MERCADOLIBRE INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Based on the evaluation of our disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as required by Rules 13a-15(b) or 15d-15(b) under the Exchange Act, as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to Management as appropriate to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our Management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework updated by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on its evaluation under the framework in Internal Control—Integrated Framework (2013), our Management concluded that our internal control over financial reporting was effective as of December 31, 2022 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of Management’s assessment with the Audit Committee of our board of directors. The effectiveness of our internal control over financial reporting as of December 31, 2022, has been audited by Pistrelli, Henry Martin y Asociados S.R.L. (member of Ernst & Young Global Limited), an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting There were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Inherent Limitations on Effectiveness of Controls Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. ITEM 9B. OTHER INFORMATION Not applicable. 70 Table of Contents ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K within 120 days of the Company’s fiscal year ended December 31, 2022. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item will be included under the captions “Compensation Committee Interlocks and Insider Participation” and “Executive Compensation” in the 2023 Proxy Statement, except as to information required pursuant to Item 402(v) of SEC Regulation S-K with respect to pay versus performance, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS Except for the information regarding shares authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K within 120 days of the Company’s fiscal year ended December 31, 2022. The following table presents information as of December 31, 2022 with respect to equity compensation plans under which shares of the Company’s common stock are authorized for issuance: Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, Warrants and Rights Weighted-average exercise price of outstanding options, Warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) (a) (b) (c) Equity compensation plans approved by security holders (1) — — 990,497 Total — — 990,497 (1) Represents our Amended and Restated 2009 Equity Compensation Plan which was approved by our stockholders on June 10, 2019. (2) Pursuant to SEC guidance, this table does not reflect grants of restricted stock made pursuant to our Amended and Restated 2009 Equity Compensation Plan. As of December 31, 2022, there were 7,085 shares of unvested restricted stock outstanding under such plan. Description of our Amended and Restated 2009 Equity Compensation Plan (the “Amended and Restated 2009 Plan”) Our Amended and Restated 2009 Plan was adopted by our board of directors on April 24, 2019. The Amended and Restated 2009 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and non-qualified stock options, restricted stock and other equity-based or equity-related awards to our employees, directors, officers and managers. Incentive stock options and non-qualified stock options are referred to as “stock options,” and together with restricted stock and all other awards are referred to as “awards”. As of December 31, 2022, there were no outstanding stock options to purchase shares of common stock under the Amended and Restated 2009 Plan. No stock options were granted during the period from January 1, 2007 to December 31, 2022 and there were no stock-based compensation expenses related to stock options for the years ended December 31, 2022, 2021, 2020, 2019 and 2018. There is no stock option award outstanding under the Amended and Restated 2009 Plan. As of December 31, 2022, there were 990,497 shares of common stock available for additional awards under the Amended and Restated 2009 Plan. 71 Table of Contents Number of shares of common stock available under the Amended and Restated 2009 Plan . T he maximum number of common stock reserved and available for delivery in connection with awards under the Amended and Restated 2009 Plan is 1,000,000 Shares of common stock underlying awards previously granted under the Amended and Restated 2009 Plan that terminate without being exercised, expire, are forfeited or canceled shall again be available pursuant to the Amended and Restated 2009 Plan. The shares of common stock issuable pursuant to any award granted under the Amended and Restated 2009 Plan shall be (i) authorized but unissued shares, (ii) shares of common stock held in the Corporation’s treasury, (iii) shares acquired by the Corporation on any stock exchange in which such shares are traded, or (iv) a combination of the foregoing. Administration of the Amended and Restated 2009 Plan . The Amended and Restated 2009 Plan is administered by our board of directors or a committee appointed by the board of directors (the body in charge of administering the Amended and Restated 2009 Plan is referred to as the “administrator”). If the common stock is registered under Section 12(b) or 12(g) of the Exchange Act, the board of directors shall consider in selecting the administrator and the membership of any committee acting as administrator the provisions of Rule 16b-3 under the Exchange Act regarding “non-employee directors.” The administrator determines the recipients of awards, the times at which awards are granted, the number of shares subject to each type of award, the time for vesting of each award and the duration of the exercise period for stock options. The administrator additionally has the power and authority to approve forms of award agreements and other related documents used under the Amended and Restated 2009 Plan. Price, exercise and termination of stock option awards . The exercise price for each share of common stock subject to a stock option is determined by the administrator, and in no event shall the exercise price be less than 100% of the fair market value of the shares of common stock on the date of the grant (or 110% in the case of employees who directly or indirectly own more than 10% of the total combined voting power of all classes of our stock). Stock options are exercisable on their vesting date, which is determined by the administrator and set forth in the award agreement governing any particular stock option. Vesting dates can be accelerated on the occurrence of a specified event, as provided in an award agreement, or can be accelerated at the discretion of the administrator. If a stock option expires or is terminated or canceled without having been exercised, it shall become null and void and of no further force and effect. The term of a stock option may not exceed beyond the tenth anniversary on which the stock option is granted (or the fifth anniversary in the case of incentive stock options granted to employees who directly or indirectly own 10% of the total combined voting power of all classes of our stock.) A stock option terminates 30 days after a participant ceases to be an officer, manager, employee or director as a result of a termination without cause, and after 10 days of termination in the case of a termination for cause. Cause includes the conviction of a crime involving fraud, theft, dishonesty or moral turpitude, the participant’s continuous disregard of or willful misconduct in carrying lawful instructions of superiors, continued use of alcohol or drugs that interfered with the performance of the participant’s duties, the conviction of participant for committing a felony or similar foreign crime, and any other cause for termination set forth in a participant’s employment agreement. A stock option terminates three months after the death or permanent disability of a participant, or, if the participant is a party to an employment agreement, the disability of such participant as defined in the employment agreement. Other reasons for termination may be set out in the award agreement. A stock option will not be considered an incentive stock option to the extent that the aggregate fair market value (on the date of the grant of the incentive stock option) of all stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year is greater than $100,000. No stock option shall be affected by a change of duties or position of a participant (including a transfer to our subsidiaries) as long as the participant continues to be our employee or an employee of our subsidiaries. Adjustments upon the occurrence of material transactions . In the event we undergo dissolution or liquidation, a reorganization, merger or consolidation in which we are not the surviving entity, or a sale of all or substantially all of our assets (each, a “Material Transaction”), holders of stock options will be given 10-day prior written notice and will decide within those 10 days whether to exercise their respective stock options. Any stock option that is not so exercised will terminate. However, such notice and exercise mechanism would not apply if provision is made in connection with a Material Transaction for assumption of outstanding stock options, or substitution of stock options for new stock options or equity securities, with any appropriate adjustments as to the number, kind and prices of shares subject to stock options. Transferability . Unless the prior written consent of the administrator is obtained, no stock option can be assigned or otherwise transferred by any participant except by will or by the laws of descent and distribution. Except in the case of an approved transfer, a stock option may be exercised during the lifetime of a participant only by the participant or his/her legal representative if the participant is legally disabled. Restricted stock . Restricted stock awards are awards of shares of common stock that vest according to the terms and conditions established by the administrator. The administrator may impose whatever restrictions on transferability, risk of forfeiture and other restrictions as it determines. A holder of restricted stock has the rights of a stockholder, including the right to vote the restricted stock. During the restricted period applicable to the restricted stock, it may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered. Except as otherwise determined by the administrator, restricted stock that is subject to restrictions is subject to forfeiture upon termination of a participant’s employment. 72 Table of Contents Other awards . The administrator of the Amended and Restated 2009 Plan may grant additional equity-based or equity-related awards in such amounts and on such terms as it shall determine, subject to the terms and conditions set forth in the Amended and Restated 2009 Plan. Each such award shall be denominated in, or shall have a value determined by reference to, a number of shares that is specified at the time of the grant of the award. Amendment . Our board of directors may modify the Amended and Restated 2009 Plan at any time. The approval by a majority of our stockholders is necessary if required by law or necessary to comply with any applicable laws and regulations. No amendment will affect the terms of any award granted prior to the effectiveness of such amendment, except with the consent of the holder of the award. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information presented under the heading “Certain Relationships and Related Transactions” and “Information on Our board of directors and Corporate Governance” in our 2023 Proxy Statement to be filed with the SEC is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item will be included in our 2023 Proxy Statement to be filed with the SEC and is incorporated herein by reference. 73 Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Financial Statements. The following financial statements are included in this report: Page Consolidated Financial Statements Reports of Independent Registered Public Accounting Firms 77 Consolidated balance sheets as of December 31, 2022 and 2021 81 Consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 82 Consolidated statements of comprehensive income for the years ended December 31, 2022, 2021 and 2020 83 Consolidated statements of equity for the years ended December 31, 2022, 2021 and 2020 84 Consolidated statements of cash flows for the years ended December 31, 2022, 2021 and 2020 85 Notes to consolidated financial statements 87 (b) Exhibits. The exhibits required by Item 601 of Regulation S-K are set forth under “Index to Exhibits” and is incorporated herein by reference. ITEM 16. FORM 10-K SUMMARY None. 74 Table of Contents EXHIBIT INDEX Incorporated by Reference Exhibit Number Exhibit Description Filed (*) or Furnished (**) Herewith Form Filing Date 3.01 Registrant’s Amended and Restated Certificate of Incorporation. S-1 May 11, 2007 3.02 Registrant’s Amended and Restated Bylaws. S-1 May 11, 2007 4.01 Form of Specimen Certificate for the Registrant’s Common Stock 10-K February 27, 2009 4.02 Indenture with respect to the Registrant’s 2.00% Convertible Senior Notes due 2028, dated as of August 24, 2018, between the Registrant and Wilmington Trust, National Association, as trustee. 8-K August 24, 2018 4.03 Indenture, dated January 14, 2021, between MercadoLibre, Inc., MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., MercadoLibre Chile Ltda., MercadoLibre, S. de R.L. de C.V., DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda. and The Bank of New York Mellon, as trustee. 8-K January 14, 2021 4.04 First Supplemental Indenture, dated January 14, 2021, between MercadoLibre, Inc., MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., MercadoLibre Chile Ltda., MercadoLibre, S. de R.L. de C.V., DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda. and The Bank of New York Mellon, as trustee. 8-K January 14, 2021 4.05 Form of Global Note representing the Registrant’s 2.375% Sustainability Notes due 2026. 8-K January 14, 2021 4.06 Form of Global Note representing the Registrant’s 3.125% Notes due 2031. 8-K January 14, 2021 4.07 Description of Sec ur it ies 10-K February 23, 2022 4.08 Second Supplemental Indenture, dated October 27, 2021 among MP Agregador, S. de R.L. de C.V., MercadoLibre, Inc. and The Bank of New York Mellon, as Trustee 10-K February 23, 2022 10.01 Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers. 10-K February 14, 2020 10.02 Management Incentive Bonus Plan of the Registrant. S-1/A July 13, 2007 10.03 Form of Employment Agreements with Officers. S-1/A July 13, 2007 10.04 Employment Agreement with Osvaldo Gimenez, dated as of March 26, 2008 10-K February 27, 2009 10.05 Amended and Restated 2013 Long-Term Retention Plan 10-Q August 5, 2016 10.06 Amended and Restated 2014 Long-Term Retention Plan 10-Q August 5, 2016 10.07 Amended and Restated 2015 Long-Term Retention Program 10-Q May 6, 2021 10.08 Amended and Restated 2016 Long-Term Retention Program 10-Q May 6, 2021 10.09 Amended and Restated 2017 Long-Term Retention Program 10-Q May 6, 2021 10.10 Amended and Restated 2018 Long-Term Retention Program 10-Q May 6, 2021 10.11 Amended and Restated 2019 Long-Term Retention Program 10-Q May 6, 2021 10.12 Amended and Restated 2020 Long-Term Retention Program 10-Q May 6, 2021 10.13 2021 Long-Term Retention Program 8-K May 5, 2021 10.14 MercadoLibre, Inc. 2022 Long Term Retention Program 8-K May 9, 2022 10.15 Securities Purchase Agreement, dated as of March 11, 2019, by and between MercadoLibre, Inc. and PayPal, Inc. 8-K March 13, 2019 10.16 MercadoLibre, Inc. 2019 Director Compensation Program 8-K August 7, 2019 10.17 Amended and Restated 2009 Equity Compensation Plan DEF 14A April 26, 2019 10.18 Form of Independent Director Restricted Stock Award Agreement 10-Q November 4, 2022 10.19 Revolving C redit A greement dated March 31, 2022. 8-K March 31, 2022 10.20 Advisory Services Agreement, dated April 8, 2022, between MercadoLibre, Inc and Stelleo Pasos Tolda, the advisor. 10-Q May 6, 2022 10.21 Restricted Stock Agreement, dated April 8, 2022, between MercadoLibre, Inc and Stelleo Pasos Tolda. 10-Q May 6, 2022 21.01 List of Subsidiaries * 22.01 List of Subsidiary Guarantors for the Registrant’s 2.375% Sustainability Notes due 2026 and 3.125% Notes due 2031 * 23.01 Consent of Pistrelli, Henry Martin y Asociados S.R.L., Independent Registered Public Accounting Firm on Form S-3 and S-8 * 23.02 Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-3 and S-8 * 31.01 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. * 31.02 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. * 32.01 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. ** 32.02 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. ** 101 The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. * 104 The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL and contained in Exhibit 101 * 75 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MERCADOLIBRE, INC. By: /s/ Marcos Galperin Marcos Galperin Chief Executive Officer Date: February 24, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Marcos Galperin Chief Executive Officer and Director (Principal Executive Officer) February 24, 2023 Marcos Galperin /s/ Pedro Arnt Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 24, 2023 Pedro Arnt /s/ Mario Vazquez Director February 24, 2023 Mario Vazquez /s/ Susan Segal Director February 24, 2023 Susan Segal /s/ Nicolás Aguzin Director February 24, 2023 Nicolás Aguzin /s/ Nicolás Galperin Director February 24, 2023 Nicolás Galperin /s/ Emiliano Calemzuk Director February 24, 2023 Emiliano Calemzuk /s/ Henrique Dubugras Director February 24, 2023 Henrique Dubugras /s/ Andrea Mayumi Petroni Merhy Director February 24, 2023 Andrea Mayumi Petroni Merhy /s/ Richard Sanders Director February 24, 2023 Richard Sanders 76 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of MercadoLibre, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of MercadoLibre, Inc. (the Company) as of December 31, 2022, the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for doubtful accounts on loans receivable Description of the matter As more fully described in Note 2 to the consolidated financial statements, the Company maintains an allowance for doubtful accounts, related to loans receivable, based on Management’s estimate of the current expected credit losses (CECL estimate). This allowance as of December 31, 2022, amounts to 1,112 million U.S. dollars as disclosed in Note 7, which represents a probability-weighted amount, determined by evaluating a range of possible outcomes and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions. The Company’s CECL estimate is determined based on probability-weighed scenarios of default over the life of the loans receivable. Probability of default models are estimated using a non-parametric method, which estimates the future default rate. The models include a macroeconomic outlook for projections and recent performance. The Company estimates marginal monthly default probabilities for each delinquency bucket, type of product and country. These probabilities of default are combined with a set of Loss Given Default parameters, which depend on days past due, type of product and country, and are estimated by measuring an average of historical recovery rates from defaulted credits using Work-out and Chainladder approaches. Auditing the CECL estimate was complex and required the application of significant judgment due to the inherent complexity of the models, assumptions and the interrelationship of the variables used in measuring the CECL estimate. Significant assumptions and judgments with respect to the CECL estimate include the forecast of alternative economic scenarios, the probability weighting of those scenarios and the assumptions for definition of default and portfolio segmentation which considers its credit quality. The CECL estimate is a significant estimate for which variations in model methodology, underlying assumptions and judgments could have a material effect on its measurement. 77 Table of Contents How we addressed the matter in our audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls related to the CECL estimate. The controls we tested included, among others, controls over the development and review of inputs and models used to calculate the CECL estimate, data completeness and accuracy, economic forecasting, including the probability weighting of the economic scenarios and the governance and oversight over the modelled results. To test the CECL estimate, our audit procedures included, among others, involving our credit risk modelling specialists to assist in assessing the methodology and assumptions used to estimate CECL and evaluate management’s forecasting methodology; comparing management’s forward-looking information to independently derived forecasts and publicly available information; evaluating the scenario probability weightings used in the CECL models and performing independent recalculations to test the mathematical accuracy of management’s models; evaluating whether the assumptions used were reflective of the credit quality and testing the completeness and accuracy of data used in the measurement of the CECL estimate. We also assessed the adequacy of the CECL estimate financial statement disclosures. /s/ Pistrelli, Henry Martin y Asociados S.R.L. PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. Member of Ernst & Young Global Limited We have served as the Company’s auditor since 2021. Buenos Aires, Argentina February 24, 2023 78 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of MercadoLibre, Inc. Opinion on Internal Control over Financial Reporting We have audited MercadoLibre, Inc. internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, MercadoLibre, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of MercadoLibre, Inc. (the Company) as of December 31, 2022, the related consolidated statements of income, comprehensive income, equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated February 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Pistrelli, Henry Martin & Asociados S.R.L. PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L. Member of Ernst & Young Global Limited Buenos Aires, Argentina February 24, 2023 79 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of MercadoLibre, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of MercadoLibre Inc. and its subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ DELOITTE & Co. S.A. Buenos Aires, Argentina February 23, 2022 We began serving as the Company's auditor in 2010. In 2022 we became the predecessor auditor. 80 Table of Contents MercadoLibre, Inc. Consolidated Balance Sheets As of December 31, 2022 and 2021 (In millions of U.S. dollars, except par value) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 1,910 $ 2,585 Restricted cash and cash equivalents 1,453 1,063 Short-term investments ($ 1,219 and $ 602 held in guarantee - Note 5) 2,339 810 Accounts receivable, net 130 98 Credit card receivables and other means of payments, net 2,946 1,839 Loans receivable, net of allowances of $ 1,074 and $ 408 (Note 7) 1,704 1,199 Prepaid expenses 38 40 Inventories 152 253 Customer crypto-assets safeguarding assets (Note 2) 15 — Other assets 266 288 Total current assets 10,953 8,175 Non-current assets: Long-term investments 322 89 Loans receivable, net of allowances of $ 30 and $ 27 (Note 7) 32 61 Property and equipment, net 993 807 Operating lease right-of-use assets 656 461 Goodwill 153 148 Intangible assets, net 25 45 Deferred tax assets 346 181 Other assets 256 134 Total non-current assets 2,783 1,926 Total assets $ 13,736 $ 10,101 Liabilities Current liabilities: Accounts payable and accrued expenses 1,393 1,036 Funds payable to customers 3,454 2,393 Amounts payable due to credit and debit card transactions 483 337 Salaries and social security payable 401 313 Taxes payable 414 291 Loans payable and other financial liabilities 2,131 1,285 Operating lease liabilities 142 92 Customer crypto-assets safeguarding liabilities (Note 2) 15 — Other liabilities 129 90 Total current liabilities 8,562 5,837 Non-current liabilities: Amounts payable due to credit and debit card transactions 5 4 Loans payable and other financial liabilities 2,627 2,233 Operating lease liabilities 514 372 Deferred tax liabilities 106 62 Other liabilities 95 62 Total non-current liabilities 3,347 2,733 Total liabilities $ 11,909 $ 8,570 Commitments and contingencies (Note 15) Equity Common stock, 0.001 par value, 110,000,000 shares authorized, 50,257,751 and 50,418,980 shares issued and outstanding — — Additional paid-in capital 2,309 2,439 Treasury stock ( 931 ) ( 790 ) Retained earnings 913 397 Accumulated other comprehensive loss ( 464 ) ( 515 ) Total Equity 1,827 1,531 Total Liabilities and Equity $ 13,736 $ 10,101 The accompanying notes are an integral part of these consolidated financial statements. 81 Table of Contents MercadoLibre, Inc. Consolidated Statements of Income For the years ended December 31, 2022, 2021 and 2020 (In millions of U.S. dollars, except for share data) Year Ended December 31, 2022 2021 2020 Net service revenues $ 9,442 $ 6,149 $ 3,690 Net product revenues 1,095 920 284 Net revenues 10,537 7,069 3,974 Cost of net revenues ( 5,374 ) ( 4,064 ) ( 2,265 ) Gross profit 5,163 3,005 1,709 Operating expenses: Product and technology development ( 1,099 ) ( 590 ) ( 353 ) Sales and marketing ( 1,296 ) ( 1,074 ) ( 768 ) Provision for doubtful accounts ( 1,073 ) ( 435 ) ( 133 ) General and administrative ( 661 ) ( 465 ) ( 327 ) Total operating expenses ( 4,129 ) ( 2,564 ) ( 1,581 ) Income from operations 1,034 441 128 Other income (expenses): Interest income and other financial gains 265 138 103 Interest expense and other financial losses (*) ( 321 ) ( 229 ) ( 107 ) Foreign currency losses, net ( 198 ) ( 109 ) ( 43 ) Net income before income tax expense 780 241 81 Income tax expense ( 298 ) ( 149 ) ( 82 ) Equity in earnings of unconsolidated entity — ( 9 ) — Net income (loss) $ 482 $ 83 $ ( 1 ) (*) Includes $ 49 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in January 2021. See Note 17 to these audited consolidated financial statements for further detail. Year Ended December 31, 2022 2021 2020 Basic earning per share Basic net income (loss) Available to shareholders per common share $ 9.57 $ 1.67 $ ( 0.08 ) Weighted average of outstanding common shares 50,345,353 49,802,993 49,740,407 Diluted earning per share Diluted net income (loss) Available to shareholders per common share $ 9.53 $ 1.67 $ ( 0.08 ) Weighted average of outstanding common shares 51,335,621 49,802,993 49,740,407 The accompanying notes are an integral part of these consolidated financial statements. 82 Table of Contents MercadoLibre, Inc. Consolidated Statements of Comprehensive Income For the years ended December 31, 2022, 2021 and 2020 (In millions of U.S. dollars) Year Ended December 31, 2022 2021 2020 Net income (loss) $ 482 $ 83 $ ( 1 ) Other comprehensive income (loss), net of income tax: Currency translation adjustment 61 ( 56 ) ( 58 ) Unrealized (losses) gains on hedging activities ( 24 ) 8 3 Less: Reclassification adjustment for (losses) gains from accumulated other comprehensive loss ( 14 ) ( 1 ) 6 Net change in accumulated other comprehensive income (loss), net of income tax 51 ( 47 ) ( 61 ) Total Comprehensive income (loss) $ 533 $ 36 $ ( 62 ) The accompanying notes are an integral part of these consolidated financial statements. 83 Table of Contents MercadoLibre, Inc. Consolidated Statements of Equity For the years ended December 31, 2022, 2021 and 2020 (In millions of U.S. dollars) Common stock Additional paid-in capital Treasury Stock (*) Retained Earnings Accumulated other comprehensive loss Total Equity Shares Amount Balance as of December 31, 2019 50 $ — $ 2,068 $ ( 1 ) $ 323 $ ( 407 ) $ 1,983 Changes in accounting standards — — — — ( 5 ) — ( 5 ) Balance as of December 31, 2019 Restated 50 $ — $ 2,068 $ ( 1 ) $ 318 $ ( 407 ) $ 1,978 Capped Call — — ( 307 ) — — — ( 307 ) Common Stock repurchased — — — ( 54 ) — — ( 54 ) Stock-based compensation — restricted shares issued — — 1 — — — 1 Common Stock issued — converted Preferred Shares — — 98 — — — 98 Redeemable convertible preferred stock dividend distribution ($ 9.99 per share) — — — — ( 3 ) — ( 3 ) Net loss — — — — ( 1 ) — ( 1 ) Other comprehensive loss — — — — — ( 61 ) ( 61 ) Balance as of December 31, 2020 50 $ — $ 1,860 $ ( 55 ) $ 314 $ ( 468 ) $ 1,651 Stock-based compensation — restricted shares issued — — 1 — — — 1 Common Stock issued 1 — 1,520 — — — 1,520 Common Stock repurchased ( 1 ) — — ( 486 ) — — ( 486 ) Unwind Capped Call — — 646 ( 249 ) — — 397 Capped Call — — ( 101 ) — — — ( 101 ) Repurchase of 2028 Notes Conversion Option — — ( 1,484 ) — — — ( 1,484 ) Exercise of Convertible Notes — — ( 3 ) — — — ( 3 ) Net Income — — — — 83 — 83 Other comprehensive loss — — — — — ( 47 ) ( 47 ) Balance as of December 31, 2021 50 $ — $ 2,439 $ ( 790 ) $ 397 $ ( 515 ) $ 1,531 Changes in accounting standards (Note 2) — — ( 131 ) — 34 — ( 97 ) Balance as of December 31, 2021 Restated 50 $ — $ 2,308 $ ( 790 ) $ 431 $ ( 515 ) $ 1,434 Common Stock repurchased — — — ( 147 ) — — ( 147 ) Stock-based compensation — restricted shares issued — — 1 ( 1 ) — — — Shares granted (Note 18) — — — 7 — — 7 Net Income — — — — 482 — 482 Other comprehensive income — — — — — 51 51 Balance as of December 31, 2022 50 $ — $ 2,309 $ ( 931 ) $ 913 $ ( 464 ) $ 1,827 (*) As of December 31, 2022 the Company held 663,950 shares as treasury stock. The accompanying notes are an integral part of these consolidated financial statements. 84 Table of Contents MercadoLibre, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 (In millions of U.S. dollars) Year Ended December 31, 2022 2021 2020 Cash flows from operations: Net income (loss) $ 482 $ 83 $ ( 1 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of unconsolidated entity — 9 — Unrealized foreign currency losses, net 411 91 89 Impairment of digital assets 12 9 — Depreciation and amortization 403 204 105 Accrued interest income ( 166 ) ( 36 ) ( 46 ) Non cash interest expense, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges 137 86 15 Provision for doubtful accounts 1,073 435 133 Results on derivative instruments 66 — ( 2 ) Settlement of the call option — ( 11 ) — Stock-based compensation expense - restricted shares 1 1 1 Sale of fixed assets and intangible assets — — 4 LTRP accrued compensation 84 89 130 Deferred income taxes ( 97 ) ( 29 ) ( 70 ) Changes in assets and liabilities: Accounts receivable ( 71 ) ( 26 ) 12 Credit card receivables and other means of payments ( 1,084 ) ( 1,063 ) ( 522 ) Prepaid expenses 3 ( 13 ) 16 Inventories 114 ( 142 ) ( 107 ) Other assets ( 90 ) ( 175 ) ( 114 ) Payables and accrued expenses 449 380 584 Funds payable to customers 1,044 808 901 Amounts payable due to credit and debit card transactions 128 309 37 Other liabilities ( 82 ) ( 79 ) ( 35 ) Interest received from investments 123 35 52 Net cash provided by operating activities 2,940 965 1,182 Cash flows from investing activities: Purchases of investments ( 12,694 ) ( 7,371 ) ( 5,200 ) Proceeds from sale and maturity of investments 11,023 7,801 5,533 Payments for acquired businesses, net of cash acquired — ( 51 ) ( 7 ) Capital contributions in joint ventures — ( 5 ) — Receipts from settlements of derivative instruments 1 6 18 Payments from settlements of derivative instruments ( 45 ) ( 20 ) ( 4 ) Purchases of intangible assets ( 1 ) ( 36 ) — Changes in principal loans receivable, net ( 1,701 ) ( 1,348 ) ( 345 ) Investments of property and equipment ( 454 ) ( 573 ) ( 247 ) Net cash used in investing activities ( 3,871 ) ( 1,597 ) ( 252 ) Cash flows from financing activities: Purchase of convertible note capped calls — ( 101 ) ( 307 ) Exercise of Convertible Notes — ( 3 ) — Payments on repurchase of the 2028 Notes — ( 1,865 ) — Unwind of convertible note capped calls — 397 — Proceeds from loans payable and other financial liabilities 17,017 9,262 2,396 Payments on loans payable and other financing liabilities ( 15,933 ) ( 6,782 ) ( 1,785 ) Payments of finance lease obligations ( 20 ) ( 17 ) ( 5 ) Common Stock repurchased ( 148 ) ( 486 ) ( 54 ) Dividends paid of preferred stock — — ( 3 ) Proceeds from issuance of common stock, net — 1,520 — Net cash provided by financing activities 916 1,925 242 Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents ( 270 ) ( 153 ) ( 115 ) Net (decrease) increase in cash, cash equivalents, restricted cash and cash equivalents ( 285 ) 1,140 1,057 Cash, cash equivalents, restricted cash and cash equivalents, beginning of the year 3,648 2,508 1,451 Cash, cash equivalents, restricted cash and cash equivalents, end of the year $ 3,363 $ 3,648 $ 2,508 The accompanying notes are an integral part of these consolidated financial statements. 85 Table of Contents MercadoLibre, Inc. Consolidated Statement of Cash Flows For the years ended December 31, 2022, 2021 and 2020 (In millions of U.S. dollars) Year Ended December 31, 2022 2021 2020 Supplemental cash flow information: Cash paid for interest $ 247 $ 58 $ 54 Cash paid for income tax $ 437 $ 282 $ 140 Non-cash financing activities: Finance lease obligations $ 18 $ 20 $ 12 Non-cash investing activities: Contingent considerations and escrows from acquired business $ — $ 12 $ 2 Right-of-use assets obtained under operating leases $ 317 $ 229 $ 138 Right-of-use assets obtained under finance leases $ 18 $ 37 $ 17 Acquired businesses, through call option $ — $ 11 $ — Acquisition of business 2022 2021 (1) 2020 (2) Cash and cash equivalents $ — $ 4 $ 1 Accounts receivable — 6 3 Other current assets — 18 2 Other non current assets — 1 — Intangible Assets — — — Fixed Assets — 1 1 Total assets acquired — 30 7 Accounts payable and accrued expenses — 19 2 Other liabilities — 7 6 Total liabilities assumed — 26 8 Net assets acquired (liabilities assumed) — 4 ( 1 ) Goodwill and deferred tax liabilities — 68 6 Hubs network — 3 3 Platform — 1 — Customer lists — 1 2 Non Compete and Non Solicitation Agreement — — 1 Total purchase price — 77 11 Cash and cash equivalents acquired — 4 1 Total purchase price, net of cash acquired $ — $ 73 $ 10 (1) Related to the acquisition of a shipping company and payment services company - See Note 8 “Business combinations, goodwill, and intangible assets.” (2) Related to the acquisition of a software development company. The accompanying notes are an integral part of these consolidated financial statements. 86 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 1. Nature of Business MercadoLibre, Inc. (“MercadoLibre”, and together with its consolidated entities, the “Company”) was incorporated in the state of Delaware, in the United States of America, in October 1999. MercadoLibre is the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as a provider of necessary digital and technology tools that allow businesses and individuals to trade products and services in the region. The Company enables commerce through its marketplace platform, which allows users to buy and sell in most of Latin America. Through Mercado Pago, the fintech solution, MercadoLibre enables individuals and businesses to send and receive digital payments; through Mercado Envios, MercadoLibre facilitates the shipping of goods from the Company and sellers to buyers; through the advertising products, MercadoLibre facilitates advertising services for large retailers and brands to promote their product and services on the web; through Mercado Shops, MercadoLibre allows users to set-up, manage, and promote their own on-line web-stores under a subscription-based business model; through Mercado Credito, MercadoLibre extends loans to certain merchants and consumers; and through Mercado Fondo, MercadoLibre allows users to invest funds deposited in their Mercado Pago accounts. As of December 31, 2022, MercadoLibre, through its wholly-owned subsidiaries, operated online e-commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates its fintech solution in Argentina, Brazil, Mexico, Colombia, Chile, Peru, Uruguay and Ecuador, and extends loans through Mercado Credito in Argentina, Brazil, Mexico and Chile. It also offers a shipping solution directed towards Argentina, Brazil, Mexico, Colombia, Chile, Uruguay, Peru and Ecuador. 2. Summary of significant accounting policies 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, its wholly-owned subsidiaries and consolidated Variable Interest Entities (“VIE”). Investments in entities where the Company holds joint control, but not control, over the investee are accounted for using the equity method of accounting. 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. Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations. Long-lived assets, intangible assets and goodwill located in the foreign jurisdictions totaled $ 1,817 million and $ 1,439 million as of December 31, 2022 and 2021, respectively. Certain comparative figures of these consolidated financial statements were modified to provide more detailed disclosures. This change has not impacted the total amount of net income and total equity. Since the quarter ended June 30, 2022, the Company discloses the provision for doubtful accounts as a separate line item of its operating expenses in the consolidated statements of income. The provision for doubtful accounts amounts to $ 1,073 million, $ 435 million and $ 133 million for the years ended December 31, 2022, 2021 and 2020, respectively. Variable Interest Entities (VIEs) A VIE is an entity (i) that has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, (ii) that has equity investors who lack the characteristics of a controlling financial interest or (iii) in which the voting rights of some equity investors are disproportionate to their obligation to absorb losses or their right to receive returns and substantially all of the entity’s activities are conducted on behalf of the equity investors with disproportionately few voting rights. The Company consolidates VIEs of which it is the primary beneficiary. The Company is considered to be the primary beneficiary of a VIE when it has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. See Note 21 of these audited consolidated financial statements for additional detail on the VIEs used for securitization purposes. 87 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Use of estimates The preparation of 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, inventories valuation reserves, recoverability of goodwill, intangible assets with indefinite useful lives and deferred tax assets, impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relating to the Company’s long term retention plan, fair value of convertible debt, fair value of investments, fair value of derivative instruments, income taxes and contingencies and determination of the incremental borrowing rate at commencement date of lease operating agreements. Actual results could differ from those estimates. 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, time deposits and sovereign debt securities, to be cash equivalents. The Company’s management assesses balances for credit losses included in cash and cash equivalents and restricted cash and cash equivalents, except for those recorded at fair value with impact on the statement of income, based on a review of the average period for which the financial asset is held, credit ratings of the financial institutions and probability of default and loss given default models. The Company did not recognize any material credit loss on the cash and cash equivalents and restricted cash and cash equivalents for the years ended December 31, 2022, 2021 and 2020. Money market funds and sovereign debt securities are valued at fair value. See Note 10 “Fair value measurement of assets and liabilities” of these audited consolidated financial statements for further details. Investments Time deposits are valued at amortized cost plus accrued interest. Corporate 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 accumulated 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’s Management assesses balances for credit losses included in short and long-term investments, except for those recorded at fair value with impact on the statement of income, based on a review of the average period for which the financial asset is held, credit ratings of the financial institutions and probability of default and loss given default models. The Company did not recognize any material credit loss on the short and long-term investments for the years ended December 31, 2022, 2021 and 2020. Sovereign debt securities (including Central Bank of Brazil mandatory guarantee) are valued at fair value. See Note 10 “Fair value measurement of assets and liabilities” of these audited consolidated financial statements for further details. Fair value option applied to certain financial instruments Under Accounting Standards Codification (“ASC”) 825, U.S. GAAP provides an option to elect fair value with impact on the statement of income as an alternative measurement for certain financial instruments and other items on the balance sheet. The Company has elected to measure certain financial assets at fair value with impact on the statement of income for several reasons including to avoid the mismatch generated by the recognition of certain linked instruments / transactions, separately, in the consolidated statement of income and consolidated statement of comprehensive income and to better reflect the financial model applied for selected instruments. The Company’s election of the fair value option applies to the: i) Brazilian federal government bonds and ii) U.S. treasury notes. Credit card receivables and other means of payments, net Credit card receivables and other means of payments mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external payment networks either during the time required to collect the installments (which may be one or more than one installment) or during the period of time until those credit card receivables are sold to financial institutions. Credit card receivables and other means of payments are presented net of the related allowance for chargebacks and doubtful accounts. 88 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) The Company is exposed to losses due to credit card fraud and other payment misuse. Provisions for these items represent the Company’s estimate of actual losses based on its historical experience, as well as economic conditions. The Company may sell credit card receivables to financial institutions, included within “Credit card receivables and other means of payments, net”. 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 balance sheet. Based on historical experience to date the Company assessed that it does not hold a significant credit risk exposure in relation to transfer of financial assets with recourse. Loans receivable, net Loans receivable represents loans granted to certain merchants and consumers through the Company’s Mercado Credito solution. Loans receivable are reported at amortized cost, which includes outstanding principal balances plus estimated collectible interest, net of allowance for doubtful accounts. Past due are those loans where customers have failed to make payments in accordance with the contractual terms of their loans. The Company places loans on non-accrual status at 90 days past due. Interests related to loans on non-accrual status are recognized on cash-basis. Through the Company’s Mercado Credito 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 7 days and 24 months. Allowances for doubtful accounts on loans receivable, accounts receivable and credit card receivables and other means of payments Since January 1, 2020, the Company maintains allowances for doubtful accounts for Management’s estimate of current expected credit losses (“CECL”) that may result if customers do not make the required payments. Measurement of current expected credit losses The Company estimates its allowance for credit losses as the lifetime expected credit losses of the loans receivable, accounts receivable and credit cards receivable and other means of payments. The Company makes use of available information as of each period in which this estimate is developed and uses estimation methods according to the information available and the level of precision needed as certain balances and transactions become more significant over time following the Company’s strategy in connection of the launch and maturing of certain services offerings to its customers. In 2021 and before, for example, the credit business was in a development stage, with limited historical information. The future collection estimates involved the use of complex algorithms, and a high degree of subjectivity and estimation capability by Management, including assessing whether the economic used model reflected the changing economic conditions, among others. This estimate required a complex and high degree of Management’s judgment. Specifically in regards of the CECL estimate, including year 2022 information provided a wider series of historical data and the credit business showed a growth in related balances and transactions which led Management to continue enhancing the models used to develop this estimate. CECL represents the present value of the uncollectible portion of the principal, interest, late fees, and other allowable charges. The allowance for doubtful accounts is recorded as a charge to provision for doubtful accounts. Loans receivable Loans receivable in this portfolio include the products that the Company offers to: 1) on-line merchant, 2) in-store merchant, 3) consumers and 4) credit card users. For loans receivable that share similar risk characteristics such as product type, country, unpaid installments, days delinquent and other relevant factors, the Company estimates the lifetime expected credit loss allowance based on a collective assessment. The lifetime expected credit losses is determined by applying probability of default and loss given default models to monthly projected exposures, then discounting these cash flows to present value using the portfolio’s loans interest rate, estimated as a weighted average of the original effective interest rate of all the loans that conform the portfolio segment. 89 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) The probability of default is an estimation of the likelihood that a loan receivable will default over a given time horizon. Probability of default models (“PD”) are estimated using a survival methodology; these PD are constructed using individual default information through time, taking into account the expected future delinquency rate (forward-looking models) using, since 2022, three probability-weighted macroeconomic scenarios (base, optimistic and pessimistic) following the increased complexity and possible outcomes of the global, regional and domestic macroeconomic performance, so that the models include macroeconomic outlook or projections and recent performance, instead of using one scenario as prior years. With this model, the Company estimates marginal monthly default probabilities for each delinquency bucket, type of product and country. Each marginal monthly probability of default represents a different possible scenario of default. The exposure at default is equal to the receivables’ expected outstanding principal, interest and other allowable balances. The Company estimates the exposure at default that the portfolio of loans would have in each possible moment of default, meaning for each possible scenario mentioned above. For credit cards loans the Company estimates an amortization scheme based on historical information. Also, since 2022, we have used a one month credit conversion factor (“CCF”) estimated according to terms and conditions, considering the increase in the volume of credit cards portfolio. The loss given default (“LGD”) is the percentage of the exposure at default that is not recoverable. The LGD is estimated using Work-out and Chainladder approaches. This percentage depends on days past due, type of product and country, and is estimated by measuring an average of historical recovery rates from defaulted credits. The measurement of CECL is based on probability-weighted scenarios (probability of default for each month), in view of past events, current conditions and adjustments to reflect the reasonable and supportable forecast of future economic conditions. The Company writes off loans receivable when the customer balance becomes 360 days past due. Accounts Receivable To measure the CECL, accounts receivable have been grouped based on shared credit risk characteristics and the number of days past due. The Company has therefore concluded historical loss rates are a reasonable approximation of the expected loss rates for those assets. Accounts receivable are recovered over a period of 0-180 days, therefore, forecasted changes to economic conditions are not expected to have a significant effect on the estimate of the allowance for doubtful accounts. The Company writes off accounts receivable when the customer balance becomes 180 days past due. Credit card receivables and other means of payments Management assesses balances for credit losses included in credit card receivables and other means of payments, based on a review of the average period for which the financial asset is held, credit ratings of the financial institutions and probability of default and loss given default models. The Company has arrangements with some unaffiliated entities under which MercadoLibre users are able to fund their Mercado Pago accounts by depositing an equivalent amount with the unaffiliated entity. In some of these arrangements, MercadoLibre credits the Mercado Pago account before the unaffiliated entity transfers the funds to MercadoLibre to settle the transaction. The amounts pending settlement are recognized in the balance sheet as credit card receivables and other means of payments. In June 2020, the Company became aware that it had accumulated significant receivables from one such unaffiliated entity in Argentina. The aging of these receivables exceeded the expected aging for transactions of this kind, hence, the Company recorded a $ 27 million loss on provision for doubtful accounts during the year ended December 31, 2020. Concentration of credit risk Cash and cash equivalents, restricted cash and cash equivalents, short-term and long-term investments, credit card receivables and other means of payments, accounts receivable and loans receivable are potentially subject to credit risk. However, there are not significant concentrations of credit risk arising from these financial instruments. Cash and cash equivalents, restricted cash and cash equivalents and investments are placed with several financial institutions and financial instruments from different countries that are highly liquid and highly rated. Accounts receivable are derived from revenue earned from customers located internationally and are settled through customer credit cards, debit cards and Mercado Pago accounts, with the majority of accounts receivable collected upon processing of credit card transactions. Due to the relatively small dollar amount of individual accounts receivable and loans receivable, the Company generally does not require collateral on these balances. 90 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) During the years ended December 31, 2022 and 2021, no single customer accounted for more than 5 % of net revenues. As of December 31, 2022 and 2021, no single customer, except for credit card processing companies, accounted for more than 5 % of accounts receivable and loans receivable. Credit card receivables and other means of payments, net line of the consolidated balance sheet shows the Company’s credit exposure to not more than 10 entities in each of the countries where the Company offers its payments solution. USD Coin USD Coin ("USDC") is accounted for as a financial instrument measured at fair value; one USDC can be redeemed for one U.S. dollar on demand from the issuer. USDC balance is included in current other assets of the consolidated balance sheet. Inventories Inventories, consisting of products and mobile point of sale (“MPOS”) devices available for sale, are accounted for using the weighted average price method, and are valued at the lower of cost or net realizable value. The Company accounts for an allowance for recoverability of inventories based on Management’s analysis of the inventories, aging, consumption patterns, as well as the lower of cost or net realizable value. Third-party sellers whose products are stored at the Company’s fulfillment centers, maintain the ownership of their inventories hence these products are not included in Company’s inventories balances. 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 2022 and 2021, the Company capitalized $ 202 million and $ 188 million , respectively. Operating lease right-of-use assets and operating lease liabilities The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, which is a non-monetary asset, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease, which is a monetary liability. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the leases do not provide an implicit rate, the Company uses incremental borrowing rates based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease prepaid payments made. In addition, the Company elected to not separate lease components, except for aircraft for which the Company allocates payments to the lease and other services components based on estimated stand-alone prices. The Company also elected to keep leases with an initial term of 12 months or less off of the balance sheet. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. 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 and others, non-solicitation, non-compete agreements and hubs network 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 twelve 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. 91 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Digital Assets The Company accounts for its digital assets, except for the USDC, as indefinite-lived intangible assets, in accordance with ASC 350, Intangibles—Goodwill and Other. The Company has ownership of and control over its digital assets and uses third-party custodial services to store its digital assets. The Company’s digital assets are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition. The Company performs an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on the active exchange, indicate that any decrease in the fair values of the digital assets below the carrying values for such assets subsequent to their acquisition will result in a recognition of impairment charges. The Company considers the lowest price of the digital asset on the active exchange since the acquisition of the asset to perform the impairment analysis. The Company determines the fair value of its digital assets in accordance with ASC 820, Fair Value Measurement. 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. The impairment evaluation is performed at the lowest level of identifiable cash flows independent of other assets. 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. As of December 31, 2022 there were no events or changes in circumstances that indicate that the carrying value of an asset may not be recoverable. 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, 2022 and 2021, 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, 2022, the fair values of the reporting units were estimated using the income approach. Cash flow projections used were based on financial budgets approved by the Board of Directors. The Company uses discount rates for each reporting unit in the range of 12.1 % to 21.0 %. The average discount rate used for 2022 was 15.0 %. That rate reflected the Company’s estimated weighted average cost of capital. Key drivers in the analysis include Average Selling Price (“ASP”), Take Rate defined as marketplace revenues as a percentage of Gross Merchandise Volume (“GMV”), Total Payment Volume Off Platform (“TPV Off”), Off Platform Take Rate defined as off platform revenues as a percentage of TPV Off, Wallet and Point TPV per Payer, Wallet Users over Total Population and Active Point devices. In addition, the analysis includes a business to e-commerce rate, which represents growth of e-commerce as a percentage of Gross Domestic Product, 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. No impairment loss has been recognized in the years ended December 31, 2022, 2021 and 2020 as Management’s assessment of the fair value of each reporting unit exceeds its carrying value. Digital Assets Impairment losses are recognized in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains (if any) are not recorded until realized upon sale. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale. Intangible assets with indefinite useful life are considered impaired if the carrying amount of the intangible asset exceeds its fair value. The Company recorded an impairment of digital assets of $ 21 million and $ 9 million as of December 31, 2022 and 2021, respectively. No impairment loss has been recognized in the year ended December 31, 2020. 92 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) 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. 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. 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. Accordingly, Management periodically assesses the need to establish a valuation allowance for deferred tax assets considering positive and negative objective evidence related to the realization of the deferred tax assets. In connection with this assessment, Management considers, among other factors, the nature, frequency, and magnitude of current and cumulative losses on an individual subsidiary basis, projections of future taxable income, the duration of statutory carryforward periods, as well as feasible tax planning strategies that would be employed by the Company to prevent tax loss carryforwards from expiring unutilized. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income (GILTI) as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company selected the period cost method. Accordingly, the Company was not required to record any impact in connection with the potential GILTI tax as of December 31, 2022 and 2021, respectively. 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 derecognition, 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 tax 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 authorities for open years primarily include the U.S., Argentina, Brazil and Mexico. Derivative Financial Instruments The Company’s operations are in various foreign currencies and consequently are exposed to foreign currency risk. Additionally, the funding of its operations through variable rate financial debt makes the Company exposed to interest rate fluctuation risks. As a consequence, the Company uses derivative instruments to reduce the volatility of earnings and cash flows which were designated as hedges. All outstanding derivatives are recognized in the Company’s consolidated balance sheet at fair value except for the derivatives related to the Capped Call Transactions (as defined in Note 17) which are recognized in equity at cost paid. The effective portion of a designated derivative’s gain or loss in a cash flow hedge is initially reported as a component of accumulated other comprehensive loss and is subsequently reclassified into the financial statement line item in which the variability of the hedged item is recorded in the period the forecasted transaction affects earnings. The designated derivative’s gain or loss in the net investment hedge was reported as a component of accumulated other comprehensive loss. The gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into earnings in the same period that the interest expense affects earnings. Additionally, the Company uses swap contracts to hedge the interest rate and the foreign currency exposure of its fixed-rate, foreign currency financial debt issued by its non-US subsidiaries. The Company designated the swap contracts as fair value hedges. The derivative’s gain or loss is reported in earnings in the same line items as the change in the value of the financial debt due to the hedged risks. Since the terms of the interest rate swap match the terms of the hedged debt, changes in the fair value of the interest rate swap are offset by changes in the fair value of the hedged debt attributable to changes in interest rates. Accordingly, the net impact in current earnings is that the interest expense associated with the hedged debt is recorded at the floating rate. Finally, the Company also hedges its economic exposure to foreign currency risk related to foreign currency denominated monetary assets and liabilities with foreign derivative currency contracts and interest rate fluctuation with swap contracts which were not designated as hedges. Accordingly, these outstanding non-designated derivatives are recognized in the Company’s consolidated balance sheet at fair value, and changes in fair value from these contracts are recorded in other income (expense), net in the consolidated statement of income. 93 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Funds payable to customers Funds payable to customers relate also to the Company’s payments solution and are originated by the amounts due to users held by the Company. Funds, net of any amount due to the Company by the user, are maintained in the user’s current account until withdrawal is requested by the user. See Note 3 “Fintech Regulations” of these audited consolidated financial statements for additional information on regulations over Mercado Pago business. Amounts payable due to credit and debit card transactions Amounts payable due to credit and debit card transactions are originated by purchase transactions carried out by the Company’s customers with debit and credit cards issued by Mercado Pago. Provision for buyer protection program The Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s online payment solution Mercado Pago (except for certain excluded categories). The Company is exposed to losses under this program given that this program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance. Provisions for BPP represent the Company’s estimate of probable losses based on its historical experience. The charge for the provision for BPP is recognized in sales and marketing expense line of the consolidated statement of income. See Note 15 “Commitments and Contingencies” of these audited consolidated financial statements for further details. Share-based payments The liability related to the variable portion of the long term retention plans is remeasured at fair value. See Note 16 “Long term retention plan” of these audited consolidated financial statements for more details. Treasury Stock Equity instruments of the Company that are repurchased by the Company are recognized at cost and deducted from equity. If the repurchase of the Company’s stock is carried out at a price significantly in excess of the current market price, there is a presumption that the repurchase price includes amounts attributable to items other than the stock repurchased; therefore, the Company uses the quoted market price of the common stock for purposes of determining the fair value of the treasury stock. See Note 25 of these audited consolidated financial statements for further details. Comprehensive income (loss) Comprehensive income (loss) is comprised of two components, net income (loss) and other comprehensive income (loss). 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 (loss) includes the cumulative adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries, unrealized gains and losses on investments classified as available-for-sale and on hedging activities. Total comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 amounted to $ 533 million, $ 36 million and $( 62 ) million, respectively. Foreign currency translation All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Argentina, which has used the U.S. dollar as its functional currency since July 1, 2018. Accordingly, the foreign subsidiaries with local currency as functional currency 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 income (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 statements of income under the caption “Foreign currency losses, net”. 94 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Argentine currency status As of July 1, 2018, the Company transitioned its Argentine operations to highly inflationary status in accordance with U.S. GAAP, and changed the functional currency for Argentine subsidiaries from Argentine Pesos to U.S. dollars, which is the functional currency of their immediate parent company. Argentina’s annual inflation rate for the years ended December 31, 2022, 2021 and 2020 was 94.8 %, 50.9 % and 36.1 %, respectively. The Company uses the Argentina’s official exchange rate to account for transactions in the Argentine segment, which as of December 31, 2022, 2021 and 2020 was 177.16 , 102.72 and 84.15 , respectively, against the U.S. dollar. For the years ended December 31, 2022, 2021 and 2020 the Argentina’s annual depreciation of its local currency against the U.S. dollar was 72.5 %, 22.1 % and 40.5 %, respectively. The following table sets forth the assets, liabilities and net assets of the Company’s Argentine subsidiaries and consolidated VIEs, before intercompany eliminations, as of December 31, 2022 and December 31, 2021: December 31, 2022 2021 (In millions) Assets $ 3,238 $ 2,479 Liabilities 2,419 1,874 Net Assets $ 819 $ 605 The following table provides information relating to net revenues and net income before income tax expense for the years ended December 31, 2022, 2021 and 2020 of the Company’s Argentine subsidiaries and consolidated VIEs: Year Ended December 31, 2022 2021 2020 (In millions) Net revenues $ 2,500 $ 1,531 $ 980 Net income before income tax expense 699 389 185 Argentine Exchange regulations In the second half of 2019, the Argentine government instituted exchange controls restricting the ability of companies and individuals to exchange Argentine Pesos for foreign currencies and their ability to remit foreign currency out of Argentina. An entity’s authorization request to the Central Bank of Argentina (“CBA”) to access the official exchange market to make foreign currency payments may be denied depending on the circumstances. As a result of these exchange controls, markets in Argentina developed trading mechanisms, in which an entity or individual buys U.S. dollar denominated securities in Argentina (i.e. shares, sovereign debt) using Argentine peso, and subsequently sells the securities for U.S. dollars, in Argentina, to access U.S. dollars locally, or outside Argentina, by transferring the securities abroad, prior to being sold (the latter commonly known as Blue Chip Swap Rate). The Blue Chip Swap Rate has diverged significantly from Argentina’s official exchange rate (commonly known as exchange spread). In recent years, the Blue Chip Swap Rate has been higher than Argentina’s official exchange rate. As of December 31, 2022, the spread of the Blue Chip Swap was 94.2 % (see Note 25 of these audited consolidated financial statements.) Revenue recognition Revenues are recognized when control of the promised services or goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for them. Contracts with customers may include promises to transfer multiple services including discounts on current or future services. Determining whether services are considered distinct performance obligations that should be accounted for separately versus together may require judgment. 95 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Revenues are recognized when each performance obligation is satisfied by transferring the promised good or service to the customer according to the following criteria described for each type of service: a) Commerce transactions: • Revenues from intermediation services derived from final value fees paid by sellers. Revenues related to final value fees are recognized at the time that the transaction is successfully concluded (which occurs when the marketplace transaction is confirmed right after processing the payment). • Revenues from shipping services are generated when a buyer elects to receive the item through the Company’s shipping service and the service is rendered to the customer. When the Company acts as an agent, revenues derived from the shipping services are recognized at the time the transaction is successfully concluded for third-party sales, and presented net of the transportation costs charged by third-party carriers. When the Company acts as principal, revenues derived from the shipping services are recognized upon delivery of the good to the customer, and presented on a gross basis. As part of the Company’s business strategy, shipping costs may be fully or partially subsidized at the Company’s option. • Revenues from inventories sales are generated when control of the good is transferred to the Company’s customers, which occurs upon delivery to the customer. • Revenues from advertising services provided to sellers, vendors, brands and others, through performance product ads and display advertising, are recognized based on the number of clicks or impressions. • 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 are not subject to successful sale of the items listed. b) Fintech transactions: • Revenues from commissions the Company charges for transactions off-platform derived from the use of the Company’s payments solution or Mercado Pago credit and debit cards, and revenues derived from insurtech transactions are recognized once the transaction is considered completed, when the payment is processed by the Company, net of rebates granted. The Company also earns revenues as a result of offering financing to its Mercado Pago 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, t he financing component is separated from the revenue amount and is recognized over the financing period using the interest method . When the Company sells the corresponding financial assets to financial institutions, the result of such sale is accounted for as financing revenues net of financing costs at the time of transfer of the financial assets. The aggregate gain included in “Fintech services” revenues arising from financing transactions and sales of financial assets, net of the costs recognized on sale of credit card receivables, is $ 1,054 million, $ 575 million and $ 453 million, for the years ended December 31, 2022, 2021 and 2020, respectively. • Revenues from sale of mobile points of sale products are recognized when control of the good is transferred. • Revenues from interest earned on loans and advances granted to merchants and consumers, and credit card transactions are recognized over the period of the lo an and are based on effective interest rates. The Company places loans on non-accrual status at 90 days past due. Benefits granted to customers under the Company’s loyalty program are accounted for as material rights and therefore the allocated amount of revenue is deferred until the customers exercise their material rights or until expiration, whichever occurs first. Contract Balances Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenue recognized prior to invoicing when the Company has satisfied the performance obligation and has the unconditional right to payment. Accounts receivable and credit card receivables and other means of payments are presented net of allowance for doubtful accounts and chargebacks of $ 25 million and $ 39 million as of December 31, 2022 and 2021, respectively. The allowance for doubtful accounts with respect to the Company ’ s loans receivable amounts to $ 1,112 million (which includes $ 8 million related to unused agreed loan commitment on credit cards portfolio presented in Other liabilities of the Consolidated Balance Sheet) and $ 435 million as of December 31, 2022 and 2021, respectively. 96 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the year in accordance with ASC 606. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following months. Deferred revenue as of December 31, 2021 was $ 34 million, of which substantially all was recognized as revenue during the year ended December 31, 2022. As of December 31, 2022, total deferred revenue was $ 44 million, mainly due to fees related to classified advertising services billed and loyalty programs that are expected to be recognized as revenue in the coming months. Sales tax The Company’s subsidiaries in Brazil, Argentina and Colombia are subject to certain sales taxes which are classified as cost of net revenues and totale d $ 790 million, $ 569 million and $ 325 million for the years ended December 31, 2022, 2021 and 2020, respectively. 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 for the years ended December 31, 2022, 2021 and 2020 amounted to $ 593 million, $ 531 million and $ 356 million, respectively. Recently Adopted Accounting Standards On March 31, 2022, the SEC released the Staff Accounting Bulletin (SAB) No. 121. This SAB expresses views of the SEC’s staff regarding the accounting for entities that have obligations to safeguard crypto-assets held for their platform users as well as any agent acting on its behalf in safeguarding the users’ crypto-assets. As long as an entity is responsible for safeguarding the crypto-assets held for its platform users, including maintaining the cryptographic key information necessary to access the crypto-assets, the SEC’s staff view is that the entity should present a liability on its balance sheet to reflect its obligation to safeguard the crypto-assets held for its platform users. The entity’s safeguarding liability should be measured at initial recognition and each reporting date at the fair value of crypto-assets held for its platform users. The staff also believes it would be appropriate for the entity to recognize an asset at the same time that it recognizes the safeguarding liability, measured at initial recognition and each reporting date at the fair value of the crypto-assets held for its platform users. This interpretation is effective the first interim or annual period ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year to which the interim or annual period relates. The Company operates a platform that allows its customers to access digital asset exchange and custody services provided by third-party Service Providers (“SPs”) to buy, sell and hold crypto-assets in an account in the customer’s name at the SPs. The Company does not provide execution, custody or safeguarding services for the customers’ crypto-assets and does not maintain (or ever have access to) the cryptographic key information and wallets necessary to access the crypto-assets, nor does the Company have any legal title or claim to those crypto-assets. The SPs are responsible for securing the customers’ crypto-assets and protecting them from loss or theft. Even though the Company is not responsible for the custody or safeguarding of crypto-assets, the Company has concluded that it is in scope of SAB 121 as: (i) the Company designed the manner in which the crypto-assets are custodied and the manner in which Mercado Pago Platform (“MP Platform”) users are able to access their crypto-assets through the MP Platform, as well as through its agents; (ii) the MP Platform users must use the SPs designated by the Company in order to have the crypto-assets reflected in their Mercado Pago wallets; (iii) MP Platform users that have crypto-assets reflected in their Mercado Pago wallets must access their crypto-assets through the MP Platform; (iv) while MP Platform users do have a contractual relationship directly with the SPs, they are not able to provide transaction instructions directly to the SPs outside the MP Platform; and (v) the Company expects that it will be involved in resolving complaints from customers about their crypto-assets holding. As of December 31, 2022, the fair value of the crypto-assets held in the customers’ names at the SPs that the Company recognized on its balance sheet for both the crypto-asset safeguarding liability and the corresponding safeguarding asset, which are included in “Customer crypto-assets safeguarding liabilities” and “Customer crypto-assets safeguarding assets,” respectively, in the consolidated balance sheets, was $ 15 million ($ 4 million as of January 1, 2022), which consisted of $ 6 million of Bitcoin, $ 5 million of Ether and $ 4 million of other crypto-assets. 97 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) On August 5, 2020, the Financial Accounting Standards Board (“FASB”) issued the Accounting Standards Update (“ASU”) 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this update address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, accounting models for specific features are removed and amendments to the disclosure requirements are included. For contracts in an entity’s own equity, the update simplifies the settlement assessment by removing some requirements. Additionally, the amendments in this update affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The Company adopted this standard effective January 1, 2022, resulting in an increase of the carrying value of the 2028 Notes of $ 123 million, a decrease of deferred tax liability of $ 26 million and a decrease in the beginning balance of additional paid in capital of $ 131 million and an increase of retained earnings of $ 34 million. In addition, the Company reduced its reported interest expense and is required to use the if-converted method for calculating diluted earnings per share. Accounting Pronouncements Not Yet Adopted On September 29, 2022, the FASB issued the ASU 2022-04 “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The amendments in this update require entities that use supplier finance programs in connection with the purchase of goods and services to disclose the key terms of the programs and information about their obligations outstanding at the end of the reporting period, including a rollforward of those obligations. The guidance does not affect the recognition, measurement or financial statement presentation of supplier finance program obligations. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, except for the rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The guidance should be applied retrospectively to all periods in which a balance sheet is presented, except for the rollforward requirement, which should be applied prospectively. The Company and certain financial institutions participate in a supplier finance program (“SFP”) that enables certain of Company’s suppliers, at their own election, to request the payment of their invoices to the financial institutions earlier than the terms stated in Company’s payment policy. Suppliers’ voluntary inclusion of invoices in the SFP does not change the Company’s payment terms, the amounts paid or liquidity. The Company has no economic interest in a supplier’s decision to participate in the SFP and has no financial impact in connection with the SFP. As of December 31, 2022, the program amounted to $ 206 million, out of which $ 169 million have been utilized by suppliers and are included in the balance sheet within accounts payable and accrued expenses line. On June 30, 2022, the FASB issued ASU 2022-03 “Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” The amendments in this update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered when measuring its fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires additional disclosures for equity securities subject to contractual sale restrictions. The amendments in this update are effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years and should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. On March 31, 2022, the FASB issued ASU 2022-02 “Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326): Financial Instruments – Credit Losses,” which eliminates the accounting guidance on TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases. The amendments in this update are effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. The amendments should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. 98 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 2. Summary of significant accounting policies (continued) On October 28, 2021, the FASB issued the ASU 2021-08 “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The amendments in this update improve comparability for the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination by specifying for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. The amendments provide consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. 3. Fintech Regulations Regulations issued by CBA In January 2020, the CBA enacted regulations related to payment service providers that applies to fintech companies that are not financial institutions, but nevertheless provide payment services in at least one of the processes of the payments system and offer a payment account to its customers. On July 7, 2020, the CBA approved the registration of the Argentine subsidiary in the registry for payment service providers who offer payment accounts (“PSPOCP” according to its Spanish acronym). These regulations set forth certain rules that require PSPOCP to, among other things, (i) deposit and maintain users’ funds in specific local bank accounts, payable on demand; (ii) implement a monthly reporting regime with the CBA; (iii) segregate information related to users’ investments funds; (iv) segregate the Company’s funds from users’ funds; and (v) to comply with transparency provisions regarding PSPOCP’s advertising material and documents. As of December 31, 2022 and 2021, in accordance with the regulation, the Company held customer’s funds for the amount of $ 496 million and $ 449 million, respectively, representing the total amount of funds in payment accounts of customers, payable to them on demand. On December 30, 2021, the board of the CBA issued a regulation by which financial institutions must set up a reserve of 100 % of the customer funds deposited by payment service providers that offer payment accounts. According to this new regulation, from January 1, 2022, 100 % of the customer funds that have not been invested by users in Mercado Fondo, have remained deposited at financial institutions, and such financial institutions deposited 100% of those funds at the CBA, and available for users. On January 13, 2022, the Company challenged such regulation, and sought an injunction to suspend the effects pending resolution of the challenge. On March 22, 2022, the CBA rejected the Company’s challenge. On April 22, 2022, the Company sought a new preliminary injunction with the courts, in order to suspend the effects of the regulation until a final decision on the merits is granted on the case to be initiated within 90 days following that request, which was rejected by the court. The Company appealed such decision and also filed a motion to vacate the regulation issued by CBA. On September 22, 2022, the CBA modified the aforementioned resolution and established that a percentage of the customer funds deposited in financial institutions by payment service providers that offer payment accounts may be invested in Argentine treasury bonds and do not necessarily have to remain deposited at the CBA. Under the amended regulation, financial institutions in which the Company deposits customer funds may invest up to 45 % of funds that have not already been invested by users in Mercado Fondo in Argentine, peso-denominated treasury bonds due May 23, 2027. As a result of the amended regulation, the Company withdrew on September 5, 2022 the cases it had originally filed challenging the December 30, 2021 regulation. Regulations issued by Central Bank of Brazil On November 1, 2018, the Company obtained approval from the Central Bank of Brazil to operate as an authorized payment institution. With this authorization, Mercado Pago in Brazil is subject to the supervision of the Central Bank of Brazil and must fully comply with all obligations established by current regulations. Among other obligations, the regulations require authorized payment institutions to hold any electronic balance in a payment institution account in either a specific account of the Central Bank of Brazil that does not pay interest or Brazilian federal government bonds registered with the “Sistema Especial de Liquidacao e Custodia.” 100 % of electronic funds were required to be deposited as of December 31, 2022 and 2021 . As of December 31, 2022 and 2021, in accordance with the regulation, the Company held $ 1,377 million and $ 898 million, respectively, deposited in Brazilian federal government bonds as a mandatory guarantee (the “Central Bank of Brazil mandatory guarantee”). 99 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 3. Fintech Regulations (continued) During March 2022, the Central Bank of Brazil announced new prudential rules for payment institutions based on their size and complexity and raising standards for required capital. The new framework, which will be effective sta rting in July 2023 with full implementation by January 2025, will extend the application of the rule regarding proportionality of regul atory requirements (currently applicable to conglomerates of financial institutions) to financial conglomerates led by payment institutions. The Company is assessing the effects that the new rules may have on its regulated Brazilian subsidiaries. Chilean subsidiaries regulated by Commission for the Financial Market On November 5, 2021, by means of exempt resolution No. 6312, the Chilean Commission for the Financial Market (Comisión para el Mercado Financiero – “CMF”) authorized Mercado Pago Emisora S.A. to carry out the exclusive business of non-bank issuer of payment cards with provision of funds. Mercado Pago Emisora S.A. became an institution regulated by the CMF, being obligated, among other things, to: (i) deliver information on its financial and operational management on a regular basis; (ii) maintain certain minimum capital required; (iii) set up a determined liquidity reserve; and (iv) deposit and maintain users’ funds in specific banks’ accounts. On November 9, 2021, by means of exempt resolution No. 6358, the CMF authorized MercadoPago S.A. to carry out the exclusive business of payment card operator. With this authorization, Mercado Pago S.A. became an institution regulated by the CMF, being obliged, among other things, to: (i) provide information on its financial and operational management on a regular basis: (ii) maintain certain minimum capital required; and (iii) constitute a determined liquidity reserve. On October 12, 2022, the Chilean Congress approved the Fintech and Open-Banking Law Project, which was published on January 4, 2023, and and came into effect on February 3, 2023. This law established a regulatory framework for certain technological financial services that did not have their own legal framework. These services are: (i) Alternative Transaction Systems, (ii) Crowdfunding Financing Platform, (iii) Financial Instrument Intermediation, (iv) Order Routing, (v) Credit Advisory and (vi) Investment Advisory. In addition, an Open Finance System is created to allow financial service providers to exchange custom er financial information. After the Fintech Law comes into effect, the CMF will have 18 months to issue secondary regulation . Mercado Pago Emisora S.A. w ill actively participate in the discussions and workshops at the CMF with the other players in the industry. As of December 31, 2022 and 2021, in accordance with the regulations, the Chilean subsidiaries held $ 53 million and $ 21 million, respectively, as restricted cash and cash equivalents related to liquidity reserves. Mexican subsidiary regulated by National Banking and Securities Commission On April 29, 2022, MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico, a Mexican subsidiary obtained the final approval by the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, or the "CNBV") to operate as an Electronic Payment Institution (Institución de Fondos de Pago Electrónico or “IFPE”, as referred to by the Financial Technology Institutions Act) which enables that entity to issue, manage, redeem and make electronic transfers of money on behalf of its clients, through computer applications, interfaces, web sites or any other means of electronic or digital communication. MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico became a regulated financial entity, effective on May 11, 2022, and is subject to the supervision and jurisdiction of the relevant Mexican financial regulators, including but not limited to the CNBV and the Central Bank of Mexico. Amongst the regulatory obligations to which Electronic Payment Institutions are subject, the following are noteworthy: a) maintain minimum capital requirements, b) maintain sufficient reserves in high-quality liquid assets (e.g. cash, treasury bills, etc.), so as to be able to redeem, on par, the funds held on behalf of the clients, c) comply with anti-money laundering and countering of terrorism financing, d) develop and maintain sound cybersecurity and information security policies, including but not limited to the performance of recurrent vulnerability tests and the deployment of strict infrastructure controls. As of December 31, 2022, in accordance with the regulations, the Mexican subsidiary held $ 248 million as restricted cash and cash equivalents related to liquidity reserves. 100 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 3. Fintech Regulations (continued) Colombia The Company has started the process of incorporating a new company (“MercadoPago S.A. Compañía de Financiamiento”) and requesting a license to act as a financial institution, and will therefore be able to offer credits, digital accounts, investments and prepaid cards without any limitation upon obtaining such license. The new entity has a minimum capital requirement, which has been paid-in and is effectively restricted cash until the Financial Superintendence of Colombia (Superintendencia Financiera de Colombia) authorizes the operation of the company. We expect this new company to be operational by the second half of 2023. As of December 31, 2022, in accordance with the regulations, the Colombian subsidiary held $ 6 million as restricted cash and cash equivalents related to the minimum capital requirements. 4. Net income (loss) per share Basic earnings per share for the Company’s common stock is computed by dividing, net income (loss) available to common shareholders for the period by the weighted average number of common shares outstanding during the year. On August 24, 2018, and August 31, 2018, the Company issued an aggregate principal amount of $ 880 million of 2.00 % Convertible Senior Notes due 2028 (please refer to Note 17 to these consolidated financial statements for discussion regarding these debt notes). The conversion of these notes is included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of these Notes is not assumed for purposes of computing diluted earnings per share if the effect is antidilutive. Additionally, on March 29, 2019, the Company issued Preferred Stock. The conversion of Preferred Stock was included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of the redeemable convertible preferred stock was not assumed for purposes of computing diluted earnings per share if the effect was antidilutive. The denominator for diluted net income (loss) per share for the years ended on December 31, 2022, 2021 and 2020 does not include any effect from the 2028 Notes Capped Call Transactions (as defined in Note 17) because it would be antidilutive. In the event of conversion of any or all of the 2028 Notes, the shares that would be delivered to the Company under the Capped Call Transactions (as defined in Note 17) are designed to partially neutralize the dilutive effect of the shares that the Company would issue under the Notes. For the years ended 2021 and 2020, the effects of the conversion of the Notes and the redeemable convertible preferred stock would have been antidilutive and, as a consequence, they were not factored into the calculation of diluted earnings per share. Net income (loss) per share of common stock is as follows for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 Basic Diluted Basic Diluted Basic Diluted Net income (loss) per common share (*) $ 9.57 $ 9.53 $ 1.67 $ 1.67 $ ( 0.08 ) $ ( 0.08 ) Numerator (in millions): Net income (loss) $ 482 $ 482 $ 83 $ 83 $ ( 1 ) $ ( 1 ) Effect of dilutive Convertible Senior Notes — 7 — — — — Dividends on preferred stock — — — — ( 3 ) ( 3 ) Net income (loss) corresponding to common stock $ 482 $ 489 $ 83 $ 83 $ ( 4 ) $ ( 4 ) Denominator: Weighted average of common stock outstanding for Basic earnings per share 50,345,353 50,345,353 49,802,993 — 49,740,407 — Adjustment for assumed conversions — 990,268 — — — — Adjusted weighted average of common stock outstanding for Diluted earnings per share — 51,335,621 — 49,802,993 — 49,740,407 (*) Figures have been calculated using non-rounded amounts. 101 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 5. Cash, cash equivalents, restricted cash and cash equivalents and investments The composition of cash, cash equivalents, restricted cash and cash equivalents, short-term and long-term investments is as follows: December 31, 2022 2021 (In millions) Cash and cash equivalents Cash in bank accounts $ 1,160 $ 1,103 Money market 599 1,079 Time deposits (*) 130 387 U.S. government debt securities 21 — Foreign government debt securities — 16 Total cash and cash equivalents $ 1,910 $ 2,585 Restricted cash and cash equivalents Securitization transactions $ 459 $ 282 Foreign government debt securities (Central Bank of Brazil mandatory guarantee) 158 296 Bank account (Argentine Central Bank regulation) 496 449 Bank account (Mexican National Banking and Securities Commission regulation) 9 — Time deposits (Mexican National Banking and Securities Commission regulation) 239 — Bank account (Chilean Commission for the Financial Market regulation) 4 21 Time deposits (Chilean Commission for the Financial Market regulation) 49 — Money market (Secured lines of credit guarantee) 33 15 Bank account (Financial Superintendence of Colombia regulation) 1 — Money market (Financial Superintendence of Colombia regulation) 5 — Total restricted cash and cash equivalents 1,453 1,063 Total cash, cash equivalents, restricted cash and cash equivalents (**) $ 3,363 $ 3,648 Short-term investments U.S. government debt securities $ 558 $ 150 Foreign government debt securities (Central Bank of Brazil mandatory guarantee) 1,219 602 Foreign government debt securities 123 42 Time deposits (*) 439 16 Total short-term investments $ 2,339 $ 810 Long-term investments U.S. government debt securities $ 175 $ — Foreign government debt securities 70 23 Securitization transactions (***) 21 13 Equity securities held at cost 56 53 Total long-term investments $ 322 $ 89 (*) As of December 31, 2022 and 2021, the time deposits in excess of $ 100 thousand, are in majority foreign deposits. (**) Cash, cash equivalents, restricted cash and cash equivalents as reported in the consolidated statement of cash flows. (***) Investments from securitization transactions are restricted to the payment of amounts due to third-party investors. 102 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 6. Balance sheet components Accounts receivable, net December 31, 2022 2021 (In millions) Users $ 91 $ 72 Advertising 32 24 Others debtors 21 10 144 106 Allowance for doubtful accounts ( 14 ) ( 8 ) Accounts receivable, net $ 130 $ 98 The following table summarizes the allowance for doubtful accounts activity during the years ended December 31, 2022, 2021 and 2020: Balance at beginning of year Net charged to Net income (loss) Charges Utilized/ Currency translation adjustments/ Write-offs and other adjustments Balance at end of year (In millions) Allowance for doubtful accounts Year ended December 31, 2020 $ 6 $ 6 $ ( 5 ) $ 7 Year ended December 31, 2021 7 4 ( 3 ) 8 Year ended December 31, 2022 8 9 ( 3 ) 14 Credit card receivables and other means of payments, net December 31, 2022 2021 (In millions) Credit card receivables and other means of payments $ 2,957 $ 1,870 Allowance for chargebacks ( 11 ) ( 14 ) Allowance for doubtful accounts — ( 17 ) Credit card receivables and other means of payments, net $ 2,946 $ 1,839 103 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 6. Balance sheet components (continued) The following table summarizes the allowance for chargebacks and the allowance for doubtful accounts activity during the years ended December 31, 2022, 2021 and 2020: Balance at beginning of year Net charged (credited) to Net income (loss) Charges Utilized/ Currency translation adjustments/ Write-offs and other adjustments Balance at end of year (In millions) Allowance for chargebacks Year ended December 31, 2020 $ 11 $ 54 $ ( 47 ) $ 18 Year ended December 31, 2021 18 24 ( 28 ) 14 Year ended December 31, 2022 14 13 ( 16 ) 11 Allowance for doubtful accounts Year ended December 31, 2020 $ — $ 36 $ ( 12 ) $ 24 Year ended December 31, 2021 24 ( 3 ) ( 4 ) 17 Year ended December 31, 2022 17 ( 2 ) ( 15 ) — Other assets December 31, 2022 2021 (In millions) VAT credits $ 17 $ 26 Income tax credits 65 91 Sales tax credits 30 36 Advance to ATM providers 38 46 Advance to suppliers 17 8 Derivative Instruments 1 10 Tax credit from promotional regime in Argentina 15 13 Incentives to be collected 59 28 Receivables with suppliers 9 8 Other 15 22 Current other assets $ 266 $ 288 December 31, 2022 2021 (In millions) Judicial deposits $ 205 $ 113 VAT credits 12 — Income tax credits 22 — Derivative Instruments — 7 Other 17 14 Non current other assets $ 256 $ 134 104 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 6. Balance sheet components (continued) Property and equipment, net Estimated useful life (years) December 31, 2022 2021 (In millions) Equipment 3 - 5 $ 254 $ 194 Land and building 50 (1) 118 141 Furniture and fixtures 3 - 10 598 368 Software 3 647 457 Vehicles 4 59 38 1,676 1,198 Accumulated depreciation ( 683 ) ( 391 ) Property and equipment, net $ 993 $ 807 (1) Estimated useful life attributable to “building”. Year Ended December 31, 2022 2021 2020 (In millions) Cost of net revenues $ 101 $ 50 $ 16 Product and technology development 182 83 54 Sales and marketing 5 2 2 General and administrative 21 10 10 Depreciation and amortization $ 309 $ 145 $ 82 105 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 6. Balance sheet components (continued) Other liabilities December 31, 2022 2021 (In millions) Deferred revenue $ 44 $ 34 Contingent considerations and escrows from acquisitions 11 6 Customer advances 37 30 Derivative instruments 17 6 Incentives collected in advance 1 3 Other 19 11 Current other liabilities $ 129 $ 90 December 31, 2022 2021 (In millions) Provisions and contingencies $ 53 $ 13 Contingent considerations and escrows from acquisitions 7 12 Joint venture 3 3 Incentives collected in advance 13 11 Derivative instruments 7 — Salaries and social security payable 6 20 Other 6 3 Non current other liabilities $ 95 $ 62 Accumulated other comprehensive loss The following table summarizes the changes in accumulated balances of other comprehensive loss for the year ended December 31, 2022: Unrealized Gains (Loss) on hedging activities, net Foreign Currency Translation Estimated tax benefit (expense) Total December 31, 2022 (In millions) Balances as of December 31, 2021 $ 8 $ ( 523 ) $ — $ ( 515 ) Other comprehensive income (loss) before reclassifications ( 33 ) 61 9 37 Amount of (gain) loss reclassified from accumulated other comprehensive income (loss) 20 — ( 6 ) 14 Net current period other comprehensive income (loss) ( 13 ) 61 3 51 Ending balance $ ( 5 ) $ ( 462 ) $ 3 $ ( 464 ) 106 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 6. Balance sheet components (continued) The following table summarizes the changes in accumulated balances of other comprehensive loss for the year ended December 31, 2021: Unrealized (Loss) Gains on hedging activities, net Foreign Currency Translation Estimated tax benefit (expense) Total December 31, 2021 (In millions) Balances as of December 31, 2020 $ ( 2 ) $ ( 467 ) $ 1 $ ( 468 ) Other comprehensive income (loss) before reclassifications 8 ( 56 ) — ( 48 ) Amount of (gain) loss reclassified from accumulated other comprehensive income (loss) 2 — ( 1 ) 1 Net current period other comprehensive income (loss) 10 ( 56 ) ( 1 ) ( 47 ) Ending balance $ 8 $ ( 523 ) $ — $ ( 515 ) The following table summarizes the changes in accumulated balances of other comprehensive loss for the year ended December 31, 2020: Unrealized (Loss) Gains on hedging activities, net Unrealized (Loss) Gains on Investments Foreign Currency Translation Estimated tax (expense) benefit Total December 31, 2020 (In millions) Balances as of December 31, 2019 $ — $ 2 $ ( 409 ) $ — $ ( 407 ) Other comprehensive (loss) income before reclassifications 4 — ( 58 ) ( 1 ) ( 55 ) Amount of (gain) loss reclassified from accumulated other comprehensive (loss) income ( 6 ) ( 2 ) — 2 ( 6 ) Net current period other comprehensive income (loss) income ( 2 ) ( 2 ) ( 58 ) 1 ( 61 ) Ending balance $ ( 2 ) $ — $ ( 467 ) $ 1 $ ( 468 ) The following table provides details about reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2022, 2021 and 2020: Details about Accumulated Other Comprehensive loss Components Amount of (Loss) Gain Reclassified from Accumulated Other Comprehensive loss Affected Line Item in the Statement of Income Year Ended December 31, 2022 2021 2020 (In millions) Unrealized (losses) gains on hedging activities $ ( 20 ) $ ( 2 ) $ 6 Cost of net revenues, interest expense and foreign exchange Unrealized gains on investments — — 2 Interest income and other financial gains Estimated tax benefit (expense) on unrealized (losses) gains 6 1 ( 2 ) Income tax expense Total reclassifications for the year $ ( 14 ) $ ( 1 ) $ 6 Total, net of income taxes 107 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 7. Loans receivable, net December 31, 2022 2021 (In millions) Loans receivable $ 2,778 $ 1,607 Allowance for doubtful accounts ( 1,074 ) ( 408 ) Current loans receivable, net $ 1,704 $ 1,199 0 December 31, 2022 2021 (In millions) Loans receivable $ 62 $ 88 Allowance for doubtful accounts ( 30 ) ( 27 ) Non current loans receivable, net $ 32 $ 61 The Company classifies loans receivable as “On-line merchant”, “Consumer”, “In-store merchant” and “Credit Cards”. As of December 31, 2022 and December 31, 2021, Loans receivable, net were as follows: December 31, 2022 Loans receivable Allowance for doubtful accounts Loans receivable, net (In millions) On-line merchant $ 394 $ ( 120 ) $ 274 Consumer 1,568 ( 614 ) 954 In-store merchant 267 ( 145 ) 122 Credit Cards 611 ( 225 ) 386 Total $ 2,840 $ ( 1,104 ) $ 1,736 December 31, 2021 Loans receivable Allowance for doubtful accounts Loans receivable, net (In millions) On-line merchant $ 361 $ ( 79 ) $ 282 Consumer 851 ( 232 ) 619 In-store merchant 187 ( 76 ) 111 Credit Cards 296 ( 48 ) 248 Total $ 1,695 $ ( 435 ) $ 1,260 The allowance for doubtful accounts with respect to the Company’s loans receivable amounts to $ 1,112 million (which includes $ 8 million related to unused agreed loan commitment on credit cards portfolio presented in Other liabilities of the Consolidated Balance Sheet) and $ 435 million as of December 31, 2022 and 2021, respectively. 108 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 7. Loans receivable, net (continued) The following tables summarize the allowance for doubtful accounts activity during the years ended December 31, 2022, 2021 and 2020: December 31, 2022 On-line merchant Consumer In-store merchant Credit Cards Total (In millions) Balance at beginning of year $ 79 $ 232 $ 76 $ 48 $ 435 Net charged to Net Income 109 600 139 210 1,058 Currency translation adjustments 1 ( 9 ) ( 1 ) ( 1 ) ( 10 ) Write-offs ( 69 ) ( 209 ) ( 69 ) ( 32 ) ( 379 ) Balance at end of year $ 120 $ 614 $ 145 $ 225 $ 1,104 December 31, 2021 On-line merchant Consumer In-store merchant Credit Cards Total (In millions) Balance at beginning of year $ 20 $ 45 $ 13 $ — $ 78 Net charged to Net Income 75 234 74 51 434 Currency translation adjustments ( 3 ) ( 7 ) ( 3 ) — ( 13 ) Write-offs ( 13 ) ( 40 ) ( 8 ) ( 3 ) ( 64 ) Balance at end of year $ 79 $ 232 $ 76 $ 48 $ 435 The increase in write-offs, for the year ended December 31, 2022 compared to the same period in 2021, is mainly generated by higher originations of loans receivable in 2022. December 31, 2020 On-line merchant Consumer In-store merchant Total (In millions) Balance at beginning of year $ 9 $ 8 $ 3 $ 20 Adoption of ASC 326 2 2 1 5 Net charged to Net Loss 25 51 15 91 Currency translation adjustments 5 2 — 7 Write-offs ( 21 ) ( 18 ) ( 6 ) ( 45 ) Balance at end of year $ 20 $ 45 $ 13 $ 78 As of December 31, 2022, the Company is exposed to off-balance sheet unused agreed loan commitment on credit cards portfolio which expose the Company to credit risks. For the year ended December 31, 2022 the Company recognized in Provision for doubtful accounts $ 8 million as expected credit losses. The Company closely monitors credit quality for all loans receivable on a recurring basis to assess and manage its exposure to credit risk. To assess merchants and consumers seeking a loan under the Mercado Credito solution, the Company uses, among other indicators, risk models internally developed, as a credit quality indicator to help predict the merchant’s and consumer’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 and consumer’s ability to repay the credit, including external and internal indicators. Internal indicators consider user behavior related to credit/payment history, and with lower weight in the risk models, the Company uses number of transactions in the Company’s ecosystem and merchant’s annual sales volume, among other indicators. In addition, the Company considers external bureau information to enhance the model and the decision making process. 109 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 7. Loans receivable, net (continued) The amortized cost of the loans receivable classified by the Company’s credit quality internal indicator was as follows: December 31, 2022 December 31, 2021 (In millions) 1-30 days past due $ 118 $ 90 31-60 days past due 88 47 61 -90 days past due 86 37 91 -120 days past due 103 37 121 -150 days past due 110 31 151 -180 days past due 112 25 181 -210 days past due 100 24 211 -240 days past due 93 23 241 -270 days past due 89 21 271 -300 days past due 73 21 301 -330 days past due 85 30 331 -360 days past due 75 25 Total past due 1,132 411 To become due 1,708 1,284 Total $ 2,840 $ 1,695 As described in Note 2,“ Summary of significant accounting policies”, the Company places loans on non-accrual status at 90 days past due. There are no loans receivable on non-accrual status for which there is no related allowance for doubtful accounts. 8. Business combinations, goodwill, and intangible assets Business combinations Acquisition of a payment services company in Chile On December 13, 2021, the Company, through its subsidiaries Mercado Pago LLC and SFSC LLC, completed the acquisition of 100 % of the equity interest of Redelcom S.A., a payment services provider that also offers point-of-sales terminals with the latest technology to retailers in the Republic of Chile. Redelcom is located and organized under the laws of Chile. The objective of the acquisition was to consolidate the Company’s value proposition in Chile and enhance the growth of its multiple payment tools and digital financial solutions. The aggregate purchase price for the acquisition was $ 24 million, measured at its fair value amount, which included: (i) the total cash payment of $ 16 million; (ii) an escrow of $ 3 million and (iii) $ 5 million of contingent consideration. The Company’s consolidated statements of income include the results of operations of the acquired business as from December 2021. The net loss before intercompany eliminations of the acquired Company included in the Company’s consolidated statement of income since the acquisition amounted to less than $ 1 million for the year ended December 31, 2021. In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred. 110 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 8. Business combinations, goodwill, and intangible assets (continued) The following table summarizes the purchase price allocation for the acquisition: Redelcom S.A. (In millions) Cash and cash equivalents $ 1 Convertible notes agreements 1 Other net tangible liabilities ( 2 ) Total net tangible assets acquired $ — Platform 1 Goodwill 23 Purchase Price $ 24 The purchase price was allocated based on the final measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of identifiable intangible assets acquired reflects Management’s estimates based on the use of established valuation methods. The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition is not deductible for tax purposes. The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been presented. Acquisition of a shipping company in Brazil On November 3, 2021, the Company, through its subsidiary eBazar.com.br Ltda., completed the acquisition of 100 % of the equity interest of Kangu Participações S.A. and its subsidiaries, a logistics technology platform which connects sellers, e-commerce companies, carriers, third-party logistics providers and consumers through its vertically integrated network of drop-off and pick-up points throughout Brazil, Mexico and Colombia. The Company is located and organized under the laws of Brazil. The objective of the acquisition was to enhance the capabilities of the Company in terms of logistics. The aggregate purchase price for the acquisition was $ 53 million, measured at its fair value amount, which included: (i) the total cash payment of $ 38 million at the time of closing; (ii) an escrow of $ 4 million and (iii) $ 11 million related to the fair value at the acquisition date of a call option to purchase 20 % of the equity interest of Kangú Participações S.A. As result of the acquisition, the Company recognized a gain for the fair value amount of the option. The Company’s consolidated statements of income include the results of operations of the acquired business as from November 2021. The acquired business contributed net income of $ 1 million for the period from November 3, 2021 to December 31, 2021. In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred. 111 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 8. Business combinations, goodwill, and intangible assets (continued) The following table summarizes the purchase price allocation for the acquisition: Kangu Participações S.A. (In millions) Cash and cash equivalents $ 3 Other net tangible assets 1 Total net tangible assets acquired $ 4 Customer lists and non-compete agreements 1 Hubs network 3 Goodwill 45 Purchase Price $ 53 The purchase price was allocated based on the final measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of identifiable intangible assets acquired reflects Management’s estimates based on the use of established valuation methods. The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition will be deductible for tax purposes in case of a merger between eBazar.com.br Ltda. and Kangu Participações S.A. The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been presented. 112 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 8. Business combinations, goodwill, and intangible assets (continued) Goodwill and intangible assets The composition of goodwill and intangible assets is as follows: December 31, 2022 2021 (In millions) Goodwill $ 153 $ 148 Intangible assets with indefinite lives - Trademarks 4 7 - Digital assets (1) 9 21 Amortizable intangible assets - Licenses and others 13 13 - Non-compete agreements 4 4 - Customer lists 12 13 - Trademarks 12 8 - Hubs network 4 3 - Others 3 3 Total intangible assets $ 61 $ 72 Accumulated amortization ( 36 ) ( 27 ) Total intangible assets, net $ 25 $ 45 (1) Digital assets are net of $ 21 million and $ 9 million of impairment losses as of December 31, 2022 and December 31, 2021, registered in General and Administrative expenses. Goodwill The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 are as follows: Year ended December 31, 2022 Brazil Argentina Mexico Chile Colombia Other Countries Total (In millions) Balance, beginning of the year $ 56 $ 10 $ 37 $ 37 $ 6 $ 2 $ 148 Effect of exchange rates changes 4 — 2 — ( 1 ) — 5 Balance, end of the year $ 60 $ 10 $ 39 $ 37 $ 5 $ 2 $ 153 Year ended December 31, 2021 Brazil Argentina Mexico Chile Colombia Other Countries Total (In millions) Balance, beginning of the year $ 20 $ 10 $ 32 $ 17 $ 4 $ 2 $ 85 Business Acquisitions 37 — 6 23 2 — 68 Effect of exchange rates changes ( 1 ) — ( 1 ) ( 3 ) — — ( 5 ) Balance, end of the year $ 56 $ 10 $ 37 $ 37 $ 6 $ 2 $ 148 113 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 8. Business combinations, goodwill, and intangible assets (continued) Intangible assets with definite useful life Intangible assets with definite useful life are comprised of customer lists, non-compete and non-solicitation agreements, hubs network, acquired software licenses and other acquired intangible assets including developed technologies and trademarks. Aggregate a mortization expense for intangible assets totaled $ 9 million, $ 6 million and $ 5 million for the years ended December 31, 2022, 2021 and 2020, respectively. The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2022: For year ended 12/31/2023 $ 4 For year ended 12/31/2024 3 For year ended 12/31/2025 1 For year ended 12/31/2026 1 Thereafter 3 $ 12 9. Segments Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed and resources are assigned, the criteria used by Management to evaluate the Company’s performance, the availability of separate financial information and overall materiality considerations. Segment reporting is based on geography as the main basis of segment breakdown in accordance with the criteria, as determined by Management, used to evaluate the Company’s performance. The Company’s segments include Brazil, Argentina, Mexico and other countries (which includes Chile, Colombia, Costa Rica, Ecuador, Peru and Uruguay). Direct contribution consists of net revenues from external customers less direct costs, which include costs of net revenues, product and technology development expenses, sales and marketing expenses, provision for doubtful accounts and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, payroll and third-party fees. All corporate related costs have been excluded from the segment’s direct contribution. Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs, are monitored by Management through shared cost centers and are not evaluated in the measurement of segment performance. The following tables summarize the financial performance of the Company’s reporting segments: Year Ended December 31, 2022 Brazil Argentina Mexico Other Countries Total (In millions) Net revenues $ 5,666 $ 2,500 $ 1,864 $ 507 $ 10,537 Direct costs ( 4,717 ) ( 1,488 ) ( 1,579 ) ( 481 ) ( 8,265 ) Direct contribution 949 1,012 285 26 2,272 Operating expenses and indirect costs of net revenues ( 1,238 ) Income from operations 1,034 Other income (expenses): Interest income and other financial gains 265 Interest expense and other financial losses ( 321 ) Foreign currency losses, net ( 198 ) Net income before income tax expense $ 780 114 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 9. Segments (continued) Year Ended December 31, 2021 Brazil Argentina Mexico Other Countries Total (In millions) Net revenues $ 3,910 $ 1,531 $ 1,172 $ 456 $ 7,069 Direct costs ( 3,233 ) ( 998 ) ( 1,139 ) ( 380 ) ( 5,750 ) Direct contribution 677 533 33 76 1,319 Operating expenses and indirect costs of net revenues ( 878 ) Income from operations 441 Other income (expenses): Interest income and other financial gains 138 Interest expense and other financial losses ( 229 ) Foreign currency losses, net ( 109 ) Net income before income tax expense $ 241 Year Ended December 31, 2020 Brazil Argentina Mexico Other Countries Total (In millions) Net revenues $ 2,194 $ 980 $ 575 $ 225 $ 3,974 Direct costs ( 1,766 ) ( 709 ) ( 586 ) ( 186 ) ( 3,247 ) Direct contribution 428 271 ( 11 ) 39 727 Operating expenses and indirect costs of net revenues ( 599 ) Income from operations 128 Other income (expenses): Interest income and other financial gains 103 Interest expense and other financial losses ( 107 ) Foreign currency losses, net ( 43 ) Net income before income tax expense $ 81 The following tables summarize net revenues per reporting segment, which have been disaggregated by similar products and services for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 Brazil Argentina Mexico Other Countries Total (In millions) Commerce services (a) $ 2,585 $ 814 $ 1,036 $ 329 $ 4,764 Commerce products sales (b) 487 271 246 40 1,044 Total commerce revenues $ 3,072 $ 1,085 $ 1,282 $ 369 $ 5,808 Fintech services (c) 1,464 904 152 125 2,645 Credit revenues (d) 1,102 506 421 4 2,033 Fintech products sales (e) 28 5 9 9 51 Total fintech revenues $ 2,594 $ 1,415 $ 582 $ 138 $ 4,729 Total net revenues $ 5,666 $ 2,500 $ 1,864 $ 507 $ 10,537 115 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 9. Segments (continued) Year Ended December 31, 2021 Brazil Argentina Mexico Other Countries Total (In millions) Commerce services (a) $ 2,076 $ 614 $ 756 $ 304 $ 3,750 Commerce products sales (b) 405 242 168 70 885 Total commerce revenues $ 2,481 $ 856 $ 924 $ 374 $ 4,635 Fintech services (c) 938 490 80 82 1,590 Credit revenues (d) 468 178 163 — 809 Fintech products sales (e) 23 7 5 — 35 Total fintech revenues $ 1,429 $ 675 $ 248 $ 82 $ 2,434 Total net revenues $ 3,910 $ 1,531 $ 1,172 $ 456 $ 7,069 Year Ended December 31, 2020 Brazil Argentina Mexico Other Countries Total (In millions) Commerce services (a) $ 1,257 $ 461 $ 428 $ 159 $ 2,305 Commerce products sales (b) 100 100 43 12 255 Total commerce revenues $ 1,357 $ 561 $ 471 $ 171 $ 2,560 Fintech services (c) 671 350 64 54 1,139 Credit revenues (d) 143 64 39 — 246 Fintech products sales (e) 23 5 1 — 29 Total fintech revenues $ 837 $ 419 $ 104 $ 54 $ 1,414 Total net revenues $ 2,194 $ 980 $ 575 $ 225 $ 3,974 (a) Includes final value fees paid by sellers derived from intermediation services and related shipping fees, classified fees derived from classified advertising services and ad sales. (b) Includes revenues from inventory sales and related shipping fees. (c) Includes revenues from commissions the Company charges for transactions off-platform derived from use of the Company’s payment solution, revenues as a result of offering installments for the payment to its Mercado Pago users, either when the Company finances the transactions directly or when the Company sells the corresponding financial assets, Mercado Pago credit and debit card fees and insurtech fees. (d) Includes interest earned on loans and advances granted to merchants and consumers, and interest earned on Mercado Pago credit card transactions. (e) Includes sales of mobile point of sales devices. The following table summarizes the allocation of the property and equipment based on geography: December 31, 2022 2021 (In millions) US property and equipment, net $ 1 $ 1 Other countries Argentina 188 174 Brazil 514 395 Mexico 206 176 Other countries 84 61 $ 992 $ 806 Total property and equipment, net $ 993 $ 807 116 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 9. Segments (continued) As of December 31, 2022, the Company owned operating lease right-of-use assets of $ 53 million in Argentina the segment, $ 286 million in the Brazil segment, $ 245 million in the Mexico segment and $ 72 million in the Other countries segment. The following table summarizes the allocation of the goodwill and intangible assets based on geography: December 31, 2022 2021 (In millions) US intangible assets, net $ 9 $ 21 Goodwill and intangible assets, net Argentina 14 16 Brazil 63 60 Mexico 40 41 Other countries 52 55 $ 169 $ 172 Total goodwill and intangible assets, net $ 178 $ 193 117 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 10. Fair value measurement of assets and liabilities Assets and liabilities measured and recorded at fair value on a recurring basis The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021: Description Balances as of December 31, 2022 Quoted Prices in active markets for identical Assets (Level 1) Significant other observable inputs (Level 2) Unobservable inputs (Level 3) Balances as of December 31, 2021 Quoted Prices in active markets for identical Assets (Level 1) Significant other observable inputs (Level 2) Unobservable inputs (Level 3) (In millions) Assets Cash and Cash Equivalents: Money Market $ 599 $ 599 $ — $ — $ 1,079 $ 1,079 $ — $ — U.S. government debt securities (1) 21 21 — — — — — — Foreign government debt securities (1) — — — — 16 16 — — Restricted Cash and Cash Equivalents: Money Market 352 352 — — 210 210 — — Foreign government debt securities (Central Bank of Brazil Mandatory Guarantee) (1) 158 158 — — 296 296 — — Investments: U.S. government debt securities (1) 733 733 — — 150 150 — — Foreign government debt securities (Central Bank of Brazil Mandatory Guarantee) (1) 1,219 1,219 — — 602 602 — — Foreign government debt securities (1) (2) 214 214 — — 78 78 — — Other Assets: Derivative Instruments 1 — 1 — 17 — — 17 USDC 3 3 — — — — — — Customer crypto-assets safeguarding assets 15 — 15 — — — — — Total Assets $ 3,315 $ 3,299 $ 16 $ — $ 2,448 $ 2,431 $ — $ 17 Liabilities: Long-term retention plan $ 58 $ — $ 58 $ — $ 103 $ — $ 103 $ — Other Liabilities: Contingent considerations 8 — — 8 9 — — 9 Derivative Instruments 24 — 24 — 6 — — 6 Customer crypto-assets safeguarding liabilities 15 — 15 — — — — — Total Liabilities $ 105 $ — $ 97 $ 8 $ 118 $ — $ 103 $ 15 (1) Measured at fair value with impact on the consolidated statement of income for the application of the fair value option. (See Note 2 – Fair value option applied to certain financial instruments.) (2) As of December 31, 2022 and 2021 includes $ 21 million and $ 13 million, respectively, of investments from securitization transactions that are restricted to the payment of amounts due to third-party investors. (See Note 5 - Cash, cash equivalents, restricted cash and cash equivalents and investments.) 118 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 10. Fair value measurement of assets and liabilities (continued) As of December 31, 2022 and 2021, the Company’s assets and liabilities measured and recorded at fair value on a recurring basis were valued using i) Level 1 inputs: unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained from observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets); ii) Level 2 inputs: obtained from readily-available pricing sources for comparable instruments as well as instruments with inactive markets at the measurement date; and iii) Level 3 inputs: valuations based on unobservable inputs reflecting Company’s assumptions. The unobservable inputs of the fair value of derivative instruments and contingent considerations classified as Level 3 refer to the prevailing risk free interest rate and spot exchange rate, and to the amounts to be paid according to the respective agreements of each acquisition, the likelihood of achievement of the performance targets arising from each one (expected to be 100%), as well as the Company’s historical experience with similar arrangements. Reasonable variation on those unobservable inputs would not significantly change the fair value of those instruments. The following tables summarize the reconciliation of the financial assets and liabilities measured at fair value using Level 3 inputs as of December 31, 2022 and 2021: Year Ended December 31, 2022 Derivative Instruments, net Contingent Considerations (In millions) Balance, beginning of the year $ 11 $ ( 9 ) Net Additions 3 — Settlements 7 1 Foreign Currency Translation ( 5 ) — Losses in Other Comprehensive Income ( 15 ) — Losses in Income Statement ( 28 ) — Transfers out of level 3 27 — Balance, end of the year $ — $ ( 8 ) Year Ended December 31, 2021 Derivative Instruments, net Contingent Considerations (In millions) Balance, beginning of the year $ ( 14 ) $ ( 5 ) Net Additions 3 ( 4 ) Settlements 14 — Foreign Currency Translation ( 3 ) — Gains in Other Comprehensive Income 11 — Balance, end of the year $ 11 $ ( 9 ) The Company’s election of the fair value option applies to the: i) Brazilian federal government bonds and ii) U.S. treasury notes. As a result of the election of the fair value option for the investments held as of December 31, 2022 and 2021, the Company recognized fair value gains in interest income and other financial gains for $ 29 million and $ 9 million, respectively. As of December 31, 2022 and 2021, the Company held no investment in corporate debt securities which are classified as available for sale. However, during the year ended December 31, 2022, the Company purchased and sold these kind of instruments, being the proceeds from the sales $ 156 million and the gross realized gains less than $ 1 million. The cost of these securities was determined under a specific identification basis. 119 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 10. Fair value measurement of assets and liabilities (continued) Financial assets and liabilities not measured and recorded at fair value As of December 31, 2022 and 2021, the carrying value of the Company’s financial assets (except for loans receivable) and liabilities (except for the 2026, 2028 and 2031 Notes) not measured at fair value approximated their fair value mainly because of their short-term maturity. These assets and liabilities included short and long-term investments (excluding money markets and U.S. and foreign government debt securities), accounts receivable, credit card receivables and other means of payments, other assets (excluding derivative instruments and USDC), accounts payable and accrued expenses, funds payable to customers, amounts payable due to credit and debit card transactions, salaries and social security payable (excluding variable LTRP), taxes payable, loans payables and other financial liabilities (except for the 2026, 2028 and 2031 Notes) and other liabilities (excluding variable LTRP, contingent considerations and derivative instruments). If these financial instruments were measured at fair value in the financial statements, cash and restricted cash would be classified as Level 1 (where cost and fair value are aligned) and the remaining financial instruments would be classified as Level 2. As of December 31, 2022 and December 31, 2021 the estimated fair value of the loans receivables, which is based on Level 3 inputs, is $ 1,761 million and $ 1,260 million, respectively, and were determined based on Company’s assumptions. As of December 31, 2022 and 2021, the estimated fair value of the 2026 and 2031 Notes, which is based on Level 2 inputs, is $ 359 million and $ 541 million, and $ 401 million and $ 704 million, respectively. As of December 31, 2022 and 2021, the estimated fair value of the 2028 Notes, which is based on Level 2 inputs, is $ 884 million and $ 1,367 million, respectively, and were determined based on the closing trading price per $ 100 principal amount of the 2028 Notes as of the last day of trading for the period (see Note 17 “Loans payable and other financial liabilities” of these audited consolidated financial statements for further details). The rest of the loans payable and other financial liabilities approximate their fair value because the effective interest rates are not materially different from market interest rates. The following table summarizes the estimated fair value level for the remaining financial assets and liabilities of the Company not measured at fair value as of December 31, 2022 and 2021: Balances as of December 31, 2022 Estimated fair value as of December 31, 2022 Balances as of December 31, 2021 Estimated fair value as of December 31, 2021 (In millions) Assets Time Deposits $ 439 $ 439 $ 16 $ 16 Accounts receivables, net 130 130 98 98 Credit Card receivables and other means of payment, net 2,946 2,946 1,839 1,839 Loans receivable, net 1,736 1,761 1,260 1,260 Other assets 273 273 457 457 Total Assets $ 5,524 $ 5,549 $ 3,670 $ 3,670 Liabilities Accounts payable and accrued expenses $ 1,393 $ 1,393 $ 1,036 $ 1,036 Funds payable to customers 3,454 3,454 2,393 2,393 Amounts payable due to credit and debit card transactions 488 488 341 341 Salaries and social security payable 349 349 230 230 Taxes payable 414 414 291 291 Loans payable and other financial liabilities (*) 4,758 4,997 3,518 3,534 Other liabilities 186 186 117 117 Total Liabilities $ 11,042 $ 11,281 $ 7,926 $ 7,942 (*) Includes the fair value of the liability component of the 2028 Notes as of December 31, 2021 of $ 331 million. 120 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 11. Common stock Authorized, issued and outstanding shares As of December 31, 2022 and 2021, as stated in the Company’s Fourth Amended and Restated Certificate of Incorporation, the Company has authorized 110,000,000 shares of Common Stock, par value $ 0.001 per share (“Common Stock”). As of December 31, 2022 and 2021, there were 50,257,751 and 50,418,980 shares of common stock issued and outstanding with a par value of $ 0.001 per share. Voting rights Each outstanding share of common stock, is entitled to one vote on all matters submitted to a vote of holders of common stock, except for stockholders that beneficially own more than 20 % of the shares of the outstanding common stock, in which case the board of directors (the “Board”) may declare that any shares of stock above such 20 % do not have voting rights. The holders of common stock do not have cumulative voting rights in the election of directors. 12. Redeemable convertible preferred stock Pursuant to the Fourth Amended and Restated Certificate of Incorporatio n, the Company is authorized to issue 40,000,000 shares of preferred stock, par value $ 0.001 per share. As of December 31, 2022, and 2021 the Company has no preferred stock subscribed or issued. 13. Equity compensation plan On June 10, 2019, at the Annual Shareholders’ Meeting, the Company’s shareholders approved the adoption of the Amended and Restated 2009 Equity Compensation Plan (the “Amended and Restated 2009 Plan”), which contains terms substantially similar to the terms of the “2009 Equity Compensation Plan” (the “2009 Plan”) that expired in 2019. As of December 31, 2022, there are 990,497 shares of common stock available for granting under the Amended and Restated 2009 Plan. Equity compensation awards granted under the Amended and Restated 2009 Plan are at the discretion of the Company’s board of directors and may be in the form of either incentive or nonqualified stock options. As of December 31, 2022, there were 7,085 shares of restricted stock outstanding under such plan. 14. Income taxes The components of net income before income tax expense in consolidated entities for the years ended December 31, 2022, 2021 and 2020 are as follows: Year Ended December 31, 2022 2021 2020 (In millions) United States $ ( 207 ) $ ( 214 ) $ ( 54 ) Brazil 259 189 79 Argentina 699 389 185 Mexico 74 ( 130 ) ( 134 ) Other Countries ( 45 ) 7 5 $ 780 $ 241 $ 81 121 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 14. Income taxes (continued) Income tax is composed of the following: Year Ended December 31, 2022 2021 2020 (In millions) Income Tax: Current: U.S. $ 12 $ — $ — Non-U.S. 383 178 152 395 178 152 Deferred: U.S. 55 ( 3 ) ( 5 ) Non-U.S. ( 152 ) ( 26 ) ( 65 ) ( 97 ) ( 29 ) ( 70 ) Income tax expense $ 298 $ 149 $ 82 The following is a reconciliation of the difference between the actual charge for income taxes and the expected income tax expense computed by applying the statutory income tax rate for the years ended December 31, 2022, 2021 and 2020 to income before taxes: Year Ended December 31, 2022 2021 2020 (In millions) Net income before income tax $ 780 $ 241 $ 81 Income tax rate 21 % 21 % 21 % Expected income tax expense $ 164 $ 51 $ 17 Permanent differences: Transfer pricing adjustments 3 2 1 Non-deductible tax 1 4 3 Non-deductible expenses 54 29 18 Dividend distributions 12 36 9 Non-taxable income ( 62 ) ( 32 ) ( 4 ) Effect of rates different than statutory 37 8 ( 4 ) Currency translation 48 16 12 Change in valuation allowance 92 56 41 Tax Inflation Adjustments ( 35 ) ( 19 ) ( 7 ) Inventory Adjustments — ( 1 ) — True up ( 16 ) ( 1 ) ( 4 ) Income tax expense $ 298 $ 149 $ 82 Income taxes are determined by each subsidiary on a stand alone basis according to income tax law of each jurisdiction The Company’s consolidated effective tax rate for year ended December 31, 2022 as compared to 2021 decreased from 61.8 % to 38.2 % largely as a result of (i) the one-time loss on debt extinguishment related to 2028 Notes repurchase recognized during the first quarter of 2021, which was considered as non-deductible expense; and (ii) the deferred tax assets in Mexico that were recognized during 2022 regarding the partial reversal of certain tax valuation allowances in one of the subsidiaries according to projected taxable gains for upcoming years . This decrease in our effective tax rate was partially offset by (i) pre-tax losses in another Mexican subsidiary which were included in the valuation allowance; (ii) higher deferred tax liabilities in the U.S. due to temporary differences related to retained earnings from certain Brazilian VIEs ; and (iii) a higher foreign exchange loss due to the purchase of our own shares in the Argentine market that is considered a non-deductible expense, see Note 25 “Share repurchase program” of these audited consolidated financial statements for further detail. 122 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 14. Income taxes (continued) Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The following table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2022 and 2021: December 31, 2022 2021 (In millions) Deferred tax assets Allowance for doubtful accounts $ 110 $ 65 Unrealized net gains 8 2 Property and equipment, net 43 27 Accounts payable and accrued expenses 17 11 Payroll and social security payable 32 28 Foreign exchange effect — 7 Provisions 131 89 U.S. foreign tax credit 156 50 Tax loss carryforwards 255 194 Inventories 3 2 Tax inflation adjustments 3 7 Total deferred tax assets 758 482 Valuation allowance ( 360 ) ( 262 ) Total deferred tax assets, net 398 220 Deferred tax liabilities Property and equipment, net ( 29 ) ( 18 ) Customer lists ( 1 ) ( 1 ) Unrealized net losses ( 3 ) ( 2 ) Goodwill ( 4 ) ( 3 ) Convertible notes and Capped Call — ( 26 ) Accounts payable and accrued expenses ( 3 ) ( 3 ) Payroll and social security payable ( 7 ) ( 7 ) Outside Basis Dividends ( 103 ) ( 36 ) Provisions ( 8 ) ( 5 ) Total deferred tax liabilities $ ( 158 ) $ ( 101 ) $ 240 $ 119 123 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 14. Income taxes (continued) Valuation allowance on deferred tax assets The following table summarizes the tax valuation allowance activity during the years ended December 31, 2022, 2021 and 2020: Tax valuation allowance Balance at beginning of year Charged/(credited) to Net income Charges Utilized/ Currency translation adjustments and other adjustments Balance at end of year (In millions) Year ended December 31, 2020 $ 139 $ 41 $ ( 1 ) $ 179 Year ended December 31, 2021 179 56 27 262 Year ended December 31, 2022 262 92 6 360 As of December 31, 2022, consolidated deferred tax asset on tax loss carryforwards for income tax purposes were $ 255 million. If not utilized, tax loss carryforwards will begin to expire as follows: 2026 $ 2 2027 13 2028 29 Thereafter 131 Without due dates 80 Total $ 255 Based on Management’s assessment of available objective evidence, the Company maintained a valuation allowance on deferred tax assets of $ 360 million and $ 262 million as of December 31, 2022 and 2021, respectively. This valuation allowance includes $ 156 million and $ 50 million to fully reserve the outstanding U.S. foreign tax credits as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, the Company increased its valuation allowance mainly on U.S foreign tax credits by $ 106 million offset by the partial recovery of the valuation allowance on its Mexican operation by $ 35 million. Knowledge-based economy promotional regime in Argentina On June 10, 2019, the Argentine government enacted Law No. 27,506 (knowledge-based economy promotional regime), which established a regime that provides certain tax benefits for companies that meet specific criteria, such as companies that derive at least 70 % of their revenues from certain specified activities related to the knowledge-based economy. The regime was suspended on January 20, 2020, until new rules for the application of the knowledge-based economy promotional regime were issued. On October 7, 2020, changes to the knowledge-based economy promotional regime were finally approved by the Congress. The approved regime has effect from January 1, 2020 through December 31, 2029. Based on the amended promotional regime, companies that meet new specified criteria shall be entitled to: i) a reduction of the income tax burden ( 60 % for micro and small enterprises, 40 % for medium-sized enterprises and 20 % for large enterprises) over the promoted activities for each fiscal year, applicable to both Argentine source income and foreign source income, ii) stability of the benefits established by the knowledge-based economy promotional regime (as long as the beneficiary is registered and in good standing), and iii) a non-transferable tax credit bond amounting to 70 % (which can be up to 80 % in certain specific cases) of the Company’s contribution to the social security regime of every employee whose job is related to the promoted activities (caps on the number of employees are applicable). Such bonds can be used within 24 months from their issue date (which period can be extended for an additional 12 months in certain cases) to offset certain federal taxes, such as value-added tax, but they cannot be used to offset income tax. On December 20, 2020, Argentina’s Executive Power issued Decree No. 1034/2020, which set the rules to implement the provisions of the knowledge-based economy promotional regime. Eligible companies must enroll in a registry according to the terms and conditions to be established by the Application Authority, which will verify compliance with the requirements. The Decree also set the mechanism for calculating the level of investment in research and development, the level of employee retention, exports, among others. It also establishes that exports of services from companies participating in this regime will not be subject to export duties. 124 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 14. Income taxes (continued) On January 13, 2021, Argentina’s Ministry of Productive Development –current Application Authority of the knowledge-based economy promotional regime– issued Resolution No. 4/2021, which was followed by Disposition N° 11/2021 issued by the Under Secretariat of Knowledge Economy on February 12, 2021. Both rules establish further details on the requirements, terms, conditions, application, and compliance procedures to be eligible under the promotional regime. In August 2021, the Under Secretariat of Knowledge Economy issued the Disposition 316/2021 approving MercadoLibre S.R.L.’s application for eligibility under the knowledge-based economy promotional regime. Tax benefits granted pursuant to the promotional regime to MercadoLibre S.R.L. were retroactive to January 1, 2020. As a result, the Company accounted for an income tax benefit of $ 14 million for the year ended December 31, 2021, which $ 8 million corresponded to the year ended December 31, 2020. The aggregate per share effect of the income tax benefit amounted to $ 0.29 for the year ended December 31, 2021. Furthermore, the Company recorded a social security benefit of $ 45 million for the year ended December 31, 2021, which $ 15 million corresponded to the year ended December 31, 2020. Given that the promotional regime establishes that exports of services by eligible companies are not subject to export duties, the Company recognized a gain of $ 24 million related to export duties accrued from January 2020 to August 2021 that are no longer required to be paid. Additionally, for the year ended December 31, 2021, the Company accrued a charge of $ 4 million to pay knowledge-based economy promotional law audit fees and FONPEC (“Fondo Fiduciario para la Promoción de la Economía del Conocimiento”) contribution. During the year end ed December 31, 2022, the Company accounted for an income tax benefit of $ 27 million . The aggregate per share effect of the income tax benefit amounted to $ 0.54 for the year ended December 31, 2022. Furthermore, the Company recorded a social security benefit of $ 54 million for the year ended December 31, 2022. Additionally, during the year ended December 31, 2022, the Company accrued a charge of $ 5 million , to pay knowledge-based economy promotional law audit fees and FONPEC contribution. Corporate income tax reform in Argentina In June 2021, Argentine Congress enacted Law 27,630, which increases corporate income tax rate for tax years beginning January 1, 2021, and onwards. The law replaced the 30 % fixed tax rate with a progressive tax scale that applies as follows: a) for accumulated net taxable income up to $ 5 million Argentine Pesos (roughly $ 28 thousand): 25 % tax rate on net taxable income, b) for accumulated net taxable income from $ 5 million Argentine Pesos to $ 50 million Argentine Pesos (roughly $ 282 thousand): a tax payment of $ 1 million Argentine Pesos (roughly $ 6 thousand) plus a 30 % tax rate on accumulated net taxable income on any amount exceeding $ 5 million Argentine Pesos, c) for accumulated net taxable income exceeding $ 50 million Argentine Pesos: a tax payment of $ 15 million Argentine Pesos (roughly $ 85 thousand) plus a 35 % tax rate on accumulated net taxable income on any amount exceeding $ 50 million Argentine Pesos. In addition, the new law permanently extended the 7 % withholding tax currently in force to dividend distributions. The mentioned thresholds are subject to inflation adjustment from 2022 onwards. 15. Commitments and Contingencies Litigation and Other Legal Matters The Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. Proceeding-related liabilities are based on developments to date and historical information related to actions filed against the Company. As of December 31, 2022, the Company had accounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of $ 53 million t o cover legal actions against the Company in which its Management has assessed the likelihood of a final adverse outcome as probable. Expected legal costs related to litigations are accrued when the legal service is actually provided. In addition, as of December 31, 2022, the Company and its subsidiaries are subject to certain legal actions considered by Management and its legal counsels to be reasonably possible for an aggregate amount up to $ 358 million. No loss amounts have been accrued for such reasonably possible legal actions, the most significant of which are described below. 125 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 15. Commitments and Contingencies (continued) The following table summarizes the contingencies activity during the years ended December 31, 2022, 2021 and 2020: Contingencies Balance at beginning of year Charged/credited to Net income / loss Charges Utilized/ Currency translation adjustments/ Write-offs and other adjustments Balance at end of year (In millions) Year ended December 31, 2020 8 3 — 11 Year ended December 31, 2021 11 5 ( 3 ) 13 Year ended December 31, 2022 13 16 24 53 Tax Claims Brazilian preliminary injunction against the Brazilian tax authorities (withholding Income tax) On November 6, 2014, the Brazilian subsidiaries, Mercadolivre.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Pago.com Representações Ltda. and the Argentine subsidiary, MercadoLibre S.R.L., filed a writ of mandamus and requested a preliminary injunction with the Federal Court of Osasco against the federal tax authority to avoid the IRRF (withholding income tax) over payments remitted by the Brazilian subsidiaries to MercadoLibre S.R.L. for the provision of IT support and assistance services by the latter, and requested reimbursement of the amounts improperly withheld over the course of the preceding five (5) years. The preliminary injunction was granted on the grounds that such withholding income tax violated the convention signed between Brazil and Argentina that prevents double taxation. In August 2015, the injunction was revoked by the first instance judge in an award favorable to the federal tax authority. The Company appealed the decision and deposited into court the disputed amounts. In June 2020, the Company’s appeal was dismissed. The Company submitted a new remedy before the same court in July 2020, which was dismissed on February 17, 2021. On March 18, 2021, the Company filed two appeals with the superior courts, which are now pending. As of December 31, 2022, the total amount of the deposits was $ 171 million (which included $ 24 million of interest). Such amounts are included in non-current other assets of the consolidated balance sheet. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position and the existence of favorable decisions issued by the Federal Regional Courts. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Interstate rate of ICMS-DIFAL on interstate sales During 2020 and 2021, the Brazilian subsidiaries, eBazar.com.br Ltda. and Mercado Pago Instituição de Pagamento Ltda., filed 15 writs of mandamus with the State Courts of Justice where these companies have sales branches in order to prevent Brazilian states from collecting the ICMS (“Imposto sobre Circulação de Mercadorias, Serviços de Transporte Interestadual, Intermunicipal e Comunicação”) on interstate sales at a differential rate (“ICMS-DIFAL”) without the existence of a complementary law. Four of these cases were filed in 2020 (for the branches of Barueri and Louveira) and the other 11 were filed in 2021, after eBazar.com.br Ltda. opened a new branch in Extrema. On February 24, 2021, the Brazilian Supreme Court ruled on the controversy in a binding precedent, which declared the unconstitutionality of ICMS-DIFAL without the proper complementary law. In the same case, however, the Supreme Court ruled on the modulation of the effects of its decision (with retroactive effect). From those 11 cases filed by the Company after the Supreme Court’s decision (after February 24, 2021), 4 became final and unappealable in favor of the corresponding States (cases related to the branch of Extrema: São Paulo, Rio Grande do Sul, Paraná e Distrito Federal), and therefore their corresponding liabilities were settled with the corresponding judicial deposits . Another one of the 11 cases became final and unappealable in favor of Ebazar.com.br Ltda . Finally, the remaining 6 of those 11 cases are still pending and may not stand because of the modulation of effects with respect to that decision. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing is probable. For that reason, the Company has recorded a $ 3 million provision for the disputed amounts related to these 6 cases. With respect to the 4 cases filed by the Company prior to the Supreme Court’s decision (before February 24, 2021), 1 of them became final and unappealable in favor of the Company. Of the remaining 3 cases, for which a judgment is still pending, Management considers that the risk of losing is remote. For that reason, the Company has not recorded any liability for the controversial amounts. The Company deposited into court the disputed amounts. As of December 31, 2022, the total amount of the deposits related to the ongoing cases was $ 8 million. 126 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 15. Commitments and Contingencies (continued) In January 2022, (therefore, already in the course of fiscal year 2022 and already in full application of the understanding of the Supreme Court for unconstitutionality), supplementary Law No. 190/22 was published, outlining the general rules for the requirement of DIFAL and expressly mentioning the need to comply with the principle of anticipation. Notwithstanding this provision, which expressly points to the need to comply with the anticipation, Brazil’s Federation Units have not complied with this guarantee. Therefore, eBazar.com.br Ltda. and Mercado Pago Instituição de Pagamento Ltda., filed writs of mandamus to the 27 Federation Units, aimed at preventing the Brazilian tax authorities demand payments of the DIFAL. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. The Company deposited into court the disputed amounts. As of December 31, 2022 , the total amount of the deposits was $ 21 million. From April to September 2022, the Brazilian subsidiary Mercado Envios Serviços de Logística Ltda., now incorporated by eBazar.com.br Ltda., also filed writs of mandamus to 3 Federation Units (São Paulo, Santa Catarina e Bahia), for the purpose of preventing the Brazilian tax authorities from demanding payment of the DIFAL over their respective fixed assets. The Company deposited into court the disputed amount s. As of December 31, 2022 , the total amount of the deposits was $ 2 million. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Exclusion of ICMS tax benefits from IRPJ and CSLL tax base The Company has ICMS tax incentives granted by the State of Minas Gerais, through a special regime signed with the state by means of a term of agreement, which are aimed at implementing and expanding business in that state. The Company accounted for the tax benefit netting cost of net revenues for $ 36 million and $ 15 million for years ended December 31, 2022 and 2021, respectively ( no impact in the year ended December 31, 2020). On November 9, 2021 the Company filed a writ of mandamus which claimed the exclusion of the amounts relating to the ICMS tax benefits granted by the State of Minas Gerais through the special regime from the tax base of the Corporate Income Tax (IRPJ) and of the Social Contribution on Net Profits (CSLL). On January 31, 2022, a decision was rendered granting the injunction requested in order not to include the amounts of tax benefits granted by the State of Minas Gerais in the tax base of IRPJ and CSLL, without, however, ruling on the requirements set forth in article 30 of Law 12.973/14 and article 38 of Decree-Law 1577/98. A motion for clarification was filed against this decision, which was accepted in order to include in the preliminary injunction the lack of compliance with such requirements. On April 12, 2022, the Office of Attorney-General of the National Treasury manifested itself in the records informing that it had not filed an appeal against the decision that granted the preliminary injunction. The Company is currently waiting for the judicial decision. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. The Company accounted for an income tax benefit arising from the ICMS tax incentives during the year ended December 31, 2022 for $ 17 million, considering the exchange rate as of December 31, 2022, from which $ 5 million corresponded to the period ended December 31, 2021. 127 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 15. Commitments and Contingencies (continued) Administrative tax claims On October 30, 2020 and November 9, 2020, MercadoPago.com Representações Ltda. and eBazar.com.br Ltda., respectively, received tax assessments claiming income tax payments for the 2016 fiscal year, with respective penalties and fines. In these assessments, the tax authorities do not recognize certain expenses incurred by the Brazilian subsidiaries, such as technology services imported from MercadoLibre S.R.L., Meli Uruguay S.R.L., and MercadoLibre Inc., as deductible for income tax purposes. The tax authorities concluded that the Brazilian entities failed to submit sufficient evidence during the tax assessment that these services were necessary and effectively hired and paid by the Brazilian subsidiaries. The tax assessments that MercadoPago.com Representações Ltda. and eBazar.com.br Ltda. received amounted to a total of $ 17 million and $ 13 million, respectively, considering the exchange rate as of December 31, 2022. The subsidiaries filed their defenses on December 1, 2020 and December 8, 2020, respectively, arguing that the agreements and other documentation were submitted as evidence during the tax assessment. The defenses were also complemented by specific descriptions for each project that was impacted by such services to justify the necessity of all the expenses in dispute. On May 25, 2021, MercadoPago.com received an unfavorable decision from the administrative court in the first instance, and on June 28, 2021, eBazar.com.br also received an unfavorable decision from the administrative court in the first instance. The Companies filed appeals in respect of both cases with the administrative court in the second instance, which are now pending. The Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible, but not probable. For that reason, the Company has not recorded any expense or liability for the disputed amounts. On December 30, 2022, eBazar.com.br Ltda. and one of the Company’s Senior Legal Directors received three tax assessments claiming corporate income taxes (IRPJ and CSLL) in the amount of $ 64 million, withholding income tax (IRRF) in the amount of $ 9 million, and PIS and COFINS in the amount of $ 10 million, all of them in relation to the taxable year of 2017, including punitive fine of 150 % over the tax charged and interest on late payments based on the SELIC rate, and according to the exchange rate as of December 31, 2022. The Senior Legal Director was assessed as jointly liable with eBazar.com.br, due to his role as statutory officer, under provisions of the National Tax Code that enable joint tax liability for acts potentially in violation of the law or the by-laws. In respect to IRPJ, CSLL, PIS and COFINS, the tax authorities concluded that the Brazilian company failed to report taxable income as the company has made book entries in the profit and loss accounts, reverting previous revenues or other revenue accounts, as well as for using foreign languages such as English and Spanish in its book-keeping. The tax authorities also considered that the company failed in the emission of invoices, disregarding that the company indeed has a Special Tax Regime granted by the Municipality of Osasco that allows the emission of a single invoice per period. Regarding the IRRF, the amount claimed by the tax authorities is already deposited in court under the writ of mandamus that discusses the company’s right not to pay IRRF on payments made to its affiliate in Argentina, due to the provisions of the Brazil and Argentina double tax treaty. Those deposits were incorrectly ignored by tax authorities. The Company presented the objection on January, 30 2023. The Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the cases is reasonably possible, but not probable in the cases of IRPJ, CSLL, PIS and COFINS, based on the technical merits. In the case of IRRF, the risk of losing the case is remote. For that reason, the Company has not recorded any expense or liability for the disputed amounts. Buyer protection program The BPP program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of a purchased item and the value of any shipping service paid if it does not arrive, arrives incomplete or damaged, does not match the seller’s description or if the buyer regrets the purchase. The Company is entitled to recover from the third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specific circumstances, the Company enters into insurance contracts with third-party insurance companies in order to cover contingencies that may arise from the BPP. The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may be made under the terms and conditions of the Company’s BPP. Based on historical losses to date, the Company does not believe that the maximum potential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this program when they are probable and the amount can be reasonably estimated. As of December 31, 2022 and 2021, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $ 4,002 million and $ 2,964 million, respectively, for which the Company recorded a provision of $ 6 million and $ 5 million, respectively. 128 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 15. Commitments and Contingencies (continued) Commitments The Company committed to purchase cloud platform services from two U.S. suppliers based on the following terms: a) for a total amount of $ 824 million, to be fully paid off between October 1, 2021 and September 30, 2026. As of December 31, 2022, the Company had paid $ 212 million in relation thereto; and b) for a total amount of $ 108 million, to be fully paid off between September 17, 2021 and September 17, 2024. As of December 31, 2022, the Company had paid $ 36 million in relation thereto. In September 2022, the Company amended this commitment whereby, effective as of September 23, 2022, the aggregate purchase commitment is $ 200 million, to be fully paid off between September 23, 2022 and September 23, 2025. As of December 31, 2022, the Company had paid $ 14 million in relation thereto. In connection with the closing of MELI Kaszek Pioneer Corp (“MEKA”)’s initial public offering on October 1, 2021, MEKA (a special purpose acquisition company sponsored by MELI Kaszek Pioneer Sponsor LLC (the “Sponsor”), which is a joint venture between Company’s subsidiary MELI Capital Ventures LLC and Kaszek Ventures Opportunity II, L.P.) entered into a forward purchase agreement with the Sponsor, pursuant to which the Sponsor committed to purchase from MEKA 5 million Class A ordinary shares at a price of $ 10 per share in a private placement to close substantially concurrently with the consummation of MEKA’s initial business combination. On April 8, 2022, the Company signed a 10-year agreement with Gol Linhas Aereas S.A. under which the Company is committed to contract a minimum amount of air logistics services for a total annual cost of $ 43 million (total amount once all the dedicated aircraft are in operation). Pursuant to the agreement, Gol Linhas Aereas S.A. provides logistics services in Brazil to Mercado Envios through six dedicated aircraft, two of which have already started operations as of December 31, 2022. 16. Long term retention plan On May 4, 2022, the board of directors, upon the recommendation of the Compensation Committee, adopted the 2022 Long-Term Retention Plan (“2022 LTRP”). In addition to the annual salary and bonus of each employee, certain employees (“Eligible Employees”) are eligible to participate in the 2022 LTRP, which provides for the grant to an Eligible Employee of a cash-settled fixed (a “2022 LTRP Fixed Award”) and cash-settled variable award (a “2022 LTRP Variable Award”, and together with any 2022 LTRP Fixed Award, the “2022 LTRP Awards”). In order to receive payment in respect of the 2022 LTRP Awards, each Eligible Employee must remain employed as of each applicable payment date. The 2022 LTRP award is payable as follows: • the eligible employee will receive 16.66 % of half of his or her target 2022 LTRP bonus once a year for a period of six years , with the first payment occurring no later than January 31, 2023 (the “2022 Annual Fixed Payment”); and • on each date the Company pays the Annual Fixed payment to the eligible employee, he or she will also receive a payment (the “2022 LTRP Variable Payment”) equal to the product of (i) 16.66 % of half of the target 2022 LTRP Award 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 2021 Stock Price ( as defined below). For purposes of the 2022 LTRP, t he “2021 Stock Price” s hall equa l $ 1,391.81 (the average closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 trading days of 2021) and the “Applicable Year Stock Price” shall equal the average closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date for so long as the Company’s common stock is listed on the NASDAQ. The rest of LTRP outstanding as of December 31, 2022, 2021, 2020 and 2019 follows similar calculation method as explained above for 2022 LTRP, except that the 2015, 2016, 2017 and 2018 LTRP have performance conditions established by the board of directors that must be achieved at the first year-end of each plan. Similar to the 2022 LTRP, the rest of the outstanding LTRPs additionally have eligibility conditions to be achieved at each year-end and require the employee remain employed by the Company as of each payment date. During the year ended December 31, 2022, the Company paid $ 103 million of LTRP plus social security obligations applicable in each local jurisdiction. 129 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 16. Long term retention plan (continued) The following table summarizes the 2015, 2016, 2017, 2018, 2019, 2020, 2021 and 2022 LTRP Variable Award contractual obligation for the years ended December 31, 2022, 2021 and 2020: December 31, 2022 December 31, 2021 December 31, 2020 Aggregate Intrinsic value Weighted-average remaining contractual life (years) Aggregate Intrinsic value Weighted-average remaining contractual life (years) Aggregate Intrinsic value Weighted-average remaining contractual life (years) (In millions) Outstanding LTRP 2015 — — — — 13 0.08 Outstanding LTRP 2016 — — 15 0.08 35 0.62 Outstanding LTRP 2017 7 0.08 24 0.58 41 1.13 Outstanding LTRP 2018 5 0.58 14 1.08 23 1.64 Outstanding LTRP 2019 35 1.08 84 1.58 133 2.14 Outstanding LTRP 2020 45 1.58 100 2.09 153 2.67 Outstanding LTRP 2021 39 2.08 85 2.58 — — Outstanding LTRP 2022 86 2.58 — — — — The following table summarizes the LTRP accrued compensation expense for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 (In millions) LTRP 2015 $ — $ — $ 10 LTRP 2016 — 2 23 LTRP 2017 ( 2 ) 3 26 LTRP 2018 ( 1 ) 2 12 LTRP 2019 16 27 29 LTRP 2020 19 29 30 LTRP 2021 21 26 — LTRP 2022 31 — — $ 84 $ 89 $ 130 130 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 17. Loans payable and other financial liabilities The following tables summarize the Company’s loans payable and other financial liabilities as of December 31, 2022 and 2021: Book value as of December 31, 2022 December 31, 2021 (In millions) Current loans payable and other financial liabilities: Loans from banks $ 319 $ 378 Bank overdrafts 9 146 Secured lines of credit 115 73 Financial Bills 113 — Deposit Certificates 993 582 Commercial Notes 6 — Finance lease obligations 14 10 Collateralized debt 535 77 2028 Notes 3 3 2026 Sustainability Notes 4 4 2031 Notes 10 10 Other lines of credit 10 2 $ 2,131 $ 1,285 Non-Current loans payable and other financial liabilities: Loans from banks $ 145 $ 8 Secured lines of credit 24 17 Financial Bills — 92 Deposit Certificates 3 3 Commercial Notes 187 — Finance lease obligations 37 36 Collateralized debt 703 674 2028 Notes 436 312 2026 Sustainability Notes 398 397 2031 Notes 694 694 $ 2,627 $ 2,233 131 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 17. Loans payable and other financial liabilities (continued) Book value as of Type of instrument Currency Interest Weighted Average Interest Rate Maturity December 31, 2022 December 31, 2021 (In millions) Loans from banks Chilean Subsidiaries Chilean Pesos Fixed 11.80 % January 2023 - April 2025 $ 150 $ 117 Brazilian Subsidiary US Dollar — — % — — 160 Brazilian Subsidiary (*) US Dollar Fixed 4.32 % August 2023 59 — Brazilian Subsidiary Brazilian Reais Variable TJLP + 0.8 % January - May 2031 9 4 Mexican Subsidiary Mexican Pesos Variable TIIE + 2.20 - 3.50 % January 2023 - June 2027 177 66 Uruguayan Subsidiary Uruguayan Pesos Fixed 11.73 % January - June 2023 47 23 Colombian Subsidiary Colombian Pesos Fixed 14.69 % January - June 2023 22 16 Bank overdrafts Uruguayan Subsidiary Uruguayan Pesos Fixed 11.97 % January 2023 9 27 Argentine Subsidiary Argentine Pesos — — % — — 115 Brazilian Subsidiary Brazilian Reais — — % — — 4 Secured lines of credit Argentine Subsidiaries Argentine Pesos Fixed 67.46 % January 2023 107 69 Mexican Subsidiary Mexican Pesos Fixed 10.03 % January 2023 - July 2027 32 21 Financial Bills Brazilian Subsidiary Brazilian Reais Variable CDI + 0.95 - 1.10 % July 2023 - February 2024 113 92 Deposit Certificates Brazilian Subsidiary Brazilian Reais Variable IPCA + 5.25 - 7.15 % February - May 2023 272 — Brazilian Subsidiary Brazilian Reais Variable 97 % to 160 % of CDI January 2023 - September 2024 565 521 Brazilian Subsidiary Brazilian Reais Fixed 11.35 - 15.00 % January - July 2023 114 41 Brazilian Subsidiary Brazilian Reais Variable 105.31 % of CDI February 2023 45 23 Commercial Notes Brazilian Subsidiary Brazilian Reais Variable DI + 0.88 % January 2023 - August 2027 71 — Brazilian Subsidiary Brazilian Reais Variable IPCA + 6.41 % January 2023 - August 2029 122 — Finance lease obligations 51 46 Collateralized debt 1,238 751 2028 Notes 439 315 2026 Sustainability Notes 402 401 2031 Notes 704 704 Other lines of credit 10 2 $ 4,758 $ 3,518 (*) The carrying amount includes the effect of the derivative instrument that qualified for fair value hedge. See Note 24 “Derivative Instruments” of these audited consolidated financial statements for further detail. See Notes 21 and 23 of these audited consolidated financial statements for details regarding the Company’s collateralized debt securitization transactions and finance lease obligations, respectively. 132 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 17. Loans payable and other financial liabilities (continued) 2.375% Sustainability Senior Notes Due 2026 and 3.125% Senior Notes Due 2031 On January 14, 2021, the Company closed a public offering of $ 400 million aggregate principal amount of 2.375 % Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $ 700 million aggregate principal amount of 3.125 % Notes due 2031 (the “2031 Notes”, and together with the 2026 Sustainability Notes, the “Notes”). The Company pays interest on the Notes on January 14 and July 14 of each year, beginning on July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031. In connection with the Notes, the Company capitalized $ 11 million of debt issuance costs, which are amortized during the term of the Notes. The Company may, at its option, redeem the 2026 Sustainability Notes, in whole or in part, at any time prior to December 14, 2025 (the date that is one month prior to the maturity of the 2026 Sustainability Notes) and the 2031 Notes, in whole or in part, at any time prior to October 14, 2030 (the date that is three months prior to the maturity of the 2031 Notes), in each case by paying 100 % of the principal amount of such Notes so redeemed plus the applicable “make-whole” amount and accrued and unpaid interest and additional amounts, if any. The Company may, at its option, redeem the 2026 Sustainability Notes, in whole or in part, on December 14, 2025 or at any time thereafter and the 2031 Notes on October 14, 2030 or at any time thereafter, in each case at the redemption price of 100 % of the principal amount of such Notes so redeemed plus accrued and unpaid interest and additional amounts, if any. If the Company experiences certain change of control triggering events, it may be required to offer to purchase the notes at 101 % of their principal amount plus any accrued and unpaid interest thereon through the purchase date. The Company intends to allocate an amount equal to the net proceeds from the issuance of the 2026 Sustainability Notes to finance or refinance Eligible Projects. “Eligible Projects” are investments and expenditures made by the Company beginning with the issuance date of the 2026 Sustainability Notes or in the 24 months prior to the issuance of the 2026 Sustainability Notes, that: (i) contribute to environmental objectives such as: clean transportation, land conservation and preservation, energy efficiency, renewable energy, green buildings and pollution prevention and control, (ii) aim to address or mitigate a specific social issue or seek to achieve positive social outcomes especially, but not exclusively, for one or more target populations or (iii) combine (i) and (ii). Certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) fully and unconditionally guarantee the payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes (the “Subsidiary Guarantees”). The initial Subsidiary Guarantors were MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., Mercado Pago Instituição de Pagamento Ltda. (formerly known as “MercadoPago.com Representações Ltda.”), MercadoLibre Chile Ltda., MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico (formerly known as “MercadoLibre, S. de R.L. de C.V.”), DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda. On October 27, 2021, MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico became an excluded subsidiary pursuant to the terms of the Notes and it was released from its Subsidiary Guaranty. On October 27, 2021, MP Agregador, S. de R.L. de C.V. became a Subsidiary Guarantor under the Notes. On July 1 and October 1, 2022, Ibazar.com Atividades de Internet Ltda. and Mercado Envios Servicos de Logistica Ltda. were merged into eBazar.com.br Ltda, respectively. The Notes rank equally in right of payment with all of the Company’s other existing and future senior unsecured debt obligations. Each Subsidiary Guarantee will rank equally in right of payment with all of the Subsidiary Guarantor’s other existing and future senior unsecured debt obligations, except for statutory priorities under applicable local law. 2.00% Convertible Senior Notes Due 2028 On August 24, 2018, the Company issued $ 800 million of 2.00 % Convertible Senior Notes due 2028 and issued an additional $ 80 million of notes on August 31, 2018 pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, for an aggregate principal amount of $ 880 million of 2.00 % Convertible Senior Notes due 2028 (collectively, the “2028 Notes”). The 2028 Notes are unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, on February 15 and August 15 of each year, at a rate of 2.00 % per annum. The 2028 Notes will mature on August 15, 2028 unless earlier redeemed, repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under specific conditions, based on an initial conversion rate of 2.2553 shares of common stock per $ 1,000 principal amount of the 2028 Notes (equivalent to an initial conversion price of $ 443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028 Notes. The Company will not have the right to redeem the notes prior to August 21, 2023. On or after August 21, 2023, if the last reported sale price of the Company’s common stock has been at or above 130 % of the conversion price during specified periods, the Company may (at its option) redeem all or any portion of the 2028 Notes for cash equal to the 2028 Notes’ principal amount plus accrued and unpaid interest to, but excluding the redemption date. 133 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 17. Loans payable and other financial liabilities (continued) Holders are able to convert their 2028 Notes at their option at any time prior to February 15, 2028 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 15, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2028 Notes at any time, regardless of the foregoing circumstances. During the year ended December 31, 2022, seven Notes were requested for conversion, for a total principal amount of $ 7 thousand. The Company reconfirmed during the fourth quarter of 2022 that the conversion threshold was met and the Notes remain eligible for conversion. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. From January 1, 2023 to the date of issuance of these consolidated financial statements, additional conversion requests for two notes were made. The Company has entered into capped call transactions with respect to shares of its common stock with certain financial institutions (the “2028 Notes Capped Call Transactions”). The 2028 Notes Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the 2028 Notes in the event that the market price of the Company’s Common Stock is greater than the strike price and lower than the cap price of the 2028 Notes Capped Call Transactions. The amounts the Company has paid, including transaction expenses, are as follows: Capped call trading date Amount (In millions) August 2018 (*) $ 92 November 2018 (*) 11 June 2019 (**) 88 June 2020 (**) 104 August, 2020 83 November, 2020 120 January, 2021 101 (*) Totally unwinded in 2021. (**) Partially unwinded in 2021. In addition, the Company paid $ 8 million in November 2019 to amend the strike and cap prices of the capped call transaction purchased in November 2018. The cost of the 2028 Notes Capped Call Transactions is included as a net reduction to additional paid-in capital in the stockholders’ equity section of the consolidated balance sheets. In June and August 2021, the Company terminated certain of its 2028 Notes Capped Call Transactions and received as consideration $ 102 million in cash and 57,047 shares of Common Stock, and $ 295 million in cash and 89,978 shares of Common Stock, respectively. Cash proceeds of terminating certain of the 2028 Notes Capped Call Transactions in June and August 2021 were used to repurchase 71,175 shares and 158,413 shares of Common Stock, respectively. Based on the $ 846.24 closing price of the Company’s Common Stock on December 31, 2022 and if the stock price remains constant, the Company could obtain 177,016 shares of Common Stock on the 2028 Notes Capped Calls Transactions settlement date. In January 2021, the Company repurchased $ 440 million principal amount of the outstanding of the 2028 Notes. The total amount paid amounted to $ 1,865 million, which includes principal, interest accrued and premium. The settlement consideration was first allocated to the extinguishment of the liability component of the 2028 Notes repurchased. The difference of $ 30 million between the fair value of the liability component and the net carrying amount of the liability component and unamortized debt issuance costs was recognized as a loss on debt extinguishment; in addition, $ 19 million paid as a premium was recognized as a loss in Interest expense and other financial losses line in the consolidated statement of income in January 2021. The remaining consideration of $ 1,484 million (net of income tax effects) was allocated to the reacquisition of the equity component and recognized as a reduction of stockholders’ equity. 134 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 17. Loans payable and other financial liabilities (continued) The total estimated fair value of the 2028 Notes were $ 884 million and $ 1,367 million as of December 31, 2022 and December 31, 2021, respectively. The fair value was determined based on the closing trading price per $ 100 principal amount of the 2028 Notes as of the last day of trading for the period. The Company considered the fair value of the 2028 Notes as of December 31, 2022 and December 31, 2021 to be a Level 2 measurement. The fair value of the 2028 Notes is primarily affected by the trading price of the Company’s common stock and market interest rates. Based on the $ 846.24 closing price of the Company’s common stock on December 31, 2022, the if-converted value of the 2028 Notes exceeds their principal amount by $ 399 million. As of December 31, 2022, the principal and issuance costs of the 2028 Notes amounted to $ 439 million and $ 3 million, respectively. As of December 31, 2021, the principal and issuance costs of the 2028 Notes amounted to $ 439 million and $ 4 million, respectively. The following table presents the interest expense for contractual interest, the accretion of debt discount and the amortization of debt issuance costs: Year ended December 31, 2022 2021 2020 (In millions) Contractual coupon interest expense $ 8 $ 9 $ 17 Amortization of debt discount (*) — 16 26 Amortization of debt issuance costs 1 — 1 Total interest expense related to the 2028 Notes $ 9 $ 25 $ 44 (*) For the year ended December 31, 2022 no amortization of debt discount was recorded due to the adoption of ASU 2020-06. See Note 2 "Summary of significant accounting policies - Recently Adopted Accounting Standards" for further detail. Revolving Credit Agreement On March 31, 2022, the Company, as borrower, entered into a $ 400 million revolving credit agreement (the “Credit Agreement”). Under the Credit Agreement, the Company’s subsidiaries MercadoLibre S.R.L., eBazar.com.br Ltda, Mercado Envios Serviços de Logística Ltda. (merged into eBazar.com.br Ltda. on October 1, 2022), Mercado Pago Instituição de Pagamento Ltda., DeRemate.com de México S. de R.L. de C.V., MP Agregador, S. de R.L. de C.V., MercadoLibre Chile Ltda., and MercadoLibre Colombia Ltda. have guaranteed the Company’s obligations. The interest rates under the Credit Agreement are based on Adjusted Term SOFR (“Secured Overnight Funding Rate”) plus an interest margin of 1.25 % per annum. Any loans drawn under the Credit Agreement must be repaid on or prior to March 31, 2025. The Company is also obligated to pay a commitment fee on the unused amounts of the facility at an annual rate of 0.3125 %. As of December 31, 2022, no amounts have been borrowed under the facility. 18. Related Party Transactions Indemnification agreements The Company has entered into indemnification agreements with each of the directors and executive officers of its local subsidiaries. These agreements require the Company to indemnify such individuals, to the fullest extent permitted by the laws of the jurisdiction where these subsidiaries operate, for certain liabilities to which they may become subject by reason of the fact that such individuals are or were directors or executive officers of the local subsidiaries of the Company. Advisory Agreement and Shares granted On April 8, 2022, the Company entered into an Advisory Services Agreement with Mr. Stelleo Tolda (former Mercado Libre’s Executive officer) whereby he will provide the Company with certain consulting and advisory services as an independent contractor for a three-year period for a fee of $ 10,000 per month. The Company also entered into a restricted stock award agreement with Mr. Tolda on April 8, 2022, whereby the Company awarded Mr. Tolda a grant of 5,051 shares of restricted stock under the Amended and Restated 2009 Equity Compensation Plan. One-fifth of the restricted stock award vests on each of the five anniversaries of the grant date, subject to Mr. Tolda’s continued compliance with the restrictive covenants set forth in the agreement. 135 MercadoLibre, Inc. Notes to Consolidated Financial Statements 19. Quarterly Financial Data (unaudited) The following tables present certain consolidated quarterly financial information for each of the last twelve quarters for the years ended December 31, 2022, 2021 and 2020: Quarter Ended March 31, June 30, September 30, December 31, (In millions, except for share data) 2022 Net Revenues $ 2,248 $ 2,597 $ 2,690 $ 3,002 Gross profit 1,073 1,284 1,348 1,458 Net Income 65 123 129 165 Net Income per share-basic 1.30 2.43 2.57 3.28 Net Income per share-diluted 1.30 2.43 2.56 3.25 Weighted average shares Basic 50,408,754 50,364,529 50,325,075 50,284,640 Diluted 50,408,754 50,364,529 51,315,343 51,274,909 2021 Net Revenues $ 1,378 $ 1,703 $ 1,858 $ 2,130 Gross profit 591 754 807 853 Net (loss) Income ( 34 ) 68 95 ( 46 ) Net (loss) Income per share-basic ( 0.68 ) 1.37 1.92 ( 0.92 ) Net (loss) Income per share-diluted ( 0.68 ) 1.37 1.92 ( 0.92 ) Weighted average shares Basic 49,867,625 49,822,272 49,597,157 49,926,533 Diluted 49,867,625 49,822,272 49,597,157 49,926,533 2020 Net Revenues $ 652 $ 878 $ 1,116 $ 1,328 Gross profit 313 427 480 489 Net (loss) Income ( 21 ) 56 15 ( 51 ) Net (loss) Income per share-basic ( 0.44 ) 1.11 0.28 ( 1.02 ) Net (loss) Income per share-diluted ( 0.44 ) 1.11 0.28 ( 1.02 ) Weighted average shares Basic 49,709,955 49,709,973 49,720,854 49,820,185 Diluted 49,709,955 49,709,973 49,720,854 49,820,185 20. Cash Dividend Distribution After reviewing the Company’s capital allocation process the board of directors has concluded that it has multiple investment opportunities that can generate greater return to shareholders through investing capital into the business over a dividend policy. Consequently, the board of directors suspended the payment of dividend to shareholders as from the first quarter of 2018. 136 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 21. Securitization transactions The process of securitization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity, often under a VIE. The Company securitizes financial assets associated with its credit cards and loans receivable portfolio. The Company’s securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote special purpose entities (“SPEs”). The Company generally retains economic interests in the collateralized securitization transactions, which are retained in the form of subordinated interests. For accounting purposes, the Company is generally precluded from recording the transfers of assets in securitization transactions as sales and is required to consolidate the SPE. The Company securitizes certain credit cards receivable related to users’ purchases through Argentine and Chilean SPEs. Under the SPE contracts, the Company has determined that it has no obligation to absorb losses or the right to receive benefits of the SPEs that could be significant because it does not retain any equity certificate of participation or subordinated interest in the SPEs. As the Company does not control the vehicles, its assets, liabilities, and related results are not consolidated in the Company’s financial statements. Additionally, the Company securitizes certain credit cards receivable related to users’ purchases through Brazilian SPEs. Under the SPE contracts, the Company has determined that it has the obligation to absorb losses or the right to receive benefits of the SPEs that could be significant because it retains subordinated interest in the SPEs. As the Company controls the vehicles, the assets, liabilities and related results are consolidated in its financial statements. The Company securitizes certain loans receivable through Brazilian, Argentine and Mexican SPEs, formed to securitize loans receivable provided by the Company to its users or purchased from financial institutions that grant loans to the Company’s users through Mercado Pago. According to the SPE contracts, the Company has determined that it has both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant because it retains the equity certificates of participation and would therefore also be consolidated. When the Company controls the vehicle, it accounts for the securitization transactions as if they were secured financing and therefore the assets, liabilities and related results are consolidated in its financial statements. 137 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 21. Securitization transactions (continued) The following table summarizes the Company’s collateralized debt under securitization transactions, as of December 31, 2022: SPEs Collateralized debt as of December 31, 2022 Interest rate Currency Maturity Mercado Crédito I Brasil Fundo de Investimento Em Direitos Creditórios Não Padronizados $ 193 CDI + 2.50 % Brazilian Reais June 2025 Fundo de Investimento Em DireitosCreditórios Arandu 192 CDI + 1.75 % Brazilian Reais June 2023 Mercado Crédito Fundo de Investimento Em Direitos Creditórios Não Padronizado 5 CDI + 3.50 % Brazilian Reais August 2023 Olimpia Fundo de Investimento Em Direitos Creditórios 97 CDI + 1.25 % Brazilian Reais November 2024 Mercado Crédito II Brasil Fundo De Investimento Em Direitos Creditórios Nao Padronizados 217 CDI + 1.90 % Brazilian Reais April 2028 Mercado Crédito Consumo VIII 3 Badlar rates plus 200 basis points with a min 30 % and a max 50 % Argentine Pesos February 2023 Mercado Crédito Consumo IX 9 Badlar rates plus 200 basis points with a min 30 % and a max 52 % Argentine Pesos May 2023 Mercado Crédito Consumo X 13 Badlar rates plus 200 basis points with a min 35 % and a max 62 % Argentine Pesos June 2023 Mercado Crédito Consumo XI 16 Badlar rates plus 200 basis points with a min 35 % and a max 63 % Argentine Pesos August 2023 Mercado Crédito Consumo XII 16 Badlar rates plus 200 basis points with a min 35 % and a max 70 % Argentine Pesos September 2023 Mercado Crédito Consumo XIII 16 Badlar rates plus 200 basis points with a min 35 % and a max 74 % Argentine Pesos November 2023 Mercado Crédito Consumo XIV 16 Badlar rates plus 200 basis points with a min 35 % and a max 80 % Argentine Pesos October 2023 Mercado Crédito Consumo XV 16 Badlar rates plus 200 basis points with a min 35 % and a max 92 % Argentine Pesos October 2023 Mercado Crédito XIII 2 Badlar rates plus 200 basis points with a min 30 % and a max 46 % Argentine Pesos April 2023 Mercado Crédito XIV 6 Badlar rates plus 200 basis points with a min 30 % and a max 48 % Argentine Pesos March 2023 Mercado Crédito XV 13 Badlar rates plus 200 basis points with a min 30 % and a max 56 % Argentine Pesos August 2023 Mercado Crédito XVI 12 Badlar rates plus 200 basis points with a min 35 % and a max 80 % Argentine Pesos September 2023 Mercado Crédito XVII 14 Badlar rates plus 200 basis points with a min 35 % and a max 88 % Argentine Pesos March 2024 Mercado Crédito XVIII 22 Badlar rates plus 200 basis points with a min 35 % and a max 92 % Argentine Pesos January 2024 Fideicomiso de administración y fuente de pago CIB/3756 154 The equilibrium interbank interest rate published by Banco de Mexico in the Diario Oficial plus 1.90 % Mexican Pesos September 2024 Fideicomiso de administración y fuente de pago CIB/3369 206 The equilibrium interbank interest rate published by Banco de Mexico in the Diario Oficial plus 3.00 % Mexican Pesos April 2025 $ 1,238 138 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 21. Securitization transactions (continued) This secured debt is issued by the SPEs and includes collateralized securities used to fund the Company’s Fintech business. The third-party investors in the securitization transactions have legal recourse only to the assets securing the debt and do not have recourse to the Company. Additionally, the cash flows generated by the SPEs are restricted to the payment of amounts due to third-party investors, but the Company retains the right to residual cash flows. The assets and liabilities of the SPEs are included in the Company’s consolidated financial statements as of December 31, 2022 and 2021, as follows: December 31, 2022 2021 Assets (in millions) Current assets: Restricted cash and cash equivalents $ 459 $ 282 Credit card receivables and other means of payments, net 317 278 Loans receivable, net 799 608 Total current assets 1,575 1,168 Long-term investments 21 13 Loans receivable, net 24 45 Total non-current assets 45 58 Total assets $ 1,620 $ 1,226 Liabilities Current liabilities: Accounts payable and accrued expenses $ 4 $ 1 Loans payable and other financial liabilities 535 77 Other liabilities 1 — Total current liabilities 540 78 Non-current liabilities: Loans payable and other financial liabilities 703 674 Total non-current liabilities 703 674 Total liabilities $ 1,243 $ 752 22. Equity Offering On November 18, 2021, the Company closed a public equity offering of $ 1,550 million of common stock at a public offering price of $ 1,550 per share (the “Offering”). Pursuant to the Offering, the Company issued 1,000,000 shares of common stock, par value $ 0.001 per share (the “Common Stock”). T he Company raised funds in the amount of $ 1,520 million net of issuance costs paid. 139 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 23. Leases The Company leases certain fulfillment, cross docking and service centers, office space, aircraft, machines and vehicles in the various countries in which it operates. The lease agreements do not contain any residual value guarantees or material restrictive covenants. Supplemental balance sheet information related to leases was as follows: December 31, 2022 2021 Operating Leases (In millions) Operating lease right-of-use assets $ 656 $ 461 Operating lease liabilities $ 656 $ 464 Finance Leases Property and equipment, at cost 87 68 Accumulated depreciation ( 31 ) ( 14 ) Property and equipment, net $ 56 $ 54 Loans payable and other financial liabilities $ 51 $ 46 The following table summarizes the weighted average remaining lease term and the weighted average incremental borrowing rate for operating leases and the weighted average discount rate for finance leases as of December 31, 2022: Weighted average remaining lease term Operating leases 8 Years Finance leases 3 Years Weighted average discount rate (*) Operating leases 10 % Finance leases 16 % (*) Includes discount rates of leases in local currency and U.S dollar. The components of lease expense were as follows: Year Ended December 31, 2022 2021 2020 (In millions) Operating lease cost $ 128 $ 80 $ 43 Finance lease cost: Depreciation of property and equipment 18 9 2 Interest on lease liabilities 8 5 3 Total finance lease cost $ 26 $ 14 $ 5 Variable lease cost (*) $ 17 $ 13 $ — (*) Variable lease payments are expensed as incurred and include charges such as flight hours above minimum, fuel, among others. 140 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 23. Leases (continued) Supplemental cash flow information related to leases was as follows: Year Ended December 31, 2022 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: (In millions) Operating cash flows from operating leases $ 117 $ 71 $ 40 Financing cash flows from finance leases 20 17 5 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 317 $ 229 $ 138 Finance leases 18 37 17 The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by the Company’s incremental borrowing rates to calculate the lease liabilities for the operating and finance leases: Period Ending December 31, 2022 Operating Leases Finance Leases (In millions) One year or less $ 150 $ 22 One year to two years 137 21 Two years to three years 126 16 Three years to four years 102 5 Four years to five years 86 3 Thereafter 328 — Total lease payments $ 929 $ 67 Less imputed interest ( 273 ) ( 16 ) Total $ 656 $ 51 24. Derivative Instruments Cash Flow Hedge As of December 31, 2022, the Company used foreign currency exchange contracts to hedge the foreign currency effects related to the forecasted purchase of MPOS devices in U.S. dollars owed by a Brazilian subsidiary whose functional currency is the Brazilian Reais. The Company designated the foreign currency exchange contracts as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. As of December 31, 2022, the Company estimated that the whole amount of net derivative gains or losses related to its cash flow hedges included in accumulated other comprehensive loss will be reclassified into earnings within the next 12 months. In addition, the Company has entered into swap contracts to hedge the interest rate fluctuation of its financial debt issued by one of its Brazilian subsidiaries. The Company designated the swap contracts as cash flow hedges. The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into earnings within the next 12 months. Fair Value Hedge The Company has entered into a swap contract to hedge the interest rate and the foreign currency exposure of its fixed-rate, foreign currency financial debt issued by one of its Brazilian subsidiaries. The Company designated the swap contract as fair value hedge. The derivative’s gain or loss is reported in earnings in the same line items as the change in the value of the financial debt due to the hedged risks. Since the terms of the interest rate swap match the terms of the hedged debt, changes in the fair value of the interest rate swap are offset by changes in the fair value of the hedged debt attributable to changes in interest rates. Accordingly, the net impact in current earnings is that the interest expense associated with the hedged debt is recorded at the floating rate. 141 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 24. Derivative Instruments (continued) Net Investment Hedge The Company used cross currency swap contracts, to reduce the foreign currency exchange risk related to its investment in its Brazilian foreign subsidiaries and the interest rate risk. This derivative was designated as a net investment hedge and, accordingly, gains and losses are reported as a component of accumulated other comprehensive loss. The derivative’s gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into earnings in the same period that the interest expense affects earnings. Derivative instruments not designated as hedging instruments As of December 31, 2022, the Company entered into certain foreign currency exchange contracts to hedge the foreign currency fluctuations related to certain transactions denominated in U.S. dollars of certain of its Brazilian and Mexican subsidiaries, whose functional currencies are the Brazilian Reais and Mexican Peso, respectively. These transactions were not designated as hedges for accounting purposes. In addition, the Company entered into full cross currency swap contracts to hedge the interest rate fluctuation and foreign currency fluctuations of its financial debt nominated in U.S. dollars held by its Brazilian subsidiaries. These transactions were not designated as hedges for accounting purposes. Finally, as of December 31, 2022, the Company entered into swap contracts to hedge the interest rate fluctuation of certain portion of its financial debt in its Brazilian subsidiaries and VIEs. These transactions were not designated as hedges for accounting purposes. The following table presents the notional amounts of the Company’s outstanding derivative instruments Notional Amount as of December 31, 2022 2021 (In millions) Designated as hedging instrument Foreign exchange contracts 109 89 Interest rate swap contracts 229 — Cross currency swap contracts 133 94 Not designated as hedging instrument Foreign exchange contracts 110 — Interest rate swap contracts 480 249 Cross currency swap contracts — 160 142 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 24. Derivative Instruments (continued) Derivative instruments contracts The fair values of the Company’s outstanding derivative instruments as of December 31, 2022 and December 31, 2021 were as follows: December 31, Balance sheet location 2022 2021 (In millions) Derivative Instruments Cross currency swap contracts not designated as hedging instruments Other current assets — 8 Foreign exchange contracts designated as cash flow hedges Other current assets 1 2 Cross currency swap contracts designated as net investment hedge Other non-current assets — 7 Cross currency swap contracts designated as net investment hedge Other current liabilities 2 — Cross currency swap contracts not designated as hedging instruments Other current liabilities — 5 Interest rate swap contracts designated as cash flow hedges Other current liabilities 8 — Cross currency swap contracts designated as fair value hedge Other current liabilities 2 — Interest rate swap contracts not designated as hedging instruments Other current liabilities 1 — Foreign exchange contracts not designated as hedging instruments Other current liabilities 2 — Foreign exchange contracts designated as cash flow hedges Other current liabilities 2 1 Interest rate swap contracts not designated as hedging instruments Other non-current liabilities 6 — Cross currency swap contracts designated as net investment hedge Other non-current liabilities 1 — The effects of derivative contracts on the Consolidated Statement of Comprehensive Income as of December 31, 2022 and December 2021 were as follows: December 31, 2021 Amount of loss recognized in other comprehensive loss Amount of loss reclassified from accumulated other comprehensive loss (income) December 31, 2022 (In millions) Foreign exchange contracts designated as cash flow hedges 1 ( 12 ) 9 ( 2 ) Interest swap contracts designated as cash flow hedges — ( 9 ) 7 ( 2 ) Cross currency swap contracts designated as net investment hedge 7 ( 12 ) 4 ( 1 ) 8 ( 33 ) 20 ( 5 ) 143 Table of Contents MercadoLibre, Inc. Notes to Consolidated Financial Statements 24. Derivative Instruments (continued) The effect of the Company’s fair value hedge relationships on the Consolidated Statements of Income for the year ended December 31, 2022 is less than $ 1 million (there were no fair value hedge relationships during the years ended December 31, 2021 and 2020). The carrying amount of the hedged item for fair value hedges as of December 31, 2022 is $ 59 million (there were no fair value hedge relationships as of December 31, 2021 and 2020). The effect of the Company’s fair value hedge relationships on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges for the year ended December 31, 2022 is less than $ 1 million (there were no fair value hedge relationships during the years ended December 31, 2021 and 2020). The effects of derivative contracts not designated as hedging instruments on the Consolidated Statement of Income during the years ended December 31, 2022, 2021 and 2020 were as follows: Years ended December 31, 2022 2021 2020 (In millions) Foreign exchange contracts not designated as hedging instruments recognized in foreign exchange, net ( 10 ) ( 2 ) 2 Currency swap contracts not designated as hedging instruments recognized in foreign exchange, net ( 29 ) 2 — Interest rate contracts not designated as hedging instruments recognized in interest and other, net ( 7 ) — — 25. Share repurchase program On August 4, 2021, the Board authorized the Company to repurchase shares of the Company’s common stock, for aggregate consideration of up to $ 150 million. This authorization, was scheduled to expire on August 31, 2022 . On March 1, 2022, the Board authorized an increase in that Authorization of $ 300 million, from an aggregate consideration of up to $ 150 million to an a ggregate consideration of up to $ 450 million (the "Existing Program") . On March 1, 2022, the Board also authorized a new extension of the term of the Existing Program , from August 31, 2022 to August 31, 2023. As of December 31, 2022 , the estimated remaining balance available for share repurchases under this authorization was $ 48 million. On February 21, 2023, the Board terminated the Existing Program and authorized a new program to repurchase shares of the Company’s common stock, for aggregate consideration of up to $ 900 million to expire on March 31, 2024. The Company expects to purc hase shares at any time and from time to time, in compliance with applicable federal securities laws, through open-market purchases, block trades, derivatives, trading plans established in accordance with SEC rules, or privately negotiated transactions. The timing of repurchases will depend on factors including market conditions and prices, the Company’s liquidity requirements and alternative uses of capital. The share repurchase program may be suspended from time to time or discontinued, and there is no assurance as to the number of shares that will be repurchased under the program or that there will be any repurchases. As of December 31, 2022, the Company had acquired 291,132 shares under the aforementioned share repurchase programs. From time to time, the Company acquires shares of its own common stock in the Argentine market and pays for them in Argentine pesos at a price that reflects the additional cost of accessing U.S. dollars through securities denominated in U.S. dollars, because of restrictions imposed by the Argentine government for buying U.S. dollars at the official exchange rate in Argentina (See Note 2 - “Summary of significant accounting policies - Argentine currency status” of these audited consolidated financial statements). As a result, the Company recognized foreign currency losses of $ 141 million and $ 90 million for the years ended December 31, 2022 and 2021, respectively. 144