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EX-32.2 - EX-32.2 - MERCADOLIBRE INCmeli-20180331xex32_2.htm
EX-32.1 - EX-32.1 - MERCADOLIBRE INCmeli-20180331xex32_1.htm
EX-31.2 - EX-31.2 - MERCADOLIBRE INCmeli-20180331xex31_2.htm
EX-31.1 - EX-31.1 - MERCADOLIBRE INCmeli-20180331xex31_1.htm







 



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, 2018

-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, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth 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

 



 

 

 

Emerging growth company

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 

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.

44,157,364 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 8, 2018.







 



 

 


 



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, 2018 and December 31, 2017

Interim Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2018 and 2017

Interim Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2018 and 2017

Interim Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2018 and 2017

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

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

23 

Item 3 — Qualitative and Quantitative Disclosures About Market Risk

47 

Item 4 — Controls and Procedures

50 

PART II. OTHER INFORMATION

51 

Item 1 — Legal Proceedings

51 

Item 1A — Risk Factors

51 

Item 6 — Exhibits

52 

INDEX TO EXHIBITS

52 



 

 


 

MercadoLibre, Inc.

Interim Condensed Consolidated Financial Statements

as of March  31, 2018 and December 31, 2017

and for the three-month periods

ended March  31, 2018 and 2017

 



 

 


 



MercadoLibre, Inc.

Interim Condensed Consolidated Balance Sheets

As of March 31, 2018 and December 31, 2017

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

(Unaudited)





 

 

 



March 31,

 

December 31,



2018

 

2017

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$                350,411

 

$                388,260

Short-term investments

159,446 

 

209,432 

Accounts receivable, net

29,914 

 

28,168 

Credit cards receivables, net

530,185 

 

521,130 

Loans receivable, net

122,328 

 

73,409 

Prepaid expenses

21,862 

 

5,864 

Inventory

3,362 

 

2,549 

Other assets

68,052 

 

58,107 

Total current assets

1,285,560 

 

1,286,919 

Non-current assets:

 

 

 

Long-term investments

33,410 

 

34,720 

Property and equipment, net

122,859 

 

114,837 

Goodwill

93,714 

 

92,279 

Intangible assets, net

22,392 

 

23,174 

Deferred tax assets

93,708 

 

57,324 

Other assets

68,044 

 

63,934 

Total non-current assets

434,127 

 

386,268 

Total assets

$             1,719,687

 

$             1,673,187

Liabilities and Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$                228,318

 

$                221,095

Funds payable to customers

592,923 

 

583,107 

Salaries and social security payable

97,769 

 

65,053 

Taxes payable

28,306 

 

32,150 

Loans payable and other financial liabilities

134,466 

 

56,325 

Other liabilities

4,069 

 

3,678 

Dividends payable

 —

 

6,624 

Total current liabilities

1,085,851 

 

968,032 

Non-current liabilities:

 

 

 

Salaries and social security payable

19,500 

 

25,002 

Loans payable and other financial liabilities

314,953 

 

312,089 

Deferred tax liabilities

25,542 

 

23,819 

Other liabilities

20,974 

 

18,466 

Total non-current liabilities

380,969 

 

379,376 

Total liabilities

$             1,466,820

 

$             1,347,408



 

 

 

Equity:

 

 

 



 

 

 

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

 

 

 

 44,157,364 shares issued and outstanding at March 31,

 

 

 

 2018 and December 31, 2017

$                          44

 

$                          44

Additional paid-in capital

24,969 

 

70,661 

Retained earnings

527,098 

 

537,925 

Accumulated other comprehensive loss

(299,244)

 

(282,851)

Total Equity

252,867 

 

325,779 

Total Liabilities and Equity

$             1,719,687

 

$             1,673,187









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, 2018 and 2017

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

(Unaudited)









 

 

 

 



 

Three Months Ended March 31,



 

2018

 

2017

Net revenues

 

$                320,976

 

$                269,675

Cost of net revenues

 

(158,218)

 

(100,819)

Gross profit

 

162,758 

 

168,856 

Operating expenses:

 

 

 

 

Product and technology development

 

(38,396)

 

(30,302)

Sales and marketing

 

(110,723)

 

(46,931)

General and administrative

 

(43,058)

 

(28,309)

Total operating expenses

 

(192,177)

 

(105,542)

(Loss) income from operations

 

(29,419)

 

63,314 



 

 

 

 

Other income (expenses):

 

 

 

 

Interest income and other financial gains

 

9,195 

 

12,157 

Interest expense and other financial losses

 

(10,734)

 

(6,471)

Foreign currency gains

 

5,601 

 

663 

Net (loss) income before income tax gain (expense)

 

(25,357)

 

69,663 



 

 

 

 

Income tax gain (expense)

 

12,438 

 

(21,145)

Net (loss) income

 

$                 (12,919)

 

$                  48,518







 

 

 

 



 

Three Months Ended March 31,



 

2018

 

2017

Basic EPS

 

 

 

 

Basic net (loss) income

 

 

 

 

Available to shareholders per common share

 

$                    (0.29)

 

$                         1.10

Weighted average of outstanding common shares

 

44,157,364 

 

44,157,364 

Diluted EPS

 

 

 

 

Diluted net (loss) income

 

 

 

 

Available to shareholders per common share

 

$                    (0.29)

 

$                         1.10

Weighted average of outstanding common shares

 

44,157,364 

 

44,157,364 



 

 

 

 

Cash Dividends declared (per share)

 

 —

 

0.150 















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, 2018 and 2017

(In thousands of U.S. dollars)

(Unaudited)









 

 

 



Three Months Ended March 31,



2018

 

2017

Net (loss) income

$                 (12,919)

 

$                  48,518

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

 

 

 

Currency translation adjustment

(15,573)

 

9,665 

Unrealized net losses (gains) on available for sale investments

(24)

 

1,244 

Less: Reclassification adjustment for gains (losses) on available for sale investments

796 

 

(587)

Net change in accumulated other comprehensive (loss) income, net of income tax

(16,393)

 

11,496 

Total Comprehensive (loss) income

$                 (29,312)

 

$                  60,014







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, 2018 and 2017

(In thousands of U.S. dollars)

(Unaudited)







 

 

 

 



 

Three Months Ended March 31,



 

2018

 

2017



 

 

Cash flows from operations:

 

 

 

 

Net (loss) income

 

$                 (12,919)

 

$                  48,518

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

Depreciation and amortization

 

11,084 

 

9,003 

Accrued interest

 

(4,447)

 

(5,679)

Non cash interest and convertible notes amortization of debt discount and amortization of debt issuance costs

 

7,063 

 

4,226 

LTRP accrued compensation

 

15,737 

 

9,176 

Deferred income taxes

 

(30,601)

 

(2,798)

Changes in assets and liabilities:

 

 

 

 

Accounts receivable 

 

(9,347)

 

(1,305)

Credit Card Receivables

 

(33,870)

 

15,583 

Prepaid expenses

 

(16,164)

 

347 

Inventory

 

(872)

 

727 

Other assets

 

(13,009)

 

(4,472)

Accounts payable and accrued expenses

 

22,773 

 

13,364 

Funds payable to customers

 

20,613 

 

13,929 

Other liabilities

 

3,041 

 

123 

Interest received from investments

 

3,912 

 

4,015 

Net cash (used in) provided by operating activities

 

(37,006)

 

104,757 

Cash flows from investing activities:

 

 

 

 

Purchase of investments

 

(632,734)

 

(897,589)

Proceeds from sale and maturity of investments

 

683,909 

 

876,040 

Purchases of intangible assets

 

(97)

 

(17)

Advance for property and equipment

 

(3,390)

 

(2,505)

Changes in principal of loans receivable, net

 

(52,243)

 

(4,808)

Purchases of property and equipment

 

(19,542)

 

(10,268)

Net cash used in investing activities

 

(24,097)

 

(39,147)

Cash flows from financing activities:

 

 

 

 

Proceeds from loans payable and other financial liabilities

 

80,925 

 

4,290 

Payments on loans payable and other financing liabilities

 

(4,583)

 

(2,875)

Dividends paid

 

(6,624)

 

(6,624)

Purchase of convertible note capped call

 

(45,692)

 

 —

Net cash provided by (used in) financing activities

 

24,026 

 

(5,209)

Effect of exchange rate changes on cash and cash equivalents

 

(772)

 

6,847 

Net (decrease) increase in cash and cash equivalents

 

(37,849)

 

67,248 

Cash and cash equivalents, beginning of the period

 

$                388,260

 

$                234,140

Cash and cash equivalents, end of the period

 

$                350,411

 

$                301,388

















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 the state of Delaware, in the United States of America in October 1999. MercadoLibre is one of the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as an enabler of the necessary online and technology tools to allow businesses and individuals to trade products and services in the region. The Company enables commerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), which allows users to buy and sell in most of Latin America. 

Through MercadoPago, MercadoLibre enables individuals and businesses to send and receive online payments; through MercadoEnvios, MercadoLibre facilitates the shipping of goods from sellers to buyers; through our advertising products, MercadoLibre facilitates advertising services for large retailers and brands to promote their product and services on the web; through MercadoShops, MercadoLibre allows users to set-up, manage and promote their own online webstores under a subscription-based business model; and through MercadoCredito, MercadoLibre extends loans to certain merchants and consumers. In addition, MercadoLibre develops and sells software enterprise solutions to e-commerce business clients in Brazil.

As of March  31, 2018, MercadoLibre, through its wholly-owned subsidiaries, operated online ecommerce platforms in Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, Salvador, Portugal, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates an online payments solution in Argentina, Brazil, Mexico, Venezuela, Colombia, Chile, Peru and Uruguay. It also offers a shipping solution available in Argentina, Brazil, Mexico, Colombia and Chile. The Company operates a real estate classified platform that covers some areas of State of Florida, in the United States of America.

 

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 controlled subsidiaries. These interim condensed consolidated financial statements are stated in U.S. dollars, except for amounts otherwise indicated. Intercompany transactions and balances with subsidiaries 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. Operating (loss) income of foreign operations amounted to 98.7% and 98.8% of the consolidated amounts during the three-month periods ended March 31, 2018 and 2017, respectively. Long-lived assets, intangible assets and goodwill located in the foreign jurisdictions totaled $233,096 thousands and $223,134 thousands as of March 31, 2018 and December 31, 2017, respectively.

These interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of March 31, 2018  and December 31, 2017. These financial statements include the Company’s consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2018 and 2017 and statement of cash flows for the three-month periods ended March 31, 2018 and 2017. 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, 2017, 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. For a more detailed discussion of the Company’s significant accounting policies, see note 2 to the financial statements in the Company’s Form 10-K for the year ended December 31, 2017. During the three-month period ended March 31, 2018, there were no material updates made to the Company’s significant accounting policies, except for the adoption of ASC 606 and ASU 2016-16- Income taxes (Topic 740) as of January 1, 2018. See Note 2 of these interim condensed consolidated financial statements for more details.







 

5


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Revenue recognition



Revenues are recognized when control of the promised services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.



Contracts with customers may include promises to transfer multiple services including discounts on future services. Determining whether services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.



Revenues are recognized when each performance obligation is satisfied by transferring the promised service to the customer according to the following criteria described for each type of service:



·

Revenues from the Enhanced Marketplace service, include the final value fees and shipping fees charged to the Company’s customers. Because the Company acts as an agent, revenues derived from the shipping services are presented net of the respective transportation costs charged by third-party carriers and paid by the Company. As part of the Company’s business strategy, shipping costs may be fully or partially subsidized at the Company’s option.



·

Revenues from the Non-Marketplace services are generated from payments fees, classifieds fees, ad sales up-front fees; and fees from other ancillary businesses.



Revenue recognition criteria for the services mentioned above are decribed in note 2 to the consolidated financial statements in the Company’s Form 10-K for the year ended December 31, 2017.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenue recognized prior to invoicing when the Company has satisfied the performance obligation and has the unconditional right to payment. The allowance for doubtful accounts, loan receivables and chargebacks is estimated based upon our assessment of various factors including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. The allowance for doubtful accounts, loan receivables and chargebacks was $27,644 thousands and $19,734 thousands as of March 31, 2018 and December 31, 2017, respectively. 

Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period in accordance with ASC 606 (as defined below). Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following reporting period. Deferred revenue as of December 31, 2017 and 2016 was $6,116 thousands and $1,955 thousands, respectively, of which $4,316 thousands and $1,911 thousands were recognized as revenue during the three-months periods ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, total deferred revenue was $7,546 thousands, mainly due to fees related to listing and optional feature services billed and loyalty programs that are expected to be recognized as revenue in the coming months.

Foreign currency translation

All of the Company’s consolidated foreign operations have determined the local currency to be their functional currency. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies into U.S. dollars by using 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.

 

6


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Venezuelan deconsolidation

Effective December 1, 2017, the Company determined that deteriorating conditions in Venezuela had led the Company to no longer meet the accounting criteria for control over its Venezuelan subsidiaries. Venezuela’s recent selective default determination, restrictive exchange controls and suspension of foreign exchange market in Venezuela, the lack of access to U.S. dollars through official currency exchange mechanisms together with the worsening in Venezuela macroeconomic environment resulted in other-than-temporary lack of exchangeability between the Venezuela bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and its ability to satisfy other obligations denominated in U.S. dollars. Therefore, in accordance with the applicable accounting standards, as of December 1, 2017, the Company deconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under the cost method of accounting.

Beginning December 1, 2017, the Company no longer includes the results of the Venezuelan subsidiaries in its consolidated financial statements.

Income tax

The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.

On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 a regulatory decree was issued that established new requirements to benefit from the new software development law. The decree establishes requirements to comply 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 Company’s Argentine subsidiary has to achieve certain required ratios annually under the software development law in order to be eligible for the benefits mentioned below.

On September 17, 2015, the Argentine Industry Secretary issued Resolution 1041/2015 approving the Company’s application for eligibility under the new software development law for the Company’s Argentine subsidiary, Mercadolibre S.R.L. As a result, the Company’s Argentine subsidiary has been granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained is a 60% relief of total income tax related to software development activities and a 70% relief of payroll taxes related to software development activities.

The benefits to the Company under the software development law will expire on December 31, 2019. As a result of the Company’s eligibility under the new law, it recorded an income tax benefit of $7,299 thousands and $5,097 thousands during the three-month periods ended March 31, 2018 and 2017, respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.17 and $0.12 for the three-month periods ended March 31, 2018 and 2017, respectively. Furthermore, the Company recorded a labor cost benefit of $2,016 thousands and $1,991 thousands during the three-month periods ended March 31, 2018 and 2017, respectively. Additionally, $652 thousands and $496 thousands were accrued to pay software development law audit fees during the first quarter of 2018 and 2017, respectively.

Tax reform

Argentina

On December 27, 2017, the Argentine Senate approved a comprehensive income tax reform effective since January 1, 2018. The Argentine tax reform, among other things, reduced the prior 35 percent income tax rate applicable to the Argentine entities to 30 percent for 2018 and 2019 and to 25 percent for 2020 and thereafter. The new regulation imposes a withholding income tax on dividends paid by Argentine entities of 7 percent for 2018 and 2019, increasing to 13 percent from 2020 forward. The new regulation also repeals the “equalization tax” (i.e., the prior 35 percent withholding tax applicable to dividends distributed in excess of the accumulated taxable income) for income accrued from January 1, 2018 forward.

 

7


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

USA

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years and (2) bonus depreciation that will allow for full expensing of qualified property.

The Tax Act also established new tax laws that came into effect on January 1, 2018, including, but not limited to: (a) the elimination of the corporate alternative minimum tax (AMT); (b) the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (c) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (d) a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset income tax liability (subject to some limitations); (e) a new limitation on deductible interest expense; (f) the repeal of the domestic production activity deduction; (g) limitations on the deductibility of certain executive compensation; (h) limitations on the use of FTCs to reduce the U.S. income tax liability; and (i) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80 percent of taxable income.

The Deemed Repatriation Transition Tax (Transition Tax) is a tax on previously untaxed accumulated and current earnings and profits (E&P) of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. The company was able to make a reasonable estimate of the Transition Tax and determine that no tax duty related to the Transition Tax is expected to be due because the estimated tax is expected to be offset with available foreign tax credits as of December 31, 2017. Accordingly, no adjustments have been made to income tax expense in 2017. The Transition Tax calculation will not be finalized until the MercadoLibre Inc. Federal Income Tax return is filed.

The Company assessed whether its valuation allowance analysis is affected by various aspects of the Tax Act (including the deemed repatriation of deferred foreign income, GILTI inclusions and new categories of FTCs). As a consequence of such analysis, the Company recorded an increase in valuation allowance of $12,097 thousands to fully reserve the outstanding foreign tax credits as of December 31, 2017.

The Tax Act created a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (CFCs) must be included in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expenses taken into account in the determination of net CFC-tested income.

Under U.S. GAAP, the Company was allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company selected the period cost method. Accordingly, the Company has not recorded any impact in connection with the potential GILTI tax as of March 31, 2018 and December 31, 2017.

The Company’s management considers the earnings of our foreign subsidiaries to be indefinitely reinvested, other than certain earnings the distributions of which do not imply withholdings, exchange rate differences or state income taxes, and for that reason has not recorded a deferred tax liability.

As of March 31, 2018 and December 31, 2017, the Company had included under non-current deferred tax assets the foreign tax credits related to the dividend distributions received from its subsidiaries for a total amount of $12,117 thousands and $12,097 thousands, respectively. As of March 31, 2018 and December 31, 2017, the Company recorded a valuation allowance of $12,117 thousands and $12,097 thousands, respectively, to fully impair the outstanding foreign tax credits.

 

8


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Accumulated other comprehensive loss

The following table sets forth the Company’s accumulated other comprehensive loss as of March  31, 2018 and December 31, 2017:





 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017



 

(In thousands)

Accumulated other comprehensive loss:

 

 

 

 

Foreign currency translation

 

$                    (299,220)

 

$             (283,647)

Unrealized losses (gains) on investments

 

(24)

 

1,211 

Estimated tax loss on unrealized gains on investments

 

 —

 

(415)



 

$                    (299,244)

 

$             (282,851)



The following tables summarize the changes in accumulated balances of other comprehensive loss for the three-month period ended March  31, 2018:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Unrealized

 

Foreign

 

Estimated tax

 

 

 



 

(Losses) Gains on

 

Currency

 

(expense)

 

 

 



 

Investments

 

Translation

 

benefit

 

Total

 



 

(In thousands)

Balances as of December 31, 2017

 

$                          1,211

 

$             (283,647)

 

$                  (415)

 

$           (282,851)

 

Other comprehensive loss before reclassifications adjustments for losses on available for sale investments

 

(24)

 

(15,573)

 

 —

 

(15,597)

 

Amount of loss (gain) reclassified from accumulated other comprehensive loss

 

(1,211)

 

 —

 

415 

 

(796)

 

Net current period other comprehensive loss / income

 

(1,235)

 

(15,573)

 

415 

 

(16,393)

 

Ending balance

 

$                             (24)

 

$             (299,220)

 

$                      —

 

$           (299,244)

 









 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

Amount of (Loss) Gain

 

 

 

 

 

 



 

Reclassified from

 

 

 

 

 

 

Details about Accumulated

 

Accumulated Other

 

 

 

 

 

 

Other Comprehensive Loss

 

Comprehensive

 

Affected Line Item

Components

 

Loss

 

in the Statement of Income



 

(In thousands)

 

 

 

 

 

 

Unrealized gains on investments

 

$                          1,211

 

Interest expense and other financial gains

Estimated tax gain on unrealized losses on investments

 

(415)

 

Income tax loss

Total reclassifications for the period

 

$                             796

 

Total, net of income taxes



 







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 allowances for doubtful accounts, loan receivables and chargebacks, 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 note debt, fair value of investments, recognition of income taxes and contingencies. Actual results could differ from those estimates.

 

9


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Recently Adopted Accounting Standards

Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers related to revenue recognition (“ASC 606”) issued by the Financial Accounting Standards Board (“FASB”) in 2014. ASC 606 provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 using the full retrospective transition method and recast the prior reporting period presented.

In connection with the MercadoEnvios service the Company has identified a performance obligation with the seller to arrange for the transportation of the merchandise sold to the buyer using third-party carriers. As the Company acts as agent, upon adoption of ASC 606, the revenues derived from the shipping services are presented net of the respective transportation costs charged by third-party carriers and paid by the Company. As part of the business strategy, the Company may fully or partially subsidize the cost of shipping at the Company’s option. Under the current guidance the Company must account for the subsidized cost of shipping netting of revenues rather than as cost of net sales. For the three-month periods ended March 31, 2018 and 2017, the Company incurred $112,497 thousands and $4,251 thousands, respectively, of subsidized shipping costs that have been incurred and included as a reduction of revenues.

Under the full retrospective method, the Company retrospectively applied ASC 606 to the three-month period ended March 31, 2017. The total impact resulting from the change in presentation of shipping subsidies was a decrease in Net revenues and Cost of net revenues of $4,251 thousands in the Interim Condensed Consolidated Statement of Income for the three-month period ended March 31, 2017. Additionally, the adoption of ASC 606 did not modify the carrying amount of assets or liabilities as of the beginning of the first period presented, thus, there was no effect on the opening balance of retained earnings as of January 1, 2017.

Furthermore, the adoption did not have a material impact on the Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017, on Net (loss) income and on the Statements of Cash Flows for the three-month periods ended March 31, 2018 and 2017.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16) "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory." ASU 2016-16 generally accelerates the recognition of income tax consequences for asset transfers between entities under common control. The Company adopted ASU 2016-16 as of January 1, 2018 using a modified retrospective transition method, resulting in a $2,092 thousands increase to the opening balance of retained earnings.



Recently issued accounting pronouncements not yet adopted

On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Previous GAAP did not require lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and lease liabilities. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements and expects the ASU will have a material impact, primarily to the consolidated balance sheets and related disclosures.

 

10


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.  



3. Net (loss) income per share

Basic earnings per share for the Company’s common stock is computed by dividing, net (loss) income available to common shareholders attributable to common stock for the period by the weighted average number of common shares outstanding during the period.

On June 30, 2014, the Company issued $330 million of 2.25% Convertible Senior Notes due 2019 (see Note 9 of these interim condensed consolidated financial statements). The conversion of these notes are included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of the notes is not assumed for purposes of computing diluted earnings per share if the effect is antidilutive.

The denominator for diluted net (loss) income per share for the three-month periods ended March  31, 2018 and 2017 does not include any effect from the 2014, 2017 and 2018 Capped Call Transactions (as defined in Note 9) 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 Capped Call Transactions are designed to partially neutralize the dilutive effect of the shares that the Company would issue under the Notes. See Note 9 of these interim condensed consolidated financial statements and Note 17 of the financial statements as of December 31, 2017 on Form 10-K for more details.

For the three-month periods ended March  31, 2018 and 2017, the effects of the Capped Call Transactions would have been antidilutive and, as a consequence, they were not factored into the calculation of diluted earnings per share.

Net (loss) income per share of common stock is as follows for the three-month periods ended March  31, 2018 and 2017:





 

 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2018

 

2017



 

(In thousands)



 

Basic

 

Diluted

 

Basic

 

Diluted

Net (loss) income per common share

 

$                (0.29)

 

$                 (0.29)

 

$                  1.10

 

$                  1.10



 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

Net (loss) income

 

$            (12,919)

 

$             (12,919)

 

$              48,518

 

$              48,518



 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average of common stock outstanding for Basic earnings per share

 

44,157,364 

 

 —

 

44,157,364 

 

 —

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

 

 —

 

44,157,364 

 

 —

 

44,157,364 





 

 

11


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

4. Goodwill and intangible assets



Goodwill and intangible assets

The composition of goodwill and intangible assets is as follows:







 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017



 

(In thousands)

Goodwill

 

$                  93,714

 

$                  92,279

Intangible assets with indefinite lives

 

 

 

 

- Trademarks

 

11,476 

 

11,587 

Amortizable intangible assets

 

 

 

 

- Licenses and others

 

6,359 

 

6,175 

- Non-compete agreement

 

2,437 

 

2,689 

- Customer list

 

16,507 

 

16,584 

- Trademarks

 

1,859 

 

1,772 

Total intangible assets

 

$                  38,638

 

$                  38,807

Accumulated amortization

 

(16,246)

 

(15,633)

Total intangible assets, net

 

$                  22,392

 

$                  23,174



Goodwill

The changes in the carrying amount of goodwill for the three-month period ended March 31, 2018 and the year ended December 31, 2017 are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Period ended March 31, 2018



 

Brazil

 

Argentina

 

Chile

 

Mexico

 

 

Colombia

 

Other Countries

 

Total



 

(In thousands)

Balance, beginning of the period

 

$                   32,492 

 

$                     5,761 

 

$                   18,805 

 

$                   30,396 

 

 

$                            3,632 

 

$                     1,193 

 

$                   92,279 

- Effect of exchange rates changes

 

(734)

 

(354)

 

338 

 

1,932 

 

 

238 

 

15 

 

1,435 

Balance, end of the period

 

$                   31,758 

 

$                     5,407 

 

$                   19,143 

 

$                   32,328 

 

 

$                            3,870 

 

$                     1,208 

 

$                   93,714 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Year ended December 31, 2017



 

Brazil

 

Argentina

 

Chile

 

Mexico

 

Venezuela

 

Colombia

 

Other Countries

 

Total



 

(In thousands)

Balance, beginning of the year

 

$          27,660 

 

$               6,587 

 

$             17,388 

 

$                 29,342 

 

$5,989 

 

$3,643 

 

$               1,188 

 

$              91,797 

- Business acquisition

 

5,966 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

5,966 

- Effect of exchange rates changes

 

(1,134)

 

(826)

 

1,417 

 

1,054 

 

 —

 

(11)

 

 

505 

- Deconsolidation of Venezuelan subsidiaries

 

 —

 

 —

 

 —

 

 —

 

(5,989)

 

 —

 

 —

 

(5,989)

Balance, end of the year

 

$          32,492 

 

$               5,761 

 

$             18,805 

 

$                 30,396 

 

$                           — 

 

$3,632 

 

$               1,193 

 

$              92,279 



 

12


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

Intangible assets with definite useful life

Intangible assets with definite useful life are comprised of customer lists, non-compete and non-solicitation agreements, acquired software licenses, other acquired intangible assets including developed technologies and trademarks. Aggregate amortization expense for intangible assets totaled $1,672 thousands and $1,341 thousands for the three-month periods ended March 31, 2018 and 2017, 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, 2018:







 

 

 

 

 

 

For year ended 12/31/2018

 

 

 

 

 

$                    3,406

For year ended 12/31/2019

 

 

 

 

 

2,981 

For year ended 12/31/2020

 

 

 

 

 

1,549 

For year ended 12/31/2021

 

 

 

 

 

1,040 

Thereafter

 

 

 

 

 

1,940 



 

 

 

 

 

$                  10,916





 



5. Segment reporting

Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed and resources are assigned, 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 in accordance with the criteria used for evaluation of the Company’s performance as determined by management. The Company’s segments include Brazil, Argentina, Mexico and other countries (which includes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Honduras, Nicaragua, Salvador, Bolivia, Guatemala, Paraguay, Peru, Portugal, Uruguay and the United States of America). As of March 31, 2017, the Company’s segments included Brazil, Argentina, Mexico, Venezuela and other countries.

Direct contribution consists of net revenues from external customers less direct costs. Direct costs include costs of net revenues, product and technology development expenses, 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 and 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.

As a consequence of the implementation of ASC 606 further described in Note 2, the Company reassessed the definition of its customers for each service, which resulted in a change of the information presented for net revenues by similar services. As from January 1, 2018, net revenues from shipping services are included as part of our Enhanced Marketplace Services. Such change has been applied retroactively for comparative purposes.



 

13


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

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



 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2018



 

Brazil

 

Argentina

 

Mexico

 

 

Other Countries

 

Total



 

(In thousands)

Net revenues

 

$           184,155 

 

$              101,939 

 

$               17,065 

 

 

$               17,817 

 

$             320,976 

Direct costs

 

(176,980)

 

(57,295)

 

(26,323)

 

 

(17,272)

 

(277,870)

Direct contribution

 

7,175 

 

44,644 

 

(9,258)

 

 

545 

 

43,106 



 

 

 

 

 

 

 

 

 

 

 

Operating expenses and indirect costs of net revenues

 

 

 

 

 

 

 

 

 

 

(72,525)

Loss from operations

 

 

 

 

 

 

 

 

 

 

(29,419)



 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

Interest income and other financial gains

 

 

 

 

 

 

 

 

 

 

9,195 

Interest expense and other financial losses

 

 

 

 

 

 

 

 

 

 

(10,734)

Foreign currency gains

 

 

 

 

 

 

 

 

 

 

5,601 

Net loss before income tax expense

 

 

 

 

 

 

 

 

 

 

$             (25,357)









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31, 2017



 

Brazil

 

Argentina

 

Mexico

 

Venezuela

 

Other Countries

 

Total



 

(In thousands)

Net revenues

 

$           159,781 

 

$               71,392 

 

$               11,326 

 

$         14,397 

 

$               12,779 

 

$             269,675 

Direct costs

 

(87,037)

 

(45,066)

 

(12,631)

 

(6,551)

 

(9,697)

 

(160,982)

Direct contribution

 

72,744 

 

26,326 

 

(1,305)

 

7,846 

 

3,082 

 

108,693 



 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses and indirect costs of net revenues

 

 

 

 

 

 

 

 

 

 

 

(45,379)

Income from operations

 

 

 

 

 

 

 

 

 

 

 

63,314 



 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income and other financial gains

 

 

 

 

 

 

 

 

 

 

 

12,157 

Interest expense and other financial losses

 

 

 

 

 

 

 

 

 

 

 

(6,471)

Foreign currency gains

 

 

 

 

 

 

 

 

 

 

 

663 

Net income before income tax expense

 

 

 

 

 

 

 

 

 

 

 

$               69,663 





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





 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017



 

(In thousands)

US property and equipment, net

 

$                    5,776

 

$                    7,037

Other countries

 

 

 

 

Argentina

 

28,888 

 

26,028 

Brazil

 

73,422 

 

68,796 

Mexico

 

4,567 

 

3,570 

Other countries

 

10,206 

 

9,406 



 

$                117,083

 

$                107,800

Total property and equipment, net

 

$                122,859

 

$                114,837





 

 

14


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 



The following table summarizes the allocation of the goodwill and intangible assets based on geography:





 

 

 

 



 

March 31,

 

December 31,



 

2018

 

2017



 

(In thousands)

US intangible assets

 

$                         93

 

$                      119

Other countries goodwill and intangible assets

 

 

 

 

Argentina

 

5,614 

 

6,059 

Brazil

 

35,714 

 

36,462 

Mexico

 

40,270 

 

38,600 

Chile

 

28,827 

 

28,985 

Other countries

 

5,588 

 

5,228 



 

$               116,013

 

$               115,334

Total goodwill and intangible assets

 

$               116,106

 

$               115,453



Consolidated net revenues by similar products and services for the three-month periods ended March  31, 2018 and 2017 were as follows:

                                                                                                                   





 

 

 

 

 



 

Three-months Ended March 31,



 

 

 

 

 

Consolidated Net Revenues

 

2018

 

 

2017



 

(In thousands)

Enhanced Marketplace (*)

 

$                140,695

 

 

$                177,926

Non-marketplace (**) (***)

 

$                180,281

 

 

$                  91,749

Total

 

$                320,976

 

 

$                269,675







(*)   Includes Final Value Fees and Shipping fees.

(**)  Includes, among other things, Ad Sales, Classified Fees, Payment Fees and other ancillary services. 

(***) Includes $144,763 thousands and $65,160 thousands of Payment Fees for the three-month periods ended March 31, 2018 and 2017, respectively.

 

15


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 





6. Fair value measurement of assets and liabilities



The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March  31, 2018 and December 31, 2017:









 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Quoted Prices in

 

 

 

 

 

 

Quoted Prices in

 

 

 



 

Balances as of

 

active markets for

 

Significant other

 

 

Balances as of

 

active markets for

 

Significant other

 



 

March 31,

 

identical Assets

 

observable inputs

 

 

December 31,

 

identical Assets

 

observable inputs

 

Description

 

2018

 

(Level 1)

 

(Level 2)

 

 

2017

 

(Level 1)

 

(Level 2)

 



 

(In thousands)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$                   174,421 

 

$                                 174,421 

 

$                               — 

 

 

$                 85,337 

 

$                       85,337 

 

$                       — 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sovereign Debt Securities

 

$                     14,446 

 

$                                   14,446 

 

$                               — 

 

 

$                 15,896 

 

$                       15,896 

 

$                       — 

 

Corporate Debt Securities

 

23,081 

 

19,660 

 

3,421 

 

 

24,313 

 

15,512 

 

8,801 

 

Total Financial Assets

 

$                   211,948 

 

$                                 208,527 

 

$                          3,421 

 

 

$               125,546 

 

$                     116,745 

 

$                  8,801 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term retention plan

 

56,893 

 

 —

 

56,893 

 

 

43,227 

 

 —

 

43,227 

 

Total Financial Liabilities

 

$                     56,893 

 

$                                          — 

 

$                        56,893 

 

 

$                 43,227 

 

$                              — 

 

$                43,227 

 





As of March  31, 2018 and December 31, 2017, the Company’s financial assets valued at fair value consisted of assets valued using i) Level 1 inputs: unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained from observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets) and; ii) Level 2 inputs: obtained from readily-available pricing sources for comparable instruments as well as instruments with inactive markets at the measurement date.

As of March  31, 2018 and December 31, 2017, the Company´s liabilities were valued at fair value using level 2 inputs. 

The unrealized net gains or losses on short-term and long-term investments are reported as a component of other comprehensive income. The Company does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.

As of March  31, 2018 and December 31, 2017, the carrying value of the Company’s financial assets and liabilities measured at amortized cost approximated their fair value mainly because of their short-term maturity. These assets and liabilities included cash, cash equivalents and short-term investments (excluding money markets funds and corporate debt security), accounts receivable, credit cards receivable, loans receivable, funds payable to customers, other assets, accounts payable, salaries and social security payable (excluding variable LTRP), taxes payable, provisions and other liabilities.  The estimated fair value of the convertible senior notes (liability component), which is based on Level 2 inputs, is $324,207 thousands and was determined based on market interest rates. The rest of the loans payable and other financial liabilities approximate their fair value because the interest rates are not materially different from market interest rates. 

 

16


 

Table of Contents

 

MercadoLibre, Inc.

Notes to Interim Condensed Consolidated Financial Statements (unaudited)

 

The following table summarizes the fair value level for those financial assets and liabilities of the Company measured at amortized cost as of March  31, 2018 and December 31, 2017:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

Balances as of

 

Significant other

 

Balances as of

 

Significant other

 



 

March 31,

 

observable inputs

 

December 31,

 

observable inputs

 



 

2018

 

(Level 2)

 

2017

 

(Level 2)

 



 

(In thousands)

 

Assets

 

 

 

 

 

 

 

 

 

Time Deposits

 

$             154,149

 

$                        154,149

 

$                202,820

 

$             202,820

 

Accounts receivable

 

29,914 

 

29,914 

 

28,168 

 

28,168 

 

Credit Cards receivable

 

530,185 

 

530,185 

 

521,130 

 

521,130 

 

Loans receivable, net

 

122,328 

 

122,328 

 

73,409 

 

73,409 

 

Other assets

 

113,933 

 

113,933 

 

101,552 

 

101,552 

 

Total Assets

 

$             950,509

 

$                        950,509

 

$                927,079

 

$             927,079

 

Liabilities

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$             228,318

 

$                        228,318

 

$                221,095

 

$             221,095

 

Funds payable to customers

 

592,923 

 

592,923 

 

583,107 

 

583,107 

 

Salaries and social security payable

 

60,376 

 

60,376 

 

46,828 

 

46,828 

 

Taxes payable

 

28,306 

 

28,306 

 

32,150 

 

32,150 

 

Dividends payable

 

 —