COMPANY OVERVIEW AND BASIS OF PRESENTATION

12 Months Ended

Aug. 31, 2011

COMPANY OVERVIEW AND BASIS OF PRESENTATION [Abstract]

COMPANY OVERVIEW AND BASIS OF PRESENTATION

NOTE 1 – COMPANY OVERVIEW AND BASIS OF PRESENTATION

PriceSmart, Inc.’s (“PriceSmart” or the “Company”) business consists primarily of international membership shopping warehouse clubs similar to, but smaller in size than, warehouse clubs in the United States.  As of August 31, 2011, the Company had 29 consolidated warehouse clubs in operation in 12 countries and one U.S. territory (five in Costa Rica, four each in Panama and Trinidad, three each in Guatemala and in the Dominican Republic, two each in El Salvador and Honduras and one each in Colombia, Aruba, Barbados, Jamaica, Nicaragua and the United States Virgin Islands), of which the Company owns 100% of the corresponding legal entities (see Note 2 - Summary of Significant Accounting Policies). The Company constructed a new warehouse club on the 322,920 square foot site in Santo Domingo, Dominican Republic (“Arroyo Hondo”) which was acquired in December 2009.   The Company opened this new warehouse club on November 5, 2010.  It is the Company’s second warehouse club in Santo Domingo and the third in the Dominican Republic.  In November 2010, the Company through its Colombian subsidiary acquired approximately 210,000 square feet of land in Barranquilla, Colombia for approximately 12.1 billion Colombian Pesos (the equivalent of approximately U.S. $6.5 million as of the acquisition date).  The Company constructed a new membership warehouse club on this site that opened on August 19, 2011.  During May 2011, the Company entered into an agreement to acquire land in north Cali, Colombia, which is currently subject to the fulfillment of certain conditions prior to March, 2012. In the event the conditions are timely fulfilled, the Company plans to acquire the site to construct and operate upon it a new warehouse club.During July 2011, the Company also entered into an agreement to acquire land in south Cali, Colombia, which is currently subject to the fulfillment of certain conditions prior to January, 2012. In the event the conditions are timely fulfilled, the Company plans to also acquire this site to construct and operate upon it an additional new warehouse club. While it is currently unknown whether the north Cali conditions will be met in a timely manner, the Company currently anticipates that the south Cali site will be acquired by the Company in December 2011 and that a new warehouse club will open on that site in late calendar 2012.The Company continues to explore other potential sites for future warehouse clubs in other major cities in Colombia.  The initial warehouse club sales and membership sign-ups experienced with the opening of the Barranquilla warehouse club has reinforced the Company’s belief that Colombia could be a market for multiple PriceSmart warehouse clubs.In addition to the warehouse clubs operated directly by the Company, there was one facility in operation in Saipan, Micronesia licensed to and operated by local business people, from which the Company earned a small royalty fee until this agreement was terminated in August 2011.  The Company primarily operates in three segments based on geographic area.

Basis of Presentation - The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The consolidated financial statements include the accounts of PriceSmart, Inc., a Delaware corporation, and its subsidiaries. Intercompany transactions between the Company and its subsidiaries have been eliminated in consolidation.

In February 2010, the Financial Accounting Standards Board (“FASB”) issued revised guidance establishing general accounting standards and disclosure of subsequent events. The Company, in accordance with this guidance, evaluated subsequent events through the date and time these financial statements were issued. 

Reclassifications and prior period adjustments- The Company identified errors in the consolidated financial statements for the fiscal years ended August 31, 2009 and 2010 and for fiscal years previous to 2009.  The errors relate to incorrect (i) translation of depreciation expense from foreign currencies to U.S. dollars and the related translation of foreign currencies to U.S. dollars for accumulated depreciation; and (ii)  the Company’s reconciliation of net deferred tax assets related to net operating and capital loss carry-forwards to its tax returns.  The correction of the depreciation expense would have increased selling, general and administrative expenses: warehouse club operations in fiscal years 2009 and 2010 by approximately $406,000 and $431,000, respectively.  The total of these corrections, which was recorded in fiscal year 2011 as a charge to selling, general and administrative: warehouse club operations was approximately $2.3 million.  During fiscal year 2011, the Company also reclassified the balance sheet presentation at August 31, 2011, which increased accumulated depreciation by approximately $4.9 million and accumulated other comprehensive loss by the same amount.  Separately, the Company identified an error in its reconciliation of net deferred tax assets related to net operating and capital loss carry-forwards to its tax returns.  This correction decreased the tax expense for the fiscal year ended August 31, 2009 by approximately $485,000.  The impact of this correction, recorded to provision for income taxes during fiscal year 2011 was a decrease to tax expense of approximately $3.1 million.  The Company has analyzed the impact of these two items and concluded that neither error would be material to any individual period, taking into account the requirements of the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements in the Current Year Financial Statements (“SAB 108”).  In accordance, with the relevant guidance, management evaluated the materiality of errors from a quantitative and qualitative perspective.  Based on such evaluation, the Company concluded that correcting the cumulative errors, which increased net income by approximately $800,000 for the twelve months ended August 31, 2011, is immaterial to fiscal year 2011 results and had no effect on the trend of financial results.  As provided by SAB 108, the error correction will not require the restatement of the consolidated financial statements for prior periods, and the correction is permitted to be made in the consolidated financial statements for the period ended August 31, 2011.