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Fair value measurement of assets and liabilities | 6 Months Ended
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Jun. 30, 2023
Fair Value Disclosures [Abstract] |
Fair value measurement of assets and liabilities | 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 June 30, 2023 and December 31, 2022:
Description |  | Balances as of June 30, 2023 |  | 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, 2022 |  | 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 |  | $ | 683 |  |  | $ | 683 |  |  | $ | — |  |  | $ | — |  |  | $ | 599 |  |  | $ | 599 |  |  | $ | — |  |  | $ | — |
U.S. government debt securities (1) |  | 65 |  |  | 65 |  |  | — |  |  | — |  |  | 21 |  |  | 21 |  |  | — |  |  | — |
Foreign government debt securities (1) |  | 41 |  |  | 41 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Restricted Cash and Cash Equivalents: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money Market (3) |  | 584 |  |  | 584 |  |  | — |  |  | — |  |  | 352 |  |  | 352 |  |  | — |  |  | — |
Foreign government debt securities (Central Bank of Brazil Mandatory Guarantee) (1) |  | 302 |  |  | 302 |  |  | — |  |  | — |  |  | 158 |  |  | 158 |  |  | — |  |  | — |
Investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government debt securities (1) |  | 992 |  |  | 992 |  |  | — |  |  | — |  |  | 733 |  |  | 733 |  |  | — |  |  | — |
Foreign government debt securities (Central Bank of Brazil Mandatory Guarantee) (1) |  | 1,398 |  |  | 1,398 |  |  | — |  |  | — |  |  | 1,219 |  |  | 1,219 |  |  | — |  |  | — |
Foreign government debt securities (1) (2) |  | 129 |  |  | 129 |  |  | — |  |  | — |  |  | 214 |  |  | 214 |  |  | — |  |  | — |
Other Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Instruments |  | — |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 1 |  |  | — |
USDC |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | 3 |  |  | — |  |  | — |
Customer crypto-assets safeguarding assets |  | 21 |  |  | — |  |  | 21 |  |  | — |  |  | 15 |  |  | — |  |  | 15 |  |  | — |
Total Assets |  | $ | 4,215 |  |  | $ | 4,194 |  |  | $ | 21 |  |  | $ | — |  |  | $ | 3,315 |  |  | $ | 3,299 |  |  | $ | 16 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term retention program |  | $ | 50 |  |  | $ | — |  |  | $ | 50 |  |  | $ | — |  |  | $ | 58 |  |  | $ | — |  |  | $ | 58 |  |  | $ | — |
Other Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent considerations |  | — |  |  | — |  |  | — |  |  | — |  |  | 8 |  |  | — |  |  | — |  |  | 8 |
Derivative Instruments |  | 41 |  |  | — |  |  | 41 |  |  | — |  |  | 24 |  |  | — |  |  | 24 |  |  | — |
Customer crypto-assets safeguarding liabilities |  | 21 |  |  | — |  |  | 21 |  |  | — |  |  | 15 |  |  | — |  |  | 15 |  |  | — |
Total Liabilities |  | $ | 112 |  |  | $ | — |  |  | $ | 112 |  |  | $ | — |  |  | $ | 105 |  |  | $ | — |  |  | $ | 97 |  |  | $ | 8 |
(1)Measured at fair value with impact on the 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 June 30, 2023 and December 31, 2022 includes $24 million and $21 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.) (3)As of June 30, 2023 and December 31, 2022 includes $549 million and $314 million, respectively, of money markets from securitization transactions. (See Note 5 - Cash, cash equivalents, restricted cash and cash equivalents and investments.) As of June 30, 2023 and December 31, 2022, 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 contingent considerations classified as Level 3 refer 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%), and the Company’s historical experience with similar arrangements. Reasonable variation on those unobservable inputs would not significantly change the fair value of those instruments. As of June 30, 2023 and December 31, 2022, the Company had not changed the methodology nor the assumptions used to estimate the fair value of the financial instruments. There were no transfers to and from Levels 1, 2 and 3 during the six-month period ended June 30, 2023. There were no transfers to and from Levels 1, 2 and 3 during the year ended December 31, 2022, other than as detailed in the table below. As of June 30, 2023, the contingent considerations measured at fair value using Level 3 inputs were settled. The following table summarizes the reconciliation of the financial liabilities measured at fair value using Level 3 inputs as of December 31, 2022:
| 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) |  |  | —
Gain (Losses) in Other Comprehensive Income | (15) |  |  | —
Gain (Losses) on Income Statement | (28) |  | —
Transfers out of level 3 to level 2 | 27 |  | —
Balance, end of the year | $ | — |  | $ | (8)
The Company’s election of the fair value option applies to the: i) Brazilian federal government bonds and ii) U.S. treasury notes. The Company recognized fair value changes in interest income and other financial gains which includes the related interest income of those instruments. Such fair value changes and interest income amount to $121 million and $64 million, and $62 million and $39 million for the six and three-month periods ended June 30, 2023 and 2022, respectively. As of June 30, 2023 and December 31, 2022, the Company held no financial assets classified as available for sale. However, during the year ended December 31, 2022, the Company purchased and sold all the corporate debt securities classified as available for sale, resulting in $156 million of proceeds from the sales and in gross realized gains less than $1 million. The cost of these securities was determined under a specific identification basis. Financial assets and liabilities not measured and recorded at fair value As of June 30, 2023 and December 31, 2022, the carrying value of the Company’s financial assets (except for loans receivable and equity securities held at cost) and liabilities (except for loans payable and other financial liabilities) not measured at fair value approximated their fair value mainly because of their short-term maturity. These assets and liabilities included cash and cash equivalents, restricted cash and cash equivalents, short and long-term investments (excluding money markets, U.S. and foreign government debt securities and equity securities held at cost), accounts receivable, credit card receivables and other means of payments, other assets (excluding derivative instruments and USD Coin - “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), 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 assets and liabilities would be classified as Level 2. As of June 30, 2023 and December 31, 2022, the estimated fair value of the loans receivable, which is based on Level 3 inputs, is $2,176 million and $1,761 million, respectively, and was determined based on Company’s assumptions. As of June 30, 2023 and December 31, 2022, the estimated fair value of the 2026 and 2031 Notes, which is based on Level 2 inputs, is $365 million and $359 million, and $559 million and $541 million, respectively. As of June 30, 2023 and December 31, 2022, the estimated fair value of the 2028 Notes, which is based on Level 2 inputs, is $1,202 million and $884 million, respectively, and 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 (see Note 12 - Loans payable and other financial liabilities of these una udited interim condensed 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 June 30, 2023 and December 31, 2022:
| Balances as of June 30, 2023 |  | Estimated fair value as of June 30, 2023 |  | Balances as of December 31, 2022 |  | Estimated fair value as of December 31, 2022
| (In millions)
Assets |  |  |  |  |  |  |
Cash and cash equivalents | $ | 1,071 |  |  | $ | 1,071 |  |  | $ | 1,290 |  |  | $ | 1,290 |
Restricted cash and cash equivalents | 1,078 |  |  | 1,078 |  |  | 943 |  |  | 943 |
Investments | 411 |  |  | 411 |  |  | 439 |  |  | 439 |
Accounts receivables, net | 160 |  |  | 160 |  |  | 130 |  |  | 130 |
Credit card receivables and other means of payment, net | 2,835 |  |  | 2,835 |  |  | 2,946 |  |  | 2,946 |
Loans receivable, net | 2,127 |  |  | 2,176 |  |  | 1,736 |  |  | 1,761 |
Other assets | 360 |  |  | 360 |  |  | 273 |  |  | 273 |
Total Assets | $ | 8,042 |  |  | $ | 8,091 |  |  | $ | 7,757 |  |  | $ | 7,782 |
Liabilities |  |  |  |  |  |  |
Accounts payable and accrued expenses | $ | 1,831 |  |  | $ | 1,831 |  |  | $ | 1,393 |  |  | $ | 1,393 |
Funds payable to customers | 3,734 |  |  | 3,734 |  |  | 3,454 |  |  | 3,454 |
Amounts payable due to credit and debit card transactions | 641 |  |  | 641 |  |  | 488 |  |  | 488 |
Salaries and social security payable | 346 |  |  | 346 |  |  | 349 |  |  | 349 |
Loans payable and other financial liabilities | 4,767 |  |  | 5,394 |  |  | 4,758 |  |  | 4,997 |
Other liabilities | 219 |  |  | 219 |  |  | 186 |  |  | 186 |
Total Liabilities | $ | 11,538 |  |  | $ | 12,165 |  |  | $ | 10,628 |  |  | $ | 10,867 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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