NOTE 16 – ACQUISITION

On March 15, 2018, the Company acquired technology, talent and cross-border logistics infrastructure through a marketplace and casillero business operated by Aeropost, Inc. This acquisition has been accounted for in conformity with ASC Topic 805, Business Combinations. PriceSmart is actively integrating and investing in the technology, talent and infrastructure from this business to expand its omni-channel capabilities. The Company paid $29.0 million in cash for this acquisition. Under the merger agreement, $5.0 million of the total consideration has been placed in escrow and its release to the sellers is contingent upon certain key Aeropost, Inc. executives remaining employed with the Company for 15 months from the date of closing. The amount placed in escrow also can be used to satisfy any indemnification claims and post-closing adjustments in favor of the Company. This contingent consideration is accounted for as post-combination compensation expense, reduces the total consideration and will be recorded over this 15 month period. The post-acquisition compensation expense is recorded as prepaid expenses and other current assets on the consolidated balance sheet, and has been treated as use of cash from operating activities on the consolidated statement of cash flows. The 15-month period lapsed on June 15, 2019, and the key Aeropost, Inc. executives remained employed with the Company during this time, as such, no claim in this respect has been made against the escrow balance for this concept. Subsequent to the balance sheet date, all indemnification claims and post-closing adjustments submitted by the Company and the sellers have been settled with no material adjustments to the escrow balance.

Below is the table that summarizes the total purchase price consideration (in thousands):


Estimated consideration on the acquisition date	$	30,046
Estimated assumed net liabilities at acquisition date		(1,093)
Total cash consideration		28,953
Post-combination compensation expense, net of claims		(3,754)
Business acquisition, net assets acquired	$	25,199
Cash acquired		1,208
Business acquisition, net of cash acquired	$	23,991

Below is the table that summarizes the fair value of the assets acquired and liabilities assumed (in thousands):


Current assets	$	4,196
Other non-current assets		746
Property, plant and equipment		2,059
Intangible assets		16,100
Goodwill		11,411
Deferred tax assets, long-term		4,078
Total assets acquired	$	38,590
Current liabilities		(5,862)
Non-current liabilities		(6,967)
Noncontrolling interest		(562)
Net assets acquired	$	25,199

Goodwill represents the excess of the total purchase price over the fair value of the underlying assets. The goodwill is not expected to be deductible for tax purposes.

The following sets forth the results of the amounts preliminarily assigned to the identifiable intangible assets acquired (in thousands):


	Amortization		Fair value of
	Period		Assets Acquired
Trade name	25 years	$	5,100
Developed technology	5 years		11,000
Total assets acquired		$	16,100

The fair value of the intangible assets is measured based on assumptions and estimations with regards to variable factors such as the amount and timing of future cash flows, appropriate risk-adjusted discount rates, nonperformance risk or other factors that market participants would consider. The trade name and developed technology were valued using the income-based approach and royalty income method, respectively. Intangible assets are amortized on a straight-line basis over the amortization periods noted above, which is included in general and administrative expenses on the accompanying consolidated statements of income.

The following unaudited pro forma financial information shows the combined results of operations of the Company, including Aeropost, Inc., as if the acquisition had occurred as of the beginning of the periods presented (in thousands):


		Twelve Months Ended
		2018		2017
Pro forma total revenues	$	3,197,307	$	3,040,168
Pro forma net income attributable to PriceSmart, Inc. (1)	$	67,734	$	82,587
Pro forma net income attributable to noncontrolling interest	$	444	$	248

⁽¹⁾

Includes the pro forma recognition of $3.0 million of post-combination compensation expense, which represents completion of twelve of the fifteen months of continued service required to satisfy the $3.8 million remaining purchase price contingency, and $2.1 million for the amortization of intangible assets for the twelve months ended August 31, 2018.

The following is summary financial information for Aeropost, Inc., including costs to expand omni-channel capabilities for fiscal year 2019 (in thousands):


		Twelve Months Ended
		2019	2018	2017
Total revenue	$	37,162	16,863	N/A
Net Loss (net of tax benefits)	$	(14,462)	(6,901)	N/A