, the Company's merchandising businesses have experienced holiday retail seasonality in their markets. In addition to seasonal fluctuations, the Company's operating results fluctuate quarter-to-quarter as a result of economic and political events in markets served by the Company, 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 the Company's future results will be consistent with past results or the projections of securities analysts.
 
 
In evaluating our business, you should consider the following discussion of risk factors, in addition to other information contained in this report as well as our other public filings with the U.S. Securities and Exchange Commission.
 
The Company's financial performance is dependent on international operations, which exposes it to various risks. The Company's international operations account for nearly all of the Company's total sales. The Company's financial performance is subject to risks inherent in operating and expanding the Company's international membership business, which include: (i) changes in and interpretation of tariff and tax laws and regulations, as well as inconsistent enforcement of laws and regulations; (ii) the imposition of foreign and domestic governmental controls; (iii) trade restrictions; (iv) greater difficulty and costs associated with international sales and the administration of an international merchandising business; (v) thefts and other crimes; (vi) limitations on U.S. company ownership in certain foreign countries; (vii) product registration, permitting and regulatory compliance; (viii) volatility in foreign currency exchange rates; (ix) the financial and other capabilities of the Company's joint venturers and licensees; and (x) general political as well as economic and business conditions.  For example, Honduras has experienced a period of political unrest resulting in street demonstrations and government mandated curfews which caused the Company’s Honduras operations to experience some disruption, with store hours being reduced consistent with the curfews.  Sales, banking transactions and merchandise shipments have not been materially affected.  However, a situation similar to that which occurred in Honduras could happen elsewhere and result in disruption of the Company’s sales, banking transactions, operations, merchandise shipments, and currency exchange rates, any of which could have a material adverse effect on the Company's business and results of operations.
 
Any failure by the Company to manage its widely dispersed operations could adversely affect the Company's business. As of August 31, 2009, the Company had in operation 26 warehouse clubs in 11 countries and one U.S. territory (five in Costa Rica; four in Panama; three each in Guatemala and Trinidad; two each in the Dominican Republic, El Salvador and Honduras; and one each in Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands).  The Company will need to continually evaluate the adequacy of the Company's existing personnel, systems and procedures, including warehouse management and financial and inventory control. Moreover, the Company will be required to continually analyze the sufficiency of the Company's inventory distribution channels and systems and may require additional or expanded facilities in order to support the Company's operations. The Company may not adequately anticipate all the changing demands that will be imposed on these systems. Any inability or failure to retain effective personnel or to update the Company's internal systems or procedures as required could have a material adverse effect on the Company's business, financial condition and results of operations.
 
    The Company faces significant competition. The Company's international merchandising businesses compete with exporters, wholesalers, local retailers and trading companies in various international markets. Some of the Company's competitors may have greater resources, buying power and name recognition. There can be no assurance that additional competitors will not decide to enter the markets in which the Company operates or that the Company's existing competitors will not compete more effectively against the Company. The Company may be required to implement price reductions in order to remain competitive should any of the Company's competitors reduce prices in any of the Company's markets. Moreover, the Company's ability to operate profitably in its markets, particularly small markets, may be adversely affected by the existence or entry of competing warehouse clubs or discount retailers.
 
The Company faces difficulties in the shipment of and inherent risks in the importation of merchandise to its warehouse clubs. The Company's warehouse clubs typically import half or more of the merchandise that they sell, which originates from various countries and is transported over great distances, typically over water, which results in: (i) substantial lead times needed between the procurement and delivery of product, thus complicating merchandising and inventory control methods; (ii) the possible loss of product due to theft or potential damage to, or destruction of, ships or containers delivering goods; (iii) product markdowns as a result of it being cost prohibitive to return merchandise upon importation; (iv) product registration, tariffs, customs and shipping regulation issues in the locations the Company ships to and from; and (v) substantial ocean freight and duty costs. Moreover, each country in which the Company operates has different governmental rules and regulations regarding the importation of foreign products. Changes to the rules and regulations governing the importation of merchandise may result in additional delays, costs or barriers in the Company's deliveries of products to its warehouse clubs or may affect the type of products it selects to import. In addition, only a limited number of transportation companies service the Company's regions. The inability or failure of one or more key transportation companies to provide transportation services to the Company, any collusion among the transportation companies regarding shipping prices or terms, changes in the regulations that govern shipping tariffs or the importation of products, or any other disruption in the Company's ability to transport the Company's merchandise could have a material adverse effect on the Company's business, financial condition and results of operations.
 
4

The Company is exposed to weather and other risks associated with international operations. The Company's operations are subject to the volatile weather conditions and natural disasters such as earthquakes and hurricanes, which are encountered in the regions in which the Company's warehouse clubs are located and which could result in significant damage to, or destruction of, or temporary closure of, the Company's warehouse clubs. Warehouse club closures associated with heavy rains, local flooding and government advisories to stay off the roads during a natural disaster, such as a hurricane, could result in many days of lost sales. Losses from business interruption may not be adequately compensated by insurance and could have a material adverse effect on the Company's business, financial condition and results of operations.
 
General economic conditions could adversely impact our business in various respects. A further slowdown in the U.S. and international economies or other economic conditions affecting discretionary consumer spending, such as employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, interest rates, tax rates, consumer spending patterns, customer preferences and other economic factors in each of the Company's foreign markets may adversely affect our business by reducing overall consumer purchasing power and could negatively impact the Company's growth, sales and profitability. In addition, a significant decline in the economies of the countries in which our warehouse clubs are located may lead to increased governmental ownership or regulation of the economy, higher interest rates, increased barriers to entry such as higher tariffs and taxes, and reduced demand for goods manufactured in the United States.  Factors such as declining expatriate remittances, reduced tourism, and less foreign investment could negatively impact the economies of Central America and the Caribbean. The current general global economic instability, the potential for further economic dislocations, the impact of the current global recession and its duration, the potential for failures or realignments of financial institutions and the related impact on available credit could have a material adverse effect on the Company's business, financial condition and results of operations.
  
A few of the Company's stockholders own nearly 40% of the Company's voting stock, which may make it difficult to complete some corporate transactions without their support and may impede a change in control. Robert E. Price, the Company’s Chairman of the Board and Chief Executive Officer, and Sol Price, a significant stockholder of the Company and father of Robert E. Price, and affiliates of these individuals, including Price Charities, and The Price Group, LLC,  collectively beneficially own approximately 39.8% of the Company’s outstanding shares of common stock. As a result of their beneficial ownership, these stockholders have the ability to significantly affect the outcome of all matters submitted to the Company's stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of the Company's common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of the Company's common stock.
 
The loss of key personnel could harm the Company's business. The Company depends to a large extent on the performance of its senior management team and other key employees, such as U.S. expatriates in certain locations where the Company operates. The loss of the services of any members of the Company's senior management or other key employees could have a material adverse effect on the Company's business, financial condition and results of operations.
 
The Company is subject to volatility in foreign currency exchange rates. The Company, primarily through majority or wholly owned subsidiaries, conducts operations in Central America and the Caribbean, and as such is subject to both economic and political instabilities that cause volatility in foreign currency exchange rates or weak economic conditions. As of August 31, 2009, the Company had a total of 26 warehouse clubs operating in 11 foreign countries and one U.S. territory, 19 of which operate under currencies other than the U.S. dollar. For fiscal year 2009, approximately 79% of the Company's net warehouse club sales were in foreign currencies. The Company may enter into additional foreign countries in the future or open additional locations in existing countries, which may increase the percentage of net warehouse sales denominated in foreign currencies. 

Foreign currencies in most of the countries where the Company operates have historically devalued against the U.S. dollar and are expected to continue to devalue. For example, Jamaica experienced a net currency devaluation of over 23% between the end of fiscal year 2008 and the end of fiscal year 2009 and Guatemala experienced an 11% devaluation over that same period. Foreign exchange transaction gains (losses), including repatriation of funds, which are included as part of the costs of goods sold in the consolidated statements of income, for fiscal years 2009, 2008 and 2007 were approximately ($1.5 million), $1.6 million and $5,000, respectively.

 The Company faces the risk of exposure to product liability claims, a product recall and adverse publicity. The Company markets and distributes products purchased from third-party suppliers and  products prepared by the Company for resale, including meat, dairy and other food products which exposes the Company to the risk of product liability claims, a product recall and adverse publicity. The Company may inadvertently redistribute food products or prepare food products that are contaminated, which may result in illness, injury or death if the contaminants are not eliminated by processing at the food service or consumer level. The Company generally seeks contractual indemnification and insurance coverage from its major suppliers for product purchased from third-party suppliers and carries product liability insurance for product prepared by the Company. However, if the Company does not have adequate insurance or contractual indemnification available, product liability claims relating to products that are contaminated or otherwise harmful could have a material adverse effect on the Company's ability to successfully market its products and on the Company's business, financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that the Company's products caused illness or injury could have a material adverse effect on the Company's reputation with existing and potential customers and on the Company's business, financial condition and results of operations.

 
5

 
 
Potential future impairments under Financial Accounting Standards Board Statement of Financial Accounting Standard No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets” could adversely affect the Company's future results of operations and financial position. In accordance with SFAS 144, long-lived assets are assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured and recognized if the sum of the expected future discounted cash flows is less than the carrying amount of the asset. If the carrying amount of the asset were determined to be impaired, an impairment loss to write-down the carrying value of the asset to fair value by using quoted market prices, when available, would be required. When a quoted market price is not available, an estimated fair value would be determined through other valuation techniques. The Company has used projected cash flows discounted to reflect the expected commercial, competitive and other factors related to its long-lived assets and comparisons to similar asset sales and valuations by others to estimate the fair value of its intangible assets. These future tests may result in a determination that these assets have been impaired. If at any time the Company determines that an impairment has occurred, it will be required to reflect the impaired value as a charge, resulting in a reduction in earnings in the quarter such impairment is identified and a corresponding reduction in our net asset value.
 
For example, in fiscal year 2008 the Company was required to take an impairment charge pursuant to SFAS 144 of approximately $449,000 on bulk packaging equipment located in its warehouse clubs.  This was due to the Company’s decision to outsource the bulk packaging of product. The Company was also required to take an impairment charge pursuant to SFAS 144 on the old San Pedro Sula, Honduras warehouse site in fiscal year 2007 of approximately $897,000. This was due to the revised fair valuation of the land and building as a result of the disposal agreement. In addition, in fiscal year 2007, the Company recorded a $2.6 million impairment charge related to the write down of the Company's interest in its Mexico joint venture as a result of the disposal agreement. A material reduction in earnings resulting from such a charge could cause the Company to fail to be profitable in the period in which the charge is taken or otherwise to fail to meet the expectations of investors and securities analysts, which could cause the price of the Company's stock to decline.
 
Write-offs pursuant to Financial Accounting Standards Board Statement of Financial Accounting Standard No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets” could adversely affect the Company's future results of operations and financial position. In accordance with SFAS 142, goodwill and intangible assets deemed to have indefinite lives are not amortized but instead are subject to annual impairment tests. As of August 31, 2009, the Company had goodwill of approximately $37.5 million, net of accumulated amortization originating prior to the adoption of SFAS 142. The Company performed its impairment test on goodwill as of August 31, 2009 and August 31, 2008, and no impairment losses were recorded. In the future, the Company will test for impairment at least annually. Such tests may result in a determination that these assets have been impaired. If at any time the Company determines that an impairment has occurred, the Company will be required to reflect the impaired value as a part of operating income, resulting in a reduction in earnings in the period such impairment is identified and a corresponding reduction in the Company's net asset value. A material reduction in earnings resulting from such a charge could cause the Company to fail to be profitable or increase the amount of its net loss in the period in which the charge is taken or otherwise to fail to meet the expectations of investors and securities analysts, which could cause the price of the Company's stock to decline.
 
   The Company faces increased compliance risks associated with compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires management of public companies to evaluate, and the independent auditors to attest to, the effectiveness of internal control over financial reporting. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of their inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Any failure to effectively implement new or improved internal controls, or to resolve difficulties encountered in their implementation, could harm the Company's operating results, cause it to fail to meet reporting obligations, result in management being required to give a qualified assessment of the Company's internal controls over financial reporting or the Company's independent auditors providing an adverse opinion regarding their attestation of the effectiveness of the Company’s internal controls over financial reporting. Any such result could cause investors to lose confidence in the Company's reported financial information, which could have a material adverse effect on the Company's stock price.
 
If remediation costs or hazardous substance contamination levels at certain properties for which the Company maintains financial responsibility exceed management’s current expectations, the Company’s financial condition and results of operations could be adversely impacted. In connection with its spin-off from Price Enterprises, Inc. (“PEI”) in 1997, the Company agreed to indemnify PEI for all of PEI's liabilities (including indemnification obligations for environmental liabilities) arising out of PEI's prior ownership of certain properties. The Company's ownership of real properties and its agreement to indemnify PEI could subject it to certain environmental liabilities. Certain of these properties are located in areas of current or former industrial activity, where environmental contamination may have occurred. For example, PEI sold an unimproved, 12.9-acre site located in Meadowlands, New Jersey in August 1995. A prior owner used this site as a debris disposal area. Elevated levels of heavy metals (including a small area contaminated with polychlorinated biphenyl) and petroleum hydrocarbons are present in soil at the Meadowlands site. To date, the Company has not been advised that PEI has been notified by any governmental authority, and is not otherwise aware, of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with the Meadowlands site. Nevertheless, PEI's previous ownership of the Meadowlands site creates the potential of liability for remediation costs associated with groundwater beneath the site. The Company also retains certain environmental indemnification obligations with respect to a parcel of land in Silver City, New Mexico, which PEI sold in March 1996 but agreed to retain responsibility for certain environmental matters. This site contains petroleum hydrocarbons in the soil and groundwater. There are no known receptors (groundwater users) down gradient of the Silver City site and the extent of soil and groundwater contamination is limited and has been reducing in mass and extent under naturally attenuating processes. The Company continues to monitor the soil and groundwater at this property as may be required by local authorities. If the Company were to incur costs for remediating contamination at the Meadowlands or Silver City sites (or any other site for which the Company maintains environmental responsibility) which exceed management’s current expectations, the Company’s financial condition and results of operations could be adversely impacted.
 
6

Available Information
 
The PriceSmart, Inc. website or internet address is www.pricesmart.com. On this website the Company makes available, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, and the annual report to the stockholders as soon as reasonably practicable after electronically filing such material with or furnishing it to the U.S. Securities and Exchange Commission (SEC). The Company’s SEC reports can be accessed through the investor relations section of its website under “SEC Filings.” All of the Company’s filings with the SEC may also be obtained at the SEC’s Public Reference Room at Room 1580, 100 F Street NE, Washington, DC 20549. For information regarding the operation of the SEC’s Public Reference Room, please contact the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.  The Company will make available its annual report on Form 10-K and its annual Proxy Statement for the fiscal year 2009 at the internet address http://materials.proxyvote.com/741511 as soon as reasonably practicable after electronically filing such material with or furnishing it to the SEC.
 
 
None. 
 

At August 31, 2009, PriceSmart operated 26 membership warehouse clubs.

Number of warehouse clubs
 
Own land
and building
 
Lease land
and/or building
 
Anticipated warehouse
club openings in FY 2010
CENTRAL AMERICA
           
Panama
 
3
 
1
 
    — (3)
Guatemala
 
1
 
2
 
Costa Rica
 
5
 
 
El Salvador
 
2
 
 
Honduras
 
1
 
1
 
Nicaragua
 
1
 
 
CARIBBEAN
           
Dominican Republic
 
2
 
 
Aruba
 
 
1
 
Barbados(2)
 
1
 
 
Trinidad
 
2
 
1
 
 1(4)
U.S. Virgin Islands
 
 
1
 
Jamaica
 
1
 
 
Total
 
19
 
7(1)
 
1

(1)
The former club located in Guam is not included; this warehouse club was closed in fiscal year 2004. The respective land and building is currently subleased to a third-party.  On June 3, 2009, the Company finalized an agreement to transfer all lessor rights and lessee obligations for the property known as Guatemala Plaza.
(2)
The Company acquired the land and building formerly leased in Barbados on November 15, 2007 (fiscal year 2008).
(3)
An existing PriceSmart warehouse club in Panama City, Panama (known as the Los Pueblos club) will be relocated to a new site (Brisas) in the spring of 2010 and the Company will close the existing warehouse club after the relocation has been completed.
(4)
This warehouse club is expected to open in the spring of 2010 (San Fernando).

At August 31, 2009, the Company's warehouse clubs occupied a total of approximately 1,656,332 square feet of which 410,249 square feet were on leased property. The following is a summary of the warehouse clubs and Company facilities located on leased property:
Location (1)(3)
 
Facility Type
 
Date Opened
 
Approximate 
Square Footage
 
Current Lease
Expiration Date
 
Remaining Option(s)
to Extend
Via Brazil, Panama
 
Warehouse Club
 
December 4, 1997
 
68,696
 
October 31, 2026
 
10 years
Miraflores, Guatemala
 
Warehouse Club
 
April 8, 1999
 
66,059
 
December 31, 2020
 
5 years
Pradera, Guatemala
 
Warehouse Club
 
May 29, 2001
 
48,438
 
May 28, 2021
 
none
Tegucigalpa, Honduras
 
Warehouse Club
 
May 31, 2000
 
64,735
 
May 30, 2020
 
none
Oranjestad, Aruba
 
Warehouse Club
 
March 23, 2001
 
54,229
 
March 23, 2021
 
10 years
Port of Spain, Trinidad
 
Warehouse Club
 
December 5, 2001
 
54,046
 
July 5, 2031
 
none
St. Thomas, U.S.V.I.
 
Warehouse Club
 
May 4, 2001
 
54,046
 
February 28, 2020
 
10 years
Barbados 
 
Storage Facility
 
May 5, 2006
 
4,800
 
May 31, 2011
 
1 year
Chaguanas, Trinidad
 
Employee Parking
 
May 1, 2009
 
4,944
 
April 30, 2024
 
none
San Diego, CA
 
Corporate Headquarters
 
April 1, 2004
 
35,000
 
March 31, 2011
 
5 years
Miami, FL
 
Distribution Facility
 
March 1, 2008
 
200,709
 
August 31, 2018
 
10 years
Miami, FL (2)
 
Distribution Facility
 
September 1, 2001
 
36,575
 
February 28, 2011
 
none

(1)
The former club located in Guam is not included; this warehouse club was closed in fiscal year 2004. The land and building are currently subleased to a third-party.
(2)
The Company entered into a new lease amendment with respect to this property providing for an expansion of 5,000 square feet.  This lease was renewed on August 31, 2009 and was effective September 1, 2009.
(3)
The Company finalized an agreement on June 3, 2009 to transfer all lessor rights and lessee obligations for the property where the former Guatemala Plaza warehouse club was located.  The Guatemala warehouse club was closed in fiscal year 2003 and had been subleased.
 
7

 
 
  In the ordinary course of business, the Company is periodically named as a defendant in various lawsuits, claims and pending actions and is exposed to tax risks. The principal risks that the Company insures against are workers’ compensation, general liability, vehicle liability, property damage, employment practices, errors and omissions, fiduciary liability and fidelity losses. If a potential loss arising from these lawsuits, claims, actions and non-income tax issues is probable and reasonably estimable, the Company records the estimated liability based on circumstances and assumptions existing at the time in accordance with Statement of Financial Accounting Standards Board No. 5, “Accounting for Contingencies.”  For potential income tax related issues the Company records estimated liabilities in accordance with Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”  While the Company believes the recorded liabilities are adequate, there are inherent limitations in projecting the outcome of litigation and in the estimation process whereby future actual losses may exceed projected losses, which could have a material adverse effect on the Company’s financial condition and results of operations.


The Company did not submit any matters to a vote of security holders during the fourth quarter of fiscal year 2009.


 
8

 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The information required by Item 5 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2009 under the heading “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
 
Item 6. Selected Financial Data
 
The information required by Item 6 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2009 under the heading “Selected Financial Data.”
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The information required by Item 7 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2009 under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
 
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
 
The information required by Item 7A is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2009 under the heading “Quantitative and Qualitative Disclosures about Market Risk.”
 
Item 8. Financial Statements and Supplementary Data
 
The information required by Item 8 is incorporated herein by reference to PriceSmart's Annual Report to Stockholders for the fiscal year ended August 31, 2009 under the heading “Financial Statements and Supplementary Data.”
 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.
 
 
9

 
Item 9A. Controls and Procedures
 
(a) Evaluation of disclosure controls and procedures.
 
As of August 31, 2009, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal accounting officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in its periodic reports with the SEC is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and that the information is accumulated and communicated to the Company’s management, including the principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure. The design of any disclosure controls and procedures also is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Based upon their evaluation, the principal executive officer and principal accounting officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
 
(b) Management’s report on internal control over financial reporting
 
Internal control over financial reporting refers to the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
 
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
 
Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of our internal control over financial reporting. Based on its evaluation, management has concluded that our internal control over financial reporting was effective as of August 31, 2009, the end of our most recent fiscal year. Ernst & Young LLP, our independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting as of August 31, 2009, as stated in their report which is included herein.
 
(c) Changes in internal control over financial reporting.
 
There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act), during the fiscal year ended August 31, 2009 that have materially affected or are reasonably likely to affect, the Company’s internal control over financial reporting.
 
The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibit 31.1 and 31.2 to this report.
 
Item 9B. Other Information
 
Not applicable.

 
10

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of PriceSmart, Inc.
 
We have audited PriceSmart, Inc.’s internal control over financial reporting as of August 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). PriceSmart, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, PriceSmart, Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2009, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2009 consolidated financial statements of PriceSmart, Inc. and our report dated November 9, 2009 expressed an unqualified opinion thereon.
 
/s/    Ernst & Young LLP
 
San Diego, California
November 9, 2009
 

 
11

 


PART III
 
Item 10. Directors and Executive Officers of the Registrant
 
PriceSmart has adopted a code of ethics that applies to its Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and Controller, and to all of its other officers, directors, employees and agents. The code of ethics is available on PriceSmart's web site at http://pricesmart.com/Investor/Corporate-Governance/Conduct.aspx. PriceSmart intends to disclose on its website future amendments to, or waivers from, certain provision of its code of ethics within four business days following the date of such amendment or waiver.
 
The additional information required by Item 10 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Election of Directors,” “Information Regarding Directors,” “Executive Officers of the Company” and “Compliance with Section 16(a) of the Exchange Act.”
 
Item 11. Executive Compensation
 
The information required by Item 11 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Information Regarding the Board,” and “Executive Compensation and Other Information.”
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by Item 12 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the headings “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”
 
Item 13. Certain Relationships and Related Transactions
 
The information required by Item 13 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Certain Transactions.”
 
Item 14. Principal Accountant Fees and Services
 
The information required by Item 14 is incorporated herein by reference from PriceSmart's definitive Proxy Statement for the Annual Meeting of Stockholders under the heading “Independent Registered Public Accounting Firm.”


 
12

 
PART IV

Item 15. Exhibits, Financial Statement Schedules
 
(a) The documents listed in the following table, which are included in our Annual Report to Stockholders, are incorporated herein by reference to the portions of this Annual Report on Form 10-K filed as Exhibit 13.1 hereto.
 
(1) and (2) Financial Statements
 
Index to Consolidated Financial Statements
 
Report of Independent Registered Public Accounting Firm
 
Consolidated Balance Sheets
 
Consolidated Statements of Income
 
Consolidated Statements of Stockholders’ Equity
 
Consolidated Statements of Cash Flows
 
Notes to Consolidated Financial Statements
 
Schedules not included herein have been omitted because they are not applicable or the required information is included in the consolidated financial statements or notes thereto.
 
(3) The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
 
Exhibit
Number
Description
   
  3.1(1)
Amended and Restated Certificate of Incorporation of the Company.
   
  3.2(33)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
   
  3.3(10)
Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company.
   
  3.4(1)
Amended and Restated Bylaws of the Company.
   
  3.5(34)
Amendment to Amended and Restated Bylaws of the Company.
   
  4.1(36)
Specimen of Common Stock certificate.
   
10.1(1)
1997 Stock Option Plan of PriceSmart, Inc.
   
10.2(2)
Agreement Concerning Transfer of Certain Assets dated as of November 1996 by and among Price Enterprises, Inc., Costco Companies, Inc. and certain of their respective subsidiaries.
   
10.2(a)(39)
Settlement Agreement and General Release of All Claims, entered into on August 5, 2005, by and among William Go, E-Class Corporation, PSMT Philippines, Inc., National Import and Export Company, San Marino International Corporation, Arcadia International Corporation, Christine Merchandising, Inc. and PriceSmart, Inc.
   
 10.2(b)(48)
International Loan Swap Agreement with Citibank, N.A. dated as of February 13, 2008.
   
 10.2(c)(48)
Settlement Agreement and Release entered into as of February 8, 2008 by and among PriceSmart, Inc. and PSMT entities (collectively known as PriceSmart) and PSC, S.A. and PSC entities (collectively known as “PSC Parties”).
   
10.2(d)(53)
Loan Facility Agreement between PriceSmart (Trinidad) Limited and First Caribbean International Bank (Trinidad & Tobago) Limited dated February 19, 2009.
   
10.2(e)*
Loan Agreement dated August 13, 2009 between PriceSmart, SA. and the Bank of Nova Scotia.
   
10.3(a)(3)
Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated September 20, 1994.
   
10.3(b)(4)
Third Amendment to Employment Agreement between Price Enterprises, Inc. and Robert M. Gans, dated April 28, 1997.
   
10.3(c)(1)
Fourth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 2, 1997.
   
10.3(d)(5)
Fifth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 31, 1999.

13


Exhibit
Number
Description
 
10.3(e)(6)
Sixth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 22, 1999.
   
10.3(f)(6)
Seventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 18, 2000.
   
10.3(g)(7)
Eighth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2001.
   
10.3(h)(7)
Amendment of Employment Agreement between the Company and Robert M. Gans, dated as of October 16, 2001.
   
10.3(i)(8)
Ninth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 19, 2002.
   
10.3(j)(9)
Tenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 22, 2003.
   
10.3(k)(30)
Eleventh Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of July 24, 2003.
   
10.3(l)(46)
Twelfth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 24, 2004.
   
10.3(m)(37)
Thirteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of February 10, 2005.
   
10.3(n)(40)
Fourteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 26, 2005.
   
10.3(o)(42)
Fifteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of March 1, 2006.
   
10.3(p)(47)
Sixteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of September 25, 2006.
   
10.3(q)(44)
Seventeenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2007.
   
10.3(r)(50)
Eighteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2007.
   
10.3(s)(48)
Nineteenth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2008.
   
10.3(t)(51)
Twentieth Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of October 1, 2008.
   
10.3(u)(52)
Twenty First Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of November 13, 2008.
   
10.3(v)(53)
Twenty Second Amendment to Employment Agreement between the Company and Robert M. Gans, dated as of January 1, 2009.
   
10.4(11)
Tax Sharing Agreement between the Company and Price Enterprises, Inc. dated as of August 26, 1997.
   
10.5(12)
Form of Indemnity Agreement.
   
10.6(1)
Assignment and Assumption of Employment Agreement between the Company and Price Enterprises, Inc. dated August 29, 1997.
   
10.8(a)(16)
Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1998.
   
10.8(b)(5)
First Amendment to Employment Agreement between the Company and Thomas D. Martin, dated March 31, 1999.
   
10.8(c)(6)
Second Amendment of Employment Agreement between the Company and Thomas D. Martin, dated November 22, 1999.
   
10.8(d)(13)
Third Amendment of Employment Agreement between the Company and Thomas Martin dated January 11, 2000.

10.8(e)(17)
Fourth Amendment of Employment Agreement between the Company and Thomas Martin dated January 24, 2001.
   
10.8(f)(7)
Amendment of Employment Agreement between the Company and Thomas Martin dated October 16, 2001.
   
10.8(g)(14)
Fifth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 16, 2002.
   
10.8(h)(30)
Sixth Amendment of Employment Agreement between the Company and Thomas Martin, dated January 22, 2003.
   
10.8(i)(34)
Seventh Amendment to Employment Agreement between the Company and Thomas Martin, dated March 15, 2004.
 
14


Exhibit
Number
Description
   
10.8(j)(38)
Eighth Amendment to Employment Agreement between the Company and Thomas Martin, dated March 3, 2005.
   
10.8(k)(42)
Ninth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2006.
   
10.8(l)(44)
Tenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2007.
   
10.8(m)(45)
Eleventh Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2007.
   
10.8(n)(48)
Twelfth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2008.
   
10.8(o)(49)
Thirteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2008.
   
10.8(p)(52)
Fourteenth Amendment to Employment Agreement between the Company and Thomas Martin dated November 13, 2008.
   
10.8(q)(53)
Fifteenth Amendment to Employment Agreement between the Company and Thomas Martin dated January 1, 2009.
   
10.8(r)(54)
Sixteenth Amendment to Employment Agreement between the Company and Thomas Martin dated March 1, 2009.
   
10.10(52)
Letter Agreement between RBTT Bank Ltd. And PriceSmart (Trinidad) Limited dated November 20, 2008.
   
10.11(52)
Shareholders’ Agreement between Pricsmarlandco, S.A. and JB Enterprises Inc.dated September 29, 2008.
   
10.12(52)
Shareholder Agreement between Fundacion Tempus Fugit and PriceSmart Panama, S.A. dated September 24, 2008.
   
10.9(19)
1998 Equity Participation Plan of PriceSmart, Inc.
   
10.12(18)
Trademark Agreement between the Company and Associated Wholesale Grocers, Inc., dated August 1, 1999.
   
10.23(17)
Master Agreement between the Company and Payless ShoeSource Holdings, Ltd., dated November 27, 2000.
   
10.29(a)(14)
Employment Agreement between the Company and William Naylon, dated January 16, 2002.
   
10.29(b)(9)
First Amendment of Employment Agreement between the Company and William J. Naylon, dated January 22, 2003.
   
10.29(c)(33)
Second Amendment to Employment Agreement between the Company and William Naylon, dated February 1, 2004.
   
10.29(d)(37)
Third Amendment to Employment Agreement between the Company and William Naylon, dated as of February 16, 2005.
   
10.29(e)(41)
Fourth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 11, 2006.
   
10.29(f)(42)
Fifth Amendment to Employment Agreement between the Company and William Naylon, dated as of March 1, 2006.
   
10.29(g)(44)
Sixth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2007.
   
10.29(h)(48)
Seventh Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2008.
   
10.29(i)(52)
Eighth Amendment to Employment Agreement between the Company and William Naylon, dated as of November 13, 2008.
   
10.29(j)(53)
Ninth Amendment to Employment Agreement between the Company and William Naylon, dated as of January 1, 2009.
   
10.30(a)(7)
Employment Agreement between the Company and John D. Hildebrandt, dated as of June 1, 2001.

10.30(b)(7)
Amendment to Employment Agreement between the Company and John Hildebrandt, dated as of October 16, 2001.
   
10.30(c)(14)
First Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 16, 2002.
   
10.30(d)(30)
Second Amendment of Employment Agreement between the Company and John Hildebrandt, dated January 22, 2003.
 
15

Exhibit
Number
Description
   
10.30(e)(34)
Third Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 15, 2004.
   
10.30(f)(38)
Fourth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 9, 2005.
   
10.30(g)(42)
Fifth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2006.
   
10.30(h)(44)
Sixth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2007.
   
10.30(i)(45)
Seventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2007.
   
10.30(j)(48)
Eighth Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2008.
   
10.30(k)(49)
Ninth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2008.
   
10.30(l)(52)
Tenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated November 13, 2008.
   
10.30(m)(53)
Eleventh Amendment to Employment Agreement between the Company and John Hildebrandt, dated January 1, 2009.
   
10.30(n)(54)
Twelfth Amendment to Employment Agreement between the Company and John Hildebrandt, dated March 1, 2009.
   
10.30(m)(54)
Thirteenth Amendment to Employment Agreement between the Company and John Hildebrandt, dated April 1, 2009.
   
10.33(22)
2001 Equity Participation Plan of PriceSmart, Inc.
   
10.43(a)(8)
Employment Agreement between the Company and Edward Oats dated as of January 11, 2000.
   
10.43(b)(8)
First Amendment to Employment Agreement between the Company and Edward Oats, dated January 24, 2001.
   
10.43(c)(8)
Amendment to Employment Agreement between the Company and Edward Oats, dated October 16, 2001.
   
10.43(d)(8)
Second Amendment to Employment Agreement between the Company and Edward Oats, dated January 16, 2002.
   
10.43(e)(30)
Third Amendment to Employment Agreement between the Company and Edward Oats, dated November 19, 2002.
   
10.43(f)(30)
Fourth Amendment to Employment Agreement between the Company and Edward Oats, dated January 22, 2003.
   
10.43(g)(34)
Fifth Amendment to Employment Agreement between the Company and Edward Oats, dated March 15, 2004.
   
10.43(g)(38)
Sixth Amendment to Employment Agreement between the Company and Edward Oats, dated March 9, 2005.
   
10.43(h)(42)
Seventh Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2006.
   
10.43(i)(44)
Eighth Amendment to Employment Agreement between the Company and Edward Oats, dated January 1, 2007.
   
10.43(j)(45)
Ninth Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2007.
   
10.43(k)(48)
Tenth Amendment to Employment Agreement between the Company and Edward Oats, dated January 1, 2008.
   
10.43(l)(49)
Eleventh Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2008.
   
10.43(m)(52)
Twelfth Amendment to Employment Agreement between the Company and Edward Oats, dated November 13, 2008.
   
10.43(n)(54)
Thirteenth Amendment to Employment Agreement between the Company and Edward Oats, dated March 1, 2009.
   
10.44(a)(8)
Employment Agreement between the Company and Brud Drachman, dated as of January 11, 2000.

10.44(b)(8)
First Amendment to Employment Agreement between the Company and Brud Drachman, dated January 24, 2001.
   
10.44(c)(8)
Second Amendment to Employment Agreement between the Company and Brud Drachman, dated June 1, 2001.
 
16

Exhibit
Number
Description
 
10.44(d)(8)
Amendment to Employment Agreement between the Company and Brud Drachman, dated October 16, 2001.
   
10.44(e)(8)
Third Amendment to Employment Agreement between the Company and Brud Drachman, dated January 16, 2002.
   
10.44(f)(30)
Fourth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 19, 2002.
   
10.44(g)(30)
Fifth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 22, 2003.
   
10.44(h)(34)
Sixth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 15, 2004.
   
10.44(h)(38)
Seventh Amendment to Employment Agreement between the Company and Brud Drachman, dated March 9, 2005.
   
10.44(i)(42)
Eighth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2006.
   
10.44(j)(44)
Ninth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2007.
   
10.44(k)(45)
Tenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2007.
   
10.44(l)(48)
Eleventh Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2008.
   
10.44(m)(49)
Twelfth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2008.
   
10.44(n)(52)
Thirteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated November 13, 2008.
   
10.44(o)(53)
Fourteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated January 1, 2009.
   
10.44(o)(54)
Fifteenth Amendment to Employment Agreement between the Company and Brud Drachman, dated March 1, 2009.
   
10.46(27)
2002 Equity Participation Plan of PriceSmart, Inc.
   
10.54(a)(35)
Employment Agreement by and between the Company and Jose Luis Laparte, dated as of June 3, 2004.
   
10.54(b)(35)
First Amendment to Employment Agreement by and between the Company and Jose Luis Laparte, dated as of August 2, 2004.
   
10.54(c)(40)
Second Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of September 26, 2005.
   
10.54(d)(42)
Third Amendment to Employment Agreement between the Company and Jose Luis Laparte, dated as of March 1, 2006.
   
10.54(e)(47)
Fourth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of September 25, 2006.
   
10.54(f)(44)
Fifth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2007.
   
10.54(g)(50)
Sixth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2007.
   
10.54(h)(50)
Seventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 31, 2007.
   
10.54(i)(48)
Eighth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2008.
   
10.54(j)(51)
Ninth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of October 1, 2008.
   
10.54(k)(52)
Tenth Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of November 13, 2008.
   
10.54(l)(53)
Eleventh Amendment to Employment Agreement between the Company and Jose Luis Laparte dated as of January 1, 2009.
 
10.70(40)
Stock Purchase Agreement between the Company and Big Box Sales Ltd. dated November 11, 2005.
   
10.71(c)(44)
Acquisition of Fractional Interest on Jet between the Company and PFD Ivanhoe, Inc. dated January 23, 2007.
 
17

 
Exhibit
Number
Description
   
   10.71(d)(48)
    Lease Agreement between Flagler Development Company, LLC and PriceSmart, Inc.
   
10.71(e)(48)
Promissory Note entered into between PSMT Barbados and Citibank, N.A. dated November 15, 2007.
   
10.71(f)(48)
Loan Agreement entered into between PSMT Barbados and Citicorp Merchant Bank Limited dated November 15, 2007.
   
10.72(b)(43)
Restricted Stock Award Agreement between the Company and Jose Luis Laparte dated December 7, 2006.
   
13.1*
Portions of the Company’s Annual Report to Stockholders for the year ended August 31, 2009.
   
21.1*
Subsidiaries of the Company.
   
23.1*
Consent of Independent Registered Public Accounting Firm.
   
31.1*
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2*
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1*#
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2*#
Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
*
Filed herewith as an exhibit.
**
Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.
#
These certifications are being furnished solely to accompany this Report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of PriceSmart, Inc. whether made before or after the date hereof, regardless of any general incorporation language in such filing.
(1)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1997 filed with the Commission on November 26, 1997.
(2)
Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 filed with the Commission on July 3, 1997.
(3)
Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4 of Price Enterprises, Inc. filed with the Commission on November 3, 1994.
(4)
Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Price Enterprises, Inc. for the quarter ended June 8, 1997 filed with the Commission on July 17, 1997.
(5)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 1999 filed with the Commission on July 15, 1999.
(6)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2000 filed with the Commission on November 29, 2000.
(7)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2001 filed with the Commission on November 29, 2001.
(8)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2002 filed with the Commission on November 29, 2002.
(9)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 filed with the Commission on April 14, 2003.
(10)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2003 filed with the Commission on November 23, 2004.
(11)
Incorporated by reference to the Current Report on Form 8-K filed September 12, 1997 by Price Enterprises, Inc.
(12)
Incorporated by reference to Exhibit 10.8 to Amendment No. 1 to the Company’s Registration Statement on Form 10 filed with the Commission on August 1, 1997.
(13)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2000 filed with the Commission on April 11, 2000.
(14)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2002 filed with the Commission on July 15, 2002.
(15)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on April 1, 2003.
(16)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1998 filed with the Commission on November 25, 1998.
(17)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2001 filed with the Commission on April 16, 2001.
(18)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 filed with the Commission on November 29, 1999.
(19)
Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1999 filed with the Commission on April 14, 1999.
(20)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
 
18

(21)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed with the Commission on July 17, 2000.
(22)
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 7, 2001 for the Company’s 2002 Annual Meeting of Stockholders filed with the Commission on December 10, 2001.
(23)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2002 filed with the Commission on April 15, 2002.
(24)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on April 18, 2002.
(25)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on July 19, 2002.
(26)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on October 25, 2002.
(27)
Incorporated by reference to Exhibit A to the definitive Proxy Statement dated December 11, 2002 for the Company’s 2003 Annual Meeting of Stockholders filed with the Commission on December 11, 2002.
(28)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003 filed with the Commission on July 15, 2003.
(29)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on September 5, 2003.
(30)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2003 filed with the Commission on December 16, 2003.
(31)
Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 filed with the Commission on January 14, 2004.
(32)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on July 26, 2004.
(33)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 filed with the Commission on April 14, 2004.
(34)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2004 filed with the Commission on July 15, 2004.
(35)
Incorporated by reference to the Current Report on Form 8-K filed with the Commission on October 8, 2004.
(36)
Incorporated by reference to the Company’s Registration Statement on Form S-3 filed with the Commission on December 2, 2004.
(37)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2005 filed with the Commission on April 14, 2005.
(38)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005 filed with the Commission on June 15, 2005.
(39)
Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 18, 2005.
(40)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 filed with the Commission on January 14, 2006.
(41)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2006 filed with the Commission on April 14, 2006.
(42)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2006 filed with the Commission on July 14, 2006.
(43)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 filed with the Commission on January 9, 2007.
(44)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007 filed with the Commission on April 9, 2007.
(45)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2007 filed with the Commission on July 3, 2007.
(46)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2004 filed with Commission on January 14, 2005.
(47)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2006 filed with the Commission on November 13, 2006.
 (48)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2008 filed with the Commission on April 9, 2008.
(49)          Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2008 filed  
 
with the Commission on July 10, 2008.
(50)
Incorporated by reference to the Company’s Annual Report on Form 10-K/A amendment 2 for the year ended August 31, 2007 filed with the Commission on July 11, 2008.
(51)
Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended August 31, 2008 filed with the Commission on November 12, 2008.
(52)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A for the quarter ended November 30, 2008 filed with the Commission on January 14, 2009.
(53)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2009 filed with the Commission on April 9, 2009.
(54)
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2009 filed with the Commission on July 10, 2009.

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

1)  
Schedule II – Valuation and Qualifying Accounts and Reserves for each of the three years in the period ended
August 31, 2008.
 
19

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

 
   
Balance at
Beginning
of Period
 
Charged
(credited) to
Costs and
Expenses
   
Deductions
   
Balance at
End of
Period
Allowance for doubtful accounts:
                   
Year ended August 31, 2007
 
$
191
 
$
(52
)
 
$
(136
)
 
$
3
Year ended August 31, 2008
   
3
   
625
 
(1)
 
(617
)
   
11
Year ended August 31, 2009
   
11
   
44
     
(45
)
   
10
 
(1)
Expenses and deduction principally consist of $530,000 write-off of receivables pursuant to a Settlement Agreement and Release with PSC, S.A. (“PSC”).

 
20

 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: November 9, 2009
PRICESMART, INC.
     
 
By:
/s/    ROBERT E. PRICE
   
Robert E. Price
   
Chairman of the Board and
   
Chief Executive Officer

 
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
 
 
/s/    ROBERT E. PRICE
 
 
Chairman of the Board and Chief
 
 
November 9, 2009
Robert E. Price
Executive Officer
 
 
(Principal Executive Officer)
 
     
/s/   JOHN M. HEFFNER
Executive Vice President and Chief
November 9, 2009
John M. Heffner
Financial Officer
 
 
(Principal Financial Officer and
 
 
Principal Accounting Officer)
 
     
/s/    GONZALO BARRUTIETA
Director
November 9, 2009
Gonzalo Barrutieta
   
     
/s/    KATHERINE L. HENSLEY
Director
November 9, 2009
Katherine L. Hensley
   
     
/s/   LEON C. JANKS
Director
November 9, 2009
Leon C. Janks
   
     
/s/    LAWRENCE B. KRAUSE
Director
November 9, 2009
Lawrence B. Krause
   
     
/s/   JOSE LUIS LAPARTE
President and Director
November 9, 2009
Jose Luis Laparte
   
     
/s/    KEENE WOLCOTT
Director
November 9, 2009
Keene Wolcott
   
     
/s/    EDGAR ZURCHER
Director
November 9, 2009
Edgar Zurcher
   


 
21

 

 
Exhibit 13.1
 
PRICESMART, INC.
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
OTHER INFORMATION
AUGUST 31, 2009


 
Page
   
   
   
   
   
   
   
   
   
   

 

 
i

 
PRICESMART, INC.
 
 
The selected consolidated financial data presented below is derived from the Company's consolidated financial statements and accompanying notes. This selected financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included elsewhere in this report.

   
Years Ended August 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(in thousands, except income (loss) per common share)
 
OPERATING RESULTS DATA:
                             
Net warehouse club sales
 
$
1,224,331
   
$
1,097,510
   
$
869,102
   
$
719,576
   
$
604,994
 
Export sales
   
3,679
     
1,498
     
1,016
     
63
     
425
 
Membership income
   
17,903
     
16,042
     
13,857
     
11,520
     
9,424
 
Other income
   
5,715
     
4,826
     
4,826
     
3,514
     
3,982
 
Total revenues
   
1,251,628
     
1,119,876
     
888,801
     
734,673
     
618,825
 
Cost of goods sold
   
1,048,039
     
933,714
     
738,279
     
611,497
     
517,005
 
Selling, general and administrative
   
145,839
     
134,214
     
115,123
     
102,863
     
95,671
 
Preopening expenses
   
515
     
1,010
     
373
     
349
     
99
 
Asset impairment and closure costs (gains)
   
(249
)
   
1,142
     
1,550
     
1,834
     
11,361
 
Provision for settlement of pending litigation
   
     
1,370
     
5,500
     
     
 
Operating income (loss)
   
57,484
     
48,426
     
27,976
     
18,130
     
(5,311
)
Net interest and other income (expense)(1)
   
(1,782
)
   
(598
)
   
523
     
(1,383
)
   
(4,625
)
Income (loss) from continuing operations before provision for income taxes, losses (including impairment charges) of unconsolidated affiliates and minority interest
   
55,702
     
47,828
     
28,499
     
16,747
     
(9,936
)
Provision for income taxes
   
(13,069
)
   
(9,124
)
   
(12,337
)
   
(8,112
)
   
(9,140
)
Losses (including impairment charges in 2007 and 2005) of unconsolidated affiliates(2)
   
(21
)
   
     
(2,903
)
   
(97
)
   
(4,368
)
Minority interest
   
(265
)
   
(494
)
   
(476
)
   
(354
)
   
566
 
Income (loss) from continuing operations
   
42,347
     
38,210
     
12,783
     
8,184
     
(22,878
)
Discontinued operations income (loss), net of tax
   
(28
)
   
(104
)
   
143
     
3,674
     
(19,459
)
Net income (loss)
   
42,319
     
38,106
     
12,926
     
11,858
     
(42,337
)
Preferred dividends
   
     
     
     
     
(648
)
Deemed dividend on exchange of common stock for preferred stock
   
     
     
     
     
(20,647
)
Net income (loss) available (attributable) to common stockholders
 
$
42,319
   
$
38,106
   
$
12,926
   
$
11,858
   
$
(63,632
)
INCOME (LOSS) PER COMMON SHARE -BASIC:
                                       
Income (loss) from continuing operations
 
$
1.46
   
$
1.32
   
$
0.44
   
$
0.30
   
$
(1.13
)
Discontinued operations, net of tax
 
$
   
$
   
$
0.01
   
$
0.13
   
$
(0.96
)
Preferred and deemed dividends
 
$
   
$
   
$
   
$
   
$
(1.06
)
Basic net income (loss) per common share
 
$
1.46
   
$
1.32
   
$
0.45
   
$
0.43
   
$
(3.15
)
INCOME (LOSS) PER COMMON SHARE -DILUTED:
                                       
Income (loss) from continuing operations
 
$
1.45
   
$
1.30
   
$
0.44
   
$
0.30
   
$
(1.13
)
Discontinued operations, net of tax
 
$
   
$
   
$
   
$
0.13
   
$
(0.96
)
Preferred and deemed dividends
 
$
   
$
   
$
   
$
   
$
(1.06
)
Diluted net income (loss) per common share
 
$
1.45
   
$
1.30
   
$
0.44
   
$
0.43
   
$
(3.15
)
Weighted average common shares - basic
   
28,959
     
28,860
     
28,534
     
27,332
     
20,187
 
Weighted average common shares - diluted
   
29,181
     
29,210
     
29,243
     
27,735
     
20,187
 
 

 
1

 

PRICESMART, INC.
 
SELECTED FINANCIAL DATA- (Continued)


   
As of August 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(in thousands)
 
BALANCE SHEET DATA:
                             
Cash and cash equivalents
 
$
44,193
   
$
48,121
   
$
32,065
   
$
39,995
   
$
30,147
 
Short-term restricted cash
   
10
     
536
     
8,046
     
7,651
     
7,331
 
Total assets
   
487,373
     
451,412
     
395,419
     
359,043
     
319,854
 
Long-term debt (including related party)(3)
   
37,120
     
23,028
     
8,008
     
13,252
     
23,915
 
Stockholders’ equity
   
300,398
     
274,506
     
245,316
     
234,619
     
198,273
 
Dividends paid on common stock(4)
   
14,807
     
9,463
     
4,659
     
     
 

(1)
Net interest and other income (expense) includes interest income and expense and gains and losses on disposal of assets.
(2)
Includes impairment charges of $2.6 million and $1.1 million in fiscal years 2007 and 2005, respectively.
(3)
Long-term debt, net of current portion.
(4)
On January 29, 2009, January 24, 2008 and February 7, 2007, the Company declared a cash dividend on its common stock.
 

 
2

 
PRICESMART, INC.
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
This Annual Report contains forward-looking statements concerning the Company's anticipated future revenues and earnings, adequacy of future cash flow and related matters. These forward-looking statements include, but are not limited to, statements containing the words “expect,” “believe,” “will,” “may,” “should,” “project,” “estimate,” “scheduled,” and like expressions, and the negative thereof. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including the following risks: the Company's financial performance is dependent on international operations; any failure by the Company to manage its widely dispersed operations could adversely affect its business; although the Company has taken steps to significantly improve its internal controls, there may be material weaknesses or significant deficiencies that the Company has not yet identified; the Company faces significant competition; the Company may encounter difficulties in the shipment of and inherent risks in the importation of merchandise to its warehouse clubs; the Company is exposed to weather and other risks associated with international operations; declines in the economies of the countries in which the Company operates its warehouse clubs would harm its business; a few of the Company's stockholders have control over the Company's voting stock, which will make it difficult to complete some corporate transactions without their support and may prevent a change in control; the loss of key personnel could harm the Company's business; the Company is subject to volatility in foreign currency exchange; the Company faces the risk of exposure to product liability claims, a product recall and adverse publicity; a determination that the Company's long-lived or intangible assets have been impaired could adversely affect the Company's future results of operations and financial position; and the Company faces compliance risks associated with Section 404 of the Sarbanes-Oxley Act of 2002; as well as the other risks detailed in the Company's U.S. Securities and Exchange Commission (“SEC”) reports, including the Company's Form 10-K for the fiscal year ended August 31, 2009 filed pursuant to the Securities Exchange Act of 1934.
 
The following discussion and analysis compares the results of operations for each of the three fiscal years ended August 31, 2009, 2008 and 2007 and should be read in conjunction with the consolidated financial statements and the accompanying notes included elsewhere in this report.
 
PriceSmart's mission is to efficiently operate U.S.-style membership warehouse clubs in Central America and the Caribbean that sell high quality merchandise at low prices to PriceSmart members and that provide fair wages and benefits to PriceSmart employees as well as a fair return to PriceSmart stockholders. The Company delivers U.S. brand-name and locally sourced products to its small business and consumer members in a warehouse club format that provides high value to its members. By focusing on providing exceptional value on quality merchandise in a low cost operating environment, the Company seeks to grow sales volume and membership which in turn will allow for further efficiencies and price reductions and ultimately improved value to our members. 

PriceSmart's business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States. The number of warehouse clubs in operation as of August 31, 2009 and 2008, the Company's ownership percentages and basis of presentation for financial reporting purposes by each country or territory are as follows:
 
Country/Territory
 
Number of
Warehouse Clubs
in Operation (as of
August 31, 2009)
 
Number of
Warehouse Clubs
in Operation (as of
August 31, 2008)
 
Ownership (as of
August 31, 2009)
 
Basis of
Presentation
Panama
 
4
 
4
 
100%
 
Consolidated
Costa Rica
 
5
 
4
 
100%
 
Consolidated
Dominican Republic
 
2
 
2
 
100%
 
Consolidated
Guatemala
 
3
 
3
 
100%
 
Consolidated
El Salvador
 
2
 
2
 
100%
 
Consolidated
Honduras
 
2
 
2
 
100%
 
Consolidated
Trinidad
 
3
 
3
 
95%
 
Consolidated
Aruba
 
1
 
1
 
100%
 
Consolidated
Barbados
 
1
 
1
 
100%
 
Consolidated
U.S. Virgin Islands
 
1
 
1
 
100%
 
Consolidated
Jamaica
 
1
 
1
 
100%
 
Consolidated
Nicaragua
 
1
 
1
 
100%
 
Consolidated
Totals
 
26
 
25
       
 
3

 
During fiscal year 2008, as a part of the Company’s settlement of disputes pursuant to a Settlement Agreement and Release with PSC, S.A. (“PSC”) and related entities dated February 8, 2008, the Company purchased the remaining 49% minority interest of its Nicaragua subsidiary from PSC. Also, during the fourth quarter of fiscal year 2008, the Company acquired the remaining 10% minority interest of its Aruba subsidiary from Nithyananda Enterprises, thereby increasing its ownership percentage in its Aruba subsidiary to 100%.

During fiscal year 2009, the Company acquired property and completed the construction of a new Costa Rica warehouse club, the fifth warehouse club in that country, which opened in April 2009.

At the end of August 2009, the total number of warehouse clubs in operation was 26 operating in 11 countries and one U.S. territory, in comparison to 25 warehouse clubs operating in 11 countries and one U.S. territory at the end of August 2008. The average age of the 26 warehouse clubs included in continuing operations was 94 months as of the end of fiscal year 2009 and the average age of the 25 warehouse clubs included in continuing operations was 86 months as of the end of fiscal year 2008.
 
In addition to the warehouse clubs operated directly by the Company (or through a joint venture in the case of Trinidad), there is one warehouse club in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earns a royalty fee.

In general, the Company’s earnings improve and cash flows from operations increase as sales increase.  Although the Company’s cost of goods sold is largely variable with sales, a portion of the Company’s selling, general and administrative expenses rise relatively slowly in relation to sales increases.  Therefore, the Company prioritizes initiatives that it expects will have the greatest impact on increasing sales.  Looking forward to the next several quarters, the following items are likely to have an impact on business and the results of operations:

General Economic Factors

·        The economic slowdown in the U.S. and other major world economies is having a negative impact on the economies of most of those countries where PriceSmart operates.  Flat or declining expatriate remittances, falling U.S. demand for exports from Central America (particularly affecting the assembly (“maquila”) export sector in Guatemala, Honduras and the Dominican Republic), and reduced tourism from the U.S. and Europe are all contributing to recessionary pressures and falling consumer confidence in many of the Company’s markets. Reduced overall consumer spending has and will likely continue to affect sales for the Company to both retail and wholesale members.

·      During fiscal year 2009, the Company experienced a reduced level of sales growth beginning in January 2009 with reported monthly comparable warehouse club sales growth of 18% in January declining in the subsequent months to less than 1% in August 2009.  This sales growth reduction occurred 9 to 12 months after similar trends were reported by the major U.S. retailers.  While the Company cannot know for certain, an economic recovery in the retail sector in the Company’s markets may similarly lag behind any recovery that might be experienced in the U.S. over the next year.
 
·        Many PriceSmart markets are susceptible to foreign currency exchange rate volatility. Currency exchange rate changes either increase or decrease the cost of imported products and can have an effect on the reported sales of the consolidated company when local currency denominated sales are translated to U.S. dollars. Approximately 48% of the Company’s net warehouse sales are comprised of products imported into the markets where PriceSmart warehouse clubs are located. Products imported for sale in PriceSmart markets are purchased in U.S. dollars, but approximately 79% of the Company's net warehouse sales are in foreign currencies. In general, local currencies in PriceSmart markets have declined relative to the dollar. Declines in local currencies relative to the dollar effectively increase the cost to the Company’s members of imported products, while appreciation in local currencies makes imported products more affordable. There is no way to accurately forecast how currencies may trade in the future. PriceSmart monitors movements in currency rates and makes adjustments to pricing of U.S. merchandise from time to time.  With respect to locally acquired merchandise sold in the Company’s warehouse clubs, which accounts for approximately 52% of net warehouse sales, a decline in local currency rates relative to the U.S. dollar will decrease the reported year over year sales of the Company when expressed in U.S. dollars.  Conversely, a strengthening of local currency rates relative to the U.S. dollar will increase the reported year over year sales.
 
Current and Future Management Actions

·         Due to the slowing economic environment in the Company’s markets, management has noted a shift in member demand toward more consumable merchandise purchases. In this respect, the Company is carefully monitoring inventory mix and levels, while maintaining its pricing leadership position and aggressively pursuing buying opportunities.

·         The Company’s strategy is to continually seek ways to reduce prices for its members.  This involves improving purchasing, reducing supply chain costs for the movement of merchandise from the U.S. to its warehouse clubs, and lowering operating expenses within the warehouse clubs and corporate headquarters. The strong growth in sales that the Company has experienced over the last three years has improved the Company’s buying power and has resulted in leveraging of costs.  This allows for reduced prices, thereby providing better value to PriceSmart members.

·          The Company entered into a new lease amendment with respect to this property providing for an expansion of 5,000 square feet of leased frozen and refrigerated distribution center which will meet the Company’s projected capacity needs for at least the next year, during which time the Company will evaluate the need to relocate to a larger facility. This lease was renewed on August 31, 2009 and was effective September 1, 2009. In fiscal year 2008, the Company signed a lease for a larger dry distribution center in Miami, Florida.  The additional space has permitted the Company to more efficiently service the PriceSmart warehouse club locations and to realize efficiencies in distribution operating expenses. 

4

·         The Company offers a co-branded credit card to PriceSmart members in Central America in partnership with a bank in the region.  The program allows for savings in credit card processing fees when the co-branded card is used at the warehouse club as well as providing benefits to club members.  Management anticipates that as more members obtain and use the card, the Company will see increased savings related to credit card costs.  During fiscal year 2009 the Company introduced the co-branded program in its Caribbean markets, except for Aruba, in partnership with a bank in that region.  The Company has been pleased with the initial response from members, and management expects to grow the use of the co-branded cards in those markets in the future, resulting in reduced credit card processing fees and increased value for members.
  
·         Based on the success of previously expanding the size of certain PriceSmart buildings, the Company has been working on expanding two additional warehouse clubs during fiscal year 2009.  The expansion of the warehouse club in Nicaragua was completed in April 2009 and the club is now operating with additional sales floor space of approximately 8,600 square feet.  The expansion of the warehouse club in Aruba was completed in September 2009, fiscal year 2010, adding approximately 9,000 square feet of sales floor space.

·         The Company continues to evaluate sites for additional PriceSmart locations.  Although a specific target for new warehouse club openings in fiscal years 2010 and beyond has not been set, management believes that there are opportunities to add locations in certain PriceSmart markets.  In that regard, the Company announced on October 1, 2008 that it had entered into agreements to acquire properties in Panama and Costa Rica for the construction of new warehouse clubs.  The new Costa Rica warehouse club, the fifth PriceSmart warehouse club in that country, opened in April 2009. In Panama, the Company will relocate an existing warehouse club to this new site and plans to sell or lease the existing site after relocation has occurred.  This is expected to be completed during the spring of 2010. In December 2008, the Company acquired approximately 31,000 square meters of land in Trinidad upon which it is currently constructing a new warehouse club which will bring the number of warehouse clubs in that country to four. This new warehouse club is expected to open in the spring of 2010.  The Company was not successful in completing the acquisition of the land in the Dominican Republic on which it had an option to purchase.  The Company is currently seeking an alternative site in the Santo Domingo, Dominican Republic market.  Finally, the Company continues to examine Colombia as a potential new market for multiple PriceSmart warehouse clubs.

·        The Company’s policy is to own its real estate wherever possible because of the lower operating expenses associated with ownership and because a successful PriceSmart warehouse club historically has enhanced adjacent real estate values. In acquiring suitable sites for new warehouse clubs, the Company sometimes is required to purchase a land parcel that is larger than what is typically needed for the warehouse club itself.  In those cases, the Company may utilize the additional land for commercial real estate developments. For example, the Company purchased a 50% interest in the joint ventures that own and will develop additional land adjacent to the new warehouse club sites in Panama and Costa Rica as commercial shopping centers. With respect to the Trinidad site acquisition, the Company is planning to develop approximately 50% of that site for retail shops.
 
Key items for fiscal year 2009 included:
 
·        Net warehouse club sales increased 11.6% over the prior year, resulting from a 8.7% increase in comparable warehouse club sales for the 52 weeks ended August 31, 2009 (that is, sales in warehouse clubs that have been open for greater than 13 1/2 calendar months), the opening of a new warehouse club in Costa Rica in April 2009, and the full year effect of the opening of two new warehouse clubs, which were open for just a portion of the twelve months ended August 31, 2008 (one opened in November 2007 and one in December 2007).
 
·        Membership income for fiscal year 2009 increased 11.6% to $17.9 million as a result of a 8% increase in membership accounts from August 31, 2008 to August 31, 2009, continued strong renewal rates at 84% and a 1.4% increase in the average membership fee.
 
·        Gross profits (net warehouse club sales less associated cost of goods sold) increased 8.8% over the prior year due to increased warehouse sales, and gross margin decreased 37 basis points as a percent of net warehouse sales largely related to the effect of foreign exchange rate movements and more competitive pricing.
 
·        Selling, general and administrative expenses as a percentage of net warehouse sales improved 32 basis points, as higher sales offset increased operating costs of the warehouse clubs (including wages, supplies, security costs, and repairs and maintenance), the additional costs associated with full year operating costs for the two warehouse clubs opened in fiscal year 2008 and the cost of the new warehouse club that opened in April 2009. 

·        Operating income for fiscal year 2009 was $57.5 million, which included approximately $249,000 in asset impairment and closure costs gains, and $515,000 of pre-opening expenses.
 
·        Net income for fiscal year 2009 was $42.3 million, or $1.45 per diluted share.
 
5

Comparison of Fiscal Year 2009 and Fiscal Year 2008
 
Net warehouse club sales increased 11.6% to $1.2 billion in fiscal year 2009 from $1.1 billion in fiscal year 2008.  The Company experienced greater sales growth in the first half of the fiscal year compared to that experienced in the second half of the fiscal year.  This is partly due to the inclusion of two warehouse clubs opened in November and December of 2008, but also reflects the economic slowdown within the countries in which we operate during the second half of the fiscal year, despite the addition of a new warehouse club opened in April 2009.   The Company experienced year over year sales growth of 21.9% in the first quarter, 14.1% in the second quarter, 8.0% in the third quarter, and 4.3% in the fourth quarter of fiscal year 2009.  For the full year, sales transactions grew 12.1%, compared to fiscal year 2008, which the Company believes reflects that its members continue to find value in the quality and price of items offered by PriceSmart in spite of the challenging economic conditions present in most of the markets.  However, the average dollar value of those transactions decreased 0.5% indicating both a shift in buying from higher ticket discretionary items (such as, appliances, electronics, and furniture) to food and consumable products; and is also likely a reflection of reduced overall buying power.  Food and consumable sales grew 15.6%, and non-consumable product sales decreased 1.9%. The full year inclusion of the two warehouse clubs opened in November and December 2008, respectively, added approximately 2% to the overall sales growth in the fiscal year.  Also, the addition of the new club in Costa Rica, which opened on April 17, 2009, accounted for approximately 1.4% of the overall sales growth during the year compared to a year ago, although some of those sales were from existing members who would have previously shopped at one of the other four Costa Rican clubs.

The following table indicates the percent growth in net warehouse club sales in the segments in which the Company operates.
 
   
Fiscal Years Ended August 31,
             
   
2009
   
2008
             
   
Amount
   
% of Net
Revenue
   
Amount
   
% of Net
Revenue
   
Increase
   
Change
 
   
(Dollar amounts in thousands)
 
Central America
 
$
724,964
     
59.2
%
 
$
656,612
     
59.8
%
 
$
68,351
     
10.4
%
Caribbean
   
499,367
     
40.8
%
   
440,898
     
40.2
%
   
58,470
     
13.3
%
   
$
1,224,331
     
100.0
%
 
$
1,097,510
     
100.0
%
 
$
126,821
     
11.6
%
 
Comparable warehouse club sales, which are for warehouse clubs open at least 13 1/2 calendar months, increased 8.7% for the 52-week period ended August 30, 2009 compared to the same 52-week period last year. The Company reports comparable warehouse sales on a “same week” basis with 13 weeks in each quarter beginning on a Monday and ending on a Sunday. The periods are established at the beginning of the fiscal year to provide as close a match as possible to the calendar month that is used for financial reporting purposes. This approach equalizes the number of weekend days and weekdays in each period for improved sales comparison, as the Company experiences higher warehouse club sales on the weekends. Further, each of the warehouse clubs used in the calculations was open for at least 13 1/2 calendar months before its results for the current period were compared with its results for the prior period. For example, the sales related to the new warehouse club opened in Guatemala on November 14, 2007 were not used in the calculation of comparable warehouse club sales until the month of January 2009. Similarly, the sales related to the new warehouse club opened in Trinidad on December 13, 2007, were not used in the calculation of comparable warehouse club sales until the month of February 2009.  The sales related to the new warehouse club opened in Costa Rica on April 17, 2009 will not be used in the calculation until July 2010.
 
The following table indicates the approximate percentage of net sales accounted for by each major category of items sold by the Company during the fiscal years ended August 31, 2009 and 2008:
 
   
Fiscal Years Ended
August 31,
 
   
2009
   
2008
 
Sundries (including candy, snack foods, health and beauty aids, tobacco, alcoholic beverages, soft drinks, cleaning and paper products and pet supplies)
   
32
%
   
31
%
Food (including dry and fresh foods)
   
46
%
   
44
%
Hardlines (including major appliances, electronics, hardware, office supplies, garden and patio, sporting goods, business machines and automotive supplies)
   
13
%
   
14
%
Softlines (including apparel, domestics, cameras, jewelry, housewares, media, toys, home furnishings, and small appliances)
   
8
%
   
9
%
Other (including one-hour photo and food court)
   
1
%
   
2
%
     
100
%
   
100
%
 
6

The higher percentage of net sales associated with food in fiscal year 2009, compared to fiscal year 2008, largely reflects the impact of the shift in our members' purchases from higher ticket discretionary items (such as, appliances, electronics, and furniture) to food and consumable products.

The Company’s warehouse gross profit margin (defined as net warehouse club sales, less associated cost of goods sold) for fiscal year 2009 increased $14.6 million to $179.8 million, or 14.7% of net warehouse club sales, from $165.2 million, or 15.1% of net warehouse club sales in fiscal year 2008. The increase in warehouse gross profit margin dollars was largely due to higher sales in the current fiscal year as compared to the prior fiscal year.  As a percentage of sales, warehouse gross profit margin decreased 37 basis points resulting from a combination of competitive pricing actions across most merchandise categories, most notably hardlines, and the year over year effects of foreign currency exchange.  In fiscal year 2008 the Company recognized a 15 basis point gain to gross profit margin related to foreign currency exchange effects.  In fiscal year 2009, the Company recognized a 12 basis point reduction to gross profit margin resulting from a general devaluation in the currencies in which the Company operates and the net effect on the U.S. dollar denominated liabilities held in those countries, particularly Guatemala and Jamaica.  The change in the merchandise mix of sales did not itself have a measureable impact on gross profit margin as a percent of sales.
 
Export sales were $3.7 million for fiscal year 2009, compared to export sales of $1.5 million for fiscal year 2008, due primarily to direct sales to institutional customers (primarily retailers) in the Philippines for which the Company earns a margin of approximately 5% of those sales.

Membership income, which is recognized into income ratably over the one-year life of the membership, increased 11.6% to $17.9 million, or 1.5% of net warehouse sales, in fiscal year 2009 compared to $16.0 million, or 1.5% of net warehouse sales, in fiscal year 2008. The increase in membership income reflects both a 8% increase in the number of membership accounts and a 1.4% increase in the average membership fee. Total membership accounts as of the end of fiscal year 2009 were approximately 651,000, an increase of approximately 47,000 accounts over the end of fiscal year 2008.
 
Other income consists of commission revenue, rental income, advertising revenue, construction revenue, fees for in-store product demonstrations, and fees earned from licensees. Other income for fiscal year 2009 was $5.7 million compared to $4.8 million in fiscal year 2008. The increase was due to increased fees for in-store product demonstrations and rental income.   
 
Warehouse club operating expenses increased 10.7% to $115.0 million, or 9.4% of warehouse sales, for fiscal year 2009 from $103.9 million, or 9.5% of warehouse sales, in fiscal year 2008.  The increase in warehouse club operating expenses resulted from increased payroll related expenses, including stock compensation expense of $5.1 million, and increased operating costs for security services, repairs and maintenance, and supplies of $1.4 million.  The Company also incurred increased depreciation expense of $2.5 million. This was a result of the full year depreciation of the capital expenditures incurred in developing the two new warehouse clubs, one each in Guatemala and Trinidad, when they began operations in November and December of fiscal year 2008, respectively, and the depreciation of new warehouse club in Costa Rica beginning when it opened in April 2009. In addition, the Company began depreciation for on-going capital investments made in the existing warehouse clubs, including expansions in Aruba and Nicaragua. While credit card costs increased $185,000 during fiscal year 2009, the cost as a percentage of sales decreased eight basis points reflecting the positive impact of the co-branded programs in place including the program introduced in the Caribbean region during fiscal year 2009.  Marketing expenses, primarily associated with the launch of the Caribbean credit card program, increased $189,000.  The Company incurred a charge of $628,000 to write-off the accumulated costs, including a non-refundable deposit, associated with the expected acquisition of a land parcel in the Dominican Republic.

General and administrative expenses increased to $30.9 million, or 2.5% of net warehouse sales, for fiscal year 2009 from $30.3 million, or 2.8% of net warehouse sales, in fiscal year 2008. The Company incurred increased costs of $2.8 million for salaries and related benefits, including expatriate costs and deferred compensation for the Company’s corporate headquarters and U.S. buying operation, offset by a reduction of approximately $2.3 million related to a reduction of approximately $900,000 in legal fees related to the PSC litigation and a reduction of approximately $1.4 million related to audit, tax, and other professional services.
 
 Expenses incurred before a warehouse club is in operation are captured in pre-opening expenses. Pre-opening expenses for fiscal year 2009 were $515,000 related to the new warehouse club in Costa Rica which opened in April 2009. Pre-opening expenses of $1.0 million in the prior year were primarily related to opening of the two new warehouse clubs, one each in Guatemala and Trinidad.
 
7

The Company recorded a gain for asset impairment and closure costs for fiscal year 2009 of approximately $249,000, compared to cost of $1.1 million in fiscal year 2008.  Closure costs in the current fiscal year were primarily due to gains of approximately $651,000 recorded in connection with the buy out of the Company's obligation under the lease for the closed “Plaza warehouse” in Guatemala and interest income of approximately $144,000 from the note receivable related to the East Side Santo Domingo club warehouse located in the Dominican Republic.  This was offset by costs of approximately $377,000 associated with the subleased Guatemala location incurred before the transfer of the rights and obligations of this lease/sub-lease.  Asset impairment costs were recorded for approximately $169,000 related to the write down to market value of equipment used in material handling that the Company has determined will not be utilized within its operations, the write down of point of sale hardware and the write down of bulk packaging equipment.  Asset impairment and closure costs in fiscal year 2008 were recorded to reflect a non-cash charge to recognize a decrease in the net present value of future cash flows over the remaining lease life for the closed but subleased Guatemala Plaza location as a result of a rent increase to the Company from the landlord for approximately $605,000 and approximately $205,000 in other expenses related to the Guatemala Plaza location.  In addition, the Company took a $449,000 non-cash charge to write-down the net book value of certain equipment related to in-club bulk packaging.  This results from the fact that the Company is now able to purchase pre-packaged items at competitive prices from its suppliers, thereby freeing up merchandise space and reducing labor costs within the clubs.  Impairment and closure costs were lowered during fiscal year 2008 by approximately $127,000 of interest income related to the note receivable on the Dominican Republic sale of the East Side Santo Domingo warehouse.
 
Included in the results of fiscal year 2008 are pre-tax charges and income tax benefits related to the PSC Settlement, net of a $5.5 million reserve established in the fourth quarter of fiscal year 2007. The amount of the reserve was equal to management’s estimate at that time of the potential impact of a global settlement on PriceSmart’s net income. In fiscal year 2008, the Company recorded an additional pre-tax charge of $1.3 million with the final settlement for costs incurred in excess of the initial $5.5 million reserved in fiscal year 2007.  An income tax benefit was also recorded of approximately $1.7 million as a result of the approximately $6.8 million recorded in settlement cost.  When the Company originally accrued for the settlement cost, the Company was not able to estimate the tax benefit component of the settlement cost with an adequate level of certainty.  In addition, for fiscal year 2008, the Company recorded approximately $120,000 in costs to record the fair value of a put right given to PSC as partial consideration for the settlement.  There were no charges recorded in fiscal year 2009 related to the Company’s settlement agreement with PSC.
 
Operating income for fiscal year 2009 was $57.5 million, or 4.7% of warehouse sales, compared to $48.4 million, or 4.4% of warehouse sales, in fiscal year 2008.
 
Interest income reflects earnings on cash and cash equivalent balances and restricted cash deposits and, until October of fiscal year 2009, restricted cash deposits securing working capital lines of credit. Interest income was $457,000 in fiscal year 2009, compared to $1.2 million in fiscal year 2008. The decrease reflects generally lower interest rates associated with cash on deposit in the current year compared to last year.
 
Interest expense reflects borrowings by the Company’s majority or wholly owned foreign subsidiaries to finance the capital requirements of warehouse club operations and on-going working capital requirements. Interest expense increased to $1.7 million in fiscal year 2009, from $1.4 million in fiscal year 2008, resulting from an increase in debt held by the Company to finance the acquisition of land and the subsequent construction of new warehouse clubs.
  
During fiscal year 2009, the Company incurred current tax expense of $14.0 million and recognized a net deferred tax benefit of $922,000, resulting in a net tax expense of $13.1 million.  During fiscal year 2008, the Company incurred current tax expense of $15.5 million and recognized a net deferred tax benefit of $6.4 million, resulting in net tax expense of $9.1 million.    The effective tax rate for fiscal year 2009 is approximately 23.5%, as compared to the effective tax rate for fiscal year 2008 of approximately 19.1%.  For the fiscal year 2009, the Company recorded non-recurring adjustments to tax expense including (i) $2.8 million for the reversal of previously recorded valuation allowances; (ii) $2.2 million for the reversal of income tax contingencies due to the expiration of the statute of limitations; and (iii) $1.1 million of other adjustments.  For the fiscal year 2008, the Company recorded non-recurring adjustments to tax expense including (i) $3.5 million for the reversal of previously recorded valuation allowances; (ii) $1.7 million for the reversal of income tax contingencies due to the expiration of the statute of limitations; and (iii) $1.7 million related to the PSC settlement. The reversals of valuation allowances referred to above are a result of improvement in the operations of certain foreign subsidiaries.
 
For fiscal year 2009, the Company reported approximately $21,000 in losses from its unconsolidated affiliates in Costa Rica and Panama.  This was primarily due to legal and administrative start up costs incurred by the joint ventures described below under the heading “Liquidity and Capital Resources-Financing Activities.”  The joint ventures are accounted for under the equity method of accounting in which the Company reflects its proportionate share of income or loss.

Minority interest is the allocation of the joint venture income or loss to the minority stockholders’ respective interest. Minority interest stockholders’ respective share of net income was $265,000 in fiscal year 2009. In the same period last year, the joint ventures for which the minority stockholders' respective share was $494,000. During the second quarter of fiscal year 2008, the Company acquired the 49% ownership interest of the minority shareholder in its Nicaragua subsidiary. As a result, the Company now recognizes 100% of that subsidiary’s income or loss.  During the fourth quarter of fiscal year 2008, the Company acquired the 10% minority interest of its Aruba subsidiary, thereby increasing its ownership percentage in its Aruba subsidiary to 100%.   As a result, the Company now records 100% of these subsidiaies income or loss. The adjusted minority interest for fiscal year 2008, assuming the minority interests were acquired as of the beginning of the fiscal year, would be approximately $267,000.
 
Income from continuing operations for fiscal year 2009 was $42.3 million, compared to $38.2 million in the same period last year.
 
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Income from discontinued operations, net of tax reflects the consolidated income and expenses associated with those operations within the Company that were closed or disposed of and which meet the criteria for such a treatment. Discontinued operations include the costs associated with the Company’s previously closed warehouse location in Guam which is leased to a subtenant.  The Company recognized a loss of $28,000 in fiscal year 2009 related to the continuing expenses offset by sublease income. In fiscal year 2008, the Company recognized a loss of $104,000 primarily related to a payroll tax related matter derived from the former club warehouse operations in Guam.
  
Comparison of Fiscal Year 2008 and Fiscal Year 2007
 
Net warehouse club sales increased 26.3% to $1.1 billion in fiscal year 2008 from $869.1 million in fiscal year 2007. The Company's sales were positively impacted by a continued favorable economic environment in most of its markets during the year despite the difficulties experienced by retailers in the U.S. market. The Company believes that sales growth also reflects the Company’s efforts in the selection and value of the merchandise carried in the clubs and the value that we bring to our members which has also resulted in a growing membership base. Approximately two-thirds of the sales growth experienced from fiscal year 2007 to fiscal year 2008 resulted from increased transactions. The other portion of sales growth is attributable to growth in the value of the average transaction by our members.  Inflationary pressures in certain food commodities partially contributed to some of this increase in average transaction value, although given the broad range of products offered and the introduction of new merchandise items throughout the year, it would be difficult for management to estimate a specific impact of inflation on the average transaction value of the Company.  Warehouse clubs in all countries registered increased sales from fiscal year 2007 to fiscal year 2008. The Company opened two new warehouse clubs in the period: one in Guatemala which opened on November 14, 2007 and one in Trinidad which opened on December 13, 2007. Together they accounted for approximately 539 basis points of growth in net warehouse club sales.

The following table indicates the percent growth in net warehouse club sales in the segments in which the Company operates. 
 
   
Fiscal Years Ended August 31,
             
   
2008
   
2007
             
   
Amount