| Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2017 |
| Summary of Significant Accounting Policies [Abstract] | |
| Principles of Consolidation | Principles of consolidation
The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These consolidated financial statements are stated in U.S. dollars , except for amounts otherwise indicated. Intercompany transactions and balances have been eliminated for consolidation purposes.
T he Company has determined that , e ffective December 1, 2017 , evolving con ditions in Venezuela have caused the Company to no longer meet the accounting criteria for control over its Venezuelan subsidiaries. The Venezuela’s recent selective default determination, restrictive exchange controls and suspension of foreign exchange market that severely incremented the lack of access to U.S. dollars through official currency exchange mechanisms , plus the worsening in Venezuela macroeconomic environment , has resulted in other-than-temporary lack of exchangeability between the Venezuela n bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and satisfy other obligations denominated in U.S. dollars. The currency controls in Venezuela have significantly limited the Company’s ability to realize the benefits from earnings and to access to resulting liquidity of those operations. For accounting purposes, this lack of exchangeability has resulted in lack of control over Venezuelan subsidiaries. Therefore, in accordance to the applicable accounting standards, as of December 1, 2017, the Company deconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under the cost method of accounting. Accordingly, the Company will no longer include the results of its Venezuelan operations in future reporting periods.
As a result of the deconsolidation , the Company recorded an impairment of $85,761 thousands as of December 31, 2017. The pretax charge includes the fully write-off of the Company’s net assets in Venezuela, foreign currency translation previously included in Accumulated other comprehensive loss for $17,310 thousands and all inter-company balances for $9,144 thousands . As a result of the above mentioned write-off, as of December 31, 2017 the Company ’s investment in Venezuela equals zero.
Under the cost method of accounting, if cash were to be received from the Venezuela entity in future periods from its operations, dividends or royalties, income would be recognized. The Company does not anticipate dividend or royalty payments being made in the foreseeable future and has no outstanding receivables or payables with the Venezuelan entity. The factors that led to the Company’ s conclusion to deconsolidate its Venezuelan subsidiaries as of December 1, 2017 continued to exist through the date of this report. Despite the Venezuelan macroeconomic context, we will continue our operation in Venezuela for the foreseeable future. Further, in the future periods the Company will only recognize revenue from intercompany service allocations to Venezuelan subsidiaries to the extent we collect the respective receivables.
2.
Summary of significant accounting policies ( c ontinued)
Principles of consolidation (continued)
Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s f oreign operations, amounting to 99.4 % , 99.9% and 99.8% of the consolidated amounts during 201 7 , 201 6 and 201 5 , respectively. Long-lived assets , intangible assets and Goodwill located in the foreign operations totaled $223,134 thousands and $232,314 thousands as of December 31, 201 7 and 201 6 , respectively.
Cash and cash equivalents, short-term and long-term investments, amoun ted to $632,412 thousands and $641,264 thousands as of December 31, 201 7 and 201 6 , respectively. As of December 31, 201 7, those assets are located 30% in the United States of America and 70% in foreign locations, mainly in Brazil and Argentina . As of December 31, 201 6, those assets were located 56% in the United States of America and 44% in foreign locations, mainly in Brazil, Argentina and Venezuela. |
| Use of Estimates | Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting for allowance for doubtful accounts and chargeback provisions, allowance for loans receivables, recoverability of goodwill and intangible assets with indefinite useful lives, impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relating to the Company’s long term retention plan, fair value of convertible debt, fair value of investments, recognition of income taxes and contingencies. Actual results could differ from those estimates. |
| Cash and Cash Equivalents | Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased, consisting primarily of money market funds and certificates of deposit, to be cash equivalents. |
| Investments | Investments
Time deposits are valued at amortized cost plus accrued interest. Debt securities classified as available-for-sale are recorded at fair value. Unrealized gains and losses on available-for-sale securities are reported as a component of other comprehensive (loss), net of the related tax provisions or benefits.
Investments are classified as current or non-current depending on their maturity dates and when it is expected to be converted into cash.
The Company assesses whether an other-than-temporary impairment loss on its investments has occurred due to declines in fair value or other market conditions. With respect to debt securities, this assessment takes into account the intent to sell the security, whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, and if the Company does not expect to recover the entire amortized cost basis of the security (that is, a credit loss exists). The Company did not recognize any other-than-temporary impai rment on the investments in 2017, 2016 or 2015 .
M oney market funds, corporate and sovereign debt securities and certain certificates of deposits are valued at fair value. See Note 8 “Fair Value Measurement of Assets and Liabilities” for further details. |
| Credit Cards Receivables and Funds Payable to Customers | Credit cards receivables and funds payable to customers
Credit cards receivables mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external pa yment networks or during the period of time until those credit cards receivables are sold to financial institutions.
Credit cards receivables are presented net of the related provision for chargebacks. As of December 31, 2017 and 2016, there are no material past due credit cards receivables.
Funds payable to customers relate also to the Company’s payments solution and are originated by the amounts due to sellers held by the Company until the transaction is completed. Funds, net of any amount due to the Company by the seller, are maintained in the seller’s current account until withdraw is requested by the customer. |
| Loans Receivable, net | Loans receivable, net
Loans receivable represents loans granted to certain merchants and consumers through the Company’s MercadoCredito solution, which was launched in Argentina in the fourth quarter of 2016 , in Brazil in the second quarter of 2017 and in Mexico in the third quarter of 2017. During the year ended December 31, 2017, the Company extended $114,954 thousands in credit to merchants and $12,515 thousands to consumers, of which $73,409 thousands were outstanding.
Loans receivable are reported at their outstanding principal balances, net of allowances and estimat ed collectible interest . Loans receivable are presented net of the allowance for uncollectible accounts, which represent management’s best estimate of probable incurred losses inherent in the Company’s portfolio of loans receivable. Allowances are based upon several factors including, but not limited to, historical experience and the current aging of customers. As of December 31, 2017 and 2016 , the allowance for uncollectible accounts amounted to $4,730 thousands and $110 thousands, respectively .
Through the Company’s MercadoCredito solution, merchants can borrow a certain percentage of their monthly sales volume and are charged with a fixed interest rate based on the overall credit assessment of the merchant. Merchant and consumers credits are repaid in a period ranging between 3 and 12 months.
The Company closely monitors credit quality for all loans receivable on a recurring basis. To assess a merchant and consumers seeking a loan under the MercadoCredito solution, the Company uses, among other indicators, a risk model internally developed, as a credit quality indicator to help predict the merchant's ability to repay the principal balance and interest related to the credit. The risk model uses multiple variables as predictors of the merchant's ability to repay the credit, including external and internal indicators. Internal indicators consider merchant's annual sales volume, claims history, prior repayment history, and other measures. Based on internal scoring, merchants are rated from A (Prime) to F (Upper medium grade). In addition, the Company considers external bureau information to enhance the scoring model and the decision making process. The internal rating and the bureau credit score are combined in a risk matrix, which is also used to price the loans based on the risk profile. As of December 31, 2017, the Company’s MercadoCredito solution was granted only to the most loyal merchants with the best reputation on the site and certain loyalty buyers in Argentina. |
| Transfer of Financial Assets | Transfer of financial assets
The Company may sell credit cards coupons to financial institutions, included within “Credit cards receivables”. These transactions are accounted for as a true sale. Accounting guidance on transfer of financial assets establishes that the transferor has surrendered control over transferred assets if and only if all of the following conditions are met: (1) the transferred assets have been isolated from the transferor, (2) each transferee has the right to pledge or exchange the assets it received and (3) the transferor does not maintain effective control over the transferred assets. When all the conditions are met, the Company derecognizes the corresponding financial asset from its balanc e sheet. As of December 31, 2017 and 201 6 , there is no continuing involvement with transferred financial assets. Additionaly, the Company may discount credit card cupons with financial institutions, included within “Credit card receivables”. The aggregate gain included in net revenue s arising from these fi nancing transactions, net of the costs recognized on sale or discount of credit card coupons is $185,469 thousands, $119,779 thousands and $96,345 thousands, for the years ended December 31, 201 7, 2016 and 201 5 , respectively. |
| Concentration of Credit Risk | Concentration of credit risk
Cash and cash equivalents, short-term and long-term inves tments, credit card receivables, accounts receivable and loans receivable are potentially subject to concentration of credit risk. Cash and cash equivalents and investments are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located internationally. Accounts receivable balances are settled through customer credit cards, debit cards, and MercadoPago accounts, with the majority of accounts receivable collected upon processing of credit card transactions. Loans receivable are granted to several loyal merchants with the best reputation on the site and certain loyalty buyers . The Company maintains an allowance for doubtful accounts receivable, loans receivable and credit cards receivables based upon its historical experience and current aging of customers. Historically, such charges have been within management expectations. However, unexpected or significant future changes in trends could result in a material impact to future statements of income or cash flows. Due to the relatively small dollar amount of individual accounts receivable and loans receivable , the Company generally does not require collateral on these balances. The allowance for doubtful accounts is recorded as a charge to sales and marketing expense .
During the years ended December 31, 2017, 2016 and 2015, no single customer accounted for more than 5% of net revenues. As of December 31, 2017 and 2016, no single customer, except for high credit quality credit card processing companies, accounted for more than 5% of accounts receivables and loans receivable. |
| Allowances for Doubtful Accounts | Allowances for doubtful accounts
The Company maintains allowances for doubtful accounts and loans receivable , for management’s estimate of probable losses that may result if customers do not make the required payments. Allowances are based upon several factors including, but not limited to, historical experience and the current aging of customers.
The Company writes-off accounts receivable and loans receivable when the customer balance becomes 180 days past due. |
| Provision for Chargebacks | Provision for chargebacks
The Company is exposed to losses due to credit card fraud and other payment misuse. Provisions for these items represent our estimate of actual losses based on our historical experience, as well as economic conditions. |
| Inventory | Inventory
Inventory, consisting of Mobile points of sale (“ M POS”) devices available for sale, are accounted for using the first-in first-out (“FIFO”) method, and are valued at the lower of cost or market value. |
| Property and Equipment, Net | Property and equipment, net
Property and equipment are recorded at their acquisition cost and depreciated over their estimated useful lives using the straight-line method. Repair and maintenance costs are expensed as incurred.
Costs related to the planning and post implementation phases of website development are recorded as an operating expense. Direct costs incurred in the development phase of website are capitalized and amortized using the straight-line method over an estimated useful life of three years. During 2017 and 2 01 6 , the Company capitalized $35,560 thousands and $20,738 thousands, respectively.
Furthermore, in August 2016, the Company through its Argentine subsidiary acquired 6,057 square meters and 50 parking spaces, in an office building in process of construction located in Buenos Aires, for a total amount of $31.4 million, plus VAT. In connection with this acquisition, in February 2017, the Company obtained a preliminary approval that allows the Company to defer during a 2 -year period payments of sales tax up to the amounts disbursed for the building. These deferred payments will be extinguished (i.e. as tax reliefs) upon receiving definitive approval from the City of Buenos Aires government within that 2-year period.
Those buildings, excluding lands, are depreciated from the date when they are ready to be used, using the straight-line depreciation method over a 50 -year depreciable life.
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Summary of sig nificant accounting policies (c ontinued)
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| Goodwill and Intangible Assets | Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination.
Intangible assets consist of customer lists, trademarks, licenses, software, non-solicitation and non-compete agreements acquired in business combinations and valued at fair value at the acquisition date. Intangible assets with definite useful life are amortized over the period of estimated benefit to be generated by those assets and using the straight-line method; their estimated useful lives ranges from three to ten years. Trademarks with indefinite useful life are not subject to amortization, but are subject to an annual impairment test, by comparing their carrying amount with their corresponding fair value. For any given intangible asset with indefinite useful life, if its fair value exceeds its carrying amount no impairment loss shall be recognized. |
| Impairment of Long-lived Assets | Impairment of long-lived assets
The Company reviews 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 comparing the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If such asset is 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 asset exceeds the fair value of such asset.
Before deconsolidating the Subsidiaries in Venezuela, as explained in section “Principles of consolidating” and c onsidering the changes in facts and circumstances in the exchange markets in Venezuela and the lower U.S. dollar-equivalent cash flows expected from the Venezuelan business, and long-lived assets expected use, the Company compared the carrying amount of the long-lived assets with the expected undiscounted future net cash flows and concluded that certain office spaces held in Caracas, Venezuela, should be impaired. As a consequence, the Company estimated the fair value of the impaired long-lived assets and recorded impairment losses of $2.8 million, $13.7 million and $16.2 million on June 30, 2017, June 30, 2016 and March 31, 2015, respectively, by using the market approach and considering prices for similar assets. |
| Impairment of Goodwill and Intangible Assets with Indefinite Useful Life | Impairment of goodwill and intangible assets with indefinite useful life
Goodwill and intangible assets with indefinite useful life are reviewed at the end of the year for impairment or more frequently, if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level (considering each segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of such reporting unit.
As of December 31, 2017 and 2016, the Company elected to perform the quantitative impairment test for both goodwill and intangible assets with indefinite useful life.
For the year ended December 31, 2017, the fair values of the reporting units were estimated using the income approach. Cash flow projections used were based on financial budgets approved by management. The Company uses discount rates to each reporting unit in the range of 1 3 .4% to 1 8 .3% . The average discount rate used for 2017 was 1 5 . 0 %. That rate reflected the Company’s estimated weighted average cost of capital. Key drivers in the analysis include Confirmed Registered Users (“CRUs”), Gross Merchandise Volume (“GMV”),
Total Payment Volume (“TPV”), Average Selling Price (“ASP”), Successful Item sold (“SI”), Take Rate defined as marketplace revenues as a percentage of gross merchandise volume and operating margins . In addition, the analysis include a business to e-commerce rate, which represents growth of e-commerce as a percentage of Gross Domestic Product (“GDP”), internet penetration rates as well as trends in the Company’s market share.
If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and the second step is performed to measure the amount of impairment loss, if any. No impairment loss has been recognized in the years ended December 31, 2017, 2016 and 2015 and management’s assessment of the fair value of each reporting unit exceeds its carrying value.
Intangible assets with indefinite useful life are considered impaired if the carrying amount of the intangible asset exceeds its fair value. No impairment loss has been recognized in the years ended December 31, 2017, 2016 and 2015.
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Summary of sig nificant accounting policies (c ontinued)
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| Revenue Recognition | Revenue recognition
The Company generates revenues from different services provided. When more than one service is included in one single arrangement with the customer, the Company recognizes revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective selling prices.
Revenues are recognized when evidence of an arrangement exists, the fee is fixed or determinable and collection is reasonably assured.
Revenues from services are separately recognized according to the following criteria described for each type of services:
·
Revenues from intermediation services derive from listing and final value fees paid by sellers. R evenues related to final value fees are recognized at the time that the transaction is successfully concluded.
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Listing and optional feature services, which fees relate to the right of a seller to have the item offered listed in a preferential way, as well as classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing is uploaded onto the Company’s platform and is not subject to successful sale of the items listed.
·
Advertising revenues such as the sale of banners are recognized on accrual basis during the average advertising period , and remaining advertising services such as sponsorship of sites and improved search standing are recognized based on “per-click” (which are generated each time users on our websites click through our text-based advertisements to an advertiser’s designated website) values and as the “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our websites) are delivered.
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Revenues from shipping services are generated when a buyer elects to receive the item through our shipping service and the service is rendered to the client. Revenues are disclosed net of third party provider’s cost .
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Revenues from commissions we charge to sellers for transactions off-platform derived from the use of the Company’s on-line payments solution, are recognized once the transaction is considered completed, when the payment is processed by the Company. The Company also earns revenues as a result of offering financing to its MercadoPago users, either when the Company finances the transactions directly or when the Company sells the corresponding financial assets to financial institutions. When the Company finances the transactions directly, it recognizes financing revenue ratably over the period of the financing. When the Company sells the corresponding financial assets to financial institutions, financing revenues are accounted for net of financing costs at the time of transfer of the financial assets.
Revenues from interest earned on loans and advances granted to merchants are recognized ov er the period of the loan and are based on effective interest rates, net of any required reserves. |
| Share-based Payments | Share-based payments
The liability related to the variable portion of the long term retention plan s is remeasured at fair value (See Note 16 “Long Term Retention Plan” for more details). In addition, the director compensation program includes an adjustable Board service award based on the average closing price of the Company’s common stock (see Note 11 “Compensation Plan for Outside Directors” for more details). |
| Sales Tax | 2.
Summary of sig nificant accounting policies (c ontinued)
Sales tax
The Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain sales taxes which are classified as cost of net revenues and totaled $106,980 thousands, $75,618 thousands and $52,477 thousands for the years ended December 31, 2017, 2016 and 2015, respectively. |
| Advertising Costs | Advertising costs
The Company expenses the costs of advertisements in the period during which the advertising space or airtime is used as sales and marketing expense. Internet advertising expenses are recognized based on the terms of the individual agreements, which is generally over the greater of the ratio of the number of clicks delivered over the total number of contracted clicks, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising costs totaled $147,805 thousands, $55,310 thousands and $46,862 thousands for the years ended December 31, 2017, 2016 and 2015, respectively. |
| Comprehensive Income | Comprehensive income
Comprehensive income is comprised of two components, net income and other comprehensive income. This last component is defined as all other changes in the equity of the Company that result from transactions other than with shareholders. Other comprehensive income includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries and unrealized gains and losses on investments classified as available-for-sale. Total comprehensive (losses) income attributable to MercadoLibre, Inc. shareholders’ for t he years ended December 31, 2017, 2016 and 2015 amounted to $(9,258) thousands, $115,832 thousands and $1,584 thousands respectively. |
| Foreign Currency Translation | Foreign currency translation
All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela since January 1, 2010, wich functional currency was the U.S. dollar until its deconsolidation; as described below. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies into U.S. dollars by using year-end exchange rates while income and expense accounts are translated at the average monthly rates in effect during the year, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is recorded as a component of other comprehensive loss. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results are included in the consolidated financial statements of income under the caption “Foreign currency (losses) gain” and amounted to ($21,635) thousands, ($5,565) thousands and 11,125 thousands for the years ended December 31, 2017, 2016 and 2015, respectively.
Venezuelan currency status
Pursuant to U.S. GAAP, the Company has transitioned its Venezuelan operations to highly inflationary status as from January 1, 2010, which requires that transactions and balances are re-measured as if the U.S. dollar was the functional currency for such operation.
On February 10, 2015, the Venezuelan government issued a decree that unified the two previous foreign exchange systems “SICAD 1 and SICAD 2” into a new single system denominated SICAD, with an initial public foreign exchange rate of 12 Bs per U.S. dollar. The SICAD auction process remains available only to obtain foreign currency to pay for a limited list of goods considered to be of high priority by the Venezuelan government, which does not include those relating to the Company’s business. In the same decree the Venezuelan government created the “Sistema Marginal de Divisas” (“SIMADI”), a new foreign exchange system that is separate from SICAD, which publishes a foreign exchange rate from the Central Bank of Venezuela (“BCV”) on a daily basis.
In light of the disappearance of SICAD 2, and we inability to gain access to U.S. dollars through the new single system under SICAD, we started requesting and was granted U.S. dollars through SIMADI. As a result, we from that moment expected to settle our transactions through SIMADI and concluded that the SIMADI exchange rate should be used to re-measure our bolivar-denominated monetary assets and liabilities and to re-measure the revenues and expenses of the Venezuelan subsidiaries effective as of March 31, 2015. In connection with this re-measurement, we recorded a foreign exchange loss of $20.4 million during the first quarter of 2015, with no significant foreign exchange losses recorded during the second, third and fourth quarter of 2015.
2.
Summary of sig nificant accounting policies (c ontinued)
Venezuelan currency status (continued)
Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, we have reviewed its long-lived assets, goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of March 31, 2015 would not be fully recoverable. As a result, we have recorded an impairment of long-lived assets of $ 16.2 million on March 31, 2015. The carrying amount has been adjusted to its estimated fair value as of March 31, 2015, by using the market approach, and considering prices for similar assets
On March 9, 2016 the BCV issued the Exchange Agreement No.35, which is effective since March 10, 2016. The agreement established a “protected” exchange rate (“DIPRO”) for certain transactions, such as but not limited to: imports of goods of the food and health sectors, as well as supplies associated with the production of said sectors; expenses relating to health treatments, sports, culture, scientific research, and other urgent matters defined by the exchange regulations. All foreign currency transactions not expressly provided in Exchange Agreement No.35 will be processed on the alternate foreign currency markets governed by the exchange regulations, at the floating supplementary market exchange rate (“DICOM”).
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2016 would not be fully recoverable. As a result, on June 30, 2016, the Company recorded an impairment related to offices and commercial property under construction included within non-current other assets of $13.7 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value of $12.5 million as of June 30, 2016, by using the market approach, and considering prices for similar assets.
On May 19, 2017, the BCV issued the Exchange Agreement No.38, which established a new foreign exchange mechanism under DICOM, replacing SIMADI. The new mechanism consists of auctions, administered by an auction committee, where sellers and buyers from the private sector may offer foreign currency under certain limits determined by the BCV.
In light of the disappearance of SIMADI (which closed at 728.0 per U.S. dollar), and the Company’s inability to gain access to U.S. dollars under SIMADI, it started requesting U.S. dollars through DICOM. As a result, the Company expected to settle its transactions through DICOM going forward and concluded that the DICOM exchange rate should be used as from June 1, 2017 to measure its bolivar-denominated monetary assets and liabilities and to measure the revenues and expenses of the Venezuelan subsidiaries. Therefore, as of June 30, 2017, monetary assets and liabilities in Bolivares (“Bs”) were re-measured to the U.S. dollar using the DICOM closing exchange rate of 2640.0 Bs per U.S. dollar. As a consequence of the local currency devaluation, the Company recorded a foreign exchange loss of $22.0 million during the second quarter of 2017 .
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2017 would not be fully recoverable. As a result, on June 30, 2017, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $2.8 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value by using the market approach and considering prices for similar assets.
Effective December 1, 2017, the Company determined that deteriorating conditions in Venezuela had led the Company to no longer meet the accounting criteria for control over its Venezuelan subsidiaries. The Venezuela’s recent selective default determination, restrictive exchange controls and suspension of foreign exchange market in Venezuela, the lack of access to U.S. dollars through official currency exchange mechanisms plus the worsening in Venezuela macroeconomic environment resulted in other-than-temporary lack of exchangeability between the Venezuela bolivar and the U.S. dollar, and restricted the Company’s ability to pay dividends and satisfy other obligations denominated in U.S. dollars. Therefore, in accordance to the applicable accounting standards, as of December 1, 2017, the Company deconsolidated the financial statements of its subsidiaries in Venezuela and began reporting the results under the cost method of accounting.
As a result of the deconsolidatio n, the Company recorded an impairment of $85,8 million o n December 1, 2017 .
B eginning December 1, 2017, the Company no longer includes the results of the Venezuelan subsidiaries in its consolidated financial statements. Please refer to note 2 of our audited consolidated financial statements for additional detail.
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Summary of sig nificant accounting policies (c ontinued)
Argentine currency status
During December 2015 the Argentine peso exchange rate increased by 37% against the U.S. dollar to 13.30 Argentine pesos per U.S. dollar as of December 31, 2015. Due to such increase in the Argentine peso exchange rate against the U.S. dollar, during the fourth quarter of 2015, the Company recognized a foreign exchange gain of $18.2 million (as a result of having a net asset position in U.S. dollars) and the reported Other Comprehensive Loss increased by $22.8 million (as a result of having a net asset position in Argentine pesos).
During 2016, there were no significant changes in the exchange rate. As of December 31, 2016 the Argentine Peso exchange rate against the U.S. dollar was 15.89 .
During December 201 7 the Argentine peso exchange rate increased by 17 % against the U.S. dollar to 1 8 . 65 Argentine pesos per U.S. dollar as of December 31, 201 7 . Due to such increase in the Argentine peso exchange rate against the U.S. dollar, the Company recognized a foreign exchange gain of $ 4.4 million (as a result of having a net asset position in U.S. dollars) and the reported Other Comprehensive Loss increased by $ 37 . 6 million (as a result of having a net asset position in Argentine pesos).
Brazilian currency status
During 2015, the Brazilian Reais exchange rate against the U.S. dollar increased 47% , from 2.66 Brazilian Reais per U.S. dollar as of December 31, 2014 to 3.90 Brazilian Reais per U.S. dollar as of December 31, 2015. Due to the fluctuations of the Brazilian foreign currency against the U.S. dollar, the Company recognized a foreign exchange gain of $14.6 million during the year 2015. In addition, the reported Other Comprehensive Loss of the Brazilian segment increased by $9.0 million during the current year. During 201 7 and 2016 , there were no significant changes in the ex change rate s . As of December 31, 2017 and 2016 the Brazilian Reais exchange rate against the U.S. dollar was 3.31 and 3.26 , respectively. |
| Income and Asset Taxes | Income taxes
The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.
On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 the regulatory decree was issued, which established the new requirement to become beneficiary of the new software development law. The new decree establishes compliance requirements with annual incremental ratios related to exports of services and research and development expenses that must be achieved to remain within the tax holiday. The Argentine operation will have to achieve certain required ratios annually under the new software development law.
On September 17, 2015, the Argentine Industry Secretary issued Resolution 1041/2015 approving the Company’s application for eligibility under the new software development l aw for the Company’s Argentine subsidiary, Mercadolibre S.R.L. Furthermore, on September 18, 2016, the Argentine Industry Secretary issued Resolutions 93/2016 and 97/2016 approving the Company’s application for eligibility under the new software development l aw for the Company’s Argentine subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, the Compan y’s Argentine subsidiaries have been granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained as beneficiaries of the new law is a relief of 60% of total income tax related to software development activities and a 70% relief in payroll taxes related to software development activities.
2.
Summary of sig nificant accounting policies (c ontinued)
Income taxes (continued)
The new software development law, which provides that beneficiaries must meet certain on-going eligibility requirements, will expire on December 31, 2019. As a result of the Company’s eligibility u nder the new law, it recorded an i ncome tax benefit of $22.9 million and $22.6 million during 2017 and 2016 , respectively. Furthermore, the Company recorded a labor cost benefit of $7.6 million and $5.5 million during 2017 and 2016. Additionally, $2.1 million and $2.0 million were accrued to pay software development law audit fees during 2017 and 2016, respectively . Aggregate per share effect of the Argentine tax holiday amounted to $0.52 million and $0.51 for the year s ended December, 31 2017 and 2016, respectively .
As of December 31, 2017 and 2016, the Company had included under non-current deferred tax assets caption the foreign tax credits related to the dividend distributions received from its subsidiaries for a total amount of $12,097 thousands and $13,515 thousands, respectively. As December 31, 2017, the Company recorded an increase in valuation allowance of $12,097 thousands to fully impair the outstanding foreign tax credits. Please refer to Note 14 of these consolidated financial statements for additional detail. |
| Uncertainty in Income Taxes | Uncertainty in income taxes
The Company recognizes, if any, uncertainty in income taxes by applying the accounting prescribed by U.S. GAAP, for which a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return should be considered. It also provides guidance on de-recognition, classification of a liability for unrecognized tax benefits, accounting for interest and penalties, accounting in interim periods, and expanded income tax disclosures. The Company classifies interest and penalties, if any, within income taxes expense, in the statement of income.
The Company is subject to taxation in the U.S. and various foreign jurisdictions. The material jurisdictions that are subject to examination by tax auth orities for tax years after 2008 primarily include the U.S., Argentina, Brazil and Mexico .
Convertible Senior Notes
On June 30, 2014, the Company issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). In connection with the issuance of the Notes, the Company paid $19,668 and 67,308 thousands (including transaction expenses) in June 2014 and September 2017, respectively, to enter into capped call transactions with respect to its common shares (the “Capped Call Transactions”), with certain financial institutions. For more detailed information in relation to the Notes and the Capped Call transactions, see Note 17 to these consolidated financial statements.
The convertible debt instrument was separated into debt and equity components at issuance and a fair value was assigned. The value assigned to the debt component was the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of the issuance date, the Company determined the fair value of the liability component of the Notes based on market data that was available for senior, unsecured nonconvertible corporate bonds issued by comparable companies. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as level 2 observable inputs. The difference between the cash proceeds and this estimated fair value, represents the value assigned to the equity component and was recorded as a debt discount. The debt discount is amortized using the effective interest method from the origination date through its stated contractual maturity date.
The initial debt component of the Notes was valued at $283,015 thousands, based on the contractual cash flows discounted at an appropriate market rate for a non-convertible debt at the date of issuance, which was determined to be 5.55% . The carrying value of the permanent equity component reported in additional paid-in-capital was initially valued at $46,985 thousands. The effective interest rate after allocation of transaction costs to the liability component is 6.1% and is used to amortize the debt discount and transaction costs. Additionally, the Company recorded a deferred tax liability related to the additional paid in capital component of the convertible notes amounting to $16,445 thousands.
The cost of the capped call transactions, which net of deferred income tax effect amounts to $12,784 thousands , is included as a net reduction to additional paid-in capital in the stockholders’ equity section of these consolidated balance sheets. |
| Convertible Senior Notes | Convertible Senior Notes
On June 30, 2014, the Company issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). In connection with the issuance of the Notes, the Company paid $19,668 and 67,308 thousands (including transaction expenses) in June 2014 and September 2017, respectively, to enter into capped call transactions with respect to its common shares (the “Capped Call Transactions”), with certain financial institutions. For more detailed information in relation to the Notes and the Capped Call transactions, see Note 17 to these consolidated financial statements.
The convertible debt instrument was separated into debt and equity components at issuance and a fair value was assigned. The value assigned to the debt component was the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of the issuance date, the Company determined the fair value of the liability component of the Notes based on market data that was available for senior, unsecured nonconvertible corporate bonds issued by comparable companies. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as level 2 observable inputs. The difference between the cash proceeds and this estimated fair value, represents the value assigned to the equity component and was recorded as a debt discount. The debt discount is amortized using the effective interest method from the origination date through its stated contractual maturity date.
The initial debt component of the Notes was valued at $283,015 thousands, based on the contractual cash flows discounted at an appropriate market rate for a non-convertible debt at the date of issuance, which was determined to be 5.55% . The carrying value of the permanent equity component reported in additional paid-in-capital was initially valued at $46,985 thousands. The effective interest rate after allocation of transaction costs to the liability component is 6.1% and is used to amortize the debt discount and transaction costs. Additionally, the Company recorded a deferred tax liability related to the additional paid in capital component of the convertible notes amounting to $16,445 thousands.
The cost of the capped call transactions, which net of deferred income tax effect amounts to $12,784 thousands , is included as a net reduction to additional paid-in capital in the stockholders’ equity section of these consolidated balance sheets. |
| Recently Issued Accounting Pronouncements | Recently issued accounting pronouncements
In 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance as from January 1, 2018. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations. The Company has completed its assessment on the adop tion of this standard and has concluded that this standard is not expected to have material measurement impact on the Company´s financial statements. However, the Company continues assessing if certain shipping incentives can be presented as an expense consistent with current guidance or should be presented netting from revenues. If such expenses were to be netted from revenues, the adoption of this ASU on January 1, 2018, would cause net revenues from the year ended December 31, 2017 to decrease by approximately $181,553 thousands and cost of net revenues also to decrease by the same amount. There would be no effects of that potential presentation change in Gross profit, Income from operations or Net income. The adoption of this standard will also require the Company to expand and include certain additional disclosures.
On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. Previous GAAP did not require lease assets and lease liabilities to be recognized for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and lease liabilities. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.
On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect it’s current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.
On October 24, 2016 the FASB issued the “ASU 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”. This update eliminates the exception that prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset or assets have been sold to an outside party. Consequently, this update requires to recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
2.
Summary of significant accounting policies ( c ontinued)
Recently issued accounting pronouncements (c ontinued)
On January 5, 2017 the FASB issued “ASU 2017-01—Business combinations (Topic 805): Clarifying the definition of a business”. The amendments in this update clarify the definition of a business with the objective of adding guidance to the evaluation of whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this update provide a criteria to determine when a set of assets and activities is a business. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
On February 22, 2017 the FASB issued “ASU 2017-05—Other Income—Gains and losses from the derecognition of nonfinancial assets (Subtopic 610-20): Clarifying the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets”. The amendments in this update clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an “in substance nonfinancial asset” which can include financial assets. Also, this update eliminates several accounting differences between transactions involving assets and transactions involving businesses. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 . The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
On May 10, 2017 the FASB issued “ASU 2017-09—Compensation—Stock compensation (Topic 718): Scope of modification accounting”. The amendments in the update provide guidance about types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under Topic 718. The new standard is effective for annual, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
On September 29, 2017 the FASB issued “ASU 2017-13—Revenue recognition (Topic 605), Revenue from contracts with customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. This update addresses Transition Related to Accounting Standards Updates No. 2014-09, Revenue from Contracts with Customers (Topic 606), and No. 2016-02, Leases (Topic 842). This Update also supersedes SEC paragraphs pursuant the rescission of SEC Staff Announcement, “Accounting for Management Fees Based on a Formula”, effective upon the initial adoption of Topic 606, Revenue from Contracts with Customers, and SEC Staff Announcement, “Lessor Consideration of Third-Party Value Guarantees,” effective upon the initial adoption of Topic 842, Leases. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
On November 22, 2017 the FASB issued “ASU 2017-1 4 — Income Statement—Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606) ”. This u pdate amends SEC paragraphs pursuant to the SEC Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, which bring existing guidance into conformity with Topic 606, Revenue from Contracts with Customers. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
2.
Summary of significant accounting policies (continued)
Recently issued accounting pronouncements (continued)
On February 14, 2018 the FASB issued “ ASU 2018-02— Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ”. This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts. Because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The adoption of this standard is not expected to have a material impact on the Company´s financial statements. |
