10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
-OR-
|
|
|
o |
|
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
(State or other jurisdiction
of incorporation or organization)
|
|
98-0212790
(I.R.S. Employer
Identification Number) |
Tronador 4890, 8th Floor
Buenos Aires, C1430DNN, Argentina
(Address of registrants principal executive offices)
011-54-11-5352-8000
(Registrants 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
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files. Yes o No o
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 þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a 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 o No þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
44,114,295 shares of the issuers common stock, $0.001 par value, outstanding as of
November 2, 2009.
MERCADOLIBRE, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
|
|
|
Item 1 |
|
Unaudited Condensed Consolidated Financial Statements |
MercadoLibre, Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2009 and December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Audited) |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
33,332,506 |
|
|
$ |
17,474,112 |
|
Short-term investments |
|
|
19,867,077 |
|
|
|
31,639,400 |
|
Accounts receivable, net |
|
|
4,778,842 |
|
|
|
3,856,392 |
|
Funds receivable from customers |
|
|
3,063,360 |
|
|
|
2,322,416 |
|
Prepaid expenses |
|
|
1,041,145 |
|
|
|
426,869 |
|
Deferred tax assets |
|
|
9,242,067 |
|
|
|
1,628,871 |
|
Other assets |
|
|
3,067,597 |
|
|
|
2,953,164 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
74,392,594 |
|
|
|
60,301,224 |
|
Non-current assets: |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
24,314,404 |
|
|
|
9,218,153 |
|
Property and equipment, net |
|
|
6,394,512 |
|
|
|
5,940,160 |
|
Goodwill and intangible assets, net |
|
|
75,525,514 |
|
|
|
72,911,546 |
|
Deferred tax assets |
|
|
2,918,816 |
|
|
|
14,270 |
|
Other assets |
|
|
11,938,182 |
|
|
|
8,353,396 |
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
121,091,428 |
|
|
|
96,437,525 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
195,484,022 |
|
|
$ |
156,738,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
16,530,006 |
|
|
$ |
16,941,173 |
|
Funds payable to customers |
|
|
27,312,514 |
|
|
|
14,727,891 |
|
Social security payable |
|
|
6,608,619 |
|
|
|
4,387,943 |
|
Taxes payable |
|
|
12,791,888 |
|
|
|
4,989,704 |
|
Loans payable and other financial liabilities |
|
|
6,343,964 |
|
|
|
14,963,421 |
|
Provisions |
|
|
88,049 |
|
|
|
299,753 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
69,675,040 |
|
|
|
56,309,885 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
Social security payable |
|
|
868,201 |
|
|
|
339,854 |
|
Loans payable |
|
|
|
|
|
|
3,050,061 |
|
Deferred tax liabilities |
|
|
5,279,199 |
|
|
|
2,556,120 |
|
Other liabilities |
|
|
1,251,630 |
|
|
|
1,058,848 |
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
7,399,030 |
|
|
|
7,004,883 |
|
Total liabilities |
|
$ |
77,074,070 |
|
|
$ |
63,314,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 110,000,000 shares authorized,
44,113,429 and 44,070,367 shares issued and outstanding at September 30,
2009 and December 31, 2008, respectively |
|
|
44,114 |
|
|
|
44,071 |
|
Additional paid-in capital |
|
|
120,196,731 |
|
|
|
119,807,007 |
|
Retained earnings / (Accumulated deficit) |
|
|
6,370,967 |
|
|
|
(15,552,256 |
) |
Accumulated other comprehensive loss |
|
|
(8,201,860 |
) |
|
|
(10,874,841 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
118,409,952 |
|
|
|
93,423,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
195,484,022 |
|
|
$ |
156,738,749 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
MercadoLibre, Inc.
Condensed Consolidated Statements of Income
For the three- and nine-month periods ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
Net revenues |
|
$ |
123,823,576 |
|
|
$ |
103,572,881 |
|
|
$ |
50,599,276 |
|
|
$ |
40,260,643 |
|
Cost of net revenues |
|
|
(25,620,134 |
) |
|
|
(21,075,044 |
) |
|
|
(10,390,671 |
) |
|
|
(8,153,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
98,203,442 |
|
|
|
82,497,837 |
|
|
|
40,208,605 |
|
|
|
32,106,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and technology development |
|
|
(9,016,061 |
) |
|
|
(5,218,502 |
) |
|
|
(3,295,436 |
) |
|
|
(1,744,608 |
) |
Sales and marketing |
|
|
(31,342,260 |
) |
|
|
(30,905,222 |
) |
|
|
(11,048,799 |
) |
|
|
(11,425,168 |
) |
General and administrative |
|
|
(19,683,004 |
) |
|
|
(18,088,234 |
) |
|
|
(6,882,020 |
) |
|
|
(7,261,068 |
) |
Compensation cost related to acquisitions (Note 4) |
|
|
|
|
|
|
(1,919,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(60,041,325 |
) |
|
|
(56,131,828 |
) |
|
|
(21,226,255 |
) |
|
|
(20,430,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
38,162,117 |
|
|
|
26,366,009 |
|
|
|
18,982,350 |
|
|
|
11,675,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
2,112,180 |
|
|
|
1,350,068 |
|
|
|
580,343 |
|
|
|
330,139 |
|
Interest expense and other financial charges |
|
|
(9,718,003 |
) |
|
|
(3,453,671 |
) |
|
|
(3,873,230 |
) |
|
|
(1,132,524 |
) |
Foreign currency loss |
|
|
(2,770,725 |
) |
|
|
(5,689,938 |
) |
|
|
(3,299,938 |
) |
|
|
(2,648,584 |
) |
Other income, net |
|
|
|
|
|
|
41,874 |
|
|
|
|
|
|
|
39,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
27,785,569 |
|
|
|
18,614,342 |
|
|
|
12,389,525 |
|
|
|
8,264,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / asset tax expense |
|
|
(5,862,346 |
) |
|
|
(7,723,778 |
) |
|
|
(2,537,257 |
) |
|
|
(2,388,763 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,923,223 |
|
|
$ |
10,890,564 |
|
|
$ |
9,852,268 |
|
|
$ |
5,875,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share |
|
$ |
0.50 |
|
|
$ |
0.25 |
|
|
$ |
0.22 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
44,079,171 |
|
|
|
44,255,985 |
|
|
|
44,088,936 |
|
|
|
44,290,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common
share |
|
$ |
0.50 |
|
|
$ |
0.25 |
|
|
$ |
0.22 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
44,130,078 |
|
|
|
44,374,124 |
|
|
|
44,138,031 |
|
|
|
44,379,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MercadoLibre, Inc.
Condensed Consolidated Statements of Changes in Shareholders Equity
For the nine-month periods ended September 30, 2009 and 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
other |
|
|
|
|
|
|
Comprehensive |
|
|
Common stock |
|
|
paid-in |
|
|
Treasury |
|
|
Accumulated |
|
|
comprehensive |
|
|
|
|
|
|
income |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
Stock |
|
|
deficit |
|
|
income (loss) |
|
|
Total |
|
Balance as of December 31, 2007 |
|
|
|
|
|
|
44,226,563 |
|
|
|
44,227 |
|
|
$ |
121,890,138 |
|
|
$ |
|
|
|
$ |
(34,363,917 |
) |
|
$ |
4,102,691 |
|
|
$ |
91,673,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
70,058 |
|
|
|
70 |
|
|
|
64,789 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,859 |
|
Stock-based compensation stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,684 |
|
Stock-based compensation restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,875 |
|
Stock-based compensation LTRP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,421 |
|
Net income |
|
$ |
10,890,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,890,564 |
|
|
|
|
|
|
|
10,890,564 |
|
Currency translation adjustment |
|
|
(3,921,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,921,915 |
) |
|
|
(3,921,915 |
) |
Unrealized net gains on investments |
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,114 |
|
|
|
3,114 |
|
Realized net gains on investments |
|
|
(57,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,890 |
) |
|
|
(57,890 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
6,913,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008 |
|
|
|
|
|
|
44,296,621 |
|
|
|
44,297 |
|
|
|
122,172,907 |
|
|
|
|
|
|
|
(23,473,353 |
) |
|
|
126,000 |
|
|
|
98,869,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised and restricted shares issued |
|
|
|
|
|
|
23,446 |
|
|
|
24 |
|
|
|
18,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,230 |
|
Stock-based compensation stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,035 |
|
Stock-based compensation restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,685 |
|
Stock -based compensation LTRP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189,147 |
|
Repurchase of Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,598,223 |
) |
|
|
|
|
|
|
|
|
|
|
(2,598,223 |
) |
Retirement of Treasury Stock |
|
|
|
|
|
|
(249,700 |
) |
|
|
(250 |
) |
|
|
(2,597,973 |
) |
|
|
2,598,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,921,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,921,097 |
|
|
|
|
|
|
|
7,921,097 |
|
Currency translation adjustment |
|
|
(11,001,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,001,369 |
) |
|
|
(11,001,369 |
) |
Unrealized net gains on investments |
|
|
528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
528 |
|
|
|
528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
3,834,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
|
|
|
$ |
44,070,367 |
|
|
$ |
44,071 |
|
|
$ |
119,807,007 |
|
|
$ |
|
|
|
$ |
(15,552,256 |
) |
|
$ |
(10,874,841 |
) |
|
$ |
93,423,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
MercadoLibre, Inc.
Condensed Consolidated Statements of Changes in Shareholders Equity
For the nine-month periods ended September 30, 2009 and 2008 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
deficit / |
|
|
other |
|
|
|
|
|
|
Comprehensive |
|
|
Common stock |
|
|
paid-in |
|
|
Treasury |
|
|
Retained |
|
|
comprehensive |
|
|
|
|
|
|
income |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
Stock |
|
|
Earnings |
|
|
income (loss) |
|
|
Total |
|
Balance as of December 31, 2008 |
|
|
|
|
|
|
44,070,367 |
|
|
$ |
44,071 |
|
|
$ |
119,807,007 |
|
|
$ |
|
|
|
$ |
(15,552,256 |
) |
|
$ |
(10,874,841 |
) |
|
$ |
93,423,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
28,807 |
|
|
|
29 |
|
|
|
22,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,530 |
|
Stock-based compensation stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,312 |
|
Stock-based compensation restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,706 |
|
Stock-based compensation LTRP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,120 |
|
Restricted shares issued |
|
|
|
|
|
|
10,655 |
|
|
|
11 |
|
|
|
171,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,099 |
|
LTRP shares issued |
|
|
|
|
|
|
3,600 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,923,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,923,223 |
|
|
|
|
|
|
|
21,923,223 |
|
Currency translation adjustment |
|
|
2,595,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,595,788 |
|
|
|
2,595,788 |
|
Unrealized net gains on investments |
|
|
77,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,193 |
|
|
|
77,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
24,596,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009 |
|
|
|
|
|
|
44,113,429 |
|
|
$ |
44,114 |
|
|
$ |
120,196,731 |
|
|
$ |
|
|
|
$ |
6,370,967 |
|
|
$ |
(8,201,860 |
) |
|
$ |
118,409,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
MercadoLibre, Inc.
Condensed Consolidated Statements of Cash Flows
For the nine-month periods ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Cash flows from operations: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,923,223 |
|
|
$ |
10,890,564 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,959,277 |
|
|
|
2,475,850 |
|
Interest expense |
|
|
343,643 |
|
|
|
58,484 |
|
Unrealized gains on investments |
|
|
(437,137 |
) |
|
|
(1,011,899 |
) |
Stock-based compensation expense stock options |
|
|
1,312 |
|
|
|
3,684 |
|
Stock-based compensation expense restricted shares |
|
|
52,706 |
|
|
|
81,875 |
|
LTRP accrued compensation |
|
|
1,163,139 |
|
|
|
352,271 |
|
Deferred income taxes |
|
|
(1,020,056 |
) |
|
|
(168,148 |
) |
Changes in assets and liabilities, excluding the effect of acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(1,537,363 |
) |
|
|
4,782,430 |
|
Funds receivable from customers |
|
|
(221,236 |
) |
|
|
(8,984,163 |
) |
Prepaid expenses |
|
|
(596,311 |
) |
|
|
(513,844 |
) |
Other assets |
|
|
(3,078,233 |
) |
|
|
(1,358,459 |
) |
Accounts payable and accrued expenses |
|
|
317,019 |
|
|
|
7,790,459 |
|
Funds payable to customers |
|
|
8,169,631 |
|
|
|
4,026,062 |
|
Provisions |
|
|
(195,006 |
) |
|
|
(540,629 |
) |
Deferred tax liabilities |
|
|
(180,141 |
) |
|
|
|
|
Other liabilities |
|
|
(1,102,948 |
) |
|
|
(1,696,567 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
26,561,519 |
|
|
|
16,187,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of investments |
|
|
(45,960,414 |
) |
|
|
(59,614,525 |
) |
Proceeds from sale and maturity of investments |
|
|
48,767,850 |
|
|
|
90,593,742 |
|
Payment for businesses acquired, net of cash acquired |
|
|
|
|
|
|
(39,178,449 |
) |
Purchases of intangible assets |
|
|
(946,500 |
) |
|
|
(58,238 |
) |
Purchases of property and equipment |
|
|
(2,967,487 |
) |
|
|
(3,869,309 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,106,551 |
) |
|
|
(12,126,779 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Increase in short term debt |
|
|
|
|
|
|
12,104 |
|
Decrease in short term debt |
|
|
(12,313,161 |
) |
|
|
(9,736,824 |
) |
Stock options exercised |
|
|
22,530 |
|
|
|
64,859 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(12,290,631 |
) |
|
|
(9,659,861 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
2,694,057 |
|
|
|
324,848 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
15,858,394 |
|
|
|
(5,273,822 |
) |
Cash and cash equivalents, beginning of the year |
|
|
17,474,112 |
|
|
|
15,677,407 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
$ |
33,332,506 |
|
|
$ |
10,403,585 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
MercadoLibre, Inc.
Condensed Consolidated Statements of Cash Flows
For the nine-month periods ended September 30, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
8,895,023 |
|
|
$ |
2,565,076 |
|
Cash paid for income taxes |
|
$ |
7,286,257 |
|
|
$ |
6,945,183 |
|
|
|
|
|
|
|
|
|
|
Acquisition of DeRemate and Classified Media Group: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
691,632 |
|
Funds receivable from customers |
|
|
|
|
|
|
117,473 |
|
Accounts receivable |
|
|
|
|
|
|
6,755,668 |
|
Tax credits |
|
|
|
|
|
|
604,419 |
|
Other current assets |
|
|
|
|
|
|
928,523 |
|
Non current assets |
|
|
|
|
|
|
496,911 |
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
|
|
|
|
9,594,626 |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
4,676,259 |
|
Funds payable to customers |
|
|
|
|
|
|
123,089 |
|
Taxes payable |
|
|
|
|
|
|
1,181,607 |
|
Social security payable |
|
|
|
|
|
|
395,112 |
|
Other liabilities |
|
|
|
|
|
|
1,602,269 |
|
Non current liabilities |
|
|
|
|
|
|
14,000 |
|
Provisions |
|
|
|
|
|
|
1,506,447 |
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
|
|
|
|
9,498,783 |
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
|
|
|
|
95,843 |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
52,949,111 |
|
Trademarks |
|
|
|
|
|
|
5,622,188 |
|
Customer lists |
|
|
|
|
|
|
1,227,600 |
|
Non Compete Agreement |
|
|
|
|
|
|
573,484 |
|
Deferred income tax on intangible assets |
|
|
|
|
|
|
(2,598,145 |
) |
|
|
|
|
|
|
|
Total purchase price |
|
|
|
|
|
|
57,870,081 |
|
|
|
|
|
|
|
|
Cash and cash equivalents acquired |
|
|
|
|
|
|
(691,632 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment for businesses acquired, net of cash acquired |
|
$ |
|
|
|
$ |
39,178,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seller financing for DeRemate business acquisition |
|
$ |
|
|
|
$ |
18,000,000 |
|
|
|
|
|
|
|
|
As of September 30, 2008, the purchase price allocation was preliminary pending the final
working capital adjustment as defined in the purchase agreement.
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
MercadoLibre Inc. (the Company) is an e-commerce enabler whose mission is to build the
necessary online and technology tools to enable practically anyone to
trade almost anything, helping to make inefficient markets more efficient in
Latin America.
The Company operates in several reporting segments. The MercadoLibre online marketplace
segments include Brazil, Argentina, Mexico, Venezuela and other countries (Chile, Colombia,
Costa Rica, Dominican Republic, Ecuador, Panama, Peru and Uruguay). The MercadoPago segment
includes our regional online payments platform consisting of our MercadoPago business available
in Brazil, Argentina, Mexico and other countries (Chile, Colombia, and Venezuela).
Traditional offline marketplaces can be inefficient because they (i) are fragmented and
regional, (ii) offer a limited variety and breadth of goods, (iii) have high transaction costs,
and (iv) provide buyers with less information upon which they can make decisions. The Company
makes these inefficient marketplaces more efficient because (i) its community of users can
easily and inexpensively communicate and complete transactions, (ii) its marketplace includes a
very wide variety and selection of goods, and (iii) it brings buyers and sellers together for
much lower fees than traditional intermediaries. The Company attracts buyers by offering
selection, value, convenience and entertainment, and sellers by offering access to broad
markets, efficient marketing and distribution costs, ability to maximize prices and opportunity
to increase sales.
The Company pioneered online commerce in the region by developing a Web-based marketplace in
which buyers and sellers are brought together to browse, buy and sell items such as computers,
electronics, collectibles, automobiles, clothing and a host of practical and miscellaneous
items. The Companys trading platform is a fully automated, topically arranged, intuitive, and
easy-to-use online service that is available 24 hours-a-day, seven days-a-week. The Companys
platform supports a fixed price format in which sellers and buyers trade items at a fixed price
established by sellers, and an auction format in which sellers list items for sale and buyers
bid on items of interest.
Providing more efficient and effective payment methods from buyers to sellers is essential to
creating a faster, easier and safer online commerce experience. Traditional payment methods
such as bank deposits and cash on delivery present various obstacles to the online commerce
experience, including lengthy processing time, inconvenience and high costs. The Company
addressed this opportunity through the introduction in 2004 of MercadoPago, an integrated
online payments solution. MercadoPago was designed to facilitate transactions on the
MercadoLibre Marketplace by providing an escrow mechanism that enables users to securely,
easily and promptly send and receive payments online, and has experienced consistent growth
since its launch.
In 2004, the Company introduced an online classifieds platform for motor vehicles, vessels and
aircrafts. Buyers usually require a physical inspection of these items or specific types of
interactions with the sellers before completing a transaction, and therefore an online
classified advertisements service is better suited for purchase and sale of these types
of items than the traditional online purchase and sale format. For these items, buyers can
search by make, model, year and price, and sellers can list their phone numbers and receive
prospective buyers e-mail addresses, in order to allow for instant and direct communication
between sellers and potential buyers.
8
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. |
|
Nature of Business (Continued) |
In November of 2005, the Company acquired certain operations of DeRemate.com Inc., a regional
competing online marketplace, including all of its operations in Brazil, Colombia, Ecuador,
Mexico, Peru, Uruguay and Venezuela and the majority of the shares of the capital stock of its
subsidiaries (except for its Argentine and Chilean subsidiaries, which were operated under the
control of one of previous stockholders of DeRemate), for an aggregate purchase price of
$12.1 million, net of cash and cash equivalents acquired.
During 2006, the online classifieds platform was expanded to include the real estate category.
Much in the same way as with motor vehicles, vessels and aircrafts, purchases of real estate,
require physical inspection of the property and is therefore a business more suited to a
classifieds model. For real estate listings, in addition to posting their contact information,
individual owners or real estate agents can also upload pictures and videos of the property for
sale and include maps of the propertys location and layout.
During 2006, the Company launched several initiatives to improve its platform and expand its
reach. Particularly relevant were the launch of eShops, a new platform tailored to attract
lower rotation items and increase the breadth of products offered, the introduction of user
generated information guides for buyers that improve the shopping experience, and the expansion
of the online classifieds model by adding the services category. In terms of geographic
expansion, the Company launched sites in Costa Rica, the Dominican Republic, and Panama.
In August 2007, the Company successfully completed its initial public offering pursuant to
which the Company sold 3,000,000 shares of common stock and certain selling shareholders sold
15,488,762 shares of common stock, resulting in net proceeds for the Company of approximately
$49,573,239.
During 2007 the Company also launched a new and improved version of its MercadoPago payments
platform in Chile and Colombia as well as in Argentina during 2008. The new MercadoPago, in
addition to improving the ease of use and efficiency of payments for marketplace purchases,
also allows for payments outside of the Companys marketplaces. Users are able to transfer
money to other users with MercadoPago accounts and to incorporate MercadoPago as a means of
payments in their independent commerce websites. In this way MercadoPago 3.0 as it has been
called is designed to meet the growing demand for Internet based payments systems in Latin
America.
In January 2008, the Company acquired 100% of the issued and outstanding shares of capital
stock of Classified Media Group, Inc., or CMG, and its subsidiaries. CMG and its subsidiaries
operated an online classifieds platform primarily dedicated to the sale of automobiles at
www.tucarro.com in Venezuela, Colombia and Puerto Rico and real estate at www.tuinmueble.com in
Venezuela, Colombia, Panama, the United States, Costa
Rica and the Canary Islands. The Company paid for the shares of CMG and its subsidiaries was
$19 million, subject to certain escrows and working capital adjustment clauses.
9
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. |
|
Nature of Business (Continued) |
In September 2008, the Company completed the acquisition of DeRemate.com de Argentina S.A.,
DeRemate.com Chile S.A., Interactivos y Digitales México S.A. de C.V. and Compañía de Negocios
Interactiva de Colombia E.U. for an aggregate purchase price of $37.6 million. The Company also
purchased certain URLs, domains, trademarks, databases and intellectual property rights related
to those businesses for $2.4 million. The total purchase price was subject to certain set off
rights and working capital adjustment clauses.
As of September 30, 2009, 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, 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 Florida, U.S.A.
2. |
|
Summary of Significant Accounting Policies |
Basis of presentation
The accompanying 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. All significant
intercompany transactions and balances have been eliminated. Certain reclassifications have
been made to prior year information to conform to current year presentation.
Substantially all revenues and operating costs are generated in the Companys foreign
operations, amounting to approximately 99.3% and 98.3% of the consolidated totals during the
nine-month periods ended September 30, 2009 and 2008, respectively. Long-lived assets located
in the foreign operations totaled $78,741,506 and $75,935,438 as of September 30, 2009 and
December 31, 2008, respectively. Cash and cash equivalents as well as short-term investments,
totaling $53,199,583 and $49,113,512 at September 30, 2009 and December 31, 2008, respectively,
are mainly located in the United States of America.
These unaudited interim financial statements reflect the Companys consolidated financial
position as of September 30, 2009 and December 31, 2008. These statements also show the
Companys consolidated statement of income for the three- and nine-months ended September 30,
2009 and 2008, its consolidated statement of shareholders equity and its consolidated
statement of cash flows for the nine months ended September 30, 2009 and 2008. These statements
include all normal recurring adjustments that management believes are necessary to fairly state
the Companys financial position, operating results and cash flows. Because all of the
disclosures required by generally accepted accounting principles in the United States of
America for annual consolidated financial statements are not included
herein, these interim financial statements should be read in conjunction with the audited
financial statements and the notes thereto for the year ended December 31, 2008, contained in
the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission
(SEC) on February 27, 2009. The condensed consolidated statements of income, shareholders
equity and cash flows for the periods presented are not necessarily indicative of results
expected for any future period.
10
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
2. |
|
Summary of Significant Accounting Policies (Continued) |
Basis of presentation (Continued)
Management has evaluated subsequent events through November 6, 2009 which is the date the
financial statements were issued. Management has not evaluated subsequent events after
November 6, 2009 and their impact, if any, on these condensed consolidated financial
statements.
Foreign Currency Translation
All of the Companys foreign operations have determined the local currency to be their
functional currency. Accordingly, these foreign subsidiaries translate assets and liabilities
from their local currencies to U.S. dollars using period/year end exchange rates while income
and expense accounts are translated at the average rates in effect during the period/year. The
resulting translation adjustment is recorded as part of other comprehensive income (loss), a
component of shareholders equity. Gains and losses resulting from transactions denominated in
non-functional currencies are recognized in earnings. Net foreign currency transaction losses
are included in the consolidated statements of income under the caption Foreign currency gain
/ (loss).
The Venezuelan subsidiaries maintained a foreign currency denominated asset in the form of US
dollar denominated cash and cash equivalents. In accordance with the Companys stated
accounting policy, this investment should first be re-measured into its functional currency
Bolivares Fuertes. Upon re-measurement into its functional currency, the investment will then
be translated into the reporting currency of the Company (US Dollar). These assets were
re-measured at the September 30, 2009 parallel exchange rate of 5.42 Bolivares Fuertes per US
dollar (at December 31, 2008 was 5.4 Bolivares Fuertes per US dollar). Further, the
Venezuelan subsidiaries assets, liabilities, income and expense accounts were translated at the
rate applicable for dividend remittances, which at September 30, 2009 and December 31, 2008 was
the official rate of 2.15 Bolivares Fuertes per US dollar. According to the International
Practices Task Force Joint Meeting with SEC Staff of June 2, 2008, the existence of a parallel
market does not constitute unusual circumstances potentially justifying the use of an exchange
rate other than the official rate for purposes of foreign currency translation. Accordingly,
the foreign currency effect on assets for $11,222,508 is included in Other non-current assets
in the consolidated balance sheet, and is the result of applying the Companys accounting
policy for the related asset.
11
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
2. |
|
Summary of Significant Accounting Policies (Continued) |
Foreign Currency Translation (Continued)
During May 2009, the International Practices Task Force discussed the highly inflationary
status of the Venezuelan economy. Historically, the Task Force has used the Consumer Price
Index (CPI) when considering the inflationary status of the Venezuelan economy.
The CPI has existed since 1984. However, the CPI covers only the cities of Caracas and
Maracaibo. Commencing on January 1, 2008, the National Consumer Price Index (NCPI) has been
developed to cover the entire country of Venezuela. Since inflation data is not available to
compute a cumulative three year inflation rate for the entire country solely based on the NCPI,
the Company uses a blended rate using the NCPI and CPI to calculate
Venezuelan inflation rate.
The cumulative three year inflation rate as of September 30, 2009 was calculated using the CPI
information for periods before January 1, 2008 and NCPI information for the periods after
January 1, 2008. The resulting three year cumulative inflation rate (blended NCPI and CPI
rate) is 97.41% for the period ending September 30, 2009.
When NCPI data is
available for the three years ending December 31, 2010 and thereafter, the
NCPI will be used to calculate Venezuelan inflationary status because it
represents a broader-based measure of the general inflation for the entire country of
Venezuela.
If the cumulative three-year blended NCPI and CPI rate exceeds 100% at December 31, 2009,
Venezuela would be accounted for as highly inflationary as of January 1, 2010 and therefore,
the functional currency would no longer be the Bolivar Fuerte.
Taxes on revenues
The Companys subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain
taxes on revenues which are classified as cost of revenues. Taxes on revenues totaled
$3,171,840 and $2,342,207 for the three-month periods ended September 30, 2009 and 2008,
respectively. Taxes on revenues totaled $7,413,281 and $6,183,290 for the nine-month periods
ended September 30, 2009 and 2008, respectively.
Income and Asset Taxes
The Company is subject to an enacted Mexican business flat tax called Impuesto Empresarial a
Tasa Unica (IETU). The Company pays the higher of IETU or income tax. Although the Companys
Mexican subsidiary has net operating loss carryforward (NOLs), it has to pay IETU and once
NOLs are consumed, the Company expects it will only accrue and pay income tax. The effect of
IETU has been included in the income / asset tax expense line for the three-and nine-month
periods ended September 30, 2009 and 2008.
12
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
2. |
|
Summary of Significant Accounting Policies (Continued) |
Income and Asset Taxes (Continued)
From fiscal year 2008 to fiscal year 2018, the Companys Argentine subsidiary is a beneficiary
of a software development law. Part of the benefits obtained from being a beneficiary of the
aforementioned law is a relief of 60% of total income tax determined
in each year, during these 10
years. Aggregate tax benefit totaled $761,319 and $799,306 for the three-month periods ended
September 30, 2009 and 2008, respectively. Aggregate tax benefit totaled $2,151,110 and
$1,601,194 for the nine-month periods ended September 30, 2009 and 2008, respectively.
Aggregate per share effect of the Argentine tax holiday amounts to $0.02 and $0.02 for the
three-month periods ended September 30, 2009 and 2008, respectively. Aggregate per share effect
of the Argentine tax holiday amounts to $0.05 and $0.04 for the nine-month periods ended
September 30, 2009 and 2008, respectively. If the Company had not been granted the Argentine
tax holiday, the Company would have pursued an alternative tax planning strategy and,
therefore, the impact of not having this particular benefit would not necessarily be the
abovementioned dollar and per share effect.
As of September 30, 2009, MercadoLibre, Inc has included in the current and non-current
deferred tax assets line the foreign tax credits related to the dividend distributions received
from its subsidiaries for a total amount of $9,150,846. Those foreign tax credits will be used
to offset the Companys domestic income tax payable included in
the taxes payable line of the Companys Balance
Sheet.
During the three-month period ended September 30, 2009, the Company has reversed its Mexican
Valuation Allowance for $1,218,651 as a consequence of tax planning strategies implemented
during the period in order to use more efficiently the accumulated tax loss carryforward
credits from acquired companies. In addition, during the second
quarter of the year, the Company reversed its domestic valuation
allowance for $447,561 based on the assessment that it is more likely
than not that the domestic deferred tax asset will be realized.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with generally
accepted accounting principles 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, depreciation, amortization, impairment and useful lives of
long-lived assets, compensation cost related to cash and share-based compensation and
restricted shares, recognition of current and deferred income taxes and contingencies. Actual
results could differ from those estimates.
13
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
2. |
|
Summary of Significant Accounting Policies (Continued) |
Fair Value Measurements
Effective January 1, 2008, the Company adopted new accounting guidance on fair value
measurements. In February 2008, the Financial Accounting Standards Board (FASB) issued an
amendment which provided a one year deferral of the effective date of the new
accounting guidance for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value at least annually.
Therefore, the Company has adopted the new accounting guidance with respect to its financial
assets and liabilities as from January 1, 2008. The adoption of the new accounting guidance did
not have a material impact on the consolidated results of operations or financial condition.
See Note 6 Fair Value Measurement of Assets and Liabilities for further details.
Comprehensive Income
Comprehensive income is comprised of two components, net income and other comprehensive income
(loss), and defined as all other changes in equity of the Company that result from transactions
other than with shareholders. Other comprehensive income (loss) includes the cumulative
translation adjustment relating to the translation of the financial statements of the Companys
foreign subsidiaries and unrealized gains on investments classified as available-for-sale
securities. Total comprehensive income (loss) for the three-month periods ended September 30,
2009 and 2008 amounted to $11,889,818 and $(2,274,535), respectively and for the nine-month
periods ended September 30, 2009 and 2008 amounted to $24,596,204 and $6,913,873 respectively.
Recent Accounting Pronouncements
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets, in order to address practice issues highlighted most
recently by events related to the economic downturn. The amendments include: (1)
eliminating the qualifying special-purpose entity concept, (2) a new unit of account
definition that must be met for transfers of portions of financial assets to be eligible
for sale accounting, (3) clarifications and changes to the derecognition criteria for a
transfer to be accounted for as a sale, (4) a change to the amount of recognized gain or
loss on a transfer of financial assets accounted for as a sale when beneficial interests
are received by the transferor, and (5) extensive new disclosures. The new accounting
guidance is effective to new transfers of financial assets occurring from January 1, 2010.
The Company will evaluate how its consolidated financial statements and future transfers
of financial assets will be affected specifically in relation to the transfer of credit
card receivables to financial institutions.
Basic earnings per share for the Companys common stock is computed by
dividing net income for the period by the weighted average number of
common shares outstanding during the period.
14
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
3. |
|
Net income per share (Continued) |
The Companys restricted shares granted to its outside directors were
participating securities. Accordingly, net income available to common
stockholders for the three- and nine-month period ended September 30,
2009, was allocated between unvested restricted shares and common
stock under the two class method for purposes of computing basic and
diluted earnings per share.
Diluted earnings per share for the Companys common stock assume the
exercise of outstanding stock options and vesting restricted shares,
additional shares and shares granted under the 2008 Long Term
Retention Plan under the Companys stock based employee compensation
plans.
The following table shows how net income available to common
shareholders is allocated using the two-class method, for the
three-month periods ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,852,268 |
|
|
$ |
9,852,268 |
|
|
$ |
5,875,792 |
|
|
$ |
5,875,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
shareholders attributable to unvested restricted shares |
|
$ |
1,866 |
|
|
$ |
1,866 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
shareholders attributable to common stock |
|
$ |
9,850,402 |
|
|
$ |
9,850,402 |
|
|
$ |
5,875,792 |
|
|
$ |
5,875,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows how net income available to common shareholders is allocated
using the two-class method for earnings per common share, for the nine-month periods ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21,923,223 |
|
|
$ |
21,923,223 |
|
|
$ |
10,890,564 |
|
|
$ |
10,890,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
shareholders attributable to unvested restricted shares |
|
$ |
1,703 |
|
|
$ |
1,703 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common
shareholders attributable to common stock |
|
$ |
21,921,520 |
|
|
$ |
21,921,520 |
|
|
$ |
10,890,564 |
|
|
$ |
10,890,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
3. |
|
Net income per share (Continued) |
Net income per share of common stock is as follows for the three-month periods ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
per common share |
|
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.13 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
9,850,402 |
|
|
$ |
9,850,402 |
|
|
$ |
5,875,792 |
|
|
$ |
5,875,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of common stock outstanding for Basic
earnings per share |
|
|
44,088,936 |
|
|
|
44,088,936 |
|
|
|
44,290,540 |
|
|
|
44,290,540 |
|
Adjustment for stock options |
|
|
|
|
|
|
34,813 |
|
|
|
|
|
|
|
77,400 |
|
Adjustment for restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,333 |
|
Adjustment for additional Shares |
|
|
|
|
|
|
6,468 |
|
|
|
|
|
|
|
10,409 |
|
Adjustment for shares granted under LTRP |
|
|
|
|
|
|
7,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average of common stock outstanding
for Diluted earnings per share |
|
|
44,088,936 |
|
|
|
44,138,031 |
|
|
|
44,290,540 |
|
|
|
44,379,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock is as follows for the nine-month periods ended
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
per common share |
|
$ |
0.50 |
|
|
$ |
0.50 |
|
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
21,921,520 |
|
|
$ |
21,921,520 |
|
|
$ |
10,890,564 |
|
|
$ |
10,890,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average of common stock outstanding for Basic
earnings per share |
|
|
44,079,171 |
|
|
|
44,079,171 |
|
|
|
44,255,985 |
|
|
|
44,255,985 |
|
Adjustment for stock options |
|
|
|
|
|
|
45,891 |
|
|
|
|
|
|
|
111,613 |
|
Adjustment for restricted shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,547 |
|
Adjustment for shares granted under LTRP |
|
|
|
|
|
|
4,113 |
|
|
|
|
|
|
|
|
|
Adjustment for additional Shares |
|
|
|
|
|
|
903 |
|
|
|
|
|
|
|
4,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average of common stock outstanding
for Diluted earnings per share |
|
|
44,079,171 |
|
|
|
44,130,078 |
|
|
|
44,255,985 |
|
|
|
44,374,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The calculation of diluted net income per share excludes all anti-dilutive shares. During
the three- and nine-month periods ended September 30, 2009 and 2008, there were no
anti-dilutive shares.
16
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets |
Business Combinations
a) Classified Media Group, Inc.
On January 22, 2008, the Company completed the acquisition of 100% of the issued and
outstanding shares of capital stock of CMG Classified Media Group, Inc. (CMG) and its
subsidiaries from 2050 Capital Group Inc., a Panama corporation, Abax Group Inc., a
Panama corporation, Gabinete De Diseño Industrial Inc., a Panama corporation, Stamford One
Group Ltd., a British Virgin Islands limited company, EO Financial Group Inc., a Panama
corporation, Meck Investments Ltd., a British Virgin Islands limited company, CG Interventures
Inc., a Panama corporation, and other individuals (the Sellers). CMG and its subsidiaries
operate an online classified advertisements platform primarily dedicated to the sale of
automobiles (at www.tucarro.com) in Colombia, Venezuela and Puerto Rico and real estate (at
www.tuinmueble.com) in Venezuela, Colombia, Panama, the United States, Costa Rica and the
Canary Islands. This acquisition allows the Company to expand its operations mainly in
Venezuela and Colombia, solidify its market leadership position in those countries and continue
growing of online classified advertisements platform in the locations were the acquired company
operates.
On the acquisition date, the Company paid in cash for CMG $19,000,000.
The purchase price for the shares of CMG and its subsidiaries was $17,024,380, subject to an
escrow to cover unexpected liabilities and working capital adjustments. In addition,
acquisition costs amounting to $204,424 which were considered in the purchase price allocation
as part of the aggregate purchase price. On May 7, 2008, the Company paid $150,000 related to
certain working capital adjustments. On the Closing Date, an aggregate of $1,975,620, was placed into an escrow account for a period of twelve (12) months after the
Closing Date, in order to secure the obligations of the former CMG shareholders that remained
as managers, pursuant to each of their respective employment agreements.
Under US GAAP, the Company has recognized this contingent consideration paid to the former
shareholders, as compensation for services. On May 12, 2008, the Company and these former
shareholders agreed to an early release of the $1,975,620 escrow on or before September 30,
2008, in exchange for a discount to the Company.
On June 27, 2008, the Company released to the former CMG shareholders $1,919,870 in full
satisfaction of the management escrow after deducting the aforementioned discount.
As of September 30, 2008, the compensation expenses related to escrow release were included in
Compensation costs related to acquisitions within operating expenses, for a total amount of
$1,919,870.
There are no accrued compensation expenses for the three-month period ended September 30, 2008.
17
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets (Continued) |
The following table summarizes the allocation of the cash paid in the acquisition:
|
|
|
|
|
Purchase Price |
|
$ |
17,024,380 |
|
Post-closing working capital adjustments |
|
|
150,000 |
|
Direct cost of the business combination |
|
|
204,424 |
|
|
|
|
|
Total aggregate purchase price |
|
$ |
17,378,804 |
|
|
|
|
|
Compensation Cost |
|
|
1,919,870 |
|
|
|
|
|
Total Cash paid |
|
$ |
19,298,674 |
|
|
|
|
|
As from the acquisition date in January 2008, the acquired company results of operations
have been included in the Companys income statement.
The following table summarizes an allocation of the purchase price for the companies
acquired in the transaction (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
Net Tangible |
|
|
Identifiable |
|
|
Deferred |
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
Acquisition |
|
|
Assets / |
|
|
Intangible |
|
|
Tax |
|
|
|
|
|
|
Purchase |
|
Company Name |
|
Country |
|
|
Ownership |
|
|
(Liabilities) |
|
|
Assets |
|
|
Liabilities |
|
|
Goodwill |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMG Classified Media Group
Inc. |
|
Panama |
|
|
100 |
% |
|
$ |
846.3 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
846.3 |
|
Venecapital Group Inc. |
|
Panama |
|
|
100 |
% |
|
|
(26.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26.8 |
) |
Grupo Veneclasificados C.A. |
|
Venezuela |
|
|
100 |
% |
|
|
(125.4 |
) |
|
|
4,934.2 |
|
|
|
(1,727.0 |
) |
|
|
11,442.0 |
|
|
|
14,523.8 |
|
Clasificados
Internacionales S.A. |
|
Panama |
|
|
100 |
% |
|
|
(44.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44.8 |
) |
ColClasificados S.A. |
|
Colombia |
|
|
100 |
% |
|
|
36.4 |
|
|
|
688.0 |
|
|
|
(240.8 |
) |
|
|
1,595.5 |
|
|
|
2,079.1 |
|
Clasificados Florida LLC |
|
USA |
|
|
100 |
% |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
686.9 |
|
|
$ |
5,622.2 |
|
|
$ |
(1,967.8 |
) |
|
$ |
13,037.5 |
|
|
$ |
17,378.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible net assets were valued at their respective carrying amounts adjusted to US GAAP
since the management of the Company believes that these amounts approximated their current fair
values at the acquisition date. The valuation of identifiable intangible assets acquired
reflects managements estimates based on, among other factors, use of established valuation
methods. Such assets consist of trademarks and trade names for a total amount of $5,622,188.
Management of the Company estimates that trademarks have an indefinite lifetime. For that
reason, these intangible assets are not amortized but they are subject to an annual impairment
test.
The goodwill of $13,037,504 is not expected to be deductible for tax purposes.
18
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets (Continued) |
b) DeRemate Operations
On September 5, 2008, the Company completed, through one of its subsidiaries, Hammer.com, LLC,
the acquisition of all of the issued and outstanding shares of capital stock of DeRemate.com de
Argentina S.A., a company organized under the laws of Argentina (DR Argentina), DeRemate.com
Chile S.A., a company organized under the laws of Chile (DR Chile), Interactivos y Digitales
México S.A. de C.V., a company organized under the laws of Mexico (ID Mexico) and Compañía de
Negocios Interactiva
de Colombia E.U., a company organized under the laws of Colombia (CNI Colombia and together
with DR Argentina, DR Chile, and ID Mexico, the Acquired Entities). Also, on September 5,
2008, the Company entered into an asset purchase agreement to acquire certain URLs, domain
names, trademarks, databases and intellectual property rights that are used or useful in
connection with the online platforms of the Acquired Entities. The Acquired Entities operate
online trading platforms in Argentina (www.deremate.com.ar), Chile (www.deremate.cl), Mexico
(www.dereto.com.mx) and Colombia (www.dereto.com.co).
The aggregate purchase price paid by the Company to the Sellers for the shares of capital stock
of the Acquired Entities and the related assets was $40,000,000. The Company paid the Sellers
$22,000,000 in cash. In addition, on September 5, 2008, the Company issued to the Sellers ten
(10) unsecured promissory notes having an aggregate principal amount of $18,000,000, $8,000,000
of which are subject to set-off rights in favor of the Company for working capital adjustments
and liabilities relating to the assumption of certain contracts by the Company, $4,000,000 of
which are subject to set-off rights in favor of the Company for indemnification obligations of
the Sellers and the remaining $6,000,000 are not subject to set-off rights. Each of the
promissory notes have a one-year term, bear interest at 3.17875%
plus 1.5% for the first four months, 2.0% for the second four months and 2.5% for the third
four months and can be prepaid by the Company without penalty. Pursuant to the terms of each
promissory note, until the principal amount plus interest is repaid, the Company may not incur
indebtedness in excess of $55,000,000 in the aggregate.
On February 12, 2009 we agreed to modify the maturity conditions of the promissory note as
follows: (i) 3,000,000 on June 5, 2009 (ii) 9,000,000 on September 5, 2009 (iii) 3,000,000 on
December 5, 2009 and (iv) 3,000,000 on March 5, 2010. The promissory notes bear interest at
3.17875% plus 1.5% for the first four months, 2.0% for the second four months and 2.5% for the
remaining period up to its maturity. In addition, on that date we finished the purchase price
allocation period and the Company agreed with the Sellers a working capital adjustment for
$480,912 to be paid by the Sellers to the Company.
On June 3, 2009, the Company paid to the Sellers $3,113,203 including principal plus accrued
interest.
On August 31, 2009, the Company paid to the Sellers $9,470,222 including principal plus accrued
interest.
The Sellers and certain of their affiliates have also agreed to enter into certain non-compete
agreements with the Company for 5 years.
The Companys statement of income includes the results of operations of the acquired companies
from September 1, 2008.
19
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets (Continued) |
The following table summarizes the allocation of the cash paid and debt assumed in the
acquisition:
|
|
|
|
|
Cash paid |
|
$ |
22,000,000 |
|
Seller financing |
|
|
18,000,000 |
|
Working Capital adjustment |
|
|
(480,912 |
) |
Direct cost of the business combination |
|
|
494,301 |
|
|
|
|
|
Total aggregate purchase price |
|
$ |
40,013,389 |
|
|
|
|
|
The following table summarizes the purchase price allocation of the Acquired Entities in
the transaction (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post |
|
|
Net Tangible |
|
|
Identifiable |
|
|
Deferred |
|
|
|
|
|
|
Aggregate |
|
|
|
|
|
|
|
Acquisition |
|
|
Assets / |
|
|
Intangible |
|
|
Tax |
|
|
|
|
|
|
Purchase |
|
Company Name |
|
Country |
|
|
Ownership |
|
|
(Liabilities) |
|
|
Assets |
|
|
Liabilities |
|
|
Goodwill |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DeRemate.com de
Argentina S.A. |
|
Argentina |
|
|
100 |
% |
|
$ |
2,555.2 |
|
|
$ |
1,444.1 |
|
|
$ |
(505.4 |
) |
|
$ |
30,658.9 |
|
|
$ |
34,152.8 |
|
DeRemate.com Chile S.A. |
|
Chile |
|
|
100 |
% |
|
|
(1,978.9 |
) |
|
|
302.2 |
|
|
|
(105.8 |
) |
|
|
6,659.4 |
|
|
|
4,876.9 |
|
|
Compañía de Negocios
Interactiva de
Colombia E.U. |
|
Colombia |
|
|
100 |
% |
|
|
(753.4 |
) |
|
|
25.6 |
|
|
|
(9.0 |
) |
|
|
1,417.2 |
|
|
|
680.4 |
|
Interactivos y
Digitales México S.A.
de C.V. |
|
Mexico |
|
|
100 |
% |
|
|
(580.7 |
) |
|
|
29.2 |
|
|
|
(10.2 |
) |
|
|
864.9 |
|
|
|
303.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
$ |
(757.8 |
) |
|
$ |
1,801.1 |
|
|
$ |
(630.4 |
) |
|
$ |
39,600.4 |
|
|
$ |
40,013.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired and liabilities assumed were valued at their respective carrying
amounts adjusted to U.S. GAAP because management of the Company believes that these
amounts approximated their current fair values at the acquisition date. The valuation of
identifiable intangible assets acquired reflects managements estimates based on, among
other factors, use of established valuation methods. Such assets consist of customer lists
and non-compete agreements for a total amount of $1,801,084. Intangible assets associated
with customer list and non-compete agreements are amortized over a five year period.
The company recognized a significant amount of goodwill because the acquisition is
expected to significantly expand the companys business in Chile while strengthening the
companys leadership position in Argentina. Management expects significant synergies
between both businesses to be realized, mainly through improving the monetization of
DeRemates gross merchandise volume and by generating efficiencies in operations and
technology. As a result, a significant portion of the consideration was based on the
expected financial performance and the synergies of DeRemate business acquired and not the
asset value on the books of DeRemate at the time of acquisition.
Goodwill
of $39,600,533 is not expected to be deductible for tax purposes.
20
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets (Continued) |
The results of operations for periods prior to the acquisition for each acquisition, both
individually and in the aggregate, were not material to the consolidated statements of
operations of the Company and, accordingly, pro forma results of operations have not been
presented.
The following table summarizes the net tangible assets acquired in the abovementioned
business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMG |
|
|
DeRemate |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
554,739 |
|
|
$ |
136,893 |
|
|
$ |
691,632 |
|
Funds receivable from customers |
|
|
|
|
|
|
117,473 |
|
|
|
117,473 |
|
Accounts receivable |
|
|
56,613 |
|
|
|
6,512,485 |
|
|
|
6,569,098 |
|
Tax Credits |
|
|
|
|
|
|
604,419 |
|
|
|
604,419 |
|
Other current assets |
|
|
904,791 |
|
|
|
14,065 |
|
|
|
918,856 |
|
Non current assets |
|
|
365,190 |
|
|
|
139,737 |
|
|
|
504,927 |
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
$ |
1,881,333 |
|
|
$ |
7,525,072 |
|
|
$ |
9,406,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
69,516 |
|
|
|
4,509,314 |
|
|
|
4,578,830 |
|
Funds payable to customers |
|
|
|
|
|
|
146,191 |
|
|
|
146,191 |
|
Taxes payable |
|
|
459,462 |
|
|
|
745,017 |
|
|
|
1,204,479 |
|
Social security payable |
|
|
243,141 |
|
|
|
151,971 |
|
|
|
395,112 |
|
Other liabilities |
|
|
|
|
|
|
1,590,371 |
|
|
|
1,590,371 |
|
Non current liabilities |
|
|
14,000 |
|
|
|
|
|
|
|
14,000 |
|
Provisions |
|
|
408,336 |
|
|
|
1,140,055 |
|
|
|
1,548,391 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
$ |
1,194,455 |
|
|
$ |
8,282,919 |
|
|
$ |
9,477,374 |
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets (liabilities) |
|
$ |
686,878 |
|
|
$ |
(757,847 |
) |
|
$ |
(70,969 |
) |
|
|
|
|
|
|
|
|
|
|
Goodwill and Intangible Assets
The composition of goodwill and intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Indefinite lived assets |
|
|
|
|
|
|
|
|
- Goodwill |
|
$ |
67,672,215 |
|
|
$ |
65,652,774 |
|
- Trademarks |
|
|
5,638,701 |
|
|
|
5,537,715 |
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
- Licenses and others |
|
|
2,184,545 |
|
|
|
1,313,901 |
|
- Non-compete agreement |
|
|
1,192,110 |
|
|
|
1,051,531 |
|
- Customer list |
|
|
1,585,058 |
|
|
|
1,534,969 |
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
78,272,629 |
|
|
$ |
75,090,890 |
|
Accumulated amortization |
|
|
(2,747,115 |
) |
|
|
(2,179,344 |
) |
|
|
|
|
|
|
|
|
|
$ |
75,525,514 |
|
|
$ |
72,911,546 |
|
|
|
|
|
|
|
|
21
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
4. |
|
Business Combinations, Goodwill and Intangible Assets (Continued) |
Goodwill
The changes in the carrying amount of goodwill for the nine-month period ended September 30,
2009 and the year ended December 31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
Marketplaces |
|
|
|
Brazil |
|
|
Argentina |
|
|
Chile |
|
|
Mexico |
|
|
Venezuela |
|
|
Colombia |
|
|
Other Countries |
|
|
Total |
|
Balance, beginning of year |
|
$ |
9,361,697 |
|
|
$ |
26,903,145 |
|
|
$ |
5,365,727 |
|
|
$ |
4,517,690 |
|
|
$ |
13,636,502 |
|
|
$ |
4,647,681 |
|
|
$ |
1,220,332 |
|
|
$ |
65,652,774 |
|
- Effect of
exchange rates
changes |
|
|
2,942,609 |
|
|
|
(2,730,218 |
) |
|
|
839,333 |
|
|
|
74,176 |
|
|
|
|
|
|
|
777,653 |
|
|
|
115,888 |
|
|
|
2,019,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the period |
|
$ |
12,304,306 |
|
|
$ |
24,172,927 |
|
|
$ |
6,205,060 |
|
|
$ |
4,591,866 |
|
|
$ |
13,636,502 |
|
|
$ |
5,425,334 |
|
|
$ |
1,336,220 |
|
|
$ |
67,672,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
Marketplaces |
|
|
|
Brazil |
|
|
Argentina |
|
|
Chile |
|
|
Mexico |
|
|
Venezuela |
|
|
Colombia |
|
|
Other Countries |
|
|
Total |
|
Balance, beginning of year |
|
$ |
12,351,542 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,898,867 |
|
|
$ |
2,194,480 |
|
|
$ |
2,257,830 |
|
|
$ |
1,297,748 |
|
|
$ |
23,000,467 |
|
-Purchase of CMG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,442,022 |
|
|
|
1,595,482 |
|
|
|
|
|
|
|
13,037,504 |
|
-Purchase of DR Operations |
|
|
|
|
|
|
30,658,930 |
|
|
|
6,659,419 |
|
|
|
864,945 |
|
|
|
|
|
|
|
1,417,239 |
|
|
|
|
|
|
|
39,600,533 |
|
- Effect of exchange
rates changes |
|
|
(2,989,845 |
) |
|
|
(3,755,785 |
) |
|
|
(1,293,692 |
) |
|
|
(1,246,122 |
) |
|
|
|
|
|
|
(622,870 |
) |
|
|
(77,416 |
) |
|
|
(9,985,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year |
|
$ |
9,361,697 |
|
|
$ |
26,903,145 |
|
|
$ |
5,365,727 |
|
|
$ |
4,517,690 |
|
|
$ |
13,636,502 |
|
|
$ |
4,647,681 |
|
|
$ |
1,220,332 |
|
|
$ |
65,652,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable intangible assets
Amortizable intangible assets are comprised of customer lists and user base, trademarks and
trade names, non-compete agreements, acquired software licenses and other acquired intangible
assets including developed technologies. Aggregate amortization expense for intangible assets
totaled $148,602 and $82,313 for the three-month periods ended September 30, 2009 and 2008,
respectively. Aggregate amortization expense for intangible assets totaled $428,080 and
$223,614 for the nine-month periods ended September 30, 2009 and 2008, respectively.
Expected future intangible asset amortization from acquisitions completed as of September 30,
2009 is as follows:
|
|
|
|
|
For year ended 12/31/2009 (remaining three months) |
|
$ |
184,267 |
|
For year ended 12/31/2010 |
|
|
715,226 |
|
For year ended 12/31/2011 |
|
|
630,972 |
|
For year ended 12/31/2012 |
|
|
487,801 |
|
For year ended 12/31/2013 |
|
|
196,067 |
|
Thereafter |
|
|
265 |
|
|
|
|
|
|
|
$ |
2,214,598 |
|
|
|
|
|
22
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
Reporting segments are based upon the Companys internal organizational structure, the manner
in which the Companys operations are managed, the criteria used by management
to evaluate the Companys performance, the availability of separate financial information, and
overall materiality considerations.
The Marketplace segments include Brazil, Argentina, Venezuela, Mexico and other countries
(Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru and Uruguay) on line
market places commerce platforms. The Payments segment is the Companys regional payments
platform consisting of its MercadoPago business in Brazil, Argentina, Mexico, Chile, Colombia,
and Venezuela.
Direct contribution consists of revenues less direct costs. 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, headcount compensation,
third party fees.
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 Companys reporting segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
Marketplaces |
|
|
|
|
|
|
|
|
|
Brazil |
|
|
Argentina |
|
|
Mexico |
|
|
Venezuela |
|
|
Other Countries |
|
|
Total |
|
|
Payments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
15,481,697 |
|
|
$ |
6,621,213 |
|
|
$ |
3,676,709 |
|
|
$ |
8,450,839 |
|
|
$ |
2,880,098 |
|
|
$ |
37,110,556 |
|
|
$ |
13,488,720 |
|
|
$ |
50,599,276 |
|
Direct costs |
|
|
(8,617,810 |
) |
|
|
(1,965,224 |
) |
|
|
(1,992,722 |
) |
|
|
(3,938,725 |
) |
|
|
(1,227,900 |
) |
|
|
(17,742,381 |
) |
|
|
(6,311,654 |
) |
|
|
(24,054,035 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct contribution |
|
|
6,863,887 |
|
|
|
4,655,989 |
|
|
|
1,683,987 |
|
|
|
4,512,114 |
|
|
|
1,652,198 |
|
|
|
19,368,175 |
|
|
|
7,177,066 |
|
|
|
26,545,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,562,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,982,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580,343 |
|
Interest expense and other financial results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,873,230 |
) |
Foreign currency loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,299,938 |
) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,389,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 |
|
|
|
Marketplaces |
|
|
|
|
|
|
|
|
|
Brazil |
|
|
Argentina |
|
|
Mexico |
|
|
Venezuela |
|
|
Other Countries |
|
|
Total |
|
|
Payments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
14,922,939 |
|
|
$ |
5,405,752 |
|
|
$ |
3,560,840 |
|
|
$ |
6,112,651 |
|
|
$ |
1,740,073 |
|
|
$ |
31,742,255 |
|
|
$ |
8,518,388 |
|
|
$ |
40,260,643 |
|
Direct costs |
|
|
(10,316,048 |
) |
|
|
(2,375,980 |
) |
|
|
(2,023,418 |
) |
|
|
(3,202,864 |
) |
|
|
(1,263,202 |
) |
|
|
(19,181,512 |
) |
|
|
(5,020,589 |
) |
|
|
(24,202,101 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct contribution |
|
|
4,606,891 |
|
|
|
3,029,772 |
|
|
|
1,537,422 |
|
|
|
2,909,787 |
|
|
|
476,871 |
|
|
|
12,560,743 |
|
|
|
3,497,799 |
|
|
|
16,058,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,382,605 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,675,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,139 |
|
Interest expense and other financial results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,132,524 |
) |
Foreign currency loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,648,584 |
) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,264,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
Marketplaces |
|
|
|
|
|
|
|
|
|
Brazil |
|
|
Argentina |
|
|
Mexico |
|
|
Venezuela |
|
|
Other Countries |
|
|
Total |
|
|
Payments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
37,963,430 |
|
|
$ |
17,136,120 |
|
|
$ |
9,853,059 |
|
|
$ |
22,118,467 |
|
|
$ |
7,003,962 |
|
|
$ |
94,075,038 |
|
|
$ |
29,748,538 |
|
|
$ |
123,823,576 |
|
Direct costs |
|
|
(22,850,813 |
) |
|
|
(6,404,058 |
) |
|
|
(5,657,139 |
) |
|
|
(11,038,145 |
) |
|
|
(3,314,818 |
) |
|
|
(49,264,973 |
) |
|
|
(15,824,655 |
) |
|
|
(65,089,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct contribution |
|
|
15,112,617 |
|
|
|
10,732,062 |
|
|
|
4,195,920 |
|
|
|
11,080,322 |
|
|
|
3,689,144 |
|
|
|
44,810,065 |
|
|
|
13,923,883 |
|
|
|
58,733,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,571,831 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,162,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,112,180 |
|
Interest expense and other financial results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,718,003 |
) |
Foreign currency loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,770,725 |
) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
27,785,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008 |
|
|
|
Marketplaces |
|
|
|
|
|
|
|
|
|
Brazil |
|
|
Argentina |
|
|
Mexico |
|
|
Venezuela |
|
|
Other Countries |
|
|
Total |
|
|
Payments |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
40,447,913 |
|
|
$ |
13,184,145 |
|
|
$ |
9,609,505 |
|
|
$ |
15,581,777 |
|
|
$ |
4,709,996 |
|
|
$ |
83,533,336 |
|
|
$ |
20,039,545 |
|
|
$ |
103,572,881 |
|
Direct costs |
|
|
(26,239,812 |
) |
|
|
(6,248,223 |
) |
|
|
(6,230,842 |
) |
|
|
(8,373,177 |
) |
|
|
(2,847,890 |
) |
|
|
(49,939,944 |
) |
|
|
(12,814,364 |
) |
|
|
(62,754,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct contribution |
|
|
14,208,101 |
|
|
|
6,935,922 |
|
|
|
3,378,663 |
|
|
|
7,208,600 |
|
|
|
1,862,106 |
|
|
|
33,593,392 |
|
|
|
7,225,181 |
|
|
|
40,818,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses and indirect costs
of net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,452,564 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,366,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,350,068 |
|
Interest expense and other financial results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,453,671 |
) |
Foreign currency loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,689,938 |
) |
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
18,614,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table summarizes the allocation of the long-lived tangible assets based on geography:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
US long-lived tangible assets |
|
$ |
3,157,478 |
|
|
$ |
2,881,210 |
|
|
|
|
|
|
|
|
|
|
Other countries long-lived tangible assets |
|
|
|
|
|
|
|
|
Argentina |
|
|
1,690,783 |
|
|
|
1,573,708 |
|
Brazil |
|
|
873,098 |
|
|
|
596,940 |
|
Mexico |
|
|
64,771 |
|
|
|
81,873 |
|
Venezuela |
|
|
549,741 |
|
|
|
749,605 |
|
Other countries |
|
|
58,641 |
|
|
|
56,824 |
|
|
|
|
|
|
|
|
|
|
$ |
3,237,034 |
|
|
$ |
3,058,950 |
|
|
|
|
|
|
|
|
Total long-lived tangible assets |
|
$ |
6,394,512 |
|
|
$ |
5,940,160 |
|
|
|
|
|
|
|
|
The following table summarizes the allocation of the goodwill and intangible assets based
on geography:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
US intangible assets |
|
$ |
21,042 |
|
|
$ |
35,058 |
|
|
|
|
|
|
|
|
|
|
Other countries goodwill and intangible assets |
|
|
|
|
|
|
|
|
Argentina |
|
|
26,002,008 |
|
|
|
28,196,325 |
|
Brazil |
|
|
12,343,229 |
|
|
|
9,397,304 |
|
Mexico |
|
|
4,645,074 |
|
|
|
4,585,212 |
|
Venezuela |
|
|
18,582,047 |
|
|
|
18,585,234 |
|
Other countries |
|
|
13,932,114 |
|
|
|
12,112,413 |
|
|
|
|
|
|
|
|
|
|
$ |
75,504,472 |
|
|
$ |
72,876,488 |
|
|
|
|
|
|
|
|
Total goodwill and intangible assets |
|
$ |
75,525,514 |
|
|
$ |
72,911,546 |
|
|
|
|
|
|
|
|
The following table summarizes the allocation of net revenues based on geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Brazil |
|
$ |
63,645,669 |
|
|
$ |
57,327,087 |
|
|
$ |
27,206,864 |
|
|
$ |
22,183,814 |
|
Argentina |
|
|
19,023,431 |
|
|
|
14,345,011 |
|
|
|
7,512,544 |
|
|
|
5,884,408 |
|
Mexico |
|
|
11,001,205 |
|
|
|
10,720,894 |
|
|
|
4,119,973 |
|
|
|
3,974,533 |
|
Venezuela |
|
|
23,049,806 |
|
|
|
16,410,729 |
|
|
|
8,833,848 |
|
|
|
6,454,635 |
|
Other countries |
|
|
7,103,465 |
|
|
|
4,769,160 |
|
|
|
2,926,047 |
|
|
|
1,763,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net
revenues |
|
$ |
123,823,576 |
|
|
$ |
103,572,881 |
|
|
$ |
50,599,276 |
|
|
$ |
40,260,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
6. |
|
Fair Value Measurement of Assets and Liabilities |
The following table summarizes the Companys financial assets and liabilities measured at fair
value on a recurring basis as of September 30, 2009 and December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Quoted Prices in |
|
|
|
Balances as of |
|
|
active markets for |
|
|
Balances as of |
|
|
active markets for |
|
|
|
September 30, |
|
|
identical Assets |
|
|
December 31, |
|
|
identical Assets |
|
Description |
|
2009 |
|
|
(Level 1) |
|
|
2008 |
|
|
(Level 1) |
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
$ |
16,716,610 |
|
|
$ |
16,716,610 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds |
|
|
|
|
|
|
|
|
|
|
2,408,294 |
|
|
|
2,408,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sovereign Debt Securities |
|
|
1,577,813 |
|
|
|
1,577,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Debt Securities |
|
|
10,511,654 |
|
|
|
10,511,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial Assets |
|
$ |
28,806,077 |
|
|
$ |
28,806,077 |
|
|
$ |
2,408,294 |
|
|
$ |
2,408,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans payable and other
financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put Options |
|
$ |
|
|
|
$ |
|
|
|
$ |
185,000 |
|
|
$ |
185,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial Liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
185,000 |
|
|
$ |
185,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys financial assets and liabilities are valued using market prices on active
markets (level 1). Level 1 instrument valuations are obtained from real-time quotes for
transactions in active exchange markets involving identical assets. As of September 30, 2009
and December 31, 2008, the Company did not have any assets or liabilities obtained from
readily-available pricing sources for comparable instruments (level 2) or without observable
market values that would require a high level of judgment to determine fair value (level 3).
The unrealized net gains on short term investments are reported as a component of accumulated
other comprehensive income. The Company does not anticipate any significant realized losses
associated with those investments as the Companys historical cost basis is not significant.
As of September 30, 2009 and December 31, 2008, the Company has financial assets measured at
fair value on a recurring basis for $28,806,077 and $2,408,294, respectively. As of December
31, 2008, the Company had financial liabilities measured at fair value for $185,000.
26
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
6. |
|
Fair Value Measurement of Assets and Liabilities (Continued) |
In addition, as of September 30, 2009, the Company had $26,408,339 of short-term and long-term
investments, which consisted of time deposits considered held to maturity securities. As of
December 31, 2008, the Company had $35,161,436 of short-term and long-term investments, which
consisted of time deposits, commercial papers, sovereign debt securities and corporate debt
securities considered held to maturity securities. Those investments are accounted for at
amortized cost which, as of September 30, 2009 and December 31, 2008, approximates their fair
values.
As of September 30, 2009 and December 31, 2008, the carrying value of the Companys cash and
cash equivalents approximated their fair value which was held primarily in bank deposits. For
the three- and nine-month periods ended September 30, 2009 and 2008, the Company held no direct
investments in auction rate securities, collateralized debt obligations, structured investment
vehicles or mortgage-backed securities.
7. |
|
Compensation Plan for Outside Directors |
On September 17, 2007, the Board of Directors of the Company (the Board), upon the
recommendation of the Compensation Committee of the Board, adopted a compensation plan for
outside directors. Under the terms of the plan, the outside directors will receive an annual
cash retainer fee of $30,000 and an annual grant of restricted Common Stock (Restricted
Shares).
On September 17, 2007, the Company awarded each of the two outside directors 1,000 Restricted
Shares for their original grants. On January 24, 2008, the Company awarded a new outside
director 600 Restricted Shares for his original grant. On May 6, 2008, the Board also
designated a new director and a current director as outside directors, determining to extend
the Companys outside director compensation program to these two directors. On June 9,
2008, the Company awarded each of the two new outside directors 674 Restricted Shares for their
original grants. As of September 30, 2009, these shares are fully vested and are not restricted
anymore.
On the first anniversary of each directors respective original Restricted Shares grant date,
each outside director would receive a grant of additional shares having a value equal to
$30,000. On the second anniversary of each directors respective original Restricted Shares
grant date, each outside director will receive a grant of additional shares having a value
equal to $40,000.
The number of shares to be issued on each of the first and the second anniversary of the
original Restricted Shares grant date would be based on the closing sale price of the Common
Stock on the prior trading day.
Each grant of Restricted Shares vests twelve months following the first and second anniversary
date.
27
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
7. |
|
Compensation Plan for Outside Directors (Continued) |
On August 8, 2008, the Board approved additional cash compensation for the Companys directors
who serve as a committee chair or as lead independent director. Under the terms of the plan,
effective August 8, 2008, the Chair of the Companys Audit Committee, Compensation Committee
and Nominating and Corporate Governance Committee and the lead independent director of the
Company are entitled to receive annual cash compensation in addition to existing director
compensation in the amount of $15,000, $12,000, $5,000 and $10,000, respectively. The Board
also determined that payments of outside directors cash and stock compensation will coincide
with the Companys annual stockholders meeting.
Beginning in 2009, the annual outside directors cash compensation was paid out in June and
Restricted Shares were issued on the 2009 annual stockholders meeting held on June 10, 2009.
Shares were valued at the closing sale price of the Companys common stock on the day preceding
the 2009 annual meeting. As a result of anticipating the grant dates, other
than the initial grants to Messrs. Spence and Vázquez, the Company did not issue any Restricted
Shares to any of the outside directors in 2008 and, accordingly, the Company has made catch up
Restricted Share grants to each of Mr. Calemzuk, Ms. Serra and Mr. de los Santos on the date of
the 2009 annual meeting.
On June 10, 2009, the Company issued 2,305 and 8,350 shares related to the abovementioned
additional Restricted Shares for the first and second year of board service following the date
each outside director received their initial grant, respectively. The 8,350 shares related to
the second year are restricted shares and will vest in the 2010 annual stockholders meeting.
To date, all Restricted Shares have been granted pursuant to our Amended and Restated 1999
Stock Option and Restricted Stock Plan. (See Note 8 Stock Option and Restricted Shares for
discussion of accounting treatment).
8. |
|
Stock Option and Restricted Shares |
Pursuant to the Amended and Restated 1999 Stock Option and Restricted Stock Plan, (the
Plan) the Company has reserved 4,732,400 shares of Common Stock for issuance under the Plan.
On June 10, 2009, the Annual Shareholders Meeting approved the adoption of the 2009 Equity
Compensation Plan, which contains terms substantially similar to the terms of the 1999 Stock
Option and Restricted Stock Plan scheduled to expire in November 2009. The 2009 plan has
reserved for issuance 294,529 shares of the Companys common stock that remained available for
grant under the 1999 plan.
28
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
8. |
|
Stock Option and Restricted Shares (Continued) |
Stock Options
Stock option awards granted under the Plan are at the discretion of the Companys Board of
Directors and may be in the form of either incentive or nonqualified stock options. Options
granted under the Plan generally vest over a three to four year period and expire ten years
after the date of grant. At September 30, 2009, there were 283,874 shares of Common Stock
available for additional awards under the Plan.
Stock-based compensation expense related to stock options for the three-month periods ended
September 30, 2009 and 2008 was $440 and $1,224, respectively. Stock-based compensation expense
related to stock options for the nine-month periods ended September 30, 2009 and 2008 was
$1,312 and $3,684, respectively.
The Company used the Black-Scholes option pricing model to measure the fair value of its option
awards granted during the year ended December 31, 2006. The Black-Scholes model requires the
input of highly subjective assumptions including volatility, expected term, risk-free interest
rate and dividend yield.
There was no granting during the period from January 1, 2007 to September 30, 2009.
Stock-based compensation expense is based on the estimated portion of the awards that are
expected to vest.
Stock option activity, for the three-month periods ended September 30, 2009, was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
average |
|
|
|
options |
|
|
exercise price |
|
Outstanding, beginning of period |
|
|
44,737 |
|
|
$ |
1.39 |
|
Exercised |
|
|
(19,624 |
) |
|
|
0.94 |
|
|
|
|
|
|
|
|
Outstanding, end of the period |
|
|
25,113 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
Exercisable, end of the period |
|
|
22,194 |
|
|
$ |
1.62 |
|
|
|
|
|
|
|
|
Stock option activity, for the nine-month periods ended September 30, 2009, was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
average |
|
|
|
options |
|
|
exercise price |
|
Outstanding, beginning of year |
|
|
53,919 |
|
|
$ |
1.23 |
|
Exercised |
|
|
(28,806 |
) |
|
|
0.78 |
|
|
|
|
|
|
|
|
Outstanding, end of the period |
|
|
25,113 |
|
|
|
1.75 |
|
|
|
|
|
|
|
|
Exercisable, end of the period |
|
|
22,194 |
|
|
$ |
1.62 |
|
|
|
|
|
|
|
|
29
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
8. |
|
Stock Option and Restricted Shares (Continued) |
Stock Options (Continued)
The following table details the outstanding options at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Outstanding |
|
|
Exercisable |
|
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
|
|
|
|
remaining |
|
|
|
|
Exercise |
|
Number of |
|
|
contractual |
|
|
Number of |
|
price |
|
options |
|
|
life (years) |
|
|
options |
|
$0.01 |
|
|
2,350 |
|
|
|
1.57 |
|
|
|
2,349 |
|
$1.00 |
|
|
3,000 |
|
|
|
0.25 |
|
|
|
3,000 |
|
$1.50 |
|
|
17,263 |
|
|
|
5.70 |
|
|
|
15,157 |
|
$6.00 |
|
|
2,500 |
|
|
|
6.80 |
|
|
|
1,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,113 |
|
|
|
4.77 |
|
|
|
22,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average Exercise Price |
|
|
|
|
- Options outstanding |
|
$ |
1.75 |
|
- Options exercisable |
|
$ |
1.62 |
|
|
|
|
|
|
|
|
September 30, |
|
|
|
2009 |
|
Aggregate intrinsic value |
|
|
|
|
- Options outstanding |
|
$ |
921,928 |
|
- Options exercisable |
|
$ |
817,680 |
|
The aggregate intrinsic value represents the difference between the Companys closing stock
price of $38.46 as of September 30, 2009 and the exercise price multiplied by the number of
options (outstanding and exercisable) as of that date.
Restricted Shares
As mentioned in Note 7, the Company granted awards to its outside directors for 3,948
Restricted Shares. As of September 30, 2009, these shares are fully vested and are not
restricted anymore. However, the 8,350 shares related to the second year of board service are
restricted shares and will vest in the 2010 annual stockholders meeting. Non-vested shares
awarded to employees are measured at their fair market value by the grant-date price of the
Companys shares.
Based on the fair market value of the Companys share at the grant date, total compensation
cost for the 3,948 Restricted Shares awarded amounted to $149,470. For the three-month periods
ended September 30, 2009 and 2008, the Company recognized $nil and $35,546, respectively, of
compensation expense related to these awards, which are included in operating expenses in the
accompanying condensed consolidated statement of income. For the nine-month periods ended
September 30, 2009 and 2008, the Company recognized $27,944 and $81,875, respectively.
30
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
8. |
|
Stock Option and Restricted Shares (Continued) |
Restricted Shares (Continued)
The additional grants of shares for fixed amounts of US dollars were classified as liabilities
in the accompanying consolidated balance sheet up to June 10, 2009, the issuance date. As from
the issuance date, the outstanding liabilities amounting to $171,099 as well as all future
compensation cost is classified as equity. For the three-month periods ended September 30, 2009
and 2008, the Company recognized $21,675 and $39,409, respectively, of compensation expense
related to these awards, which are included in operating expenses in the accompanying condensed
consolidated statement of income. For the nine-month periods ended September 30, 2009 and 2008,
the Company recognized $64,014 and $83,609, respectively.
9. |
|
Commitments and Contingencies |
Litigation and Other Legal Matters
At September 30, 2009, the Company had established reserves for proceeding-related
contingencies of $1,071,757 to cover 316 legal actions against the Company where the Company
has determined that a loss is probable. As of September 30, 2009 no loss amount has been
accrued for over 1,285 legal actions for the aggregate amount up to $4,046,806 because a loss
is not considered probable.
At the beginning of 2009, the Brazilian subsidiary of the Company had 254 cases in litigation
in ordinary courts, 8 of which (QIX Skateboards Industria e Comercio Ltda., Editora COC
Empreendimentos Culturais Ltda., Vintage Denim Ltda., Fallms Distribuição de Fitas Ltda., and
100% Nacional Distribuidora de Fitas Ltda., Xuxa Promoções e Produções Artísticas Ltda.,
Praetorium Instituto de Ensino, Pesquisas e Atividades de Extensão e Direito Ltda., Botelho
Indústria e Distribuição Cinematográfica Ltda.) and SERASA S.A were related to alleged
intellectual property infringement.
During the nine-month period ended September 30, 2009, the Brazilian subsidiary of the Company
was sued in 98 cases in ordinary courts. In most of these cases the plaintiffs asserted that
the Company was responsible for fraud committed against them, or responsible for damages
suffered when purchasing an item on the Companys website, when using MercadoPago, or when the
Company invoiced them.
As of September 30, 2009, 321 legal actions were pending in the Brazilian ordinary courts 8 of
which (QIX Skateboards Industria e Comercio Ltda., Editora COC Empreendimentos Culturais Ltda.,
Vintage Denim Ltda., Fallms Distribuição de Fitas Ltda., and 100% Nacional Distribuidora de
Fitas Ltda., Xuxa Promoções e Produções Artísticas Ltda., Praetorium Instituto de Ensino,
Pesquisas e Atividades de Extensão e Direito Ltda.,and Botelho Indústria e Distribuição
Cinematográfica Ltda.) and SERASA S.A were related to alleged intellectual property
infringement. In addition, during the nine-month period ended September 30, 2009, the Brazilian
subsidiary of the Company received approximately 1,469 summons of legal actions filed in
Brazilian consumer courts, where a lawyer is not required to file or pursue a claim. In most of
the cases, the plaintiffs asserted that the Company was
responsible for fraud committed against them, or responsible for damages suffered when
purchasing an item on the Companys website, when using MercadoPago, or when the Company
invoiced them. As of September 30, 2009, there were more than 2,014 cases still pending in
Brazilian consumer courts.
31
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
9. |
|
Commitments and Contingencies (Continued) |
Litigation and Other Legal Matters (Continued)
Other third parties have from time to time claimed, and others may claim in the future, that
the Company was responsible for fraud committed against them, or that the Company has infringed
their intellectual property rights. The underlying laws with respect to the potential liability
of online intermediaries like the Company are unclear in the jurisdictions where the Company
operates. Management believes that additional lawsuits alleging that the Company has violated
copyright or trademark laws will be filed against the Company in the future.
Intellectual property claims, whether meritorious or not, are time consuming and costly to
resolve, could require expensive changes in the Companys methods of doing business, or could
require the Company to enter into costly royalty or licensing agreements. The Company may be
subject to patent disputes, and be subject to patent infringement claims as the Companys
services expand in scope and complexity. In particular, the Company may face additional patent
infringement claims involving various aspects of the Payments businesses.
From time to time, the Company is involved in other disputes or regulatory inquiries that arise
in the ordinary course of business. The number and significance of these disputes and inquiries
are increasing as the Companys business expands and the Company grows larger.
Any claims or regulatory actions against the Company, whether meritorious or not, could be time
consuming, result in costly litigation, require significant amounts of management time, and
result in the diversion of significant operational resources.
On June 12, 2007, a state prosecutor of the State of São Paulo, Brazil presented a claim
against our Brazilian subsidiary. The state prosecutor alleges that our Brazilian subsidiary
should be held joint and severally liable for any fraud committed by sellers on the Brazilian
version of our website, or responsible for damages suffered by buyers when purchasing an item
on the Brazilian version of the MercadoLibre website. We were summoned on December 12, 2007 and
presented our defense on January 4, 2008. On June 26, 2009, the Judge sentenced in favor of the
State of São Paulo Public Prosecutor in all his claims. On June 29, 2009 a recourse to the
lower court was presented by the Company. On September 29, 2009 we presented an appeal and
requested to suspend effects of the sentence issued by the lower court until the appeal is
decided. The decision is still pending.
On August 12, 2009 the case filed by a state prosecutor of the State of Bahia, Brazil against
our Brazilian subsidiary was settled with no financial or legal liability of the Company. The
settlement was homologated on August 17, 2009.
32
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
9. |
|
Commitments and Contingencies (Continued) |
Litigation after September 30, 2009
After September 30, 2009 and up to the date of issuance of these condensed consolidated
financial statements, the Companys Brazilian subsidiary was
sued in 154 other cases in
Brazilian ordinary courts and 9 new cases in consumer courts. No loss amount has been accrued
in connection with these actions because a loss is not considered probable.
Other contingencies
As of September 30, 2009, the Company had reserved $174,357 against some tax contingencies
(other than income tax), identified in some of its subsidiaries.
Other Commitments
On June 19, 2008, the Companys Argentine subsidiary agreed to participate in a real estate
trust for the construction of an office building located in the City of Buenos Aires, buying
5,340 square meters divided into 5 floors and 70 parking spaces, where the Company plans
to move its headquarters and Argentine operation offices. As of September 30, 2009, the
Argentine subsidiary has invested $5,683,675 in the aforementioned trust and is expected to
invest an additional $3,639,383 in the following 10 months. As this investment represents an
undivided interest for more than 20% of the total amount of the real estate trust, it is
accounted for under the equity method and it is classified as Long-Term Investments in the
balance sheet.
Operating Leases
The Company has leases for office space in the various countries where it operates. Total
rental expense amounted to approximately $592,782 and $478,296 for the three-month period ended
September 30, 2009 and 2008, respectively. Total rental expense amounted to approximately
$1,760,415 and $1,367,559 for the nine-month period ended September 30, 2009 and 2008,
respectively.
Minimum remaining annual commitments under the non-cancelable operating leases are as follows:
|
|
|
|
|
For the year ended December 31, 2009 (remaining three months) |
|
|
587,947 |
|
For the year ended December 31, 2010 |
|
|
1,448,460 |
|
For the year ended December 31, 2011 |
|
|
769,802 |
|
For the year ended December 31, 2012 |
|
|
180,982 |
|
Thereafter |
|
|
36,436 |
|
|
|
|
|
|
|
$ |
3,023,627 |
|
|
|
|
|
33
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
9. |
|
Commitments and Contingencies (Continued) |
Employment Contracts
Each of the executive officers of the Company are a party to individual employment agreements
that provide for annual base estimated salaries aggregating approximately $930,800 per year, a
performance based estimated bonus aggregating to approximately $817,100 per year, and some
fringe benefits. The employment agreements automatically renew annually, if not terminated by
either party. Each agreement includes clauses that provide in the event of employment
termination without cause, the Company must pay the employee 12 months of base salary.
Additionally, the executive officers of the Company are included in the Long Term Retention
Plans mentioned in Note 10. Under the 2008 Plan the executive officers of the Company will
receive approximately $455,256 and 8,672 shares in a period of 3 and half years. In addition,
under the 2009 Plan the executive officers of the Company will receive approximately $1,596,195
in a period of 8 years.
10. |
|
Long Term Retention Plan |
On August 8, 2008, the Board of Directors approved an employee retention program that will be
payable 50% in cash and 50% in shares, in addition to the annual salary and bonus of certain
executives. Payments will be made in the first quarter on annual basis according to the
following vesting schedule:
|
|
|
Year 1 (2008): 17% |
|
|
|
|
Year 2 (2009): 22% |
|
|
|
|
Year 3 (2010): 27% |
|
|
|
|
Year 4 (2011): 34% |
In March 2009, the abovementioned 17% related to Year 1 was paid.
In addition, the 2008 Long Term Retention Plan (the 2008 LTRP) has a performance condition
which has been achieved at the date of these financial statements and also requires the
employee to stay in the Company at the payment date. The compensation cost is recognized in
accordance with the graded-vesting attribution method and is accrued up to each payment date.
The total compensation cost of the 2008 LTRP amounts to approximately $1.8 million including
cash and shares. The 21,591 shares granted were valued at the grant-date fair market value of
$36.8 per share. For the three-month period ended September 30, 2009, the related accrued
compensation expense was $121,330 corresponding $46,479 to the share portion of the award
credited to Additional Paid-in Capital and $74,850 to the cash portion included in the Balance
Sheet as Social security payable. For the nine-month period ended September 30, 2009, the
related accrued compensation expense was $322,732 corresponding $127,174 to the share portion
of the award credited to Additional Paid-in Capital and $195,558 to the cash portion included
in the Balance Sheet as Social security payable.
34
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
10. |
|
Long Term Retention Plan (Continued) |
During the three- and nine-month periods ended September 30, 2008, the related accrued
compensation expense was $352,271 corresponding $132,421 to the share portion of the award
credited to Additional Paid-in Capital and $219,850 to the cash portion included in the Balance
Sheet as Social security payable.
The following table summarizes the number of shares for each of the following groups:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
Number of Shares |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
21,591 |
|
|
|
21,591 |
|
Non-vested at the beginning of the year |
|
|
21,591 |
|
|
|
|
|
Non-vested at the end of the period / year |
|
|
15,608 |
|
|
|
21,591 |
|
Forfeited |
|
|
2,383 |
|
|
|
|
|
Vested and paid to the employees |
|
|
3,600 |
|
|
|
|
|
Outstanding |
|
|
15,608 |
|
|
|
21,591 |
|
The following table details the aggregate intrinsic value and weight-average remaining
contractual life of the shares at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted-average |
|
|
|
Aggregate |
|
|
remaining |
|
|
|
Intrinsic |
|
|
contractual |
|
|
|
value |
|
|
life (years) |
|
|
|
|
|
|
|
|
|
|
Shares outstanding |
|
|
600,284 |
|
|
|
1.64 |
|
The aggregate intrinsic value of the shares paid on March 13, 2009 under the 2008 LTRP
amounts to $61,740 at that date.
On June 10, 2009, the Compensation Committee of the Board of Directors approved the 2009
employee retention program (the 2009 LTRP). The award under the 2009 LTRP will be fully
payable in cash in addition to the annual salary and bonus of each employee.
The 2009 LTRP will be paid in 8 equal annual quotas (12.5% each) commencing on March 31, 2010.
Each quota will be calculated as follows:
|
|
|
6.25% of the amount will be calculated in nominal terms (the nominal basis
share), |
|
|
|
6.25% will be adjusted by multiplying the nominal amount by the average closing
stock price for the last 60 trading days of the year previous to the payment date and
divided by the average closing stock price for the last 60 trading days of 2008 which
is $13.81 (the variable share). |
35
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
10. |
|
Long Term Retention Plan (Continued) |
As of June 10, 2009, the grant date, the total compensation cost of the 2009 LTRP amounts to
approximately $3.5 million including the nominal and variable basis cost and the average
grant-date fair market value was $22.1 per share.
In addition, the 2009 LTRP has performance conditions to be achieved at December 31, 2009 and
also requires the employee to stay in the Company at the payment date. The compensation cost
related to the nominal basis share is recognized in straight line basis using the equal annual
accrual method. The compensation cost related to the variable share is recognized in accordance
with the graded-vesting attribution method and is accrued up to each payment date.
On July 15, 2009, the Board of Directors, upon the recommendation of the compensation committee
of the Board, adopted the 2009 Long Term Retention Plan (the 2009 LTRP) in the form as
described above.
As of September 30, 2009, the total compensation cost of the 2009 LTRP amounts to approximately
$4.5 million and the related accrued compensation expense for the three- and nine-month period
ended September 30, 2009 was $387,854 and $823,801.
The following table details the aggregate intrinsic value and weight-average remaining
contractual life of the shares at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
|
|
|
|
Weighted-average |
|
|
|
Aggregate |
|
|
remaining |
|
|
|
Intrinsic |
|
|
contractual |
|
|
|
value |
|
|
life (years) |
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
3,114,516 |
|
|
|
4.00 |
|
11. |
|
Share Repurchase Plan |
On November 14, 2008, the Company announced that its board of directors approved a share
repurchase plan authorizing the Company to repurchase, from available capital, up to $20
million of the Companys outstanding common stock from time to time through November 13, 2009.
The timing and amount of any share repurchase under the share repurchase plan will be
determined by management of the Company based on market conditions and other considerations,
and repurchases may be effected in the open market, through derivative, accelerated repurchase
and other privately negotiated transactions and through plans designed to comply with Rules
10b-18 or 10b5-1(c) under the Securities Exchange Act of 1934, as amended. The share repurchase
plan does not require the Company to acquire any specific number of shares and may be
temporarily or permanently suspended or discontinued by the Company at any time. A committee of
the board of directors will reevaluate the operation of the plan each fiscal quarter.
36
MercadoLibre, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
11. |
|
Share Repurchase Plan (Continued) |
In November 2008, the Company has repurchased in the open market 249,700 shares for a total
amount of $2,590,734. The repurchased shares were accounted for as treasury stock and
subsequently retired.
The Company charged the excess of the cost of the treasury stock over its par value entirely to
additional paid-in capital because it has accumulated deficit instead of retained earnings.
The direct costs incurred to acquire treasury stock have been added to the reduction of
additional paid in capital.
Additionally, during November and December 2008, the Company sold written put options of its
own shares as part of the Share Repurchase Plan, those put options were not exercised at the
expiration date and for that reason, during the first quarter of 2009, the Company recognized a
gain of $185,000.
The Company accounted for its written put options as derivative instruments and measured them
initially and subsequently at fair value. The liabilities associated with these
derivative instruments were recorded at fair value in current liabilities in the consolidated
balance sheet.
During March 2009, the Company sold written put options of its own shares. The following table
summarizes the written put option transactions made in the first quarter of 2009:
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Number of Shares |
|
|
226,000 |
|
Premium |
|
|
302,997 |
|
Average Price |
|
|
1.34 |
|
Commissions and other fees |
|
|
(6,782 |
) |
Cash received |
|
|
296,215 |
|
These put options were not exercised at the expiration date and for that reason, during the
first half of 2009, the Company recognized a gain of $302,997.
No written put option transactions were made during the three-month period ended September 30,
2009. As of September 30, 2009 there is no written put options transaction outstanding.
Those derivative financial instruments were not accounted for as hedges and, therefore, the
change in the fair value of these instruments was recorded in the income statement as interest
income and other financial gains.
* * * *
37
|
|
|
Item 2 |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements regarding our future performance made in this report are
forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements may relate to such matters as:
|
|
|
continued growth of online commerce and Internet usage in Latin
America; |
|
|
|
our ability to expand our operations and adapt to rapidly changing
technologies; |
|
|
|
litigation and legal liability; |
|
|
|
systems interruptions or failures; |
|
|
|
our ability to attract and retain qualified personnel; |
|
|
|
consumer trends; security breaches and illegal uses of our services; |
|
|
|
reliance on third-party service providers; |
|
|
|
enforcement of intellectual property rights; |
|
|
|
our ability to attract new customers, retain existing customers and
increase revenues; |
|
|
|
seasonal fluctuations; and |
|
|
|
political, social and economic conditions in Latin America in
general, and Venezuela and Argentina in particular, specifically if
Venezuela becomes a highly inflationary economy. |
These statements are based on currently available information and our current
assumptions, expectations and projections about future events. While we believe that our
assumptions, expectations and projections are reasonable in view of the currently
available information, you are cautioned not to place undue reliance on our
forward-looking statements. These statements are not guarantees of future performance.
They are subject to future events, risks and uncertainties many of which are beyond our
control as well as potentially inaccurate assumptions that could cause actual results
to differ materially from our expectations and projections. Some of the material risks
and uncertainties that could cause actual results to differ materially from our
expectations and projections are described in Item 1A Risk Factors in Part I of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the
Securities and Exchange Commission on February 27, 2009, as updated by the discussion in
Item 1A Risk Factors in Part II of our Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2009 and June 30, 2009 as filed with the Securities and Exchange
Commission on May 11, 2009 and August 7, 2009. You should read that information in
conjunction with Managements Discussion and Analysis of Financial Condition and Results
of Operations in Item 2 of Part I of this report and our unaudited condensed
consolidated financial statements and related notes in Item 1 of Part I of this report.
We note such information for investors as permitted by the Private Securities Litigation
Reform Act of 1995. There also may be other factors that we cannot anticipate or that are
not described in this report, generally because we do not perceive them to be material
that could cause results to differ materially from our expectations.
38
Forward-looking statements speak only as of the date they are made, and we do not
undertake to update these forward-looking statements except as may be required by law.
You are advised, however, to review any further disclosures we make on related subjects
in our periodic filings with the Securities and Exchange Commission.
Managements Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financial condition and results of operations has been
organized to present the following:
|
|
|
a brief overview of our company; |
|
|
|
|
a discussion of our principal trends and results of operations for the quarters and nine-month periods ended
September 30, 2008 and 2009; |
|
|
|
|
a review of our financial presentation and accounting policies, including our critical accounting policies; |
|
|
|
|
a discussion of the principal factors that influence our results of operations, financial condition and liquidity; |
|
|
|
|
a discussion of our liquidity and capital resources, capital expenditures and contractual obligations; and |
|
|
|
|
a discussion of the market risks that we face. |
Overview
MercadoLibre, Inc. (together with its subsidiaries us, we, our or the company)
hosts the largest online commerce platform in Latin America focused on enabling
e-commerce and its related services. Our services are designed to provide our users with
mechanisms to buy, sell, pay for and collect on e-commerce transactions effectively and
efficiently. With a population of over 550 million people and a region with one of the
fastest-growing Internet penetration rates, we provide buyers and sellers with a robust
online commerce environment that fosters the development of a large and growing
e-commerce community. We offer a technological and commercial solution that addresses the
distinctive cultural and geographic challenges of operating an online commerce platform
in Latin America.
In August 2007, we successfully completed our initial public offering through which
16,077,185 shares of our common stock were sold at an initial public offering price of
$18.00 per share less an underwriting discount of 4.5%. Out of that total, 2,608,696
shares of common stock were sold by us and 13,468,489 were sold by selling shareholders.
We, along with certain shareholders, granted to the underwriters an option, exercisable
for 30 days from August 9, 2007, to purchase up to 2,411,577 additional shares at the
public offering price less the underwriting discount. The option was exercised in full,
and of that total, an additional 391,304 shares were sold by us and 2,020,273 were sold
by the selling shareholders.
We offer our users two principal services:
The MercadoLibre marketplace: The MercadoLibre marketplace, which we sometimes refer to
as our Marketplace business, is a fully-automated, topically-arranged and user-friendly
online commerce service. This service permits both businesses and individuals to list
items and conduct their sales and purchases online in either a fixed-price or
auction-based format. Additionally, through online classified listings, our registered
users can list and purchase motor vehicles, vessels, aircraft, real estate and services.
Users and advertisers are also able to place display and/or text advertisements on our
web pages in order to promote their brands and offerings. Any Internet user can browse
through the various products and services that are listed on our web site and register
with MercadoLibre to list, bid for and purchase items and services.
39
The MercadoPago online payments solution: To complement the MercadoLibre marketplace, we
developed MercadoPago, an integrated online payments solution, which we sometimes refer
to as our Payments business. MercadoPago is designed to
facilitate transactions both on and off the MercadoLibre marketplace by providing a
mechanism that allows our users to securely, easily and promptly send and receive
payments online.
We operate in six reporting segments, five of which related to our Marketplace business
and the remainder which relates to our Payment business. Within our marketplace business,
we separately report our operations in each of Brazil, Argentina, Mexico, Venezuela and
other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru
and Uruguay). The operations of our Payments business, which is available in each of
Brazil, Argentina, Mexico, Chile, Colombia, and Venezuela, are reported in one segment.
In addition, we operate a real estate classifieds platform that covers some areas of
Florida, U.S.A. which is included in our Marketplace business.
Recent Developments
On July 15, 2009, our board of directors adopted the 2009 Long Term Retention Plan (the
2009 LTRP). If earned, payments to eligible employees under the 2009 LTRP will be in
addition to payments of base salary and cash bonus, if earned, made to these employees.
In order to receive an award under the 2009 LTRP, each eligible employee must satisfy the
performance conditions established by the board of directors for him or her. If these
conditions are satisfied, the eligible employee will, subject to his or her continued
employment as of each applicable payment date, receive the full amount of his or her 2009
LTRP bonus, payable as follows:
|
|
|
the eligible employee will receive a fixed cash payment
equal to 6.25% of his or her 2009 LTRP bonus once a year
for a period of eight years starting in 2010 (the Annual
Fixed Payment); and |
|
|
|
|
on each date we pay the Annual Fixed Payment to an
eligible employee, he or she will also receive a cash
payment (the Variable Payment) equal to the product of
(i) 6.25% of the applicable 2009 LTRP bonus and (ii) the
quotient of (a) divided by (b), where (a), the numerator,
equals the Applicable Year Stock Price (as defined below)
and (b), the denominator, equals the 2008 Stock Price,
defined as $13.81, which was the average closing price of
the Companys common stock on the NASDAQ Global Market
during the final 60 trading days of 2008. The Applicable
Year Stock Price shall equal the average closing price of
the Companys common stock on the NASDAQ Global Market
during the final 60 trading days of the year preceding the
applicable payment date. |
The compensation cost related to the Annual Fixed Payments is recognized on a straight
line basis using the equal annual accrual method. The compensation cost related to the
Variable Payments is recognized in accordance with the graded-vesting attribution method
and is accrued up to each payment day.
As of September 30, 2009, the total compensation cost of the 2009 LTRP amounts to
approximately $4.5 million and the related accrued compensation expense for the
nine-month period ended September 30, 2009 was $823,801.
Principal trends in Results of Operations
Growth in net revenue over comparable periods from year to year
Since our inception, we have consistently generated revenue growth from the MercadoLibre
marketplace and from MercadoPago, driven by the growth of our key operational metrics.
Our net revenues for the three-month period ended September 30, 2009, as compared to the
same period for 2008, increased by 16.9% and 58.3% for the MercadoLibre marketplace and
MercadoPago payments platform, respectively. We believe that the growth in net revenues
should continue in the future. However, despite this positive historical trend, current
weak global macro-economic conditions, coupled with devaluations of certain local
currencies in Latin America versus the U.S. dollar, and high interest rates, could lead
to declining year-to-year net revenues, particularly as measured in U.S. dollars.
40
Increased diversification of revenues
Revenues from our Payments business have been increasing at a faster rate than our
revenues from our Marketplace business, and we anticipate this trend to continue long
term. For the three-month periods ended September 30, 2009 and 2008, payments represented
26.7% and 21.2% of net revenues, respectively. However, this trend is sensitive to
macroeconomic fluctuations, including interest rate fluctuations for consumer credit.
Accordingly, this revenue diversification trend may be interrupted during economic
periods where there are higher costs of lending.
Gross profit margins
Our business has generated sustained high gross profit margins over time, as defined by
total net revenues minus total cost of net revenues, as a percentage of net revenues.
Historically, gains in gross profit margins have been mainly attributable to increased
economies of scale in customer service, Internet Service Provider (ISP) connectivity
and site operations, improved economic terms obtained from payment processors as well as
increases in interest fees that we charge our MercadoPago buyers.
Our gross profit margin was 79.5% for the three-month period ended September 30, 2009 as
compared to 79.7% for the same period in 2008, mainly as a result of a faster growth in
our Payments business as compared to our marketplace business. Our Payments business has
a lower gross profit margin than our Marketplace business. In the future, gross profit
margins could continue to decline if the cost of net revenues as a percentage of net
revenues increases as our Payments business grows faster than our Marketplace business,
if we cannot sustain the economies of scale that we have achieved, or if we decrease the
interest fees charged.
Additionally in the third quarter of 2009, our gross profit margin was negatively
impacted by the re-measurement of U.S. dollar denominated expenses of our Venezuelan
subsidiaries discussed in detail below.
Operating income margins
We have generated and expect to continue generating economies of scale in operating
expenses. For the three-month period ended September 30, 2009, our operating income
margins, defined as income from operations as a percentage of net revenues, increased
from 29.0% in the third quarter of 2008, to 37.5% in the third quarter of 2009 driven by
the impact of these economies of scale.
For the three-month period ended September 30, 2009, our operating expense margins,
defined as operating expenses as a percentage of net revenues, decreased from 50.7%
during the third quarter in 2008 to 41.9% in the third quarter 2009. We anticipate,
however, that as we continue to invest in product development, sales and marketing and
human resources in order to promote our services and capture the long term business
opportunity offered by the Internet in Latin America, it is increasingly difficult to
sustain growth in operating income margins, and at some point in the future we could
experience decreasing operating income margins.
Growth in Net Income
We have generated growth in our net income as a consequence of the abovementioned
trends. For the three-month period ended September 30, 2009 and 2008, net income was
$9.9 million and $5.9 million, respectively, a growth of $4.0 million or 67.7% from the
2008 third quarter to the 2009 third quarter. However, as mentioned above, if any of
these trends were to revert, our net income growth could be affected, or could even
become negative on a year-to-year basis.
Description of line items
Net revenues
We recognize revenues in each of our reporting segments. The MercadoLibre Marketplace
segments include Brazil, Argentina, Mexico, Venezuela and other countries (Chile,
Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru and Uruguay). The
MercadoPago segment includes our regional payments platform consisting of our MercadoPago
business.
41
Historically, we have generated revenues from the MercadoLibre marketplace segments from:
|
|
|
listing fees; |
|
|
|
|
optional feature fees; |
|
|
|
|
final value fees; and |
|
|
|
|
online advertising fees. |
During the third quarter of 2009, we modified our pricing structure by replacing our
previous listing fees and optional feature fees for consolidated up-front fees which
bundle these features. We now offer three types of up-front fees for three different
combinations of placement and features. Up-front fees are charged at the time the listing
is uploaded onto our platform and is not subject to successful sale of the items listed.
Following this fee structure modification, revenues for the MercadoLibre marketplace segments are
now generated by:
|
|
|
up front fees; |
|
|
|
|
final value fees; and |
|
|
|
|
online advertising fees. |
The following table summarizes our business margin for the nine- and three-month periods
ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues breakdown by businesses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketplaces |
|
|
76.0 |
% |
|
|
80.7 |
% |
|
|
73.3 |
% |
|
|
78.8 |
% |
Payments |
|
|
24.0 |
% |
|
|
19.3 |
% |
|
|
26.7 |
% |
|
|
21.2 |
% |
Revenues generated by our Payments business are attributable to commissions charged
to buyers and sellers for the use of MercadoPago. We generate revenues from our
MercadoPago Payments segment by charging users a commission and a financial charge when
the user elects to pay in installments, which we recognize, in both cases, once the
transaction is completed. During the three-month period ended September 30, 2009,
commission and installment-related financial charges averaged 6.2% and 5.7%,
respectively, of the payment amounts made by the user through MercadoPago.
We have a highly fragmented customer revenue base given the large numbers of sellers and
buyers who use our platforms. For the three-month and nine-month period ended
September 30, 2009 and 2008, no single customer accounted for more than 1.0% of our net
revenues in our MercadoLibre Marketplace business or our MercadoPago Payments business.
Our MercadoLibre marketplace is available in twelve countries (Argentina, Brazil, Chile,
Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Uruguay and
Venezuela), and MercadoPago is available in six countries (Argentina, Brazil, Chile,
Colombia, Mexico and Venezuela). The functional currency in each countrys operations is
the local currency. See Critical accounting policies and estimates Foreign Currency
Translation included in this report. Therefore, our net revenues are generated in
multiple foreign currencies and then translated into U.S. dollars at the average monthly
exchange rate.
Our subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain
taxes on revenues which are classified as costs of net revenues. These taxes represented
6.3% of net revenues for the three-month period ended September 30, 2009.
42
Cost of net revenues
Cost of net revenues primarily represents bank and credit card processing charges for
transactions and fees paid with credit cards and other payment methods, certain taxes on
revenues, compensation for customer support personnel, ISP connectivity charges,
depreciation and amortization and hosting and site operation fees.
Product
and technology development expenses
Our product and technology development related expenses consist primarily of depreciation
and amortization costs related to product and technology development, compensation for
our engineering and web-development staff, telecommunications costs and payments to
third-party suppliers who provide technology maintenance services to our company.
Sales
and marketing expenses
Our sales and marketing expenses consist primarily of marketing costs for our platforms
through online and offline advertising, bad debt charges, the salaries of employees
involved in these activities, public relations costs, marketing activities for our users
and depreciation and amortization costs.
We carry out the vast majority of our marketing efforts on the Internet. In that context,
we enter in agreements with portals, search engines, ad networks and other sites in order
to attract Internet users to the MercadoLibre marketplace and convert them into confirmed
registered users and active traders on our platform. Additionally, we invest a portion of
our marketing budget on cable television advertising in order to improve our brand
awareness and to complement our online efforts.
We also work intensively on attracting, developing and growing our seller community
through our supply efforts. We have dedicated professionals in most of our operations
that work with sellers, through trade show participation, seminars and meetings to
provide them with important tools and skills to become effective sellers on our platform.
General
and administrative expenses
Our general and administrative expenses consist primarily of salaries for management and
administrative staff, compensation for outside directors, long term retention plan
compensation, expenses for legal, accounting and other professional services, insurance
expenses, office space rental expenses, travel and business expenses, as well as
depreciation and amortization costs. General and administrative expenses include the
costs of the following areas of our company: general management, finance, administration,
accounting, legal and human resources.
Compensation Cost related to acquisitions
As part of our acquisition of Classified Media Group, Inc. (CMG), which closed in the
second quarter of 2008, we entered into a management escrow agreement to secure the
obligations of the CMG shareholders that remained as managers. We accrued those
compensation expenses as operating expenses, instead of considering them part of the
purchase price. (See Note 4 to our unaudited condensed consolidated financial statements
included in this report).
Other income (expenses)
Other income (expenses) consists of interest expense (interest expense relating to the
working capital requirements for our MercadoPago operations are recorded as interest
expense and not as cost of net revenues) and other financial charges, interest income
derived primarily from our investments and cash equivalents, foreign currency gains or
losses, the effect of changes in the fair value of derivative instruments, and other
non-operating results.
Income and asset tax
We are subject to federal and state taxes in the United States, as well as foreign taxes
in the multiple jurisdictions where we operate. Our tax obligations consist of current
and deferred income taxes and asset taxes incurred in these jurisdictions. We account for
income taxes following the liability method of accounting. Therefore, our income tax
expense consists of taxes currently payable, if any (given that in certain jurisdictions
we still have net operating loss carry-forwards), plus the change during the period in
our deferred tax assets and liabilities.
43
Critical accounting policies and estimates
The preparation of our unaudited condensed consolidated financial statements and related
notes requires us to make judgments, estimates and assumptions that affect our reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We have based our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other
sources. Our management has discussed the development, selection and disclosure of these
estimates with our audit committee and board of directors. Actual results may differ from
these estimates under different assumptions or conditions.
An accounting policy is considered to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are highly uncertain at the time the
estimate is made, and if different estimates that reasonably could have been used, or
changes in the accounting estimates that are reasonably likely to occur periodically,
could materially impact our condensed consolidated financial statements. We believe that
the following critical accounting policies reflect the more significant estimates and
assumptions used in the preparation of our condensed consolidated financial statements.
You should read the following descriptions of critical accounting policies, judgments and
estimates in conjunction with our unaudited condensed consolidated financial statements,
the notes there to and other disclosures included in this report.
Foreign Currency Translation
All of our foreign operations have determined the local currency as their functional
currency. Accordingly, these foreign subsidiaries translate assets and liabilities from
their local currencies to U.S. dollars using period/year end exchange rates while income
and expense accounts are translated at the average rates in effect during the
period/year. The resulting translation adjustment is recorded as part of other
comprehensive income (loss), a component of shareholders equity. Gains and losses
resulting from transactions denominated in non-functional currencies are recognized in
earnings. Net foreign currency transaction losses are included in the consolidated
statements of income under the caption Foreign currency loss.
The Venezuelan subsidiaries maintain a foreign currency denominated asset in the form of
US dollar denominated cash and cash equivalents. In accordance with our stated accounting
policy, this investment should first be re-measured into its functional currency
Bolivares Fuertes. Upon re-measurement into its functional currency, the investment
will then be translated into the reporting currency of the Company (US Dollar). These
assets were re-measured at the September 30, 2009 parallel exchange rate of 5.42
Bolivares Fuertes per US dollar (at December 31, 2008 the parallel exchange rate was
5.4 Bolivares Fuertes per US dollar). Further, the Venezuelan subsidiaries assets,
liabilities, income and expense accounts were translated at the rate applicable for
dividend remittances, which at September 30, 2009 and December 31, 2008 was the official
rate of 2.15 Bolivares Fuertes per US dollar. According to the International Practices
Task Force Joint Meeting with SEC Staff of June 2, 2008, the existence of a parallel
market does not constitute unusual circumstances potentially justifying the use of an
exchange rate other than the official rate for purposes of foreign currency translation.
Accordingly, the foreign currency effect on assets is included in Other non-current
assets in the consolidated balance sheet, and is the result of applying the Companys
accounting policy for the related asset.
In May 2009, the International Practices Task Force discussed the highly inflationary
status of the Venezuelan economy as regarding inflation. In the event a countrys
cumulative three year inflation rate exceeds 100%, it would qualify as a highly
inflationary economy and the accounting rules would require that the reporting currency
of the parent be assumed to be the functional currency of a foreign entity. Historically,
the Task Force has used the Consumer Price Index (CPI) when considering the inflationary
status of the Venezuelan economy. The CPI has existed since 1984. However, the CPI covers
only the cities of Caracas and Maracaibo. Commencing on January 1, 2008, the National
Consumer Price Index (NCPI) was established to cover the entire country of Venezuela.
Since inflation data is not available to compute a cumulative three year inflation rate
for the entire country solely based on the NCPI, our accounting policy is to use a
blended rate using the NCPI and CPI to calculate Venezuelan inflation
rate.
The cumulative three year inflation rate as of September 30, 2009 was calculated using
the CPI information for periods before January 1, 2008 and NCPI information for the
periods after January 1, 2008. The resulting three-year cumulative inflation rate
(blended NCPI and CPI rate) is 97.41% for the period ending September 30, 2009. When
NCPI data is available for the three years ending December 31, 2010 and thereafter, the
NCPI will be used to calculate Venezuelan inflationary status because it represents a broader-based measure of the general inflation for the
entire country of Venezuela. If the cumulative three-year blended NCPI and CPI rate
exceeds 100% at December 31, 2009, Venezuela would be accounted for as highly
inflationary as of January 1, 2010 and therefore, the functional currency would no longer
be the Bolivar Fuerte.
44
Impairment of long-lived assets and goodwill
We review long-lived assets for impairments whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset
to undiscounted future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired on this basis, the impairment loss to be recognized
is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the assets.
Goodwill is reviewed at least annually for impairment. Impairment of goodwill is tested
at the reporting unit level (considering each segment of the Company as a reporting unit)
by comparing the reporting units carrying amount, including goodwill, to the fair value
of the reporting unit. The fair values of the reporting units are estimated using a
combination of the income or discounted cash flows approach and the market approach,
which utilizes comparable companies data. If the carrying amount of the reporting unit
exceeds its fair value, goodwill is considered impaired and a second step is performed to
measure the amount of impairment loss, if any. No impairments were recognized during the
reporting periods and, managements assessment of each reporting unit value in use
materially exceeds its carrying value.
We believe that the accounting estimate related to impairment of long lived assets and
goodwill is critical since it is highly susceptible to change from period to period
because: (i) it requires management to make assumptions about gross merchandise volume
growth, future interest rates, sales and costs; and (ii) the impact that recognizing an
impairment would have on the assets reported on our balance sheet as well as our net
income would be material. Managements assumptions about future sales and future costs
require significant judgment.
Provision for doubtful accounts
We are exposed to losses due to uncollectible accounts and credits to sellers. Provisions
for these items represent our estimate of future losses based on our historical
experience. Historically, our actual losses have been consistent with our charges.
However, future changes in trends could have a material impact on our future consolidated
statements of income and cash flows.
We believe that the accounting estimate related to provision for doubtful accounts is a
critical accounting estimate because it requires management to make assumptions about
future collections and credit analysis. Our managements assumptions about future
collections require significant judgment.
Legal contingencies
In connection with certain pending litigation and other claims, we have estimated the
range of probable loss and provided for such losses through charges to our condensed
consolidated statement of income. These estimates are based on our assessment of the
facts and circumstances at each balance sheet date and are subject to change based upon
new information and future events.
From time to time, we are involved in disputes that arise in the ordinary course of
business. We are currently involved in certain legal proceedings as described in Legal
Proceedings in Item 1 of Part II of this report and in Note 9 to our condensed
consolidated financial statements. We believe that we have meritorious defenses to the
claims against us, and we will defend ourselves vigorously. However, even if successful,
our defense could be costly and could divert managements time. If the plaintiffs were to
prevail on certain claims, we might be forced to pay damages or modify our business
practices. Any of these consequences could materially harm our business and could have a
material adverse impact on our financial position, results of operations or cash flows.
45
Income taxes
We are required to recognize a provision for income taxes based upon taxable income and
temporary differences between the book and tax bases of our assets and liabilities for
each of the tax jurisdictions in which we operate. This process requires a
calculation of taxes payable under currently enacted tax laws in each jurisdiction and an
analysis of temporary differences between the book and tax bases of our assets and
liabilities, including various accruals, allowances, depreciation and amortization. The
tax effect of these temporary differences and the estimated tax benefit from our tax net
operating losses are reported as deferred tax assets and liabilities in our condensed
consolidated balance sheet. We also assess the likelihood that our net deferred tax
assets will be realized from future taxable income. To the extent we believe that it is
more likely than not that some portion or all of deferred tax asset will not be realized,
we establish a valuation allowance. At September 30, 2009, we had a valuation allowance
on certain foreign net operating losses based on our assessment that it is more likely
than not that the deferred tax asset will not be realized. To the extent we establish a
valuation allowance or change the allowance in a period, we reflect the change with a
corresponding increase or decrease in our Income/asset tax expense line in our
condensed consolidated statement of income.
Results of operations for the three-month period ended September 30, 2009 compared to
three-month period ended September 30, 2008 and the nine-month period ended September 30,
2009 compared to the nine-month period ended September 30, 2008
The selected financial data for the three- and nine-month periods ended September 30,
2009 and 2008 have been derived from our unaudited condensed consolidated financial
statements included in Item 1 of Part I of this report. These statements include all
normal recurring adjustments that management believes are necessary to fairly state our
financial position, results of operations and cash flows. Results of operations for the
three- and nine-month period ended September 30, 2009 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2009 or for any other
period.
46
Statement of income data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
(In millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Net revenues |
|
$ |
123.8 |
|
|
$ |
103.6 |
|
|
$ |
50.6 |
|
|
$ |
40.3 |
|
Cost of net revenues |
|
|
(25.6 |
) |
|
|
(21.1 |
) |
|
|
(10.4 |
) |
|
|
(8.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
98.2 |
|
|
|
82.5 |
|
|
|
40.2 |
|
|
|
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and technology development |
|
|
(9.0 |
) |
|
|
(5.2 |
) |
|
|
(3.3 |
) |
|
|
(1.7 |
) |
Sales and marketing |
|
|
(31.3 |
) |
|
|
(30.9 |
) |
|
|
(11.0 |
) |
|
|
(11.4 |
) |
General and administrative |
|
|
(19.7 |
) |
|
|
(18.1 |
) |
|
|
(6.9 |
) |
|
|
(7.3 |
) |
Compensation Cost related to acquisitions |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(60.0 |
) |
|
|
(56.1 |
) |
|
|
(21.2 |
) |
|
|
(20.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
38.2 |
|
|
|
26.4 |
|
|
|
19.0 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income and other financial gains |
|
|
2.1 |
|
|
|
1.4 |
|
|
|
0.6 |
|
|
|
0.3 |
|
Interest expense and other financial charges |
|
|
(9.7 |
) |
|
|
(3.5 |
) |
|
|
(3.9 |
) |
|
|
(1.1 |
) |
Foreign currency loss |
|
|
(2.8 |
) |
|
|
(5.7 |
) |
|
|
(3.3 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before income / asset tax expense |
|
|
27.8 |
|
|
|
18.6 |
|
|
|
12.4 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / asset tax expense |
|
|
(5.9 |
) |
|
|
(7.7 |
) |
|
|
(2.5 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
21.9 |
|
|
$ |
10.9 |
|
|
$ |
9.9 |
|
|
$ |
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
(In millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of confirmed registered users at end of the period 1 |
|
|
40.2 |
|
|
|
32.0 |
|
|
|
40.2 |
|
|
|
32.0 |
|
Number of confirmed new registered users during the period 2 |
|
|
6.4 |
|
|
|
7.1 |
|
|
|
2.4 |
|
|
|
3.9 |
|
Gross merchandise volume 3 |
|
|
1,963.8 |
|
|
|
1,555.2 |
|
|
|
791.0 |
|
|
|
590.1 |
|
Number of items sold 4 |
|
|
20.9 |
|
|
|
15.3 |
|
|
|
8.0 |
|
|
|
5.6 |
|
Total payment volume 5 |
|
|
246.7 |
|
|
|
200.6 |
|
|
|
114.0 |
|
|
|
81.5 |
|
Total payment transactions 6 |
|
|
2.1 |
|
|
|
1.4 |
|
|
|
0.9 |
|
|
|
0.5 |
|
Capital expenditures |
|
|
3.9 |
|
|
|
61.1 |
|
|
|
0.8 |
|
|
|
60.3 |
|
Depreciation and Amortization |
|
|
3.0 |
|
|
|
2.5 |
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
1- |
|
Measure of the cumulative number of users who have registered on the MercadoLibre
marketplace and confirmed their registration. |
|
2- |
|
Measure of the number of new users who have registered on the MercadoLibre marketplace and
confirmed their registration. As of September 30, 2008 the number of confirmed new registered
users includes 2.2 million coming from the DeRemate integration. |
|
3- |
|
Measure of the total U.S. dollar sum of all transactions completed through the MercadoLibre
marketplace, excluding motor vehicles, vessels, aircraft and real estate. |
|
4- |
|
Measure of the number of items that were sold/purchased through the MercadoLibre
marketplace. |
|
5- |
|
Measure of the total U.S. dollar sum of all transactions paid for using MercadoPago. |
|
6- |
|
Measure of the number of all transactions paid for using MercadoPago. |
47
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues by Business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketplaces |
|
$ |
94.1 |
|
|
$ |
83.5 |
|
|
$ |
10.5 |
|
|
|
12.6 |
% |
|
$ |
37.1 |
|
|
$ |
31.7 |
|
|
$ |
5.4 |
|
|
|
16.9 |
% |
Payments |
|
|
29.7 |
|
|
|
20.0 |
|
|
|
9.7 |
|
|
|
48.4 |
% |
|
|
13.5 |
|
|
|
8.5 |
|
|
|
5.0 |
|
|
|
58.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
123.8 |
|
|
$ |
103.6 |
|
|
$ |
20.3 |
|
|
|
19.6 |
% |
|
$ |
50.6 |
|
|
$ |
40.3 |
|
|
$ |
10.3 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured in local currencies, net
revenues grew 42.3% and 40.6% in the three- and
nine-month period ended September 30, 2009, respectively, compared to the same periods a year
earlier. The local currency revenue growth was calculated by using the average monthly
exchange rates for each month during 2008 and applying them to the corresponding months
in 2009, so as to calculate what our financial results would have been had exchange rates
remained stable from one year to the next.
Growth in MercadoLibre Marketplace revenues from the third quarter of 2008 to the third
quarter of 2009 resulted principally from a 34.0% increase in the gross merchandise
volume transacted through our platform from the third quarter of 2008 to the third
quarter of 2009, partially offset by a decrease in our Marketplace take rate, defined as
Marketplace revenues as a percentage of gross merchandise volume, from 5.4% for the
three-month period ended September 30, 2008 to 4.7% for the three-month period ended
September 30, 2009. The decrease in take rate was principally
due to (i) higher growth in
our smaller country operations that have a lower take rate, (ii) higher
growth of final value fee listings as compared to up-front fee listings, which have a
marginally lower take rate and (iii) the impact of currency devaluation on certain fixed
components of our fee structure. The growth in MercadoPago revenues for the three-month
period ended September 30, 2009 resulted principally from 39.8% increase in the total
payments volume completed on our MercadoPago payments platform. In the same periods, our
Payments take rate, defined as Payments revenues as a percentage of total Payment volume,
increased from 10.5% in the third quarter of 2008 to 11.8% in the third quarter of 2009
(see Description of Line items: Net Revenue section for an explanation of how revenues
are recorded for MercadoPago installments).
The following table summarizes the changes in net revenues by segment for the nine- and
the three-month periods ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues by Segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil Marketplace |
|
$ |
38.0 |
|
|
$ |
40.4 |
|
|
$ |
-2.5 |
|
|
|
-6.1 |
% |
|
$ |
15.5 |
|
|
$ |
14.9 |
|
|
$ |
0.6 |
|
|
|
3.7 |
% |
Argentina Marketplace |
|
|
17.1 |
|
|
|
13.2 |
|
|
|
4.0 |
|
|
|
30.0 |
% |
|
|
6.6 |
|
|
|
5.4 |
|
|
|
1.2 |
|
|
|
22.5 |
% |
Mexico Marketplace |
|
|
9.9 |
|
|
|
9.6 |
|
|
|
0.2 |
|
|
|
2.5 |
% |
|
|
3.7 |
|
|
|
3.6 |
|
|
|
0.1 |
|
|
|
3.3 |
% |
Venezuela Marketplace |
|
|
22.1 |
|
|
|
15.6 |
|
|
|
6.5 |
|
|
|
42.0 |
% |
|
|
8.5 |
|
|
|
6.1 |
|
|
|
2.3 |
|
|
|
38.3 |
% |
Others Marketplace |
|
|
7.0 |
|
|
|
4.7 |
|
|
|
2.3 |
|
|
|
48.7 |
% |
|
|
2.9 |
|
|
|
1.7 |
|
|
|
1.1 |
|
|
|
65.5 |
% |
Payments |
|
|
29.7 |
|
|
|
20.0 |
|
|
|
9.7 |
|
|
|
48.4 |
% |
|
|
13.5 |
|
|
|
8.5 |
|
|
|
5.0 |
|
|
|
58.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
123.8 |
|
|
$ |
103.6 |
|
|
$ |
20.3 |
|
|
|
19.6 |
% |
|
$ |
50.6 |
|
|
$ |
40.3 |
|
|
$ |
10.3 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
On a segment basis, our net revenues for the three-month period ended September 30,
2009 as compared to three-month period ended September 30, 2008, increased across all
segments. In local currency, our Marketplace revenues in Brazil grew 16.4% in the
three-month period ended September 30, 2009 compared to the same period a year earlier.
On a segment basis, our net revenues for the nine-month period ended September 30, 2009
as compared to the same period in 2008 increased across all segments except in our Brazil
marketplace segment. The decrease in our Brazil marketplace segment is related to the
devaluation of the Brazilian Real. In local currency, our Marketplace revenues in Brazil
grew 14.3% in the nine-month period ended September 30, 2009 compared to the same period
a year earlier.
The following table summarizes the changes in net revenues of both our Marketplace and
Payments business on an aggregate basis by geography for the nine- and the three-month
periods ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues by Geography: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil |
|
$ |
63.6 |
|
|
$ |
57.3 |
|
|
$ |
6.3 |
|
|
|
11.0 |
% |
|
$ |
27.2 |
|
|
$ |
22.2 |
|
|
$ |
5.0 |
|
|
|
22.6 |
% |
Venezuela |
|
|
23.0 |
|
|
|
16.4 |
|
|
|
6.6 |
|
|
|
40.5 |
% |
|
|
8.8 |
|
|
|
6.5 |
|
|
|
2.4 |
|
|
|
36.9 |
% |
Argentina |
|
|
19.0 |
|
|
|
14.3 |
|
|
|
4.7 |
|
|
|
32.6 |
% |
|
|
7.5 |
|
|
|
5.9 |
|
|
|
1.6 |
|
|
|
27.7 |
% |
México |
|
|
11.0 |
|
|
|
10.7 |
|
|
|
0.3 |
|
|
|
2.6 |
% |
|
|
4.1 |
|
|
|
4.0 |
|
|
|
0.1 |
|
|
|
3.7 |
% |
Other Countries |
|
|
7.1 |
|
|
|
4.8 |
|
|
|
2.3 |
|
|
|
48.9 |
% |
|
|
2.9 |
|
|
|
1.8 |
|
|
|
1.2 |
|
|
|
65.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues |
|
$ |
123.8 |
|
|
$ |
103.6 |
|
|
$ |
20.3 |
|
|
|
19.6 |
% |
|
$ |
50.6 |
|
|
$ |
40.3 |
|
|
$ |
10.3 |
|
|
|
25.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on geography, our net revenues for the nine- and three-month period ended
September 30, 2009 as compared to the same period ended September 30, 2008, increased
across all geographies.
The following table sets forth our total net revenues and the sequential quarterly
growth of these net revenues for the periods described below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
|
(in millions, except percentages) |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
32.3 |
|
|
$ |
40.9 |
|
|
$ |
50.6 |
|
|
|
N/A |
|
Percent change from prior quarter |
|
|
-3 |
% |
|
|
27 |
% |
|
|
24 |
% |
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
28.8 |
|
|
$ |
34.5 |
|
|
$ |
40.3 |
|
|
$ |
33.4 |
|
Percent change from prior quarter |
|
|
7 |
% |
|
|
20 |
% |
|
|
17 |
% |
|
|
-17 |
% |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
|
$ |
16.5 |
|
|
$ |
19.0 |
|
|
$ |
22.8 |
|
|
$ |
26.9 |
|
Percent change from prior quarter |
|
|
6 |
% |
|
|
15 |
% |
|
|
20 |
% |
|
|
18 |
% |
49
Cost of net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues |
|
$ |
25.6 |
|
|
$ |
21.1 |
|
|
$ |
4.5 |
|
|
|
21.6 |
% |
|
$ |
10.4 |
|
|
$ |
8.2 |
|
|
$ |
2.2 |
|
|
|
27.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
20.7 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
|
|
|
|
20.5 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
|
|
The increase in cost of net revenues was primarily attributable to a $0.5 million
and $1.4 million charge in the three- and nine-month period ended September 30, 2009,
respectively, related to the re-measurement of the US dollar denominated expenses of our
Venezuelan subsidiaries. For the three- and nine-month periods ended September 30, 2009,
these expenses were re-measured at an average parallel exchange rate of 6.5 and 6.3
Bolivares Fuertes per U.S. dollar, respectively and translated at the official exchange
rate (2.15 Bolivares Fuertes per U.S. dollar). In 2008, the dollar denominated expenses
of our Venezuelan subsidiaries were measured at 2.15 Bolivares Fuertes per U.S. dollar
and the difference between the parallel exchange rate and the official exchange rate was
reflected on the foreign currency line whenever cash in Venezuela was transferred to the
U.S.
In addition, expenditures related to our in-house customer support operations increased
by $0.3 million, or 18.0%, in the three-month period ended September 30, 2009 as compared
to the three-month period ended September 30, 2008 and increased by $0.8 million, or
16.5%, in the nine-month period ended September 30, 2009 as compared to the nine-month
period ended September 30, 2008, primarily driven by an increase in compensation costs,
investments in improved service and initiatives to combat fraud, illegal items and fee
evasion. Sales taxes on our net revenues increased by $0.8 million, or 35.4%, and
$1.2 million, or 19.9%, for the three and nine-month periods ended September 30, 2009,
respectively, compared to the same periods for 2008. Billing and collections fees
increased by $0.5 million, or 14.1% for the three-month period ended September 30, 2009
compared to the same period in 2008 and increased by 11.1% for the first nine-months of
2009 compared to the same period of 2008.
Product and technology development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and technology development |
|
$ |
9.0 |
|
|
$ |
5.2 |
|
|
$ |
3.8 |
|
|
|
72.8 |
% |
|
$ |
3.3 |
|
|
$ |
1.7 |
|
|
$ |
1.6 |
|
|
|
88.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
7.3 |
% |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
6.5 |
% |
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
The growth in product and technology development expenses was primarily attributable
to $0.5 million and $1.3 million for certain income tax
withholdings related to our Argentine
and Brazilian operations for the three- and nine-month period ended September 30, 2009,
respectively, and a 64.1% and 54.3% increase in compensation costs for the three- and
nine-month period ended September 30, 2009 over the same period for 2008, respectively.
These additional compensation expenses were primarily related to the addition of
engineers and, to a lesser extent, to increases in salaries, as we continue to invest in
top quality talent to develop enhancements and new features across our platforms. We
believe product development is one of our key competitive advantages and intend to
continue to invest in adding engineers to meet the increasingly sophisticated product
expectations of our customer base. In addition, for the three-and nine-month periods
ended September 30, 2009, product and technology development expenses increased by
$0.3 million and $0.7 million, respectively, over the comparable periods for 2008 due to
the re-measurement of the US dollar denominated expenses of our Venezuelan subsidiaries.
For the three- and nine-month period
ended September 30, 2009, these expenses were re-measured at an average parallel exchange
rate of 6.5 and 6.3 Bolivares Fuertes per U.S. dollar, respectively and translated at
the official exchange rate (2.15 Bolivares Fuertes per U.S. dollar). In 2008, the
dollar- denominated expenses of our Venezuelan subsidiaries were measured at 2.15
Bolivares Fuertes per U.S. dollar and the difference between the parallel exchange rate
and the official exchange rate was reflected on the foreign currency line whenever cash
in Venezuela was transferred to the U.S.
50
Sales and marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
$ |
31.3 |
|
|
$ |
30.9 |
|
|
$ |
0.4 |
|
|
|
1.4 |
% |
|
$ |
11.0 |
|
|
$ |
11.4 |
|
|
$ |
-0.4 |
|
|
|
-3.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
25.3 |
% |
|
|
29.8 |
% |
|
|
|
|
|
|
|
|
|
|
21.8 |
% |
|
|
28.4 |
% |
|
|
|
|
|
|
|
|
For the three-month period ended September 30, 2009, the decrease in sales and marketing
expenses was primarily attributable to a $1.9 million decrease in our online advertising
expenses related to strategic deals, as we have found better rates at which to drive
traffic to our sites over the same period ended September 30, 2008. Online advertising
represented 9.5% of our net revenues in the three-month period ended September 30, 2009,
down from 14.6% for the same period in 2008. Additionally, bad debt charges decreased
$0.2 million for the three- month period ended September 30, 2009 when compared to the
same period in 2008. Bad debt charges for the three-month period ended September 30, 2009
represented 4.9% of net revenues versus 6.8% for the same period in 2008.
For the three-month period ended September 30, 2009, the decrease in sales and marketing
expenses was partially offset by a $0.6 million charge related to the re- measurement of
the US dollars denominated online advertising expenses of our Venezuelan subsidiaries.
For the three-month period ended September 30, 2009, these expenses were re-measured at
an average parallel exchange rate of 6.5 Bolivares Fuertes per U.S. dollar and
translated at the official exchange rate (2.15 Bolivares Fuertes per U.S. dollar). In
2008, the dollar-denominated expenses of our Venezuelan subsidiaries were measured at
2.15 Bolivares Fuertes per U.S. dollar and the difference between the parallel exchange
rate and the official exchange rate was reflected on the foreign currency line whenever
cash in Venezuela was transferred to the U.S. In addition, the decrease in sales and
marketing expenses from the third quarter of 2008 to the third quarter of 2009 was also
offset by $0.5 million, or 28.3%, increase in compensation costs for the three-month
period ended September 30, 2009 due to increases in salaries to retain talent, by $0.4
million increase in our affiliate program in the third quarter of 2009 as compared to the
same period in the previous year and $0.2 million increase in other marketing expenses in
the third quarter of 2009 as compared to the same period in 2008.
For the nine-month period ended September 30, 2009, the increase in sales and marketing
expenses was primarily attributable to a $1.8 million charge related to the
re-measurement of the US dollars denominated online advertising expenses of our
Venezuelan subsidiaries discussed in detail above. In addition, sales and marketing
expenses also increased from the nine-month period of 2008 to the nine-month period of
2009 by $1.5 million or 31.9%, due to increases in salaries to retain talent. The
increase in sales and marketing expense was also a consequence of a $0.9 million increase in our
affiliate program during the nine-month period ended September 30, 2009 as compared to
the same period in the previous year.
The increase in sales and marketing expenses for the nine-month period ended September
30, 2009 was partially offset by a $3.9 million decrease in our online advertising
expenses related to strategic deals, as we have found better rates at which to drive
traffic to our sites over the same period ended September 30, 2008. Online advertising
represented 11.5% of our net revenues in the nine-month period ended September 30, 2009,
down from 15.2% for the same period in 2008. Additionally, bad debt charges decreased
$0.1 million for the nine-month period ended September 30, 2009 when compared to the same
period in 2008. Bad debt charges for the nine-month period ended September 30, 2009
represented 5.9% of net revenues versus 7.2% for the same period in 2008.
51
General and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
19.7 |
|
|
$ |
18.1 |
|
|
$ |
1.6 |
|
|
|
8.8 |
% |
|
$ |
6.9 |
|
|
$ |
7.3 |
|
|
$ |
-0.4 |
|
|
|
-5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
15.9 |
% |
|
|
17.5 |
% |
|
|
|
|
|
|
|
|
|
|
13.6 |
% |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
For the three-month period ended September 30, 2009, the decrease in general and
administrative expenses was primarily attributable to a $0.6 million decrease of outside
service fees mainly because we reduced our Brazilian and U.S. legal
fees and incurred lower
charges related to legal proceedings. The decrease is also
attributable to a $0.6 million decrease in other general and
administrative expenses. The abovementioned decrease was partially offset by a
$0.9 million charge, during the three-month period ended September 30, 2009 over the same
periods for 2008, related to the re-measurement of the US dollar denominated expenses of
our Venezuelan subsidiaries. For the three-month period ended September 30, 2009, these
expenses were re-measured at an average parallel exchange rate of 6.5 Bolivares Fuertes
per U.S. dollar and translated at the official exchange rate (2.15 Bolivares Fuertes
per U.S. dollar). In 2008, the dollar-denominated expenses of our Venezuelan subsidiaries
were measured at 2.15 Bolivares Fuertes per U.S. dollar and the difference between the
parallel exchange rate and the official exchange rate was reflected on the foreign
currency line whenever cash in Venezuela was transferred to the U.S.
The major component that drove the increase in general and administrative expenses in the
nine months of 2009 over the comparable period in 2008, was a $2.4 million charge,
related to the re-measurement of the US dollar denominated expenses of our Venezuelan
subsidiaries discussed in detail above and certain income tax withholdings related to our
Argentine and Brazilian operations. In addition, general and administrative expenses grew
as a consequence of an increase in compensation costs of $0.6 million or 7.5%. These
added compensation costs are primarily attributable to the 2008 and 2009 long term
retention plan compensation costs accrued in 2009 versus a lower impact in 2008,
increases in salaries to retain talent, hiring of more senior managers in Brazil and
compensation for outside directors. The increase in general and administrative expenses
was partially offset by a $1.0 million decrease of outside service fees for the
nine-month period ended September 30, 2009 when compared to the same period for 2008, due
to decreased legal expenses and a $0.5 million decrease in other general and
administrative expenses.
Compensation Cost related to acquisitions
As part of the $19.0 million acquisition of CMG, which closed in the first quarter of
2008, $2.0 million of the purchase price was placed into an escrow account for twelve
months in order to secure the obligations of the shareholders that remained as managers.
The compensation expense was recorded as an operating expenses, instead of considering
them part of the purchase price (See note 4 to our unaudited condensed consolidated
financial statements included in this report). As of September 30, 2008, the accrued
compensation expenses were $1.9 million. On June 27, 2008, we released to the former
shareholders $1.9 million of the total Management Escrow Agreement, in exchange for a
discount. The compensation expenses related to the acquisition were fully accrued in the
second quarter of 2008.
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
$ |
-10.4 |
|
|
$ |
-7.8 |
|
|
$ |
-2.6 |
|
|
|
33.9 |
% |
|
$ |
-6.6 |
|
|
$ |
-3.4 |
|
|
$ |
-3.2 |
|
|
|
93.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
-8.4 |
% |
|
|
-7.5 |
% |
|
|
|
|
|
|
|
|
|
|
-13.0 |
% |
|
|
-8.5 |
% |
|
|
|
|
|
|
|
|
52
For the three-month period ended September 30, 2009, the increase in other expenses
was primarily a result of an increase in interest expense and other financial charges,
from $1.1 million for the three-month period ended September 30, 2008 to $3.9 for the
same period in 2009. The increase in interest expense results from financing incurred by
selling all our credit card coupons to fund working capital needs in our Payments
operations in Brazil and from $0.2 million related to the seller financing of the
DeRemate acquisition. In addition, other expenses grew due to a $0.7 million increase in
foreign currency losses, from $2.6 million for the quarter ended September 30, 2008 to
$3.3 million for the same period in 2009. The increase in foreign currency losses for the
three-month period ended September 30, 2009 were primarily due to losses in Venezuela and
Brasil attributable to the impact of the local currency appreciation on the cash balances
held by those subsidiaries in U.S. dollars.
Venezuela has a dual exchange rate system that includes an official exchange rate which
was $2.15 Bolivares Fuertes per U.S. dollar and a parallel exchange rate that was $5.42
Bolivares Fuertes per U.S. dollar at September 30, 2009. Based on a change in the
International Financial Reporting Standard (IFRS) accounting standards implemented by
Venezuela in 2008, which establishes that the parallel exchange rate should be used to
account for assets and liabilities in U.S. dollars in the statutory local Financial
Statements up to the limit of the liabilities denominated in foreign currency, we started
re-measuring our assets and liabilities at the parallel exchange rate in our two main
subsidiaries in Venezuela, MercadoLibre Venezuela S.A. and Grupo Veneclasificados C.A.
The positive result generated by the abovementioned re-measurement should allow us to
access U.S. dollars at the official exchange rate, after a process that includes
obtaining approval from the Venezuelan Commission of Exchange Administration (CADIVI),
to distribute dividends. If the CADIVI approves the transaction, the Venezuelan
subsidiaries could then sell U.S. dollars held in the United States at the parallel
exchange rate, buy Bolivares Fuertes, and then distribute dividends buying the U.S.
dollars at the official exchange rate. Therefore, the Venezuelan subsidiaries have
re-measured the asset and liabilities in U.S. dollar balances outstanding at the
September 30, 2009 parallel exchange rate. Further, the Venezuelan subsidiaries assets,
liabilities, income and expense accounts were translated at the rate applicable for
dividend remittances, which at September 30, 2009 is the official exchange rate.
According to the International Practices Task Force Joint Meeting with SEC Staff of
June 2, 2008, the existence of a parallel market does not constitute unusual
circumstances potentially justifying the use of an exchange rate other than the official
rate for purposes of foreign currency translation. Before the fourth quarter of 2008,
this asset position, which is mainly comprised of cash and short-term investments held in
US bank accounts, had been historically re-measured at the official exchange rate of 2.15
Bolivares Fuertes per US dollar, because (a) the subsidiaries used the US bank account
balances to pay foreign suppliers, (b) there was no management intention to return those
funds to Venezuela and (c) MercadoLibre Venezuela had no accumulated profits to make a
dividend distribution for statutory purposes. For that reason, during the three- and
nine-month periods ended September 30, 2008, our Venezuelan U.S. dollar assets were not
re-measured at the parallel exchange rate, and the related negative foreign currency
impact amounted to $3.2 million and $4.8 million, respectively. We could have to record
foreign currency losses in the future to reverse these gains, or for other factors. See
Critical accounting policies and estimates Foreign Currency Translation included in
this report and Risk Factors We may incur losses in the event we are unable to
distribute dividends from our Venezuelan subsidiaries at the official exchange rate, or
as a result of changes in the political, economic or regulatory environment in Venezuela
, Our results of operations denominated in U.S. dollars maybe impacted if Venezuela
becomes a highly inflationary economy and Political and economic conditions in
Venezuela may have an adverse impact on our operations in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2008 as filed with the Securities and Exchange
Commission on February 27, 2009 and Item 1A. of Part II of this Quarterly Report. As of
September 30, 2009, the foreign currency effect on assets included in other non-current
assets in our balance sheet amounts to $11.2 million and foreign currency losses related
to our Venezuelan subsidiaries amounts to $2.1 million and $0.1 million for the three-
and nine-month periods ended September 30, 2009.
In addition, interest expenses and other financial charges were partially offset by an
increase in interest income and other financial charges, from $0.3 million in the
three-month period ended September 30, 2008 to $0.6 million in the same period of 2009.
This increase is primarily due to higher interest income of our investments driven by a
greater volume of investments.
For the nine-month period ended September 30, 2009, the increase in other expenses was
primarily a result of a $6.3 million increase in interest expense and other financial
charges, from $3.4 million for the nine-month period ended September 30, 2008 to $9.7 for
the same period in 2009. The increase in interest expense primarily results from
financing incurred by selling all our credit card coupons to fund working capital needs
in our Payments operations in Brazil and $0.6 related to the seller financing of the
DeRemate acquisition. The interest expense and other financial charges increase was
partially offset by $2.8 million foreign currency losses for the nine-month period ended
September 30, 2009 versus $5.7 million of foreign currency losses for the same period of
2008. The foreign currency losses were primarily due to losses in Brazil attributable to
the impact of the currency appreciation on the cash balances held by those subsidiaries in
U.S. dollars. In addition, interest income and other financial charges grew from
$1.4 million in the nine-month period ended September 30, 2008 to $2.1 million in the
same period of 2009.
53
Income and asset tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Change from 2008 |
|
|
Three Months Ended |
|
|
Change from 2008 |
|
|
|
September 30, |
|
|
to 2009 |
|
|
September 30, |
|
|
to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and asset tax |
|
|
5.9 |
|
|
|
7.7 |
|
|
|
(1.9 |
) |
|
|
-24.1 |
% |
|
|
2.5 |
|
|
|
2.4 |
|
|
|
0.1 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues |
|
|
4.7 |
% |
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
5.0 |
% |
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
During the three month period ended September 30, 2009 the income and asset tax
represented 5.0% of net revenues versus 5.9% for the same period in 2008. This decrease
was driven by the reversal of our Mexican valuation allowance for $1.2 million in the
third quarter of 2009 derived from our tax planning strategies implemented during the
period in order to use more efficiently our accumulated tax loss carryforward credits
from acquired companies. We are still evaluating other tax planning
strategies that could eventually result in reversals of tax valuation
allowances in other countries.
The income and asset tax decrease during the nine-month period ended September 30, 2009
as compared to the same period in the previous year was driven by the reversal of our
Mexican valuation allowance for $1.2 million in the third quarter of 2009 derived from
our tax planning strategies implemented during the period, and a $0.3 million reduction
of the impact of the Mexican tax called Impuesto Empresarial a Tasa Única (IETU) from
$0.5 million during the nine-month periods ended September 30, 2008 to $0.2 million in
the same period of 2009. In addition, in the nine-month period ended September 30, 2008,
part of the foreign exchange losses in Venezuela were not deductible and our blended tax
rate was impacted by $1.9 million of accrued compensation expenses related to CMG
acquisition (See Compensation Cost related to acquisitions above), as this charge
reduced pre-tax income, but the related tax credit had a full valuation allowance.
Our blended tax rate is defined as income and asset tax expense as a percentage of income
before income and asset tax. Our effective income tax rate is defined as the provision
for income taxes as a percentage of pre tax income. The effective income tax rate
excludes the effects of the deferred income tax, and of the IETU tax.
The following table summarizes the changes in our blended and effective tax rate for the
nine- and three-month periods ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blended tax rate |
|
|
21.1 |
% |
|
|
41.5 |
% |
|
|
20.5 |
% |
|
|
28.9 |
% |
Effective tax rate |
|
|
24.3 |
% |
|
|
38.4 |
% |
|
|
30.8 |
% |
|
|
37.1 |
% |
Liquidity and Capital Resources
Our main cash requirement historically has been working capital to fund MercadoPago
financing operation in Brazil. We also require cash for capital expenditures related to
our technology infrastructure, software applications and office space. In addition, we
require cash to repay the promissory notes related to DeRemate Operations acquisition.
54
Since our inception, we have funded our operations primarily through contributions
received from our stockholders during the first two years of operations, from funds
raised during our initial public offering, and from cash generated from our operations.
We have funded MercadoPago by discounting credit card receivables, with loans backed with
credit card receivables, selling credit cards coupons and through cash advances derived
from our MercadoLibre marketplace business.
At September 30, 2009, our principal source of liquidity was $53.2 million of cash and
cash equivalents and short-term investments and $24.3 million of long-term investments
provided by cash generated from operations as well as the net proceeds of our initial
public offering.
The significant components of our working capital are cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued expenses, funds
receivable from and payable to MercadoPago users, and short-term debt. As long as we
continue managing our Payments business by transferring credit card receivables to financial
institutions in return for cash, as we have done since the last
quarter of 2008, we expect that our MercadoPago
business will generate cash. The cost of discounting these receivables is built in the
financing fees of MercadoPago.
In the event we change the way we manage our Payments business, the working capital needs
related to this business could be funded, as we did in the past, through a combination
of the sale of credit card coupons to financial institutions, loans backed by credit card
receivables and cash advances from our marketplace business. See Recent accounting
pronouncements Accounting for Transfers of Financial Assets included in this report.
The following table presents our cash flows from operating activities, investing
activities and financing activities for the nine-month periods ended September 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(In millions) |
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Net Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
26.6 |
|
|
$ |
16.2 |
|
Investment activities |
|
|
(1.1 |
) |
|
|
(12.1 |
) |
Financing activities |
|
|
(12.3 |
) |
|
|
(9.7 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
2.7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
15.9 |
|
|
$ |
(5.3 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities
Cash provided by operating activities consists of net income adjusted for certain
non-cash items, and the effect of changes in working capital and other activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change from 2008 to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
26.6 |
|
|
$ |
16.2 |
|
|
$ |
10.4 |
|
|
|
64.1 |
% |
55
The increase in net cash provided by operating activities during the nine-month
period ended September 30, 2009 was mainly attributable to a $11.0 million increase in
net income, to $21.9 million for the nine-month period ended September 30, 2009 when
compared to $10.9 million for the same period in 2008. Net cash provided by operating
activities during the nine-month period ended September 30, 2009 also grew by
$12.9 million versus the same period of 2008 as a consequence of decreases in working
capital in our Payments segment, derived mostly from the sale of credit cards receivables
to financial institutions and the increases of funds payable to customers due to a higher
amount of transactions in 2009. Additionally, net cash provided by operating activities
was impacted by a lesser increase in other liabilities and provisions for $0.9 million
and the increases in non-cash charges to earnings such as the stock based compensation
charge related to the LTRP for $0.8 million and interest expense for $0.3 million.
These increases in cash provided by operations were partially offset by increases in
account receivables in 2009 versus 2008 for $6.3 million, in other assets for
$1.7 million mainly related to the impact of foreign currency gains in Venezuela and a
$7.5 million decrease in accounts payable and accrued expenses.
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change from 2008 to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment activities |
|
$ |
(1.1 |
) |
|
$ |
(12.1 |
) |
|
$ |
11.0 |
|
|
|
-90.9 |
% |
Net cash used in investing activities resulted mainly from purchases of investments
for $46.0 million. Additionally, we used $3.9 million of cash in the nine month period
ended September 30, 2009 to make capital expenditures related to technological equipment,
software licenses and to a lesser degree office equipment. During the nine-month period
ended September 30, 2009, the increase of cash used in investment activities was
partially offset by proceeds from the sale and maturity of investments for $48.8 million
as part of our financial strategy.
As of September 30, 2008, net cash used in investing activities resulted primarily from
the payments for CMG and DeRemate acquisitions, net of cash acquired for $39.2 million.
The purchase of DeRemate includes the fair value of the assets and liabilities acquired
of $(0.6) million, customer lists and non-compete agreement net of tax of $1.2 million
and goodwill of $39.9 million. The related DeRemate acquisition outflow on our statement
of cash flow does not include $18.0 million of promissory notes issued to the seller. The
purchase of 100% of the issued and outstanding shares of capital stock of CMG includes
the fair value of the assets and liabilities acquired of $0.7 million, trademarks of
$5.6 million and goodwill of $13.0 million. The outflow shown in our statement of cash
flow amounted to $16.8 million since it was net of cash acquired
(0.5) million and does
not consider $2.0 million recorded as compensation expense and not as part of the
purchase price (See Note 4 to our unaudited condensed consolidated financial statements
and Compensation Cost related to acquisitions above). Additionally, purchases of
investments accounted for $(59.6) million of cash used in investing activities during the
nine-month period ended September 30, 2008, as part of our financial investment strategy
and capital expenditures of $3.9 million. This consumption of cash was partially offset
during the first nine months of 2008 by proceeds from the sale of investments for
$90.6 million also part of our financial strategy.
56
Net cash used in financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Change from 2008 to 2009 |
|
|
|
2009 |
|
|
2008 |
|
|
in Dollars |
|
|
in % |
|
|
|
(in millions, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
$ |
(12.3 |
) |
|
$ |
(9.7 |
) |
|
$ |
(2.6 |
) |
|
|
27.2 |
% |
For the nine-month period ended September 30, 2009, our primary use of cash
for financing activities was a reduction in short term debts related to a $12.6 million
payment of DeRemate acquisition seller financing. For the nine-month period ended
September 30, 2008, our primary use of cash for financing activities was a reduction in
our financing from loans backed by Payments credit card receivables. Since the fourth
quarter of 2008, we began to sell all the credit card coupons related to Funds
Receivable from Customers in our MercadoPago business to financial institutions and
accounted for as a sale of financial assets. For that reason we no longer recognized the
credit card portfolio as assets and no liability was recorded. The difference in the
accounting treatment generates a decrease in net cash used in financing activities.
In the event that we decide to pursue strategic acquisitions in the future, we may fund
them with available cash, third party debt financing, or by raising equity capital, as
market conditions allow.
Debt
In connection with the DeRemate acquisition, on September 5, 2008, we issued to the
Seller ten unsecured promissory notes in the aggregate principal amount of $18 million.
On June 3, 2009 and August 31, 2009, the Company paid to
the Sellers $3,113,203 and
$9,470,222, respectively for principal and accrued interest. These outstanding promissory
notes mature as follows: (i) $3,000,000 on December 5, 2009 and (ii) $3,000,000 on
March 5, 2010. The promissory notes bear interest at the rate of 3.17875% plus 2.5% for
the remaining period up to its maturity and can be prepaid by the Company without
penalty. As of September 30, 2009 the balance of those promissory notes was disclosed in
our balance sheet for $6.0 million as principal and $0.3 million as interest accrued.
Pursuant to the terms of the notes, we have agreed that, for as long as the notes are
outstanding, we will not incur indebtedness, on a consolidated basis, in excess of
$55 million (including the debt incurred under the notes), except for intercompany debt
or guarantees and guarantees provided by us or our affiliates under any discount of funds
receivable from customers of MercadoPago.
Capital expenditures
Our capital expenditures decreased $57.2 million, to $3.9 million for the nine-month
period ended September 30, 2009 as compared to $61.1 million for the same period in 2008.
This decrease was a consequence of the acquisitions of CMG and DeRemate during 2008
versus no acquisition during 2009. Excluding the 2008 acquisitions, our capital
expenditures in 2008 were $3.9 million. The Company maintained the same level investment
on hardware and software licenses necessary to maintain and update the technology of our
platform, cost of computer software developed internally, office equipment and new office
space. We anticipate continued investments in capital expenditures in the future as we
strive to maintain our position in the Latin American e-commerce market.
In 2008, our Argentine subsidiary invested in a real estate trust. The investment in this
trust represents a beneficial ownership interest in 5,340 square meters divided in five
floors of an office building and 70 parking spots under construction in the City of
Buenos Aires, Argentina, where we expect to relocate our office headquarters upon
completion of the building. As of September 30, 2009, the Argentine subsidiary has paid
$5.7 million into the trust. For U.S. GAAP purposes the investment was recorded as a long
term investment instead of as Property and Equipment. As this investment represents an
undivided interest for more than
20% of the total amount of the real estate trust, it is accounted for under the equity
method and it is classified as Long-Term Investments in our balance sheet.
We believe that our existing cash and cash equivalents, including the net proceeds from
our initial public offering, sale of credit card receivables and cash generated from
operations will be sufficient to fund our operating activities, property and equipment
expenditures and to repay the promissory notes related to the DeRemate Operations
acquisition and other obligations going forward.
57
Off-balance sheet arrangements
At September 30, 2009, we had no off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our consolidated
financial condition, results of operations, liquidity, capital expenditures or capital
resources.
Recent accounting pronouncements
Accounting for Transfers of Financial Assets
In June 2009, the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets in order to address practice issues highlighted most
recently by events related to the economic downturn. The amendments include:
(1) eliminating the qualifying special-purpose entity concept, (2) a new unit of account
definition that must be met for transfers of portions of financial assets to be eligible
for sale accounting, (3) clarifications and changes to the derecognition criteria for a
transfer to be accounted for as a sale, (4) a change to the amount of recognized gain or
loss on a transfer of financial assets accounted for as a sale when beneficial interests
are received by the transferor, and (5) extensive new disclosures. The new accounting
guidance is effective to new transfers of financial assets occurring from January 1,
2010. The Company will evaluate how its consolidated financial statements and future
transfers of financial assets will be affected specifically in relation to the transfer
of credit card receivables to financial institutions.
Contractual obligations
We have certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions and other
factors may result in actual payments differing materially from the estimates. We cannot
provide certainty regarding the timing and amount of payments. Below is a summary of the
most significant assumptions used in our determination of amounts presented in the table.
Contractual obligations at September 30, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period |
|
|
|
|
|
|
|
Less than |
|
|
1 to 3 |
|
|
3 to 5 |
|
|
More than |
|
(in millions) |
|
Total |
|
|
1 year |
|
|
years |
|
|
years |
|
|
5 years |
|
Operating lease obligations (1) |
|
$ |
3.0 |
|
|
$ |
1.7 |
|
|
$ |
1.2 |
|
|
$ |
0.1 |
|
|
$ |
|
|
Purchase obligations (2) |
|
|
7.7 |
|
|
|
7.2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10.7 |
|
|
$ |
8.9 |
|
|
$ |
1.7 |
|
|
$ |
0.1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes leases of office space. |
|
(2) |
|
On June 19, 2008, our Argentine subsidiary agreed to participate
in a real estate trust, which investment represents a beneficial
ownership interest in 5,340 square meters divided in five floors
of an office building and 70 parking spots under construction in
the City of Buenos Aires, Argentina. We expect to relocate our
office headquarters to this newly acquired office space upon
completion of the building, which we expect to occur in the third
quarter of 2010. As of September 30, 2009, the Argentine
subsidiary has invested $5.7 million in the aforementioned trust
and is expected to invest an additional $3.6 million in the
following 10 months. Due to the impact of inflation and/or
currency fluctuations, future payments could differ from our
estimates. Certain of our officers and former officers also
entered into an investment in a portion of the trust, which
investment represents a beneficial ownership interest in a
separate floor of the same building. We do not intend to occupy
the space to be owned by this group. |
58
In connection with the DeRemate acquisition, the Company issued to the Sellers unsecured
promissory notes. As of September 30, 2009, the outstanding principal amount of the debt
was $6.0 million. These promissory notes mature as follows: (i) $3 million on December 5,
2009 and (ii) $3 million on March 5, 2010. The promissory notes were issued on
September 5, 2008 and bear interest at the rate of 3.17875% plus 2.5% for the remaining
period up to its maturity and can be prepaid by the Company without penalty.
We have leases for office space in certain countries in which we operate. These are our
only operating leases. Purchase obligation amounts include an obligation in the real
estate trust for our new Argentina office space, minimum purchase commitments for
advertising, capital expenditures (technological equipment and software licenses) and
other goods and services that were entered into in the ordinary course of business. We
have developed estimates to project payment obligations based upon historical trends,
when available, and our anticipated future obligations. Given the significance of
performance requirements within our advertising and other arrangements, actual payments
could differ significantly from these estimates.
|
|
|
Item 3 |
|
Qualitative and Quantitative Disclosure About Market Risk |
We are exposed to market risks arising from our business operations. These market risks
arise mainly from the possibility that changes in interest rates and the U.S. dollar
exchange rate with local currencies, particularly the Brazilian reais due to Brazils
share of our revenues, may affect the value of our financial assets and liabilities.
Foreign currencies
At September 30, 2009, the Seller financing related to the acquisition of DeRemate
consisting of unsecured promissory notes for an aggregate principal amount of
$6.0 million was denominated in U.S. dollars. We also hold cash and cash equivalents in
local currencies in our subsidiaries, and have receivables denominated in local
currencies in all of our operations. Our subsidiaries generate revenues and incur most of
their expenses in local currency. As a result, our subsidiaries use their local currency
as their functional currency. At September 30, 2009, the total cash and cash equivalents
denominated in foreign currencies totaled $15.3 million, and accounts receivable and
funds receivable from customers in foreign currencies totaled $7.5 million. To manage
exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in
excess of working capital requirements into dollar-denominated accounts in the United
States. At September 30, 2009, our dollar-denominated cash and cash equivalents and
short-term investments totaled $37.9 million and our dollar-denominated long-term
investments totaled $11.9 million. For the nine-month period ended September 30, 2009, we
incurred foreign currency losses in the amount of $2.8 million as the cash and investment
balances of the subsidiaries held in U.S. dollars depreciated in local current terms.
(See Management Discussion and Analysis of Financial Condition and Results of Operations
Results of operations for the three-month period ended September 30, 2009 compared to
three-month period ended September 30, 2008 and the nine-month period ended September 30,
2009 compared to the nine-month period ended September 30, 2008 Other income
(expenses) for more detail).
Our Venezuelan subsidiaries re-measure their foreign currency cash and cash equivalents
and investments at the parallel exchange rate of 5.42 Bolivares Fuertes per US dollar.
Since there is an observable market rate of exchange for securities traded in the
parallel market, based on facts and circumstances, this market rate has been used for the
re-measurement of foreign
currency denominated transactions that could be settled through the parallel market
mechanism. In the absence of unusual circumstances, the rate applicable to conversion of
a currency for purposes of dividend remittances shall be used to translate foreign
currency statements. Furthermore, based on the International Practices Task Force Joint
Meeting with SEC Staff of June 2, 2008, the existence of a parallel market does not
constitute unusual circumstances potentially justifying the use of an exchange rate other
than the official rate for purposes of foreign currency translation. The official
exchange rate of 2.15 Bolivares Fuertes per US dollar is used for dividend remittance.
The foreign currency effect generated by applying different exchange rates on the above
mentioned assets has been accounted for in non-current other assets for a total amount of
$11.2 million.
59
In May 2009, the International Practices Task Force discussed the highly inflationary
status of the Venezuelan economy as regarding inflation. In the event a countrys
cumulative three year inflation rate exceeds 100%, it would qualify as a highly
inflationary economy and the accounting rules would require that the reporting currency
of the parent be assumed to be the functional currency of a foreign entity. Historically,
the Task Force has used the Consumer Price Index (CPI) when considering the inflationary
status of the Venezuelan economy. The CPI has existed since 1984. However, the CPI covers
only the cities of Caracas and Maracaibo. Commencing on January 1, 2008, the National
Consumer Price Index (NCPI) was established to cover the entire country of Venezuela.
Since inflation data is not available to compute a cumulative three year inflation rate
for the entire country solely based on the NCPI, our accounting policy is to use a
blended rate using the NCPI and CPI to calculate Venezuelan inflation
rate.
The cumulative three year inflation rate as of September 30, 2009 was calculated using
the CPI information for periods before January 1, 2008 and NCPI information for the
periods after January 1, 2008. The resulting three-year cumulative inflation rate
(blended NCPI and CPI rate) is 97.41% for the period ending September 30, 2009. When
NCPI data is available for the three years ending December 31, 2010 and thereafter, the
NCPI will be used to calculate Venezuelan inflationary status because
it represents a broader-based measure of the general inflation for the entire country of
Venezuela. If the cumulative three-year blended NCPI and CPI rate exceeds 100% at
December 31, 2009, Venezuela would be accounted for as highly inflationary as of January
1, 2010 and therefore, the functional currency would no longer be the Bolivar Fuerte.
In addition, if the U.S. dollar weakens against foreign currencies, the translation of
these foreign-currency-denominated transactions will result in increased net revenues,
operating expenses, and net income while the re-measurement of our net asset position in
US Dollars will have a negative impact in our Statement of Income. Similarly, our net
revenues, operating expenses and net income will decrease if the U.S. dollar strengthens
against foreign currencies, while the re-measurement of our net asset position in US
Dollars will have a positive impact in our Statement of Income. During the nine-month
period ended September 30, 2009, 51.4% of our revenues were denominated in Brazilian
reais, 18.6% in Venezuelan Bolivares Fuertes, 15.4% in Argentine pesos, 8.9% in Mexican
pesos and 5.7% in the currency of other countries.
The following table summarizes the distribution of net revenues based on geography:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(In millions) |
|
2009 |
|
|
2008 |
|
Brazil |
|
|
63.6 |
|
|
|
57.3 |
|
Venezuela |
|
|
23.0 |
|
|
|
16.4 |
|
Argentina |
|
|
19.0 |
|
|
|
14.3 |
|
Mexico |
|
|
11.0 |
|
|
|
10.7 |
|
Other countries |
|
|
7.1 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
Total Net Revenues |
|
|
123.8 |
|
|
|
103.6 |
|
|
|
|
|
|
|
|
60
The table below shows the impact on the Companys Net Revenues, Expenses, Other income
and Income tax, Net Income and Shareholders Equity for a positive or negative 10%
fluctuation on all the foreign currencies to which we are exposed as of September 30,
2009 and for the nine-month period ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
-10% |
|
|
Actual |
|
|
+10% |
|
|
|
(1) |
|
|
|
|
|
(2) |
|
Net revenues |
|
|
137.5 |
|
|
|
123.8 |
|
|
|
112.6 |
|
Expenses |
|
|
(95.1 |
) |
|
|
(85.6 |
) |
|
|
(78.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
42.4 |
|
|
|
38.2 |
|
|
|
34.6 |
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) and income tax
related to P&L items |
|
|
(15.0 |
) |
|
|
(13.5 |
) |
|
|
(12.2 |
) |
Foreign Currency impact related to the remeasument
of our Net Asset position |
|
|
(8.4 |
) |
|
|
(2.8 |
) |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
19.0 |
|
|
|
21.9 |
|
|
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
117.4 |
|
|
|
118.4 |
|
|
|
119.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Apreciation of the subsidiaries local currency against U.S. Dollar |
|
(2) |
|
Depreciation of the subsidiaries local currency agains U.S. Dollar |
The table above shows a decrease in our net income when the U.S. dollar weakens against
foreign currencies because the re-measurement of our net asset position in US Dollars has
a greater impact than the increase in net revenues, operating expenses, and other income
(expenses) and income tax lines related to the translation effect. Similarly, the table
above shows an increase in our net income when the U.S. dollar strengthens against
foreign currencies because the re-measurement of our net asset position in US Dollars has
a greater impact than the decrease in net revenues, operating expenses, and other income
(expenses) and income tax lines related to the translation effect.
In the past we have entered into transactions to hedge portions of our foreign currency
translation exposure but during 2009 have not entered into any such agreement.
Interest
Our earnings and cash flows are also affected by changes in interest rates. These changes
can have an impact on our interest expenses derived from selling our MercadoPago
receivables. At September 30, 2009, MercadoPago funds receivable from customers totaled
approximately $3.1 million. Interest fluctuations could also negatively affect certain of
our fixed rate and floating rate investments comprised primarily of time deposits, money
market funds, investment grade corporate debt securities, and sovereign debt securities.
Investments in both fixed rate and floating rate interest earning products carry a degree
of interest rate risk. Fixed rate securities may have their fair market value adversely
impacted due to a rise in interest rates, while floating rate securities may produce less
income than predicted if interest rates fall. In addition, the Seller financing related
to the acquisition of DeRemate consisting of unsecured promissory notes for an aggregate
principal amount of $6.0 million mature as follows: (i) $3 million on December 5, 2009
and (ii) $3 million on March 5, 2010. The promissory notes were issued on September 5,
2008 and bear interest at 3.17875% plus 2.5% for the remaining period up to its maturity
and can be prepaid by the Company without penalty. Fixed rate liabilities may have their
fair market value adversely impacted due to a decrease in interest rates.
Under our current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. Due to the short-term nature of the main part of our
investments and because all our long-term investments do not exceed a two year period, a
100 basis point movement in market interest rates would not have a material impact on the
total fair market value of our portfolio as of September 30, 2009 or interest expenses
derived from discounting our MercadoPago receivables or our promissory notes issued in
connection with the DeRemate acquisition.
Our short-term investments, which are classified on our balance sheet as current assets
in the amount of $19.9 million, can be readily converted at any time into cash or into
securities with a shorter remaining time to maturity. We determine the appropriate
classification of our investments at the time of purchase and re-evaluate such
designations as of each balance sheet date. Time deposits are considered held-to-maturity
securities. The book value of held-to-maturity securities approximates their respective
fair values and consequently there are no significant unrecognized gains or losses.
61
Equity Price Risk
Our Board of Directors approved the 2009 employee retention program (the 2009 LTRP)
that will be payable as described in Managements Discussion and Analysis of Financial
Conditions and Results of Operations Recent Developments..
The 2009 Variable Payment LTRP liability subjects us to equity price risk. At September
30, 2009, the total contractual obligation fair value of our 2009 Variable Payment LTRP
liability amounts to $3,114,516. As of September 30, 2009, the accrued liability related
to the 2009 Variable Payment portion of the LTRP included in Social security payable in
our condensed consolidated balance sheet amounts to $697,987. The following table shows a
sensitivity analysis of the risk associated with our total contractual obligation related
to the 2009 variable payment if our stock price were to increases or decreases by up to
40%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2009 |
|
|
|
|
|
|
|
MercadoLibre, Inc |
|
|
2009 variable |
|
(In US dollars) |
|
|
|
|
Equity Price |
|
|
LTRP liability |
|
Change in equity price in percentage |
|
|
|
|
|
|
|
|
|
|
|
40% |
|
|
|
|
|
|
44.76 |
|
|
|
4,360,323 |
|
30% |
|
|
|
|
|
|
41.56 |
|
|
|
4,048,871 |
|
20% |
|
|
|
|
|
|
38.36 |
|
|
|
3,737,419 |
|
10% |
|
|
|
|
|
|
35.17 |
|
|
|
3,425,968 |
|
Static (*) |
|
|
|
|
|
|
31.97 |
|
|
|
3,114,516 |
|
-10% |
|
|
|
|
|
|
28.77 |
|
|
|
2,803,064 |
|
-20% |
|
|
|
|
|
|
25.58 |
|
|
|
2,491,613 |
|
-30% |
|
|
|
|
|
|
22.38 |
|
|
|
2,180,161 |
|
-40% |
|
|
|
|
|
|
19.18 |
|
|
|
1,868,710 |
|
|
|
|
(*) |
|
Average closing stock price for the last 60 trading days of the closing date |
Item 4 Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports pursuant to the Securities Exchange
Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commissions
rules and forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required disclosure.
Evaluation of disclosure controls and procedures
Based on the evaluation of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) required by Exchange Act Rules 13a-15(b) or 15d-15(b),
our chief executive officer and our chief financial officer have concluded that, as of
the end of the period covered by this report, our disclosure controls and procedures were
effective.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three- and
nine-month period ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
62
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
From time to time, we are involved in disputes that arise in the ordinary course of our
business. The number and significance of these disputes is increasing as our business
expands and our company grows. Any claims against us, whether meritorious or not, may be
time consuming, result in costly litigation, require significant amounts of management
time, result in the diversion of significant operational resources and require expensive
implementations of changes to our business methods to respond to these claims. See
Item 1ARisk Factors of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 as filed with the Securities and Exchange Commission on February 27,
2009 and Part II, Item 1Legal Proceedings of our Quarterly Report on Form 10-Q for the
fiscal quarters ended March 31, 2009 and June 30, 2009 as filed with the Securities and
Exchange Commission on May 11, 2009 and August 7, 2009, respectively, for additional
discussion of the litigation and regulatory risks facing our company.
As of September 30, 2009, our total reserves for legal proceeding-related contingencies
were approximately $1.1 million for 316 legal actions against us in which we have
determined that a loss is probable. We do not reserve for losses we determine to be
possible or remote.
As of September 30, 2009, there were 321 lawsuits pending against our Brazilian
subsidiary in the Brazilian ordinary courts. In addition, as of September 30, 2009, there
were more than 2,014 lawsuits pending against our Brazilian subsidiary in the Brazilian
consumer courts, where no lawyer is required to file or pursue a claim. In most of these
cases, the plaintiffs asserted that we were responsible for fraud committed against them,
or responsible for damages suffered when purchasing an item on our website, when using
MercadoPago, or when we invoiced them. We believe we have meritorious defenses to these
claims and intend to continue defending them.
We do not believe that any single pending lawsuit or administrative proceeding, if
adversely decided, would have a material adverse effect on our financial condition
results of operations and cash flows. Set forth below is a description of the legal
proceedings that we have determined to be material to our business that were either
initiated or the subject of a material development during the third quarter of 2009. We
have excluded ordinary routine legal proceedings incidental to our business. In each of
these proceedings we also believe we have meritorious defenses, and intend to continue
defending these actions. We have established a reserve for these proceedings.
Litigation
On August 23, 2007, Serasa S.A., or Serasa, sued our Brazilian subsidiary in the Sixth
Civil Court of Santo Amaro, City of São Paulo, State of São Paulo, Brazil. Serasa, a
company which provides credit-related analysis, information services and data bank and
payment habits related to individuals and corporations, alleged that our Brazilian
subsidiary should be responsible for the sale by its users of allegedly unlawful content
and unfair uses of its services and Serasas trade name and trademarks. Serasa seeks an
injunction, fines, and compensatory damages. On November 5, 2007 a preliminary injunction
was granted to Serasa, ordering our Brazilian subsidiary (a) to remove any content
offering: (i) consultation of Serasas database; and (ii) passwords, texts or any
material that promises to consult, remove or teach how to remove someone name from
Serasas database; (b) to prohibit any content similar to the aforementioned on its
website; and (c) to provide certain personal data of certain users who have offered such
products. In addition to the preliminary injunction, a fine of approximately $5,500 per
day of non-compliance was imposed. On December 17, 2007, our Brazilian subsidiary
presented the information requested. On January 7, 2008, we filed an interlocutory appeal
at the State Court of São Paulo requesting reversal of item (b) of the injunction and
presented our defense on January 7, 2008. Serasa filed its counter-arguments to our
appeal on January 30, 2008. On March 26, 2008, we were summoned with a petition presented
by Serasa alleging non-compliance with the injunction. We presented our response on
March 31, 2008, arguing that we are in full compliance with the injunction which was
accepted by the judge. Serasa replied our defense on June 6, 2008. On June 17, 2008,
Serasa appealed the decision by which the Judge stated that the Brazilian subsidiary
complied with the injunction. On August 26, 2008 the State Court of São Paulo granted the
interlocutory appeal filed by our Brazilian subsidiary, in order to allow on the
Brazilian website any content related to Serasa as established in the item (b) of the
injunction abovementioned. On March 13, 2009 a conciliation hearing was held, but no
conciliation was reached. On June 5, 2009 the judge declared that the Brazilian
Subsidiary shall not be held liable for the content posted by its users. Nonetheless, the
Brazilian Subsidiary was ordered to remove certain content related to the plaintiff.
Serasa filed a motion for clarification of that decision, which was rejected by the
Judge. On July 28, 2009, Serasa presented an appeal to the higher court. On August, 31,
2009 the Brazilian Subsidiary presented the response to the appeal. The ruling is still
pending.
63
On February 29, 2008, Mr. Eduardo Paoletti presented a claim against our Brazilian
subsidiary and Banco do Brasil S.A. and Banco Nossa Caixa S.A., in the Forty Second Civil
Court of the Central Court of the City of São Paulo. Plaintiff alleges that his personal
information was used by third parties to (i) register in our Brazilian website and
(ii) open bank accounts in the aforementioned banks in order to commit fraud against
users of our Brazilian website. Plaintiff alleges that our Brazilian subsidiary should be
held joint and severally responsible with the other defendants for damages. Mr. Paoletti
seeks compensatory and statutory damages estimated for approximately $1.8 million. We
were summoned on June 19, 2008 and presented our defense on July 28, 2008. On September
12, 2008, Mr. Paoletti presented a rebuttal to the defense and on November 28, 2008, the
Brazilian subsidiary presented an argument against Mr. Paolettis rebuttal. A
conciliation and settlement hearing was set for May 14, 2009. On May 27, 2009 the judge
ruled in favor of Mr. Paoletti imposing on all the plaintiffs a joint obligation to pay
approximately $8,000 in material damages and approximately $3,000 in moral damages to
Mr. Paoletti. On June 26, Mr. Paoletti and one of the banks presented a recourse against
the decision to a higher court. On September, 2, 2009, the Brazilian Subsidiary presented
a response to the recourse presented by Mr. Paoletti. The ruling
is still pending.
On February 22, 2008, Nike International Ltd. or Nike requested a preliminary injunction
against our Argentine subsidiary DeRemate.com de Argentina S.A. in the Court on Civil and
Commercial Matters in Buenos Aires, Argentina. Nike requested the injunction alleging
that this subsidiary was infringing Nike trademarks as a result of sellers listing
allegedly counterfeit Nike branded products through the website www.deremate.com.ar. A
preliminary injunction was granted on February 25, 2008 to suspend the offer of
Nike-branded products until sellers could be properly identified. We appealed the
decision on March 4, 2008. On November 13, 2008 the Federal Court of Appeals on Civil and
Commercial Matters lifted the prohibition to allow in the website of this subsidiary any
listing related to Nike branded products subject to our requesting certain personal
information from users willing to list those items. On March 25, 2008 Nike sued our
Argentine subsidiary DeRemate.com de Argentina S.A. in the same venue, for the same
reasons argued in the request preliminary injunction. On December 3, 2008 we presented a
preliminary objection requesting that Nike deposit as a security bond for costs. The
court established that a bond for costs of approximately $5,400 should be deposited by
Nike. Both parties appealed this amount which was confirmed by the same Federal Court of
Appeals. We presented our defense on September 11, 2009.
Other third parties have from time to time claimed, and others may claim in the future,
that we have infringed their intellectual property rights. We have been notified of
several potential third-party claims for intellectual property infringement through our
website. These claims, whether meritorious or not, are time consuming, can be costly to
resolve, could cause service upgrade delays, and could require expensive implementations
of changes to our business methods to respond to these claims. See Item 1A Risk
factorsRisks related to our businessWe could potentially face legal and financial
liability for the sale of items that infringe on the intellectual property rights of
others and for information disseminated on the MercadoLibre marketplace.
State of São Paulo Fraud Claim
On June 12, 2007 a state prosecutor of the State of São Paulo, Brazil presented a claim
against our Brazilian subsidiary. The state prosecutor alleges that our Brazilian
subsidiary should be held liable for any fraud committed by sellers on the Brazilian
version of our website, or responsible for damages suffered by buyers when purchasing an
item on the Brazilian version of the MercadoLibre website. We were summoned on
December 12, 2007 and presented our defense on January 4, 2008. On June 26, 2009, the
Judge of the first instance court ruled in favor of the State of São Paulo prosecutor,
declaring that our Brazilian subsidiary shall be held joint and severally liable for
frauds committed by sellers and damages suffered by buyers when using the website, and
ordering us to remove from the Terms of Service of the Brazilian website any provision
limiting our responsibility with a penalty of approximately $2,500 per day of
non-compliance. On June 29, 2009 the Company presented a recourse to the lower court. On
September 29, 2009 we presented an appeal and requested a suspension of the decision
issued by the lower court until the appeal is decided by State Court of Appeals. The
decision is still pending.
64
State of Bahia Fraud Claim
On December 12, 2007, a state prosecutor of the State of Bahia, Brazil presented a claim
against our Brazilian subsidiary. The state prosecutor alleged that our Brazilian
subsidiary should be held liable for any fraud committed by sellers on the Brazilian
version of our website, or responsible for damages suffered by buyers when purchasing an
item on the Brazilian version of the MercadoLibre website and should exclude from its
Terms of Service or TOS any provision limiting its responsibility. The state prosecutor
of the State of Bahia also sought compensatory damages estimated for approximately
$100,000. On July, 8, 2009, an injunction was granted by the judge, ordering the
immediate removal from the Terms of Service of the Company of any provision limiting its
responsibility with a penalty of approximately $10,000 per day of non-compliance. The
judge also scheduled a hearing for August 12, 2009. On July 21, 2009 we presented a
request for the withdrawal of the effects of the preliminary injunction. On July 28, 2009
the judge suspended the preliminary injunction until the hearing. We presented our
defense on August 5, 2009. On August 12, 2009 we settled the case and agreed to (i)
remove from the Term of Services of the website any clause that limits (a) the
responsibility for the services provided by the Brazilian subsidiary of the Company, not
for third parties acts and (b) the right of consumers to choose the jurisdiction to file
claims against the Brazilian subsidiary, (ii) not to disclose or modify users
information without users instruction or order issued by a competent authority, and
(iii) to pay a fine of approximately $500 per day of non-compliance. The settlement was
approved by the court on August 17, 2009.
City of São Paulo Tax Claim
On September 13, 2007, we paid to tax authorities in São Paulo, Brazil approximately
$1.1 million, consisting of $1.0 million in accrued taxes and $0.1 million in fines,
related to our Brazilian subsidiarys activities in São Paulo for the period 2002 through
2004. We had reserved approximately $1.1 million against these taxes as of December 31,
2006 so no additional provision was recorded for the payment. São Paulo tax authorities
have also asserted taxes and fines against us relating to the period from 2005 to 2007 in
an approximate additional amount of $5.9 million according to the exchange rate at that
moment. In January 2005, we had moved our operations to Santana de Parnaíba City, Brazil
and began paying taxes to that jurisdiction; therefore we believe we have strong defenses
to the claims of the São Paulo authorities with respect to this period. We believe the
risk of loss for this period is remote, and as a result, have not reserved provisions for
this claim. On August 31, 2007, we presented administrative defenses against the
authorities claim. On September 12, 2009 the tax authorities ruled against our Brazilian
subsidiary. On October 13, 2009, we presented an appeal to the Conselho Municipal de
Tributos or Sao Paulo Municipal Council of Taxes. The appeal is still pending.
Item 1A Risk Factors
In addition to the risk factors disclosed in Part I Item 1A. Risk Factors of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, set forth in this
section are additional risk factors we believe are applicable to our business. The
following risk factors update and supersede risk factors in our Annual Report to the
extent of any inconsistency.
Our results of operations denominated in U.S. dollars may be impacted if Venezuela
becomes a highly inflationary economy.
It is possible that Venezuela will be designated as a highly inflationary economy for
accounting purposes by the end of 2009 if the three-year cumulative blended inflation
rate exceeds 100%. As of September 30, 2009, the three-year cumulative blended inflation
rate was 97.41%. In the event Venezuela is designated as a highly inflationary economy
as of December 31, 2009, we will be required to account for the operations of our
Venezuelan subsidiaries using the functional currency of MercadoLibre, Inc., which is the
U.S. dollar, rather than the Bolivar Fuerte as the functional currency. In such event,
we may experience potentially material foreign exchange losses related to certain
non-current assets included in our balance sheet and a decrease in terms of U.S dollars
of our revenues and expenses, which would have an adverse impact on our reported results
of operations in U.S. dollars.
65
Item 2 |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
We did not repurchase any shares of common stock during the third quarter of 2009. On
November 14, 2008, we announced that our board of directors approved a share repurchase
plan authorizing us to repurchase, from available capital, up to $20 million of our
outstanding common stock from time to time through November 13, 2009. The timing and
amount of any share repurchase under the share repurchase plan will be determined by our
management based on market conditions and other considerations, and repurchases may be
effected in the open market, through derivative, accelerated repurchase and other
privately negotiated transactions and through plans designed to comply with Rules 10b-18
or 10b5-1(c) under the Exchange Act. The share repurchase plan does not require us to
acquire any specific number of shares and may be temporarily or permanently suspended or
discontinued by us at any time. A committee of the board of directors will reevaluate the
operation of the plan each fiscal quarter.
As of September 30, 2009, the approximate total dollar value of shares that may yet be
purchased amounts to $17.4 million. This amount represents the difference between the
total amount of repurchases authorized and the total amount spent on repurchases to date.
To enhance our share repurchase plan, during the nine-month period ended September 30,
2009, we sold equity put options. These put options entitled the holders to sell shares
of our common stock to us on certain dates at specified prices. None of the put options
sold have been exercised. As of September 30, 2009, there were no options to purchase
shares of our common stock outstanding.
66
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-14, as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.* |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-14, as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.* |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.** |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.** |
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
|
|
|
|
MERCADOLIBRE, INC.
Registrant
|
|
Date: November 6, 2009 |
By: |
/s/ Marcos Galperín
|
|
|
|
Marcos Galperín |
|
|
|
President and Chief Executive Officer |
|
|
|
By: |
/s/ Hernán Kazah
|
|
|
|
Hernán Kazah |
|
|
|
Executive Vice President and
Chief Financial Officer |
|
67
MercadoLibre, Inc.
INDEX TO EXHIBITS
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-14, as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.* |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-14, as
adopted pursuant to Section 302
of the Sarbanes-Oxley Act of
2002.* |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.** |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial
Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the
Sarbanes-Oxley Act of 2002.** |
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
68