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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

 

 

(Mark One)

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March  31, 2015

-OR-

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-33647

 

 

 

 

 

 

 

MercadoLibre, Inc.

(Exact name of Registrant as specified in its Charter)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delaware

 

98-0212790

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

Arias 3751, 7th Floor

Buenos Aires, C1430CRG, Argentina

(Address of registrant’s principal executive offices)

(+5411) 4640-8000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

 

 

 

 

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       No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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       No  

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

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  

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

44,154,932 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 4, 2015.

 

 

 

 

 

 

 


 

 

MERCADOLIBRE, INC.

INDEX TO FORM 10-Q

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1 — Unaudited Interim Condensed Consolidated Financial Statements

 

Interim Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 

Interim Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2015 and 2014 

Interim Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2015 and 2014 

Interim Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2015 and 2014 

Notes to Interim Condensed Consolidated Financial Statements (unaudited) 

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations 

27 

Item 3 — Qualitative and Quantitative Disclosures About Market Risk 

51 

Item 4 — Controls and Procedures 

57 

PART II. OTHER INFORMATION 

57 

Item 1 — Legal Proceedings 

57 

Item 1A — Risk Factors 

59 

Item 6 — Exhibits 

60 

INDEX TO EXHIBITS 

62 

 

 

 


 

MercadoLibre, Inc.

Interim Condensed Consolidated Financial Statements

as of March 31, 2015 and December 31, 2014

and for the three-month periods

ended March 31, 2015 and 2014

 

 

 

 


 

 

MercadoLibre, Inc.

Interim Condensed Consolidated Balance Sheets

As of March 31, 2015 and December 31, 2014

(In thousands of U.S. dollars, except par value)

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(Unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$        219,768

 

$       223,144

Short-term investments

 

148,052 

 

148,810 

Accounts receivable, net

 

54,054 

 

46,672 

Credit cards receivables, net

 

133,644 

 

85,162 

Prepaid expenses

 

6,433 

 

3,458 

Deferred tax assets

 

11,222 

 

11,520 

Other assets

 

15,002 

 

13,984 

Total current assets

 

588,175 

 

532,750 

Non-current assets:

 

 

 

 

Long-term investments

 

190,152 

 

205,265 

Property and equipment, net

 

75,945 

 

91,545 

Goodwill

 

65,577 

 

68,829 

Intangible assets, net

 

22,801 

 

23,171 

Deferred tax assets

 

13,817 

 

21,554 

Other assets

 

20,316 

 

23,734 

Total non-current assets

 

388,608 

 

434,098 

 

 

 

 

 

Total assets

 

$        976,783

 

$       966,848

Liabilities and Equity

 

 

 

Current liabilities:

 

 

 

 

Accounts payable and accrued expenses

 

$          58,160

 

$         58,006

Funds payable to customers

 

193,188 

 

165,034 

Salaries and social security payable

 

36,212 

 

28,777 

Taxes payable

 

23,733 

 

26,013 

Loans payable and other financial liabilities

 

1,565 

 

1,642 

Deferred tax liabilities

 

1,673 

 

1,645 

Other liabilities

 

4,081 

 

4,176 

Dividends payable

 

4,548 

 

7,330 

Total current liabilities

 

323,160 

 

292,623 

Non-current liabilities:

 

 

 

 

Salaries and social security payable

 

12,193 

 

11,326 

Loans payable and other financial liabilities

 

286,180 

 

282,184 

Deferred tax liabilities

 

18,774 

 

18,746 

Other liabilities

 

5,358 

 

6,181 

Total non-current liabilities

 

322,505 

 

318,437 

Total liabilities

 

$        645,665

 

$       611,060

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

Common stock, $0.001 par value, 110,000,000 shares authorized,

 

 

 

 

44,154,932 and 44,154,572 shares issued and outstanding at March 31,

 

 

 

 

2015 and December 31, 2014, respectively

 

$                 44

 

$                44

Additional paid-in capital

 

137,692 

 

137,645 

Retained earnings

 

350,346 

 

353,173 

Accumulated other comprehensive loss

 

(156,964)

 

(135,074)

Total Equity

 

331,118 

 

355,788 

Total Liabilities and Equity

 

$        976,783

 

$       966,848

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

1


 

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Income

For the three-month periods ended March 31, 2015 and 2014

(In thousands of U.S. dollars, except for share data)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

(Unaudited)

Net revenues

 

$            148,103

 

$          115,382

Cost of net revenues

 

(44,708)

 

(31,540)

Gross profit

 

103,395 

 

83,842 

Operating expenses:

 

 

 

 

Product and technology development

 

(17,245)

 

(12,257)

Sales and marketing

 

(26,202)

 

(22,352)

General and administrative

 

(18,134)

 

(15,232)

Impairment of Long-Lived Assets

 

(16,226)

 

 —

Total operating expenses

 

(77,807)

 

(49,841)

Income from operations

 

25,588 

 

34,001 

Other income (expenses):

 

 

 

 

Interest income and other financial gains

 

4,308 

 

3,036 

Interest expense and other financial losses

 

(4,950)

 

(1,027)

Foreign currency (losses) gains

 

(8,570)

 

3,093 

Net income before income / asset tax expense

 

16,376 

 

39,103 

Income / asset tax expense

 

(14,655)

 

(8,775)

Net income

 

$                1,721

 

$            30,328

Less: Net Income attributable to Redeemable

 

 

 

 

Noncontrolling Interest

 

 —

 

64 

Net income attributable to MercadoLibre, Inc. shareholders

 

$                1,721

 

$            30,264

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

(Unaudited)

Basic EPS

 

 

 

 

Basic net income attributable to MercadoLibre, Inc.

 

 

 

 

Shareholders per common share

 

$               0.04

 

$               0.69

Weighted average of outstanding common shares

 

44,154,796 

 

44,153,818 

Diluted EPS

 

 

 

 

Diluted net income attributable to MercadoLibre, Inc.

 

 

 

 

Shareholders per common share

 

$               0.04

 

$               0.69

Weighted average of outstanding common shares

 

44,154,796 

 

44,153,818 

Cash Dividends declared

 

0.103 

 

0.166 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

2


 

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Comprehensive Income

For the three-month periods ended March 31, 2015 and 2014

(In thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

(Unaudited)

Net income

 

$              1,721

 

$               30,328

Other comprehensive (loss) income, net of income tax:

 

 

 

 

Currency translation adjustment

 

(22,530)

 

(16,611)

Unrealized net gains on available for sale investments

 

261 

 

38 

Less: reclassification adjustment for gains (losses) on available for sale

 

 

 

 

investments included in net income

 

379 

 

(25)

Net change in accumulated other comprehensive loss, net of

 

 

 

 

income tax

 

(21,890)

 

(16,598)

Total comprehensive (loss) income

 

$           (20,169)

 

$               13,730

Less: Comprehensive income attributable to Redeemable

 

 

 

 

Noncontrolling Interest

 

 —

 

72 

Comprehensive (loss) income attributable to MercadoLibre, Inc. Shareholders

 

$           (20,169)

 

$               13,658

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

3


 

 

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Cash Flow

For the three-month periods ended March 31, 2015 and 2014

(In thousands of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

(Unaudited)

Cash flows from operations:

 

 

 

 

 

 

 

 

 

Net income attributable to MercadoLibre, Inc. Shareholders

 

 

 

 

 

 

$              1,721

 

$       30,264

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

 

Net income attributable to Redeemable Noncontrolling Interest

 

 

 

 

 

 

 —

 

64 

Devaluation Loss (Gain), net

 

 

 

 

 

 

10,862 

 

(2,658)

Impairment of Long-Lived Assets

 

 

 

 

 

 

16,226 

 

 —

Depreciation and amortization

 

 

 

 

 

 

5,081 

 

3,519 

Accrued interest

 

 

 

 

 

 

(2,780)

 

(2,019)

Convertible bonds accrued interest and amortization of debt discount

 

 

 

 

 

 

3,984 

 

 —

Long Term Retention Program accrued compensation

 

 

 

 

 

 

3,327 

 

766 

Deferred income taxes

 

 

 

 

 

 

6,118 

 

(4,675)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable 

 

 

 

 

 

 

(27,923)

 

(9,410)

Credit Card Receivables

 

 

 

 

 

 

(54,763)

 

(9,871)

Prepaid expenses

 

 

 

 

 

 

(3,451)

 

(962)

Other assets

 

 

 

 

 

 

(2,306)

 

925 

Accounts payable and accrued expenses

 

 

 

 

 

 

30,395 

 

11,755 

Funds payable to customers

 

 

 

 

 

 

48,683 

 

7,366 

Other liabilities

 

 

 

 

 

 

181 

 

318 

Interest received from investments

 

 

 

 

 

 

2,824 

 

2,246 

Net cash provided by operating activities

 

 

 

 

 

 

38,179 

 

27,628 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

 

 

 

(420,070)

 

(386,755)

Proceeds from sale and maturity of investments

 

 

 

 

 

 

431,636 

 

379,720 

Purchases of intangible assets

 

 

 

 

 

 

(942)

 

(144)

Purchases of property and equipment

 

 

 

 

 

 

(7,315)

 

(6,966)

Net cash provided by (used in) investing activities

 

 

 

 

 

 

3,309 

 

(14,145)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments on loans payable and other financial liabilities

 

 

 

 

 

 

(139)

 

(582)

Dividends paid

 

 

 

 

 

 

(7,330)

 

(6,314)

Net cash used in financing activities

 

 

 

 

 

 

(7,469)

 

(6,896)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

 

 

(37,395)

 

(15,732)

Net decrease in cash and cash equivalents

 

 

 

 

 

 

(3,376)

 

(9,145)

Cash and cash equivalents, beginning of the period

 

 

 

 

 

 

223,144 

 

140,285 

Cash and cash equivalents, end of the period

 

 

 

 

 

 

$          219,768

 

$     131,140

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

 

 

4


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

1. Nature of Business

MercadoLibre, Inc. (“MercadoLibre” or the “Company”) was incorporated in Delaware in October 1999. MercadoLibre is a Latin American e-commerce and payments-platform. MercadoLibre is an e-commerce enabler whose mission is to build the necessary online and technology tools to allow practically anyone to trade almost anything in Latin America. MercadoLibre enables commerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), a Latin American online marketplace, which allows users to buy and sell in most of the Latin America countries; through MercadoPago, which enables individuals and businesses to send and receive online payments; through MercadoEnvios, which facilitate the shipping of goods from sellers to buyers; through MercadoClics, which facilitates the advertising service to large retailers and brands to promote their product and services on the web; and through MercadoShops which facilitates users to set-up, manage promote their own on-line web-stores.

As of March 31, 2015, the Company, through its wholly-owned subsidiaries, operated online commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay and Venezuela, and online payments solutions directed towards Argentina, Brazil, Mexico, Venezuela, Chile and Colombia. In addition, the Company operates a real estate classified platform that covers some areas of State of Florida, U.S.A.

MercadoPago is currently available to users in each of Argentina, Brazil, Chile, Colombia, Mexico and Venezuela.

MercadoEnvios is currently available to users in Argentina, Brazil and Mexico.

 

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These interim condensed consolidated financial statements are stated in U.S. dollars, except for amounts otherwise indicated. Intercompany transactions and balances have been eliminated for consolidation purposes.

Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations, amounting to approximately 99.7% and 99.4% of the consolidated amounts during the three-month periods ended March 31, 2015 and 2014. Long-lived assets, Intangible assets and Goodwill located in the foreign operations totaled $152,736 thousands and $170,147 thousands as of March 31, 2015 and December 31, 2014, respectively.

These interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of March 31, 2015 and December 31, 2014. These financial statements also show the Company’s consolidated statements of income, of comprehensive income and statement of cash flows for the three-month periods ended March 31, 2015 and 2014. These interim condensed consolidated financial statements include all normal recurring adjustments that management believes are necessary to fairly state the Company’s financial position, operating results and cash flows.

Because all of the disclosures required by U.S. GAAP for annual consolidated financial statements are not included herein, these unaudited interim condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2014, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated statements of income, of comprehensive income and of cash flows for the periods presented herein are not necessarily indicative of results expected for any future period.

Foreign currency translation

Venezuelan currency status

All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela since January 1, 2010, as described below. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies into U.S. dollars by using the period-end exchange rates while income and expense accounts are translated at the average rates in effect during the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is recorded as a component of other comprehensive (loss) income. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings.

According to U.S. GAAP, the Company has transitioned its Venezuelan operations to highly inflationary status as from January 1, 2010, which requires that transactions and balances are re-measured as if the U.S. dollar were the functional currency for such operation.

 

5


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

During December 2013, the Venezuelan regulation that created the SICAD 1 exchange system was amended to expand its use, and to require publication of the average exchange rate implied by transactions settled in SICAD 1 auctions. Additionally, on January 23, 2014, the exchange regulation was amended to include foreign currency sales for certain transactions, such as but not limited to: contracts for leasing and services, use and exploitation of patents, trademarks, foreign investments and payments of royalties, contracts for technology import and technical assistance. Due to the change in rules that provided for the creation of the SICAD 1 system, the official exchange rate remains only available to obtain foreign currency to pay for a limited list of goods considered to be of high priority by the Government, which does not include those relating to the Company’s business. As a consequence, SICAD 1 became, from that moment, the primary system to which the Company would have to request U.S. dollars to settle its transactions. As a result, from January 24 to May 15, 2014, the exchange rate used to re-measure the Company’s net monetary asset position in Bolivares Fuertes (“BsF”) and BsF transactions of its Venezuelan operations was the SICAD 1 exchange rate.

In late February 2014, the Venezuelan government issued a decree to open a new exchange control mechanism (“SICAD 2”) that was intended to allow the purchase of foreign exchange currencies, through authorized foreign exchange operators offered by individuals and companies such as Petróleos de Venezuela, S.A. (PDVSA, the oil state-owned corporation of Venezuela), the Central Bank of Venezuela (“BCV”) and other public entities authorized by the Ministry of Finance. The Venezuelan government published operating rules for that exchange mechanism in Exchange Agreement N° 27, and SICAD 2 began operating on March 24, 2014. Since implementation of the SICAD 1 system, the Company was unsuccessful in gaining access to U.S. dollars through SICAD 1. As a result of this ongoing lack of access to the SICAD 1 auction system, on May 16, 2014, the Company decided to start requesting U.S. dollars through the SICAD 2 mechanism. The SICAD 2 system was an open mechanism that was intended to permit any company to request dollars for any purpose. Consequently, the Company was eligible for and was granted, U.S. dollars through the SICAD 2 mechanism.

As a consequence of the determination to obtain U.S. dollars through SICAD 2 and the lack of access to SICAD 1, since May 16, 2014 the Company concluded that the SICAD 2 exchange rate should be used to re-measure their bolivar-denominated monetary assets and liabilities in BsF and to re-measure the results of its Venezuelan operations, effective as of May 16, 2014. As a consequence, the Company recorded a foreign exchange loss of $16.5 million during the second quarter of 2014.

In light of those economic conditions in Venezuela, the determination to access SICAD 2 and re-measure the BsF denominated monetary assets and liabilities of its Venezuelan subsidiaries, and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed in May 2014, the long-lived assets, goodwill and intangible assets with indefinite useful life for impairment. For that purpose, the Company considered the current expected use of these assets, which in the case of two office spaces in Venezuela that had been expected to be used to support the growth of the main operating activities in that country, are currently for rent, and eventually consider opportunities for disposal if real estate market conditions are favorable in the future. Because the Company concluded that the carrying value of these two real estate properties would not be fully recoverable, it recorded an impairment of long-lived assets of $49.5 million in the second quarter of 2014. The carrying amount was adjusted to its estimated fair value of that date, by using the market approach, and considering prices for similar assets.

Later, on February 10, 2015, the Venezuelan government issued a decree that unified the two previous foreign exchange systems “SICAD 1 and SICAD 2” into a new single system denominated SICAD, with an initial public foreign exchange rate of 12 BsF per U.S. dollar. The SICAD auction process remains available only to obtain foreign currency to pay for a limited list of goods considered to be of high priority by the Venezuelan government, which does not include those relating to the Company’s business. In the same decree the Venezuelan government created the “Sistema Marginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, which publishes a foreign exchange rate from the BCV on a daily basis.

In light of the disappearance of SICAD 2, and the Company’s inability to gain access to U.S. dollars through the new single system under SICAD, it started requesting and has been granted U.S. dollars through SIMADI. As a result, the Company now expects to settle its transactions through SIMADI and has concluded that the SIMADI exchange rate should be used to re-measure its bolivar-denominated monetary assets and liabilities and to re-measure the revenues and expenses of the Venezuelan subsidiaries effective as of March 31, 2015. In connection with this re-measurement, the Company recorded a foreign exchange loss of $20.4 million during the first quarter of 2015. As of March 31, 2015, the SIMADI exchange rate was 192.95 BsF per U.S. dollar.

Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows now expected from the Venezuelan business, the Company has reviewed its long-lived assets, goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of March 31, 2015 will not be fully recoverable. As a result, the Company has recorded an impairment of long-lived assets of $ 16.2 million on March 31, 2015. The carrying amount has been adjusted to its estimated fair value of approximately $9.2 million as of that date, by using the market approach, and considering prices for similar assets.

Until 2010 the Company was able to obtain U.S. dollars for any purpose, including dividends distribution, using alternative mechanisms other than through the Commission for the Administration of Foreign Exchange Control (CADIVI). Those U.S.

 

6


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiaries. The Venezuelan subsidiaries have not requested authorization since 2012 to acquire U.S. dollars to make dividend distributions. The Company has not distributed dividends from the Venezuelan subsidiaries since 2011.

The following table sets forth the assets, liabilities and net assets of the Company’s Venezuelan subsidiaries, before intercompany eliminations, as of March 31, 2015 and December 31, 2014 and net revenues for the three-month periods ended March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

Three-month periods ended
March 31,

 

 

2015

 

2014

Venezuelan operations

 

(In thousands)

Net Revenues

 

$            13,955

 

$            19,357

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

 

 

 

Assets

 

41,587 

 

75,153 

Liabilities

 

(38,565)

 

(43,359)

Net Assets

 

$              3,022

 

$            31,794

 

As of March 31, 2015, net assets (before intercompany eliminations) of the Venezuelan subsidiaries amounted to approximately 0.9%  of consolidated net assets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amounted to approximately 1.3% of our consolidated cash and investments.

The Company’s ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange regulations in Venezuela that are described above and elsewhere in these financial statements. In addition, its business and ability to obtain U.S. dollars in Venezuela would be negatively affected by additional material devaluations or the imposition of significant additional and more stringent controls on foreign currency exchange by the Venezuelan government.

Despite the current difficult macroeconomic environment in Venezuela, the Company continues to actively manage, through its Venezuelan subsidiaries, its investment in Venezuela. Regardless the current operating, political and economic conditions and certain other factors in Venezuela, management currently plans to continue supporting its business in Venezuela in the long run.

Argentine currency status

The Argentine government has implemented certain measures that control and restrict the ability of companies and individuals to exchange Argentine pesos for foreign currencies. Those measures include, among other things, the requirement to obtain the prior approval from the Argentine Tax Authority of the foreign currency transaction (for example and without limitation, for the payment of non-Argentine goods and services, payment of principal and interest on non-Argentine debt and also payment of dividends to parties outside of the country), which approval process could delay, and eventually restrict, the ability to exchange Argentine pesos for other currencies, such as U.S. dollars. Those approvals are administered by the Argentine Central Bank through the Local Exchange Market (“Mercado Unico Libre de Cambios”, or “MULC”), which is the only market where exchange transactions may be lawfully made.

Further, restrictions also currently apply to the acquisition of any foreign currency for holding as cash within Argentina. Although the controls and restrictions on the acquisition of foreign currencies in Argentina place certain limitations on our current ability to convert cash generated by our Argentine subsidiaries into foreign currencies, based on the current state of Argentine currency rules and regulations, we do not expect that the current controls and restrictions, will have a material adverse effect on our business plans in Argentina or on our overall business, financial condition or results of operations.

Additionally, during January 2014 the Argentinean peso exchange rate against the U.S. dollar increased in approximately 23%, from 6.52 Argentinean Pesos per U.S. dollar as of December 31, 2013 to approximately 8.0 Argentinean Pesos per U.S. dollar. Due to the abovementioned devaluation, during the first quarter of 2014, the reported net assets in Argentina decreased in $14,625 thousands with the related impact in Other Comprehensive Income and the Company recognized a foreign exchange gain of $4,597 thousands. As of March 31, 2015, the Argentinean Peso exchange rate was $8.82 per U.S. dollar.

 

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Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

Income Tax Holiday in Argentina

According to Argentine law, from fiscal year 2008, the Company’s Argentine subsidiary was a beneficiary of a software development law. Part of the benefits obtained from being a beneficiary of the aforementioned law was a relief of 60% of total income tax determined in each year, thus resulting in an effective tax rate in Argentina lower than the income tax law statutory rate. The law expired on September 17, 2014. As a consequence, the average tax rate for 2014 was approximately 22% as we expected no income tax holiday for last quarter of fiscal year 2014.

Aggregate tax benefit totaled $2,102 thousands and aggregate per share effect of the Argentine tax holiday amounted to $0.05 for the three-month period ended March 31, 2014. In addition, during fiscal year 2013 and on December 15, 2014 the Company acquired a software development company, located in the Province of Cordoba and the City of Buenos Aires, Argentina, which were also beneficiaries of the aforementioned income tax holiday, however the total benefit obtained is immaterial.

On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 the regulatory decree was issued, which established the new requirement to become beneficiary of the new software development law. The new decree establishes compliance requirements with annual incremental ratios related to exports of services and research and development expenses that must be achieved to remain within the tax holiday. The Argentine operation will have to achieve certain required ratios annually under the new software development law.

If we are successful in being admitted as beneficiaries under the new law, we estimate that the Argentine effective income tax rate would be materially lower than the statutory income tax rate. Also, the tax holiday under the new law would last until 2019.

The Industry Secretary resolution which rules, among other provisions, on the mechanism to file the information to obtain the benefits derived from the new software development law was issued in late February 2014. During May 2014, the Company presented all the required documentation in order to apply for the new software development law. At the date of issuance of these interim condensed consolidated financial statements, the Industry Secretary resolution which approves the Company’s application is still pending, and for that reason no tax holiday was recorded for the three-month period ended March 31, 2015.

Accumulated other comprehensive income

The following table sets forth the Company’s accumulated other comprehensive income as of March 31, 2015 and the year ended December 31, 2014:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(In thousands)

 

 

 

 

 

Foreign currency translation

 

$              (157,225)

 

$          (134,695)

Unrealized gain (loss) on investments

 

396 

 

(578)

Estimated tax (loss) gain on unrealized gains on investments

 

(135)

 

199 

 

 

$              (156,964)

 

$          (135,074)

 

 

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Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

The following tables summarize the changes in accumulated balances of other comprehensive income for the three-month period ended March 31, 2015 and the year ended December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

Foreign

 

Estimated tax

 

 

 

 

Gains (Losses) on

 

Currency

 

(expense)

 

 

 

 

Investments

 

Translation

 

benefit

 

Total

 

 

(In thousands)

Balances as of December 31, 2014

 

$                    (578)

 

$          (134,695)

 

$                        199

 

$  (135,074)

Other comprehensive loss before reclassification

 

 

 

 

 

 

 

 

adjustments for gains on available for sale investments

 

396 

 

(22,530)

 

(135)

 

(22,269)

Amount of gain (loss) reclassified from accumulated

 

 

 

 

 

 

 

 

other comprehensive income to net income

 

578 

 

 —

 

(199)

 

379 

Net current period other comprehensive loss

 

974 

 

(22,530)

 

(334)

 

(21,890)

Balances as of March 31, 2015

 

$                      396

 

$          (157,225)

 

$                      (135)

 

$  (156,964)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain (Loss)

 

 

 

 

Details about Accumulated

 

Reclassified from

 

 

 

 

Other Comprehensive Income

 

Accumulated Other

 

 

 

 

Components for the three-month

 

Comprehensive

 

Affected Line Item

period ended March 31, 2015

 

Income

 

in the Statement of Income

 

 

(In thousands)

 

 

 

 

Unrealized losses on investments

 

$                    (578)

 

Interest income and other financial gains

 

 

Estimated tax gain on unrealized losses on investments

 

199 

 

Income / asset tax expense

Total reclassifications for the period

 

$                    (379)

 

Total, net of income taxes

 

Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

As explained in section “Foreign Currency Translation” of the present Note to these interim condensed consolidated financial statements, in first quarter of 2015, as a result of the disappearance of SICAD 2 in February 2015 and the Company’s inability to gain access to U.S. dollars through the new single system under SICAD, it started requesting and has been granted U.S. dollars through SIMADI. As a result, the Company now expects to settle its transactions through SIMADI and has concluded that the SIMADI exchange rate should be used to re-measure its bolivar-denominated monetary assets and liabilities and to re-measure the revenues and expenses of the Venezuelan subsidiaries effective as of March 31, 2015. 

Considering these changes in facts and circumstances and the lower U.S. dollar-equivalent cash flows expected from the Venezuelan business, and long-lived assets expected use, the Company compared the carrying amount of the long-lived assets with the expected undiscounted future net cash flows and concluded that certain office spaces held in Caracas, Venezuela, should be impaired. As a consequence, the Company estimated the fair value of the impaired long-lived assets and recorded impairment losses of $16.2 million on March 31, 2015, by using the market approach and considering prices for similar assets.

Convertible Senior Notes

On June 30, 2014, the Company issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes are unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, on January 1 and July 1, at a rate of 2.25% per annum. The Notes will mature on July 1, 2019 unless earlier repurchased or converted in accordance with their terms prior to such date. The Notes may be converted, under specific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $126.02 per share of common stock), subject to adjustment as described in the indenture governing the Notes.

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

Prior to January 1, 2019, the Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes. The conversion rate is subject to customary anti-dilution adjustments. Following certain corporate events described in the Indenture that occur prior to the maturity date, the conversion rate will be increased for a holder who elects to convert its Notes in connection with such corporate event in certain circumstances. The Indenture contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Notes to be due and payable.

In accordance with ASC 470-20 Debt with Conversion and Other Options, the convertible debt instrument within the scope of the cash conversion subsection, was separated into debt and equity components at issuance and a fair value was assigned. The value assigned to the debt component was the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of the issuance date, the Company determined the fair value of the liability component of the Notes based on market data that was available for senior, unsecured nonconvertible corporate bonds issued by comparable companies. The difference between the cash proceeds and this estimated fair value, represents the value assigned to the equity component and was recorded as a debt discount. The debt discount is amortized using the effective interest method from the origination date through its stated contractual maturity date.

The initial debt component of the Notes was valued at $283,015 thousands, based on the contractual cash flows discounted at an appropriate market rate for a non-convertible debt at the date of issuance, which was determined to be 5.55%. The carrying value of the permanent equity component reported in additional paid-in-capital was initially valued at $46,985 thousands. The effective interest rate after allocation of transaction costs to the liability component is 6.1% and is used to amortize the debt discount and transaction costs.

In connection with the issuance of the Notes, the Company paid approximately $19,668 thousands to enter into capped call transactions with respect to its common shares (the “Capped Call Transactions”), with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes and / or offset any cash payments the Company may be required to make in excess of the principal amount of any converted notes in the event that the market price of the common shares is greater than the strike price of the Capped Call Transactions, initially set at $126.02 per common share, which corresponds to the initial conversion price of the Notes and is subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes, and have a cap price of approximately $155.78 per common share.

The $19,668 thousands cost of the capped call transactions, which net of deferred income tax effect amounts to $12,784 thousands, is included as a net reduction to additional paid-in capital in the stockholders’ equity section of our consolidated balance sheets.

For more detailed information in relation to the Notes and the Capped Call transactions, see Note 9 to these interim condensed consolidated financial statements.

Use of estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting for allowance for doubtful accounts and chargeback provisions, depreciation, amortization, recoverability of goodwill and intangible assets with indefinite useful life, useful life of long-lived assets and intangible assets, impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relating to the Company’s long term retention plan, fair value of convertible debt note, recognition of income taxes and contingencies. Actual results could differ from those estimates.

Recently issued accounting pronouncements

On January 9, 2015, the FASB issued the ASU 2015-01. This new standard eliminates from general accepted accounting principles the concept of extraordinary items included in Subtopic 225-20. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the year of adoption. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On February 18, 2015 the FASB issued the ASU 2015-02. The update affects reporting entities that are required to evaluate whether they should consolidate certain legal entities and is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. The amendments eliminate three of the six conditions for evaluating whether a fee paid to a

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

decision maker or a service provider represents a variable interest. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On April 7, 2015 the FASB issued the ASU 2015-03. To simplify presentation of debt issuance costs, the amendments in this update would require that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is not expected to have a material impact on the Company’s financial statements.

On April 15, 2015 the FASB issued the ASU 2015-05. The amendments in this update will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. The amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.

On May, 2015 the FASB issued the ASU 2015-07. The amendments in this update remove, from the fair value hierarchy, investments for which the practical expedient is used to measure fair value at net asset value. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. For public companies, this amendment is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early adoption is permitted. The amendment should be applied retrospectively to all periods presented. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.

 

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

3. Net income per share

Basic earnings per share for the Company’s common stock is computed by dividing, net income available to common shareholders attributable to common stock for the period, and the corresponding adjustment attributable to changes in redeemable non-controlling interest, by the weighted average number of common shares outstanding during the period.

Diluted earnings per share for the Company’s common stock assume the issuance of shares as a consequence of a convertible debt securities conversion event.

The following table shows how net income is allocated using the “if converted” method for earnings per common share for the three-month periods ended March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

(In thousands)

 

 

Basic

 

Diluted

 

Basic

 

Diluted

Net income

 

$                1,721

 

$          1,721

 

$            30,328

 

$            30,328

Net income attributable to noncontrolling interests

 

 —

 

 —

 

(64)

 

(64)

Change in redeemable amount of noncontrolling interest

 

 —

 

 —

 

61 

 

61 

Net income attributable to MercadoLibre, Inc. Shareholders

 

 

 

 

 

 

 

 

corresponding to common stock

 

$                1,721

 

$          1,721

 

$            30,325

 

$            30,325

 

 

 

Net income per share of common stock is as follows for the three-month periods ended March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

2015

 

2014

 

 

(In thousands, except per share data)

 

 

Basic

 

Diluted

 

Basic

 

Diluted

 

 

 

 

 

 

 

 

 

Net income attributable to MercadoLibre, Inc. Shareholders per common share

 

$                0.04 

 

$                0.04 

 

$                0.69 

 

$                0.69 

Numerator:

 

 

 

 

 

 

 

 

Net income attributable to MercadoLibre, Inc. Shareholders

 

$              1,721 

 

$              1,721 

 

$            30,325 

 

$            30,325 

Denominator:

 

 

 

 

 

 

 

 

Weighted average of common stock outstanding for Basic earnings per share

 

44,154,796 

 

44,154,796 

 

44,153,818 

 

44,153,818 

Adjustment for Convertible Notes

 

 —

 

 —

 

 —

 

 —

Adjusted weighted average of common stock outstanding for Diluted earnings per share

 

44,154,796 

 

44,154,796 

 

44,153,818 

 

44,153,818 

 

On June 30, 2014, the Company issued the 2.25% Convertible Senior Notes due 2019 (please refer to Note 9 of these interim condensed consolidated financial statements for discussion regarding these debt notes). The conversion of these debt notes are considered for diluted earnings per share utilizing the “if converted” method, the effect of that conversion is not assumed for purposes of computing diluted earnings per share if the effect is antidilutive. For the three-month period ended March 31, 2015, the effect of the Convertible Senior Notes due 2019 on diluted earnings per share was anti-dilutive and, as a consequence, it was not computed for diluted earnings per share.

The denominator for diluted net income per share for the three-month period ended March 31, 2015 does not include any effect from the capped call because it would be antidilutive. In the event of conversion of any or all of the Notes, the shares that would be delivered to the Company under the note hedges are designed to partially neutralize the dilutive effect of the shares that the Company would issue under the Notes.

 

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

4. Business combinations, goodwill and intangible assets

Business combinations

Acquisition of online classifieds advertisement companies in Chile and Mexico

On April 8, 2014, through its subsidiaries Meli Inversiones SpA and Meli Participaciones, S.L., the Company acquired 100% of the issued and outstanding shares of capital stock of the companies VMK S.A., Inmobiliaria Web Chile S. de R.L. de C.V. and Inmuebles Online S.A., companies that operate online classified advertisements platforms dedicated to the sale of real estate in Chile through Portal Inmobiliario brand and in Mexico through Guia de Inmuebles brand, in order to increase its participation on e-commerce business in those countries.

The aggregate purchase price for the acquisition of the 100% of the acquired business was $37,990 thousands, measured at its fair value, amount that included: (i) the total cash payment of $32,148 thousands at closing day; (ii) an escrow of $1,000 thousand held in an escrow agent, according to the stock purchase agreement; (iii) the contingent additional cash considerations and escrows up to $4,621 thousands in case the companies achieve certain revenue performance targets during 2014 and 2015, measured at fair value; and, (iv) an additional price adjustment escrow of $221 thousands, which was paid in January 2015.

In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.

As of March 31, 2015 and December 31, 2014, the fair value of the contingent consideration recorded is $4,875 thousands and $4,833 thousands, respectively. Contingent additional cash considerations are to be paid after the achievement of the performance targets.

The following table summarizes the definite purchase price allocation (in thousands of U.S. dollars) for the acquisition:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chile

Mexico

Total

Cash and cash equivalents

 

$

547 

$

474 

$

1,021 

Other net tangible assets / (liabilities)

 

 

2,306 

 

(2,727)

 

(421)

Trademarks

 

 

5,422 

 

2,155 

 

7,577 

Customer Lists

 

 

10,104 

 

322 

 

10,426 

Software

 

 

447 

 

 —

 

447 

Non solicitation agreement

 

 

587 

 

 —

 

587 

Deferred tax assets and liabilities

 

 

(2,644)

 

214 

 

(2,430)

Goodwill

 

 

14,709 

 

6,074 

 

20,783 

Purchase Price

 

$

31,478 

$

6,512 

$

37,990 

 

The purchase price was allocated based on the definite measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the date of these unaudited interim condensed consolidated financial statements. The valuation of identifiable intangible assets acquired reflects management’s estimates based on the use of established valuation methods. Such assets consist of trademarks, customer lists, software and non-solicitation agreements for a total amount of $19,036 thousands. Management of the Company estimates that trademarks have an indefinite lifetime and the intangible assets associated with customer list will be amortized over a ten year period. The non-solicitation agreement intangible asset will be amortized over a four year period and the software in three years.

Acquisition of Software Development Company in Argentina

 

On December 15, 2014, the Company completed, through its subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, a limited liability company organized under the laws of Delaware, USA (together referred to as the “Buyers”), the acquisition of the 100% of equity interest of Business Vision S.A., a software development company located and organized under the laws of the Buenos Aires City, Argentina. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.

The aggregate purchase price for the acquisition of the 100% of the acquired business was $4,768 thousands. On such same date, the Buyer paid and agreed to pay the purchase price as follows: i) $3,804 thousands in cash, net of $111 thousands of negative working capital adjustments; ii) set an escrow amounting to $250 thousand for a 24-months period, aiming to cover unexpected adjustments to the initial aggregate purchase price; and iii) set an escrow amounting to $735 thousands, 50% for a 12-months period and 50% for a 24-months period since the closing date.

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the preliminary purchase price allocation (in thousands of U.S. dollars) for the acquisition:

 

 

 

 

 

 

Cash and cash equivalents

 

$

81 

Other net tangible assets

 

 

857 

Total net tangible assets acquired

 

 

938 

Customer Lists

 

 

563 

Non solicitation agreement

 

 

428 

Deferred tax assets and liabilities

 

 

(300)

Goodwill

 

 

3,139 

Purchase Price

 

$

4,768 

In the acquisition described above, arising goodwill has been allocated proportionally to each of the segments identified by the Company’s management, considering the synergies expected from this acquisition and it is expected that the acquiree will contribute to the earnings generation process of such segments.

The Company recognized goodwill for this acquisition based on management expectation that the acquired businesses will increase the software capabilities of the Company and will improve the Company’s business in Latin America.

Goodwill is not deductible for tax purposes, except for the proportion acquired by Meli Inversiones SpA (Chile) of the Portal Inmobiliario brand in Chile.

The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the consolidated statements of operations of the Company and, accordingly, pro forma information has not been presented.

Goodwill and intangible assets

The composition of goodwill and intangible assets is as follows:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(In thousands)

Goodwill

 

$            65,577

 

$            68,829

Intangible assets with indefinite lives

 

 

 

 

— Trademarks

 

9,986 

 

10,276 

Amortizable intangible assets

 

 

 

 

— Licenses and others

 

5,862 

 

5,111 

— Non-compete / solicitation  agreement

 

1,662 

 

1,829 

— Customer list

 

10,826 

 

11,294 

Total intangible assets

 

$            28,336

 

$            28,510

Accumulated amortization

 

(5,535)

 

(5,339)

Total intangible assets, net

 

$            22,801

 

$            23,171

 

Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2015 and the year ended December 31, 2014 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period ended March 31, 2015

 

 

(In thousands)

 

 

Brazil

 

Argentina

 

Chile

 

Mexico

 

Venezuela

 

Colombia

 

Other
Countries

 

Total

Balance, beginning of the period

 

$           10,557 

 

$           11,859 

 

$                19,101 

 

$                 15,719 

 

$             5,729 

 

$             4,521 

 

$             1,343 

 

$           68,829 

- Effect of exchange rates changes

 

(1,381)

 

(376)

 

(579)

 

(552)

 

 —

 

(314)

 

(50)

 

(3,252)

Balance, end of the period

 

$             9,176 

 

$           11,483 

 

$                18,522 

 

$                 15,167 

 

$             5,729 

 

$             4,207 

 

$             1,293 

 

$           65,577 

 

 

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2014

 

 

(In thousands)

 

 

Brazil

 

Argentina

 

Chile

 

Mexico

 

Venezuela

 

Colombia

 

Other
Countries

 

Total

Balance, beginning of year

 

$           10,366 

 

$           14,676 

 

$                  6,520 

 

$                 11,376 

 

$             5,252 

 

$             5,506 

 

$             1,405 

 

$           55,101 

- Bussiness Acquisition

 

1,538 

 

775 

 

14,710 

 

6,293 

 

477 

 

82 

 

48 

 

23,923 

- Effect of exchange rates changes

 

(1,347)

 

(3,592)

 

(2,129)

 

(1,950)

 

 —

 

(1,067)

 

(110)

 

(10,195)

Balance, end of the year

 

$           10,557 

 

$           11,859 

 

$                19,101 

 

$                 15,719 

 

$             5,729 

 

$             4,521 

 

$             1,343 

 

$           68,829 

 

Intangible assets with definite useful life

Intangible assets with definite useful life are comprised of customer lists and user base, non-compete and solicitation agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled $510 thousands and $159 thousands for the three-month periods ended March 31, 2015 and 2014, respectively.

The following table summarizes the remaining amortization of intangible assets (in thousands of U.S. dollars) with definite useful life as of March 31, 2015:

 

 

 

 

 

For year ended 12/31/2015

 

$               1,795

For year ended 12/31/2016

 

2,359 

For year ended 12/31/2017

 

2,091 

For year ended 12/31/2018

 

1,336 

Thereafter

 

5,234 

 

 

$             12,815

 

 

5. Segment reporting

Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed, the criteria used by management to evaluate the Company’s performance, the availability of separate financial information, and overall materiality considerations.

Segment reporting is based on geography as the main basis of segment breakdown to reflect the evaluation of the Company’s performance defined by the management. The Company’s segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Uruguay and USA).

Direct contribution consists of net revenues from external customers less direct costs and any impairment of long lived assets. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, payroll, third party fees. All corporate related costs have been excluded from the Company’s direct contribution.

Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs are monitored by management through shared cost centers and are not evaluated in the measurement of segment performance.

The following tables summarize the financial performance of the Company’s reporting segments:

 

 

 

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MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2015

 

 

(In thousands)

 

 

Brazil

 

Argentina

 

Mexico

 

Venezuela

 

Other
Countries

 

Total

Net revenues

 

$             68,498 

 

$             47,431 

 

$            9,437 

 

$             13,955 

 

$            8,782 

 

$             148,103 

Direct costs

 

(39,681)

 

(24,785)

 

(5,969)

 

(4,204)

 

(5,172)

 

(79,811)

Impairment of Long-lived Assets

 

 —

 

 —

 

 —

 

(16,226)

 

 —

 

(16,226)

Direct contribution

 

28,817 

 

22,646 

 

3,468 

 

(6,475)

 

3,610 

 

52,066 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses and indirect costs of net revenues

 

 

 

 

 

 

 

 

 

 

 

(26,478)

Income from operations

 

 

 

 

 

 

 

 

 

 

 

25,588 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other financial gains

 

 

 

 

 

 

 

 

 

 

 

4,308 

Interest expense and other financial losses

 

 

 

 

 

 

 

 

 

 

 

(4,950)

Foreign currency losses

 

 

 

 

 

 

 

 

 

 

 

(8,570)

Net income before income / asset tax expense

 

 

 

 

 

 

 

 

 

 

 

$               16,376 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2014

 

 

(In thousands)

 

 

Brazil

 

Argentina

 

Mexico

 

Venezuela

 

Other
Countries

 

Total

Net revenues

 

$             52,434 

 

$             27,962 

 

$            8,083 

 

$             19,357 

 

$            7,546 

 

$             115,382 

Direct costs

 

(30,517)

 

(16,916)

 

(4,578)

 

(5,635)

 

(3,914)

 

(61,560)

Direct contribution

 

21,917 

 

11,046 

 

3,505 

 

13,722 

 

3,632 

 

53,822 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses and indirect costs of net revenues

 

 

 

 

 

 

 

 

 

 

 

(19,821)

Income from operations

 

 

 

 

 

 

 

 

 

 

 

34,001 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other financial gains

 

 

 

 

 

 

 

 

 

 

 

3,036 

Interest expense and other financial losses

 

 

 

 

 

 

 

 

 

 

 

(1,027)

Foreign currency gains

 

 

 

 

 

 

 

 

 

 

 

3,093 

Net income before income / asset tax expense

 

 

 

 

 

 

 

 

 

 

 

$               39,103 

 

 

 

 

 

 

16


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the allocation of property and equipment, net based on geography:

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(In thousands)

 

 

 

 

 

US Property and equipment, net

 

$               11,434

 

$               13,226

Other countries property and equipment, net

 

 

 

 

Argentina

 

29,382 

 

28,005 

Brazil

 

8,211 

 

8,237 

Mexico

 

2,745 

 

2,801