8-KFinancial Events

MERCADOLIBRE INC 8-K Report, Material Impairment (Apr 6, 2015)

Filed April 6, 2015For Securities:MELI

Summary

MercadoLibre, Inc. (MELI) has filed an 8-K report detailing significant changes in Venezuela's foreign exchange system and their impact on the company. Effective March 31, 2015, MELI will adopt the SIMADI exchange rate, which is substantially weaker than previously used rates, to re-measure its Venezuelan operations and monetary assets/liabilities. This shift is necessitated by the Venezuelan government's consolidation of its exchange rate systems and the unavailability of U.S. dollars through prior mechanisms for business-related payments. Consequently, MELI anticipates a material financial impact in the first quarter of 2015. This includes an estimated impairment charge of $15 million to $18 million related to certain Venezuelan real estate investments and a foreign exchange loss of $18 million to $23 million due to the revaluation of bolivar-denominated monetary items and U.S. dollar-denominated liabilities. The company also expects a deferred income tax gain within a certain range from these revaluations. Investors should monitor future filings for updates on the company's performance in Venezuela, given the volatile economic and regulatory environment.

Key Highlights

  • 1MercadoLibre is changing its Venezuelan foreign exchange rate to SIMADI, a new system, effective March 31, 2015.
  • 2The new SIMADI exchange rate is significantly weaker than previously used rates, impacting financial reporting.
  • 3The company expects to record an impairment charge of $15.0 million to $18.0 million on Venezuelan real estate investments.
  • 4A foreign exchange loss between $18.0 million and $23.0 million is anticipated due to the revaluation of bolivar-denominated assets/liabilities and USD-denominated liabilities.
  • 5A deferred income tax gain between $1.5 million and $4.5 million is expected from these revaluations.
  • 6These changes are a result of Venezuela's new unified foreign exchange system (SICAD) and the introduction of SIMADI, with limitations on accessing USD for business payments.
  • 7The company acknowledges significant risks and uncertainties related to the Venezuelan economic and regulatory environment.

Frequently Asked Questions

MercadoLibre is changing its exchange rate to SIMADI because the Venezuelan government has unified its previous foreign exchange systems (SICAD 1 and SICAD 2) into a new SICAD system, which does not provide access to U.S. dollars for payments to foreign suppliers related to MELI's business. The new SIMADI system offers a separate exchange rate and is the mechanism through which MELI can now acquire U.S. dollars for its transactions in Venezuela.

MercadoLibre expects a significant financial impact in the first quarter of 2015. This includes an estimated impairment charge of $15.0 million to $18.0 million on certain real estate investments in Venezuela and a foreign exchange loss of $18.0 million to $23.0 million from revaluing its bolivar-denominated monetary assets and liabilities, as well as its U.S. dollar-denominated liabilities.

Yes, MercadoLibre anticipates recognizing a deferred income tax gain between $1.5 million and $4.5 million. This gain is derived from the revaluation of its U.S. dollar-denominated liabilities, which is a consequence of adopting the new SIMADI exchange rate.

Yes, MercadoLibre explicitly highlights that there are significant risks and uncertainties related to its business in Venezuela. These include government regulation, fluctuations in the bolivar fuerte, changes in currency restrictions and exchange rates, and the overall political, social, and economic conditions in Venezuela.