MASTERCARD INC, 10-Q filed on 5/2/2012
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2012
Apr. 26, 2012
Class A Common Stock [Member]
Apr. 26, 2012
Class B Common Stock [Member]
Entity Registrant Name
MASTERCARD INC 
 
 
Trading Symbol
MA 
 
 
Entity Central Index Key
0001141391 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Mar. 31, 2012 
 
 
Document Fiscal Year Focus
2012 
 
 
Document Fiscal Period Focus
Q1 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
121,245,690 
5,134,741 
Consolidated Balance Sheet (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
ASSETS
 
 
Cash and cash equivalents
$ 3,684 
$ 3,734 
Investment securities available-for-sale, at fair value
1,457 
1,215 
Accounts receivable
812 
808 
Settlement due from customers
654 
601 
Restricted security deposits held for customers
649 
636 
Prepaid expenses and other current assets
510 
404 
Deferred income taxes
347 
343 
Total Current Assets
8,113 
7,741 
Property, plant and equipment, at cost, net
450 
449 
Deferred income taxes
93 
88 
Goodwill
1,042 
1,014 
Other intangible assets, net of accumulated amortization of $595 and $557, respectively
682 
665 
Other assets
751 
736 
Total Assets
11,131 
10,693 
LIABILITIES AND EQUITY
 
 
Accounts payable
274 
360 
Settlement due to customers
625 
699 
Restricted security deposits held for customers
649 
636 
Accrued litigation
770 
770 
Accrued expenses
1,575 
1,610 
Other current liabilities
199 
142 
Total Current Liabilities
4,092 
4,217 
Deferred income taxes
112 
113 
Other liabilities
548 
486 
Total Liabilities
4,752 
4,816 
Commitments and Contingencies
   
   
Stockholders' Equity
 
 
Additional paid-in-capital
3,546 
3,519 
Class A treasury stock, at cost, 11,797,669 and 11,153,333 shares, respectively
(2,642)
(2,394)
Retained earnings
5,389 
4,745 
Accumulated other comprehensive income (loss)
78 
(2)
Total Stockholders' Equity
6,371 
5,868 
Non-controlling interests
Total Equity
6,379 
5,877 
Total Liabilities and Equity
11,131 
10,693 
Class A Common Stock [Member]
 
 
Stockholders' Equity
 
 
Common stock value
Class B Common Stock [Member]
 
 
Stockholders' Equity
 
 
Common stock value
$ 0 
$ 0 
Consolidated Balance Sheet (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Finite-Lived Intangible Assets, Accumulated Amortization
$ 595 
$ 557 
Class A treasury stock, shares
11,797,669 
11,153,333 
Class A Common Stock [Member]
 
 
Common stock, par value
$ 0.0001 
$ 0.0001 
Common stock, authorized
3,000,000,000 
3,000,000,000 
Common stock, issued
133,142,745 
132,771,392 
Common stock, outstanding
121,345,076 
121,618,059 
Class B Common Stock [Member]
 
 
Common stock, par value
$ 0.0001 
$ 0.0001 
Common stock, authorized
1,200,000,000 
1,200,000,000 
Common stock, issued
5,146,301 
5,245,676 
Common stock, outstanding
5,146,301 
5,245,676 
Consolidated Statement of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Income Statement [Abstract]
 
 
Revenues, net
$ 1,758 
$ 1,501 
Operating Expenses
 
 
General and administrative
579 
494 
Advertising and marketing
125 
129 
Depreciation and amortization
54 
42 
Total operating expenses
758 
665 
Operating income
1,000 
836 
Other Income (Expense)
 
 
Investment income
12 
Interest expense
(6)
(10)
Other income (expense), net
(4)
(2)
Total other income (expense)
(1)
Income before income taxes
999 
836 
Income tax expense
318 
274 
Net income
681 
562 
Loss attributable to non-controlling interests
Net income attributable to MasterCard
$ 682 
$ 562 
Basic Earnings per Share
$ 5.38 
$ 4.31 
Basic Weighted Average Shares Outstanding
127 
130 
Diluted Earnings per Share
$ 5.36 
$ 4.29 
Diluted Weighted Average Shares Outstanding
127 1
131 1
Consolidated Statement of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Statement of Income and Comprehensive Income [Abstract]
 
 
Net income
$ 681 
$ 562 
Other comprehensive income:
 
 
Foreign currency translation adjustments
77 
105 
Defined benefit pension and other postretirement plans
Income tax effect
Net of Tax
Investment securities available for sale
Income tax effect
(1)
Net of Tax
Other comprehensive income, net of tax
80 
106 
Comprehensive Income
761 
668 
Loss attributable to non-controlling interests
Comprehensive Income Attributable to MasterCard
$ 762 
$ 668 
Consolidated Statement of Changes in Equity (USD $)
In Millions
Total
Retained Earnings (Accumulated Deficit) [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Member]
Additional Paid-In Capital [Member]
Class A Treasury Stock [Member]
Non-Controlling Interests [Member]
Balance at Dec. 31, 2011
$ 5,877 
$ 4,745 
$ (2)
$ 3,519 
$ (2,394)
$ 9 
Net income
681 
682 
 
 
 
(1)
Other comprehensive income, net of tax
80 
 
80 
 
 
 
Cash dividends declared on Class A and Class B common stock, $0.30 per share
(38)
(38)
 
 
 
 
Purchases of treasury stock
(248)
 
 
 
(248)
 
Share-based payments
18 
 
 
18 
 
 
Stock units withheld for taxes
(38)
 
 
(38)
 
 
Tax benefit for share-based compensation
33 
 
 
33 
 
 
Exercise of stock options
14 
 
 
14 
 
 
Balance at Mar. 31, 2012
$ 6,379 
$ 5,389 
$ 78 
$ 3,546 
$ (2,642)
$ 8 
Consolidated Statement of Changes in Equity (Parenthetical)
3 Months Ended
Mar. 31, 2012
Statement of Stockholders' Equity [Abstract]
 
Cash dividends declared on Class A and Class B common stock, per share
$ 0.30 
Consolidated Statement of Cash Flows (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Operating Activities
 
 
Net income
$ 681 
$ 562 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
54 
42 
Share-based payments
18 
15 
Stock units withheld for taxes
(38)
(32)
Tax benefit for share-based compensation
(33)
(7)
Deferred income taxes
(14)
55 
Other
Changes in operating assets and liabilities:
 
 
Accounts receivable
(2)
Settlement due from customers
(43)
122 
Prepaid expenses
(53)
60 
Obligations under litigation settlements
(150)
Accounts payable
(88)
Settlement due to customers
(88)
(259)
Accrued expenses
(132)
Net change in other assets and liabilities
14 
67 
Net cash provided by operating activities
427 
355 
Investing Activities
 
 
Purchases of investment securities available-for-sale
(398)
(15)
Purchases of property, plant and equipment
(12)
(10)
Capitalized software
(39)
(15)
Proceeds from sales of investment securities available-for-sale
43 
10 
Proceeds from maturities of investment securities available-for-sale
111 
15 
Proceeds from maturities of investment securities held-to-maturity
150 
Investment in nonmarketable equity investments
(7)
Net cash (used in) provided by investing activities
(302)
135 
Financing Activities
 
 
Purchases of treasury stock
(248)
(654)
Dividends paid
(19)
(20)
Tax benefit for share-based compensation
33 
Cash proceeds from exercise of stock options
14 
Net cash used in financing activities
(220)
(665)
Effect of exchange rate changes on cash and cash equivalents
45 
62 
Net decrease in cash and cash equivalents
(50)
(113)
Cash and cash equivalents - beginning of period
3,734 
3,067 
Cash and cash equivalents - end of period
$ 3,684 
$ 2,954 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Organization

MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated (“MasterCard International” and together with MasterCard Incorporated, “MasterCard” or the “Company”), is a global payments and technology company that connects consumers, financial institutions, merchants, governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks.  MasterCard primarily (1) offers a wide range of payment solutions, which enable its customers (which include financial institutions and other entities that act as “issuers” and “acquirers”) to develop and implement credit, debit, prepaid and related payment programs for their customers (which include individual consumers, businesses and government entities); (2) manages a family of well-known, widely-accepted payment brands, including MasterCard®, Maestro® and Cirrus®, which it licenses to its customers for use in their payment programs; (3) processes payment transactions over the MasterCard Worldwide Network; and (4) provides support services to its customers and, depending upon the service, merchants and other clients.  

Consolidation and basis of presentation

The consolidated financial statements include the accounts of MasterCard and its majority-owned and controlled entities, including any variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2012 presentation. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).

The balance sheet as of December 31, 2011 was derived from the audited consolidated financial statements as of December 31, 2011. The consolidated financial statements for the three months ended March 31, 2012 and 2011 and as of March 31, 2012 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. Due to seasonal fluctuations and other factors, the results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission requirements of Quarterly Reports on Form 10-Q and, consequently, do not include all of the disclosures required by GAAP. Reference should be made to the MasterCard Incorporated Annual Report on Form 10-K for the year ended December 31, 2011 for additional disclosures, including a summary of the Company’s significant accounting policies.

Recent accounting pronouncements

Fair value measurement and disclosure - The Company measures certain assets and liabilities at fair value on a recurring basis by estimating the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies these recurring fair value measurements into a three-level hierarchy ("Valuation Hierarchy") and discloses the significant assumptions utilized in measuring assets and liabilities at fair value.

In May 2011, the fair value accounting standard was amended to change fair value measurement principles and disclosure requirements. The key changes in measurement principles include limiting the concepts of highest and best use and valuation premise to nonfinancial assets, providing a framework for considering whether a premium or discount can be applied in a fair value measurement, and aligning the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities. Disclosures are required for all transfers between Levels 1 and 2 within the Valuation Hierarchy, the use of a nonfinancial asset measured at fair value if its use differs from its highest and best use, the level in the Valuation Hierarchy of assets and liabilities not recorded at fair value but for which fair value is required to be disclosed, and for Level 3 measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and qualitative discussion about the sensitivity of the measurements. The Company adopted the revised accounting standard effective January 1, 2012 via prospective adoption, as required. The adoption had no impact on the Company's financial position or results of operations.

Comprehensive income - In June 2011, a new accounting standard was issued that amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. In December 2011, a new accounting standard was issued that indefinitely deferred the effective date for the requirement to present the reclassification of items from comprehensive income to net income on the face of the financial statements. Both standards require retrospective application, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted the revised accounting standards effective January 1, 2012. The adoption had no impact on the Company's financial position or results of operations.
Earnings Per Share
Earnings Per Share
Earnings Per Share

The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:
 
Three Months Ended
March 31,
 
2012
 
2011
 
(in millions, except per share data)
Numerator:
 
 
 
Net income attributable to MasterCard
$
682

 
$
562

Denominator:
 
 
 
Basic EPS weighted average shares outstanding
127

 
130

Dilutive stock options and stock units

 
1

Diluted EPS weighted average shares outstanding *
127

 
131

Earnings per Share
 
 
 
Total Basic
$
5.38

 
$
4.31

Total Diluted
$
5.36

 
$
4.29



* For the periods presented, the calculation of diluted EPS excluded a minimal amount of antidilutive share-based payment awards.

Fair Value
Fair Value and Investment Securities
Fair Value and Investment Securities

Financial Instruments

In accordance with accounting requirements for financial instruments, the Company is disclosing the estimated fair values as of March 31, 2012 and December 31, 2011 of the financial instruments that are within the scope of the accounting guidance, as well as the methods and significant assumptions used to estimate the fair value of those financial instruments. Furthermore, the Company classifies its fair value measurements in the Valuation Hierarchy. No transfers were made among the three levels in the Valuation Hierarchy during the three months ended March 31, 2012.
The distribution of the Company’s financial instruments which are measured at fair value on a recurring basis within the Valuation Hierarchy was as follows:
 
 
March 31, 2012
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities 1
$

 
$
401

 
$

 
$
401

U.S. Government and Agency securities

 
249

 

 
249

Taxable short-term bond funds
206

 

 

 
206

Corporate securities

 
464

 

 
464

Asset-backed securities

 
116

 

 
116

Auction rate securities

 

 
70

 
70

Other

 
15

 

 
15

Total recurring fair value measurements
$
206

 
$
1,245

 
$
70

 
$
1,521

 
 
 
 
 
 
 
 
 
December 31, 2011
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities 1
$

 
$
393

 
$

 
$
393

U.S. Government and Agency securities

 
205

 

 
205

Taxable short-term bond funds
203

 

 

 
203

Corporate securities

 
325

 

 
325

Asset-backed securities

 
69

 

 
69

Auction rate securities

 

 
70

 
70

Other

 
22

 

 
22

Total recurring fair value measurements
$
203

 
$
1,014

 
$
70

 
$
1,287


1 Available-for-sale municipal securities are carried at fair value and are included in the above tables. However, a held-to-maturity municipal bond is carried at amortized cost and excluded from the above tables.

The fair value of the Company's short-term bond funds are based on quoted prices for identical investments in active markets and are therefore included in Level 1 of the Valuation Hierarchy.

The fair value of the Company's available-for-sale municipal securities, U.S. Government and Agency securities, corporate securities, asset-backed securities and other fixed income securities are based on quoted prices for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy. The Company's foreign currency derivative contracts have also been classified within Level 2 in the other category of the Valuation Hierarchy, as the fair value is based on broker quotes for the same or similar derivative instruments. See Note 13 (Foreign Exchange Risk Management) for further details.

The Company's auction rate securities (“ARS”) investments have been classified within Level 3 of the Valuation Hierarchy as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities. This valuation may be revised in future periods as market conditions evolve. The Company has considered the lack of liquidity in the ARS market and the lack of comparable, orderly transactions when estimating the fair value of its ARS portfolio. Therefore, the Company used the income approach, which included a discounted cash flow analysis of the estimated future cash flows adjusted by a risk premium for the ARS portfolio, to estimate the fair value of its ARS portfolio. The Company estimated the fair value of its ARS portfolio to be a 10% discount to the par value as of March 31, 2012 and December 31, 2011. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, the fair value determination for Level 3 financial instruments may include observable components.

Financial Instruments - Non-Recurring Measurements

Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, settlement due from customers, restricted security deposits held for customers, prepaid expenses, accounts payable, settlement due to customers and accrued expenses.

Settlement and Other Guarantee Liabilities

The Company estimates the fair value of its settlement and other guarantees using the market pricing approach which applies market assumptions for relevant though not directly comparable undertakings, as the latter are not observable in the market given the proprietary nature of such guarantees. Additionally, loss probability and severity profiles against the Company's gross and net settlement exposures are considered. At March 31, 2012 and December 31, 2011, the carrying value of settlement and other guarantee liabilities were de minimis. The estimated fair values of settlement and other guarantee liabilities as of March 31, 2012 and December 31, 2011 were approximately $75 million and $95 million, respectively. Settlement and other guarantee liabilities are classified as Level 3 of the fair value hierarchy as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. For additional information regarding the Company's settlement and other guarantee liabilities, see Note 12 (Settlement and Other Risk Management).
 
Refunding Revenue Bonds

The Company holds refunding revenue bonds with the same payment terms, and which contain the right of set-off with a capital lease obligation related to the Company's global technology and operations center located in O'Fallon, Missouri. The Company has netted the refunding revenue bonds and the corresponding capital lease obligation in the consolidated balance sheet and estimates that the carrying value approximates the fair value for these bonds.

Non-Financial Instruments

Certain assets and liabilities are measured at fair value on a nonrecurring basis for purposes of initial recognition and impairment testing. The Company's non-financial assets and liabilities measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill and other intangible assets. These assets are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.

The valuation methods for goodwill and other intangible assets involve assumptions concerning comparable company multiples, discount rates, growth projections and other assumptions of future business conditions. The Company uses a weighted income and market approach for estimating the fair value of its reporting unit, when necessary. As the assumptions employed to measure these assets on a nonrecurring basis are based on management's judgment using internal and external data, these fair value determinations are classified in Level 3 of the Valuation Hierarchy.
Amortized Costs and Fair Values – Available-for-Sale Investment Securities:
The major classes of the Company’s available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income on the consolidated statement of comprehensive income, and their respective amortized cost basis and fair values as of March 31, 2012 and December 31, 2011 were as follows:
 
 
March 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss 1
 
Fair
Value
 
(in millions)
Municipal securities
$
390

 
$
11

 
$

 
$
401

U.S. Government and Agency securities
249

 

 

 
249

Taxable short-term bond funds
207

 

 
(1
)
 
206

Corporate securities
463

 
1

 

 
464

Asset-backed securities
116

 

 

 
116

Auction rate securities2
78

 

 
(8
)
 
70

Other
21

 

 

 
21

Total
$
1,524

 
$
12

 
$
(9
)
 
$
1,527

 
 
 
 
 
 
 
 
 
December 31, 2011
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss 1
 
Fair
Value
 
(in millions)
Municipal securities
$
382

 
$
11

 
$

 
$
393

U.S. Government and Agency securities
205

 

 

 
205

Taxable short-term bond funds
206

 

 
(3
)
 
203

Corporate securities
325

 

 

 
325

Asset-backed securities
69

 

 

 
69

Auction rate securities2
78

 

 
(8
)
 
70

Other
20

 

 

 
20

Total
$
1,285

 
$
11

 
$
(11
)
 
$
1,285


1 The unrealized losses primarily relate to ARS, which have been in an unrealized loss position longer than 12 months,
but have not been deemed other-than-temporarily impaired.
2 Included in other assets on the consolidated balance sheet. See Note 4 (Prepaid Expenses and Other Assets).
The municipal securities are primarily comprised of tax-exempt bonds and are diversified across states and sectors. The U.S. Government and Agency securities are primarily invested in U.S. Government Treasury bills and bonds and U.S. government sponsored Agency bonds and discount notes. Short-term bond funds are invested in corporate bonds, mortgage-backed securities and asset-backed securities. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables. The ARS are exempt from U.S. federal income tax and are fully collateralized by student loans with guarantees (ranging from approximately 95% to 98% of principal and interest) by the U.S. government via the Department of Education.

Investment Maturities:
The maturity distribution based on the contractual terms of the Company’s investment securities at March 31, 2012 was as follows:
 
 
Available-For-Sale
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due within 1 year
$
618

 
$
618

Due after 1 year through 5 years
574

 
584

Due after 5 years through 10 years
48

 
49

Due after 10 years
77

 
70

No contractual maturity
207

 
206

Total
$
1,524

 
$
1,527


The majority of the securities due after ten years are ARS. Taxable short-term bond funds have been included in the table above in the "no contractual maturity" category, as these investments do not have a stated maturity date; however, the short-term bond funds have daily liquidity.

Investment Income:
Investment income was $9 million and $12 million for the three months ended March 31, 2012 and 2011, respectively. It primarily consisted of interest income generated from cash, cash equivalents, investment securities available-for-sale and investment securities held-to-maturity. Dividend income and gross realized gains and losses were not significant.
Prepaid Expenses and Other Assets
Prepaid Expenses and Other Assets
Prepaid Expenses and Other Assets

Prepaid expenses and other current assets consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
257

 
$
190

Investment securities held-to-maturity
36

 

Prepaid income taxes
7

 
35

Income taxes receivable
35

 
35

Other
175

 
144

Total prepaid expenses and other current assets
$
510

 
$
404



Other assets consisted of the following:

 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
447

 
$
409

Nonmarketable equity investments
162

 
160

Auction rate securities available-for-sale, at fair value
70

 
70

Investment securities held-to-maturity

 
36

Income taxes receivable
15

 
15

Other
57

 
46

Total other assets
$
751

 
$
736



Certain customer and merchant business agreements provide incentives upon entering into the agreement. Customer and merchant incentives represent payments made or amounts to be paid to customers and merchants under business agreements. Amounts to be paid for these incentives and the related liability were included in accrued expenses and other liabilities. Once the payment is made, the liability is relieved. Costs directly related to entering into such an agreement are deferred and amortized over the life of the agreement.

Investments for which the equity method or historical cost method of accounting are used are recorded in other assets on the consolidated balance sheet. The Company accounts for investments in common stock or in-substance common stock under the equity method of accounting when it has the ability to exercise significant influence over the investee, generally when it holds 20% or more of the common stock in the entity. MasterCard’s share of net earnings or losses of entities accounted for under the equity method of accounting is included in other income (expense) on the consolidated statement of operations. The Company accounts for investments under the historical cost method of accounting when it does not exercise significant influence, generally when it holds less than 20% ownership in the common stock of the entity.
Property, Plant and Equipment
Property, Plant and Equipment
Property, Plant and Equipment
Property, plant and equipment consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Property, plant and equipment
$
835

 
$
819

Less accumulated depreciation and amortization
(385
)
 
(370
)
Property, plant and equipment, net
$
450

 
$
449



Accrued Expenses
Accrued Expenses
Accrued Expenses

Accrued expenses consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
928

 
$
889

Personnel costs
159

 
345

Advertising
87

 
144

Income and other taxes
255

 
82

Other
146

 
150

Total accrued expenses
$
1,575

 
$
1,610



As of March 31, 2012 and December 31, 2011, the Company had an accrued liability of $770 million related to the U.S. merchant litigation; the amount represents an estimate of the Company's financial liability that could result from a settlement as a result of progress in the mediation process.  This amount is not included in the accrued expense table above and is separately reported as accrued litigation on the consolidated balance sheet. See Note 11 (Legal and Regulatory Proceedings) for further discussion.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity

During the three months ended March 31, 2012 and 2011, the Company repurchased a total of approximately 0.7 million shares and 2.6 million shares of its Class A common stock for approximately $248 million and $654 million, respectively. These shares were considered treasury stock, which is a reduction to stockholders’ equity. As of April 26, 2012, the cumulative repurchases by the Company under its $2 billion share repurchase program totaled approximately 5.2 million shares of its Class A common stock, for an aggregate cost of approximately $1.4 billion at an average price of $277.82 per share of Class A common stock. See Note 15 (Stockholders' Equity) in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for further discussion.
Accumulated Other Comprehensive Income
Comprehensive Income (Loss) Note [Text Block]
Accumulated Other Comprehensive Income

The changes in the balances of each component of accumulated comprehensive income for the three months ended March 31, 2012 were as follows:

 
 
Foreign Currency Translation Adjustments
 
Defined Benefit Pension and Other Postretirement Plans
 
Investment Securities Available-for-Sale, Net of Tax
 
Accumulated Other Comprehensive Income (Loss)
 
 
(in millions)
Balance at December 31, 2011
 
$
30

 
$
(32
)
 
$

 
$
(2
)
Current period other comprehensive income
 
77

 
1

 
2

 
80

Balance at March 31, 2012
 
$
107

 
$
(31
)
 
$
2

 
$
78

 
 
 
 
 
 
 
 
 
Share Based Payment and Other Benefits
Share Based Payment and Other Benefits
Share-Based Payment and Other Benefits

On March 1, 2012, the Company granted approximately 149 thousand restricted stock units, 133 thousand stock options and 21 thousand performance stock units under the MasterCard Incorporated 2006 Long Term Incentive Plan, as amended and restated (“LTIP”). The fair value of the restricted stock units and performance stock units, based on the closing price of the Class A common stock, par value $0.0001 per share, on the New York Stock Exchange on March 1, 2012, was $420.43. The fair value of the stock options estimated on the date of grant using a Black-Scholes option pricing model was $148.45. Vesting of the shares underlying the restricted stock units and performance stock units will occur on February 28, 2015. The stock options vest in four equal annual installments beginning on March 1, 2013, and have a term of ten years. The Company also makes certain off-cycle grants throughout the year. Compensation expense is recorded net of estimated forfeitures over the shorter of the vesting period or the date the individual becomes eligible to retire under the LTIP. The Company uses the straight-line method of attribution over the requisite service period for expensing equity awards.
Income Taxes
Income Taxes
Income Taxes

The effective income tax rates were 31.8% and 32.8% for the three months ended March 31, 2012 and 2011, respectively. The tax rate for the three months ended March 31, 2012 was lower than the tax rate for the three months ended March 31, 2011 primarily due to a more favorable geographic mix of earnings for the three months ended March 31, 2012.

The Company conducts operations in multiple countries and, as a result, is subjected to tax examinations in various jurisdictions, including the United States.  Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statute of limitations.  It is possible that the amount of unrecognized benefit with respect to the Company's uncertain tax positions may change within the next twelve months. An estimate of the range of the possible change cannot be made until the issues are further developed, the examinations close, or the statutes expire.
Legal and Regulatory Proceedings
Legal and Regulatory Proceedings
Legal and Regulatory Proceedings

MasterCard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business. Some of these proceedings involve complex claims that are subject to substantial uncertainties and unascertainable damages. In some instances, the probability of loss and an estimation of damages are not possible to be determined at present. While these proceedings are generally resolved over long periods of time, the probability of loss or an estimation of damages can change due to a number of developments. Accordingly, except as discussed below, MasterCard has not established reserves for any of these proceedings. MasterCard has recorded liabilities for certain legal proceedings which have been settled through contractual agreements.

Except as described below, MasterCard does not believe that any existing legal or regulatory proceedings to which it is a party would have a material adverse effect on its results of operations, financial position, or cash flows. Moreover, MasterCard believes that it has strong defenses for the pending legal and regulatory proceedings described below. Notwithstanding MasterCard's belief, however, in the event it were found liable in a large class-action lawsuit or on the basis of a claim in the United States entitling the plaintiff to treble damages or under which it were jointly and severally liable, charges it may be required to record could be significant. In addition, an adverse outcome in a regulatory proceeding could result in fines and/or lead to the filing of civil damage claims and possibly result in damage awards in amounts that could be significant. Furthermore, MasterCard could in the future incur judgments and/or fines, enter into settlements of claims or be required to change its business practices, and any of these events could have a material adverse effect on MasterCard's results of operations, financial position or cash flows (or, in the event of liability in a large class-action lawsuit, could even cause MasterCard to become insolvent).
 
Department of Justice Antitrust Litigation and Related Private Litigations
 
In October 1998, the U.S. Department of Justice (“DOJ”) filed suit against MasterCard International, Visa U.S.A., Inc. and Visa International Corp. in the U.S. District Court for the Southern District of New York alleging that both MasterCard's and Visa's governance structure and policies violated U.S. federal antitrust laws. The DOJ challenged (1) “dual governance”, where a financial institution has a representative on the Board of Directors of MasterCard or Visa while a portion of its card portfolio is issued under the brand of the other association, and (2) both MasterCard's Competitive Programs Policy (“CPP”) and a Visa bylaw provision that prohibited financial institutions participating in the respective associations from issuing competing proprietary payment cards (such as American Express or Discover). In October 2001, the judge issued an opinion upholding the legality and pro-competitive nature of dual governance. However, the judge also held that MasterCard's CPP and the Visa bylaw constituted unlawful restraints of trade under the federal antitrust laws. The judge subsequently issued a final judgment that ordered MasterCard to repeal the CPP and enjoined MasterCard from enacting or enforcing any bylaw, rule, policy or practice that prohibits its issuers from issuing general purpose credit or debit cards in the United States on any other general purpose card network.
 
In April 2005, a complaint was filed in California state court on behalf of a putative class of consumers under California unfair competition law (Section 17200) and the Cartwright Act (the “Attridge action”). The claims in this action seek to piggyback on the portion of the DOJ antitrust litigation discussed above with regard to the District Court's findings concerning MasterCard's CPP and Visa's related bylaw. The Court granted the defendants' motion to dismiss the plaintiffs' Cartwright Act claims but denied the defendants' motion to dismiss the plaintiffs' Section 17200 unfair competition claims. The parties have proceeded with discovery. In September 2009, MasterCard executed a settlement agreement that is subject to court approval in the separate California consumer litigations (see “-U.S. Merchant and Consumer Litigations”). The agreement includes a release that the parties believe encompasses the claims asserted in the Attridge action. In August 2010, the Court in the California consumer actions granted final approval to the settlement. The plaintiff from the Attridge action and three other objectors filed appeals of the settlement approval. In January 2012, the Appellate Court reversed the trial court's settlement approval and remanded the matter to the trial court for further proceedings. At this time, it is not possible to determine the outcome of, or estimate the liability related to, the Attridge action and no incremental provision for losses has been provided in connection with it.

U.S. Merchant and Consumer Litigations
 
Commencing in October 1996, several class action suits were brought by a number of U.S. merchants against MasterCard International and Visa U.S.A., Inc. challenging certain aspects of the payment card industry under U.S. federal antitrust law. The plaintiffs claimed that MasterCard's “Honor All Cards” rule (and a similar Visa rule), which required merchants who accept MasterCard cards to accept for payment every validly presented MasterCard card, constituted an illegal tying arrangement in violation of Section 1 of the Sherman Act. In June 2003, MasterCard International signed a settlement agreement to settle the claims brought by the plaintiffs in this matter, which the Court approved in December 2003. Pursuant to the settlement, MasterCard agreed, among other things, to create two separate “Honor All Cards” rules in the United States - one for debit cards and one for credit cards.
 
In addition, individual or multiple complaints have been brought in 19 states and the District of Columbia alleging state unfair competition, consumer protection and common law claims against MasterCard International (and Visa) on behalf of putative classes of consumers. The claims in these actions largely mirror the allegations made in the U.S. merchant lawsuit and assert that merchants, faced with excessive interchange fees, have passed these overhead charges to consumers in the form of higher prices on goods and services sold. MasterCard has successfully resolved the cases in 18 of the jurisdictions. However, there are outstanding cases in New Mexico and California. MasterCard's motion to dismiss the complaint in the New Mexico action was granted by the trial court and this dismissal was affirmed by the appellate court in April 2012. The time for plaintiffs to seek further appeal is now running. With respect to the California state actions, and as discussed above under “Department of Justice Antitrust Litigation and Related Private Litigations,” in September 2009, the parties to the California state court actions executed a settlement agreement which required a payment by MasterCard of $6 million, subject to approval by the California state court. In August 2010, the court granted final approval of the settlement, subsequent to which MasterCard made the payment required by the settlement agreement. The plaintiff from the Attridge action described above under “Department of Justice Antitrust Litigation and Related Private Litigations” and three other objectors filed appeals of the settlement approval order. In January 2012, the Appellate Court reversed the trial court's settlement approval and remanded the matter to the trial court for further proceedings.
 
At this time, it is not possible to determine the outcome of, or, except as indicated above in the California consumer actions, estimate the liability related to, the remaining consumer cases and no provision for losses has been provided in connection with them. The consumer class actions are not covered by the terms of the settlement agreement in the U.S. merchant lawsuit.
 
ATM Non-Discrimination Rule Surcharge Complaints
 
In October 2011, a trade association of independent Automated Teller Machine (“ATM”) operators and 13 independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both MasterCard and Visa (the “ATM Operators Complaint”).  Plaintiffs seek to represent a class of non-bank operators of ATM terminals that operate ATM terminals in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate.   Plaintiffs allege that MasterCard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators to charge non-discriminatory ATM surcharges for transactions processed over MasterCard's and Visa's respective networks that are not greater than the surcharge charged for transactions over other networks accepted at the same ATM.  Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys' fees.  Plaintiffs have not quantified their damages although they allege that they expect damages to be in the tens of millions of dollars. 

Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal antitrust and multiple state unfair competition, consumer protection and common law claims against MasterCard and Visa on behalf of putative classes of users of ATM services (the “ATM Consumer Complaints”).  The claims in these actions largely mirror the allegations made in the ATM Operators Complaint described above, although these complaints seek damages on behalf of consumers of ATM services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants' ATM rules.  Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys' fees.  Plaintiffs have not quantified their damages although they allege that they expect damages to be in the tens of millions of dollars. 
 
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action complaints that largely mirror their prior complaints. MasterCard has moved to dismiss the complaints for failure to state a claim.
 
At this time, and at this early stage of the cases, it is not possible to determine the outcome of, or, estimate the liability related to, the cases and no provision for losses has been provided in connection with them.
 
Interchange Litigation and Regulatory Proceedings
 
Interchange fees represent a sharing of payment system costs among the financial institutions participating in a four-party payment card system such as MasterCard's. Typically, interchange fees are paid by the acquirer to the issuer in connection with purchase transactions initiated with the payment system's cards. These fees reimburse the issuer for a portion of the costs incurred by it in providing services which are of benefit to all participants in the system, including acquirers and merchants. MasterCard or its customer financial institutions establish default interchange fees in certain circumstances that apply when there is no other interchange fee arrangement between the issuer and the acquirer. MasterCard establishes a variety of interchange rates depending on such considerations as the location and the type of transaction, and collects the interchange fee on behalf of the institutions entitled to receive it and remits the interchange fee to eligible institutions. MasterCard's interchange fees and related practices are subject to regulatory and/or legal review and/or challenges in a number of jurisdictions, including the proceedings described below. At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to, any of these interchange proceedings (except as otherwise indicated below), as the proceedings involve complex claims and/or substantial uncertainties and, in some cases, could include unascertainable damages or fines. Except as described below, no provision for losses has been provided in connection with them. Some of the proceedings described below could have a significant impact on our customers in the applicable country and on MasterCard's level of business in those countries. The proceedings reflect the significant and increasingly intense legal, regulatory and legislative scrutiny worldwide that interchange fees and related practices have been receiving. When taken as a whole, the resulting decisions, regulations and legislation with respect to interchange fees and related practices may have a material adverse effect on the Company's revenues, its prospects for future growth and its overall business, financial condition and revenue.

United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints are styled as class actions, although a few complaints are filed on behalf of individual merchant plaintiffs) against MasterCard International Incorporated, Visa U.S.A., Inc., Visa International Service Association and a number of customer financial institutions. Taken together, the claims in the complaints are generally brought under both Section 1 of the Sherman Act and Section 2 of the Sherman Act, which prohibits monopolization and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims under state law. The complaints allege, among other things, that MasterCard, Visa, and certain of their customer financial institutions conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation of antitrust laws and engaged in unlawful tying and bundling of certain products and services. The cases have been consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs have filed a consolidated class action complaint that seeks treble damages, as well as attorneys' fees and injunctive relief. The district court has dismissed the plaintiffs' pre-2004 damage claims. The plaintiffs have filed a motion for class certification. The court heard oral argument on the motion in November 2009 and the parties are awaiting a decision on the motion.
 
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that MasterCard's initial public offering of its Class A Common Stock in May 2006 (the “IPO”) and certain purported agreements entered into between MasterCard and its customer financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constitute a fraudulent conveyance because the customer financial institutions are allegedly attempting to release, without adequate consideration, MasterCard's right to assess them for MasterCard's litigation liabilities. In November 2008, the district court granted MasterCard's motion to dismiss the plaintiffs' supplemental complaint in its entirety with leave to file an amended complaint. The class plaintiffs repled their complaint. The causes of action and claims for relief in the complaint generally mirror those in the plaintiffs' original IPO-related complaint although the plaintiffs have attempted to expand their factual allegations based upon discovery that has been garnered in the case. The class plaintiffs seek treble damages and injunctive relief including, but not limited to, an order reversing and unwinding the IPO. MasterCard has moved to dismiss this complaint. The court heard oral argument on the motion in November 2009 and the parties are awaiting a decision on the motion.

In July 2009, the class plaintiffs and individual plaintiffs served confidential expert reports detailing the plaintiffs' theories of liability and alleging damages in the tens of billions of dollars. The defendants served their expert reports in December 2009 rebutting the plaintiffs' assertions both with respect to liability and damages. In February 2011, both the defendants and the plaintiffs served a number of dispositive motions seeking summary judgment on all or portions of the claims in the complaints. The parties are awaiting decision on the motions. The court has scheduled a trial date of September 12, 2012. The trial date is subject to further delay based upon the timing of any rulings on the outstanding motions by the parties and any objections or appeals of those decisions along with other factors.
 
In February 2011, MasterCard and MasterCard International Incorporated entered into each of: (1) an omnibus judgment sharing and settlement sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of customer financial institutions; and (2) a MasterCard settlement and judgment sharing agreement with a number of customer financial institutions.  The agreements provide for the apportionment of certain costs and liabilities which MasterCard, the Visa parties and the customer financial institutions may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the cases in the interchange merchant litigations.  Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the customer financial institutions and MasterCard, MasterCard would pay 12% of the monetary portion of the settlement. In the event of a settlement involving only MasterCard and the customer financial institutions with respect to their issuance of MasterCard cards, MasterCard would pay 36% of the monetary portion of such settlement. 
 
MasterCard and the other defendants have been participating in separate court-recommended mediation sessions with the individual merchant plaintiffs and the class plaintiffs. Based on progress to date in the mediation, MasterCard recorded a $770 million pre-tax charge, or $495 million on an after-tax basis, in the fourth quarter of 2011.  This charge represents MasterCard's estimate for the financial portion of a settlement in these cases. The charge does not represent an estimate of a loss if the parties to the matter litigate, in which case MasterCard cannot estimate the potential liability, if any. MasterCard's estimate involves significant judgment and may change depending on progress in settlement negotiations, or if the case is not settled, if the matter is litigated. A negative outcome in the litigation could materially and adversely affect MasterCard's results of operations, cash flow and financial condition.

European Union. In September 2003, the European Commission issued a Statement of Objections challenging MasterCard Europe's cross-border default interchange fees and, in June 2006, it issued a supplemental Statement of Objections covering credit, debit and commercial card fees. In December 2007, the European Commission announced a decision that applies to MasterCard's default cross-border interchange fees for MasterCard and Maestro branded consumer payment card transactions in the European Economic Area (“EEA”) (the European Commission refers to these as “MasterCard's MIF”), but not to commercial card transactions (the European Commission stated publicly that it has not yet finished its investigation of commercial card interchange fees). The decision required MasterCard to stop applying the MasterCard MIF, to refrain from repeating the conduct, and not apply its then recently adopted (but never implemented) Maestro SEPA and Intra-Eurozone default interchange fees to debit card payment transactions within the Eurozone. The decision did not impose a fine on MasterCard, but provides for a daily penalty of up to 3.5% of MasterCard's daily consolidated global turnover in the preceding business year (which MasterCard estimates to be approximately $0.6 million U.S. per day) in the event that MasterCard fails to comply. To date, MasterCard has not been assessed any such penalty. In March 2008, MasterCard filed an application for annulment of the European Commission's decision with the General Court of the European Union.
 
Following discussions with the European Commission, MasterCard announced that, effective June 21, 2008, MasterCard would temporarily repeal its then current default intra-EEA cross-border consumer card interchange fees in conformity with the decision. In October 2008, MasterCard received an information request from the European Commission in connection with the decision concerning certain pricing changes that MasterCard implemented as of October 1, 2008. In March 2009, MasterCard gave certain undertakings to the European Commission and, in response, in April 2009, the Commissioner for competition policy and DG Competition informed MasterCard that, subject to MasterCard's fulfilling its undertakings, they do not intend to pursue proceedings for non-compliance with or circumvention of the December 2007 decision or for infringing the antitrust laws in relation to the October 2008 pricing changes, the introduction of new cross-border consumer default interchange fees or any of the other MasterCard undertakings. MasterCard's undertakings include: (1) repealing the October 2008 pricing changes; (2) adopting a specific methodology for the setting of cross-border consumer default interchange fees; (3) establishing new default cross-border consumer card interchange fees as of July 1, 2009 such that the weighted average interchange fee for credit card transactions does not exceed 30 basis points and for debit card transactions does not exceed 20 basis points; (4) introducing a new rule prohibiting its acquirers from requiring merchants to process all of their MasterCard and Maestro transactions with the acquirer; and (5) introducing a new rule requiring its acquirers to provide merchants with certain pricing information in connection with MasterCard and Maestro transactions. The undertakings will be effective until a final decision by the General Court of the European Union regarding MasterCard's application for annulment of the European Commission's December 2007 decision.
 
The General Court of the European Union held a full day hearing on MasterCard's appeal of the European Commission's decision in July 2011. The hearing completed the General Court's review of the decision. The Court has informed the parties that it will announce its judgment on May 24, 2012, which would be subject to any further appeals.

Although MasterCard believes that any other business practices it would implement in response to the decision would be in compliance with the December 2007 decision, the European Commission may deem any such practice not in compliance with the decision, or in violation of European competition law, in which case MasterCard may be assessed fines for the period that it is not in compliance. Furthermore, because a balancing mechanism like default cross-border interchange fees constitutes an essential element of MasterCard Europe's operations, the December 2007 decision could also significantly impact MasterCard International's European customers' and MasterCard Europe's business. The European Commission decision could also lead to additional competition authorities in European Union member states commencing investigations or proceedings regarding domestic interchange fees or, in certain jurisdictions, regulation. In addition, the European Commission's decision could lead to the filing of private actions against MasterCard Europe by merchants and/or consumers which, if MasterCard is unsuccessful in its application for annulment of the decision, could result in MasterCard owing substantial damages.

Canada. In December 2010, the Canadian Competition Bureau (the “CCB”) filed an application with the Canadian Competition Tribunal to strike down certain MasterCard rules related to point-of-sale acceptance, including the “honor all cards” and “no surcharge” rules. The Canadian Competition Tribunal has scheduled the hearing in this case to commence on May 8, 2012. In December 2010, a complaint styled as a class action lawsuit was commenced against it in Quebec on behalf of Canadian merchants and consumers. That suit essentially repeats the allegations and arguments of the CCB application to the Canadian Competition Tribunal and seeks compensatory and punitive damages in unspecified amounts, as well as injunctive relief. In March 2011, a second purported class action lawsuit was commenced in British Columbia against MasterCard, Visa and a number of large Canadian customer financial institutions, and in May 2011 a third purported class action lawsuit was commenced in Ontario against the same defendants. These suits allege that MasterCard, Visa and the financial institutions have engaged in a price fixing conspiracy to increase or maintain the fees paid by merchants on credit card transactions and that MasterCard's and Visa's rules force merchants to accept all MasterCard and Visa credit cards and prevent merchants from charging more for payments with MasterCard and Visa premium cards. The second suit seeks compensatory damages in unspecified amounts, and the third suit seeks compensatory damages of $5 billion. The second and third suits also seek punitive damages in unspecified amounts, as well as injunctive relief, interest and legal costs. If the CCB's challenges and/or the class action law suits were ultimately successful, such negative decisions could have a significant adverse impact on the revenues of MasterCard's Canadian customers and on MasterCard's overall business in Canada and, in the case of the private lawsuits, could result in substantial damage awards.

Additional Interchange Proceedings. Regulatory authorities and central banks in a number of other jurisdictions around the world have commenced proceedings or inquiries into interchange fees and related practices. These matters include:

United Kingdom. In February 2007, the Office for Fair Trading of the United Kingdom (the “OFT”) commenced an investigation of MasterCard's current U.K. default credit card interchange fees and so-called “immediate debit” cards to determine whether such fees contravene U.K. and European Union competition law. The OFT has informed MasterCard that it does not intend to issue a Statement of Objections or otherwise commence formal proceedings with respect to the investigation prior to the judgment of the General Court of the European Union with respect to MasterCard's appeal of the December 2007 cross-border interchange fee decision of the European Commission. If the OFT ultimately determines that any of MasterCard's U.K. interchange fees contravene U.K. and European Union competition law, it may issue a new decision and possibly levy fines accruing from the date of its first decision. MasterCard would likely appeal a negative decision by the OFT in any future proceeding to the Competition Appeals Tribunal. Such an OFT decision could lead to the filing of private actions against MasterCard by merchants and/or consumers which, if its appeal of such an OFT decision were to fail, could result in an award or awards of substantial damages and could have a significant adverse impact on the revenues of MasterCard International's U.K. customers and MasterCard's overall business in the U.K.

Poland. In January 2007, the Polish Office for Protection of Competition and Consumers (the “PCA”) issued a decision that MasterCard's (and Visa Europe's) domestic credit and debit default interchange fees are unlawful under Polish competition law, and imposed fines on MasterCard's (and Visa Europe's) licensed financial institutions. As part of this decision, the PCA also decided that MasterCard (and Visa Europe) had not violated the law. The decision is currently being appealed. If on appeal the PCA's decision is ultimately allowed to stand, it could have a significant adverse impact on the revenues of MasterCard's Polish customers and on MasterCard's overall business in Poland.

Hungary. In December 2009, the Hungarian Competition Authority (“HCA”) issued a formal decision that MasterCard's (and Visa's) historic domestic interchange fees violated Hungarian competition law and fined each of MasterCard Europe and Visa Europe approximately $3 million, which was paid during the fourth quarter of 2009. MasterCard appealed the decision to the Hungarian courts. In October 2010, the Hungarian appeals court stayed the proceeding until MasterCard's appeal to the General Court of the European Union of the European Commission's December 2007 cross-border interchange fee decision is finally decided. If the HCA's decision is not reversed on appeal, it could have a significant adverse impact on the revenues of MasterCard's Hungarian customers and on MasterCard's overall business in Hungary.

Italy. In November 2010, the Italian Competition Authority (“ICA”) adopted a decision in which it determined that MasterCard Europe's domestic interchange fees violate European Union competition law, fined MasterCard 2.7 million euro (approximately $4 million) and ordered MasterCard to refrain in the future from maintaining interchange fees that are not based on economic justifications linked to efficiency criteria and to eliminate any anticompetitive clauses from its licensing agreements. MasterCard appealed the ICA's infringement decision to the Administrative Court, and the decision was annulled by the Administrative Court in July 2011. The ICA has appealed the Administrative Court's judgment to the Council of State. If the ICA's infringement decision ultimately stands, it could have a significant adverse impact on the revenues of MasterCard's Italian customers and on MasterCard's overall business in Italy.

Interchange Regulatory Activity.
 
Central banks and regulators in several jurisdictions have initiated efforts to affect MasterCard and/or Visa's respective interchange rates outside of commencing regulatory proceedings. These efforts include (1) activity in 2012 by the Polish Central Bank to effectively compel MasterCard and Visa to lower their respective interchange rates and (2) an information request sent to MasterCard by the French Competition Authority (the “FCA”) in 2009 concerning its domestic interchange rates (which the FCA subsequently suspended and, as MasterCard understands, intends to wait until the judgment of the General Court of the European Union with respect to MasterCard's appeal of the December 2007 cross-border interchange fee decision of the European Commission before deciding whether to re-engage as to these rates.)

In September 2010, the South African Reserve Bank informed MasterCard that it intends to appoint an independent consultant to make a recommendation on a simplified interchange structure for all payment systems in South Africa, including MasterCard's. Such an interchange structure, if adopted, could have a significant adverse impact on the revenues of MasterCard's South African customers and on MasterCard's overall business in South Africa.
 
MasterCard is aware that regulatory authorities and/or central banks in certain other jurisdictions including Austria, Brazil, Colombia, Germany, Israel, Latvia, Lithuania, Russia and Venezuela are reviewing MasterCard's and/or its customers' interchange fees and/or related practices (such as the “honor all cards” rule) and may seek to regulate the establishment of such fees and/or such practices.

Other Regulatory Proceedings

In addition to challenges to interchange fees, MasterCard's standards and operations are also subject to regulatory and/or legal review and/or challenges in a number of jurisdictions from time to time.  At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to, any of the proceedings described below, as the proceedings involve substantial uncertainties.  No provision for losses has been provided in connection with them. The proceedings reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on MasterCard and its customers and may lead to increased costs and decreased transaction volumes and revenues.
 
Switzerland. In July 2010, MasterCard received a notice from the Swiss Competition Authority (the “WEKO”) that based upon complaints, the WEKO had opened a pre-investigation of certain of MasterCard's domestic debit acquirer fees to determine whether to open a formal investigation with respect to these fees. Despite the WEKO's denial in September 2010 of immediate action and interim relief based on the complaints, MasterCard understands that the WEKO has not closed its pre-investigation and is still considering whether to open a formal investigation of the fees.
Settlement and Other Risk Management
Settlement and Other Risk Management
Settlement and Other Risk Management

MasterCard's rules generally guarantee the payment of certain MasterCard, Cirrus and Maestro branded transactions between its customers. The term and amount of the guarantee are unlimited. Settlement risk is the exposure to customers under MasterCard's rules (“Settlement Exposure”), due to the difference in timing between the payment transaction date and subsequent settlement. The duration of this exposure is short term and typically limited to a few days. Settlement Exposure is primarily estimated using the average daily card volume during the quarter multiplied by the estimated number of days to settle. The Company has global risk management policies and procedures, which include risk standards, to provide a framework for managing the Company's settlement risk. Customer-reported transaction data and the transaction clearing data underlying the settlement risk calculation may be revised in subsequent reporting periods.

In the event that MasterCard effects a payment on behalf of a failed customer, MasterCard may seek an assignment of the underlying receivables. Subject to approval by the Board of Directors, customers may be charged for the amount of any settlement loss incurred during these ordinary course activities of the Company.

The Company's global risk management policies and procedures are aimed at managing the risk of settlement loss. These risk management procedures include interaction with the bank regulators of countries in which we operate, requiring customers to make adjustments to settlement processes, and requiring collateral from customers. MasterCard requires certain customers that are not in compliance with the Company's risk standards in effect at the time of review to post collateral, typically in the form of cash, letters of credit, or guarantees. This requirement is based on management's review of the individual risk circumstances for each customer that is out of compliance. In addition to these amounts, MasterCard holds collateral to cover variability and future growth in customer programs. The Company may also hold collateral to pay merchants in the event of merchant bank/acquirer failure. Although we are not contractually obligated under our rules to effect such payments to merchants, we may elect to do so to protect brand integrity. MasterCard monitors its credit risk portfolio on a regular basis and the adequacy of collateral on hand. Additionally, from time to time, the Company reviews its risk management methodology and standards. As such, the amounts of estimated settlement risk are revised as necessary.

The Company's estimated Settlement Exposure from MasterCard, Cirrus and Maestro-branded transactions was as follows:
 
March 31,
2012
 
December 31, 2011
 
(in millions)
Gross Settlement Exposure
$
39,000

 
$
39,102

Collateral held for Settlement Exposure 1
(4,229
)
 
(3,482
)
Net uncollateralized Settlement Exposure
$
34,771

 
$
35,620


1 Represents collateral held against MasterCard-branded exposure.

MasterCard-branded travelers cheques are no longer being issued. For previously issued travelers cheques, MasterCard guarantees the payment of MasterCard-branded travelers cheques in the event of issuer default. The guarantee estimate is based on all outstanding MasterCard-branded travelers cheques, reduced by an actuarial determination of cheques that are not anticipated to be presented for payment. The term of the guarantee is unlimited, while the amount is limited to cheques issued but not yet cashed. MasterCard calculated its MasterCard-branded travelers cheques exposure under this guarantee as $288 million and $325 million at March 31, 2012 and December 31, 2011, respectively. The reduction in travelers cheques exposure is attributable to an update to the actuarial assumptions and to MasterCard-branded travelers cheques being cashed.

A significant portion of the Company's travelers cheques risk is concentrated in one MasterCard travelers cheques issuer. MasterCard obtained an unlimited guarantee estimated at $221 million and $250 million at March 31, 2012 and December 31, 2011, respectively, from a financial institution that is a customer, to cover all of the exposure of outstanding travelers cheques with respect to such issuer. In addition, MasterCard obtained a limited guarantee estimated at $11 million and $13 million as of March 31, 2012 and December 31, 2011, respectively, from a financial institution that is a customer in order to cover the exposure of outstanding travelers cheques with respect to another issuer. These guarantee amounts have also been reduced by an actuarial determination of travelers cheques that are not anticipated to be presented for payment.

Beginning in 2008, many of the Company's financial institution customers were directly and adversely impacted by the unprecedented events that occurred in the financial markets around the world. The ongoing economic turmoil presents increased risk that the Company may have to perform under its settlement and travelers cheque guarantees. General economic conditions and political conditions in countries in which MasterCard operates also affect the Company's settlement risk. For example, the European sovereign debt crisis introduces a heightened level of risk to the Company. The Company's aggregate gross Settlement Exposures to Italy, Greece, Portugal and Spain, four of the countries significantly impacted by the eurozone crisis, are less than 5% of MasterCard's total gross Settlement Exposure as of March 31, 2012 and are being managed through various planning and mitigation practices. The Company's global risk management policies and procedures, which are revised and enhanced from time to time, continue to be effective as evidenced by the historically low level of losses that the Company has experienced from customer financial institution failures.

MasterCard also provides guarantees to customers and certain other companies indemnifying them from losses stemming from failures of third parties to perform duties. The amount of these guarantees was estimated at approximately $56 million and $59 million, as of March 31, 2012 and December 31, 2011, respectively. Included in this estimate are certain unlimited guarantees provided in the ordinary course of business, for which the Company historically has not experienced any losses. See Note 3 (Fair Value and Investment Securities) for further discussion.

The Company enters into business agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company. As the extent of the Company's obligations under these agreements depends entirely upon the occurrence of future events, the Company's potential future liability under these agreements is not determinable.
Foreign Exchange Risk Management
Foreign Exchange Risk Management
Foreign Exchange Risk Management

The Company enters into foreign currency forward contracts to manage risk associated with anticipated receipts and disbursements which are either transacted in a non-functional currency or valued based on a currency other than its functional currencies. The Company also enters into foreign currency forward contracts to offset possible changes in value due to foreign exchange fluctuations of assets and liabilities denominated in foreign currencies. The objective of this activity is to reduce the Company’s exposure to transaction gains and losses resulting from fluctuations of foreign currencies against its functional currencies. The notional value of commitments to sell foreign currency increased to $1.2 billion at March 31, 2012 compared to $279 million at December 31, 2011 due to the hedging of an increase in foreign currency denominated assets and an expanded hedging program to offset the Company's foreign currency exposures arising from anticipated receipts and disbursements.

The Company does not designate foreign currency derivatives as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities. The Company records the change in the estimated fair value of the outstanding derivatives at the end of the reporting period to its consolidated balance sheet and consolidated statement of operations.

As of March 31, 2012, all contracts to purchase and sell foreign currency had been entered into with customers of MasterCard. MasterCard’s derivative contracts are summarized below: 
 
March 31, 2012
 
December 31, 2011
 
Notional
 
Estimated Fair
Value
 
Notional
 
Estimated Fair
Value
 
(in millions)
Commitments to purchase foreign currency
$
52

 
$

 
$
21

 
$

Commitments to sell foreign currency
1,205

 
(6
)
 
279

 
2

Balance Sheet Location: 1
 
 
 
 
 
 
 
Accounts Receivable
 
 
$
5

 
 
 
$
4

Other Current Liabilities
 
 
(11
)
 
 
 
(2
)


1 Amounts represent gross fair value amounts while these amounts may be netted for actual balance sheet presentation.

The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency are summarized below: 
 
Three Months Ended
March 31,
 
2012
 
2011
 
(in millions)
Foreign currency derivative contracts 1
 
 
 
General and administrative
$
(6
)
 
$
(11
)
Revenues
(4
)
 
(2
)
Total
$
(10
)
 
$
(13
)
    
1 Derivatives are not designated as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities.

The fair value of the foreign currency forward contracts generally reflects the estimated amounts that the Company would receive (or pay), on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or similar instruments. The terms of the foreign currency forward contracts are generally less than 18 months. The Company had no deferred gains or losses related to foreign exchange in accumulated other comprehensive income as of March 31, 2012 and December 31, 2011 as there were no derivative contracts accounted for under hedge accounting.

The Company’s derivative financial instruments are subject to both credit and market risk. Credit risk is the risk of loss due to failure of the counterparty to perform its obligations in accordance with contractual terms. Market risk is the risk of loss due to the potential change in an instrument’s value caused by fluctuations in interest rates and other variables related to currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency rates could result in a fair value loss of approximately $140 million on the Company's foreign currency derivative contracts outstanding at March 31, 2012. Credit risk related to derivative instruments was not material at March 31, 2012 as compared to December 31, 2011.

Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties. The amount of loss the Company would incur if the counterparties failed to perform according to the terms of the contracts is not considered material.
Summary of Significant Accounting Policies Summary of Significant Accounting Policies (Policies)
Organization

MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated (“MasterCard International” and together with MasterCard Incorporated, “MasterCard” or the “Company”), is a global payments and technology company that connects consumers, financial institutions, merchants, governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks.  MasterCard primarily (1) offers a wide range of payment solutions, which enable its customers (which include financial institutions and other entities that act as “issuers” and “acquirers”) to develop and implement credit, debit, prepaid and related payment programs for their customers (which include individual consumers, businesses and government entities); (2) manages a family of well-known, widely-accepted payment brands, including MasterCard®, Maestro® and Cirrus®, which it licenses to its customers for use in their payment programs; (3) processes payment transactions over the MasterCard Worldwide Network; and (4) provides support services to its customers and, depending upon the service, merchants and other clients. 
Consolidation and basis of presentation

The consolidated financial statements include the accounts of MasterCard and its majority-owned and controlled entities, including any variable interest entities for which the Company is the primary beneficiary. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2012 presentation. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).

The balance sheet as of December 31, 2011 was derived from the audited consolidated financial statements as of December 31, 2011. The consolidated financial statements for the three months ended March 31, 2012 and 2011 and as of March 31, 2012 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. Due to seasonal fluctuations and other factors, the results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission requirements of Quarterly Reports on Form 10-Q and, consequently, do not include all of the disclosures required by GAAP. Reference should be made to the MasterCard Incorporated Annual Report on Form 10-K for the year ended December 31, 2011 for additional disclosures, including a summary of the Company’s significant accounting policies.
Recent accounting pronouncements

Fair value measurement and disclosure - The Company measures certain assets and liabilities at fair value on a recurring basis by estimating the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies these recurring fair value measurements into a three-level hierarchy ("Valuation Hierarchy") and discloses the significant assumptions utilized in measuring assets and liabilities at fair value.

In May 2011, the fair value accounting standard was amended to change fair value measurement principles and disclosure requirements. The key changes in measurement principles include limiting the concepts of highest and best use and valuation premise to nonfinancial assets, providing a framework for considering whether a premium or discount can be applied in a fair value measurement, and aligning the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities. Disclosures are required for all transfers between Levels 1 and 2 within the Valuation Hierarchy, the use of a nonfinancial asset measured at fair value if its use differs from its highest and best use, the level in the Valuation Hierarchy of assets and liabilities not recorded at fair value but for which fair value is required to be disclosed, and for Level 3 measurements, quantitative information about unobservable inputs used, a description of the valuation processes used, and qualitative discussion about the sensitivity of the measurements. The Company adopted the revised accounting standard effective January 1, 2012 via prospective adoption, as required. The adoption had no impact on the Company's financial position or results of operations.

Comprehensive income - In June 2011, a new accounting standard was issued that amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. In December 2011, a new accounting standard was issued that indefinitely deferred the effective date for the requirement to present the reclassification of items from comprehensive income to net income on the face of the financial statements. Both standards require retrospective application, and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company adopted the revised accounting standards effective January 1, 2012. The adoption had no impact on the Company's financial position or results of operations.
Earnings Per Share (Tables)
Schedule of Basic and Diluted Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:
 
Three Months Ended
March 31,
 
2012
 
2011
 
(in millions, except per share data)
Numerator:
 
 
 
Net income attributable to MasterCard
$
682

 
$
562

Denominator:
 
 
 
Basic EPS weighted average shares outstanding
127

 
130

Dilutive stock options and stock units

 
1

Diluted EPS weighted average shares outstanding *
127

 
131

Earnings per Share
 
 
 
Total Basic
$
5.38

 
$
4.31

Total Diluted
$
5.36

 
$
4.29



* For the periods presented, the calculation of diluted EPS excluded a minimal amount of antidilutive share-based payment awards.

Fair Value and Investment Securities (Tables)
The distribution of the Company’s financial instruments which are measured at fair value on a recurring basis within the Valuation Hierarchy was as follows:
 
 
March 31, 2012
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities 1
$

 
$
401

 
$

 
$
401

U.S. Government and Agency securities

 
249

 

 
249

Taxable short-term bond funds
206

 

 

 
206

Corporate securities

 
464

 

 
464

Asset-backed securities

 
116

 

 
116

Auction rate securities

 

 
70

 
70

Other

 
15

 

 
15

Total recurring fair value measurements
$
206

 
$
1,245

 
$
70

 
$
1,521

 
 
 
 
 
 
 
 
 
December 31, 2011
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities 1
$

 
$
393

 
$

 
$
393

U.S. Government and Agency securities

 
205

 

 
205

Taxable short-term bond funds
203

 

 

 
203

Corporate securities

 
325

 

 
325

Asset-backed securities

 
69

 

 
69

Auction rate securities

 

 
70

 
70

Other

 
22

 

 
22

Total recurring fair value measurements
$
203

 
$
1,014

 
$
70

 
$
1,287


1 Available-for-sale municipal securities are carried at fair value and are included in the above tables. However, a held-to-maturity municipal bond is carried at amortized cost and excluded from the above tables.
The major classes of the Company’s available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income on the consolidated statement of comprehensive income, and their respective amortized cost basis and fair values as of March 31, 2012 and December 31, 2011 were as follows:
 
 
March 31, 2012
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss 1
 
Fair
Value
 
(in millions)
Municipal securities
$
390

 
$
11

 
$

 
$
401

U.S. Government and Agency securities
249

 

 

 
249

Taxable short-term bond funds
207

 

 
(1
)
 
206

Corporate securities
463

 
1

 

 
464

Asset-backed securities
116

 

 

 
116

Auction rate securities2
78

 

 
(8
)
 
70

Other
21

 

 

 
21

Total
$
1,524

 
$
12

 
$
(9
)
 
$
1,527

 
 
 
 
 
 
 
 
 
December 31, 2011
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss 1
 
Fair
Value
 
(in millions)
Municipal securities
$
382

 
$
11

 
$

 
$
393

U.S. Government and Agency securities
205

 

 

 
205

Taxable short-term bond funds
206

 

 
(3
)
 
203

Corporate securities
325

 

 

 
325

Asset-backed securities
69

 

 

 
69

Auction rate securities2
78

 

 
(8
)
 
70

Other
20

 

 

 
20

Total
$
1,285

 
$
11

 
$
(11
)
 
$
1,285


1 The unrealized losses primarily relate to ARS, which have been in an unrealized loss position longer than 12 months,
but have not been deemed other-than-temporarily impaired.
2 Included in other assets on the consolidated balance sheet. See Note 4 (Prepaid Expenses and Other Assets).
The maturity distribution based on the contractual terms of the Company’s investment securities at March 31, 2012 was as follows:
 
 
Available-For-Sale
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due within 1 year
$
618

 
$
618

Due after 1 year through 5 years
574

 
584

Due after 5 years through 10 years
48

 
49

Due after 10 years
77

 
70

No contractual maturity
207

 
206

Total
$
1,524

 
$
1,527

Prepaid Expenses and Other Assets (Tables)
Prepaid expenses and other current assets consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
257

 
$
190

Investment securities held-to-maturity
36

 

Prepaid income taxes
7

 
35

Income taxes receivable
35

 
35

Other
175

 
144

Total prepaid expenses and other current assets
$
510

 
$
404

Other assets consisted of the following:

 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
447

 
$
409

Nonmarketable equity investments
162

 
160

Auction rate securities available-for-sale, at fair value
70

 
70

Investment securities held-to-maturity

 
36

Income taxes receivable
15

 
15

Other
57

 
46

Total other assets
$
751

 
$
736

Property, Plant and Equipment (Tables)
Property, Plant and Equipment
Property, plant and equipment consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Property, plant and equipment
$
835

 
$
819

Less accumulated depreciation and amortization
(385
)
 
(370
)
Property, plant and equipment, net
$
450

 
$
449

Accrued Expenses (Tables)
Accrued Expenses
Accrued expenses consisted of the following:
 
 
March 31, 2012
 
December 31, 2011
 
(in millions)
Customer and merchant incentives
$
928

 
$
889

Personnel costs
159

 
345

Advertising
87

 
144

Income and other taxes
255

 
82

Other
146

 
150

Total accrued expenses
$
1,575

 
$
1,610



Accumulated Other Comprehensive Income (Tables)
Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]
The changes in the balances of each component of accumulated comprehensive income for the three months ended March 31, 2012 were as follows:

 
 
Foreign Currency Translation Adjustments
 
Defined Benefit Pension and Other Postretirement Plans
 
Investment Securities Available-for-Sale, Net of Tax
 
Accumulated Other Comprehensive Income (Loss)
 
 
(in millions)
Balance at December 31, 2011
 
$
30

 
$
(32
)
 
$

 
$
(2
)
Current period other comprehensive income
 
77

 
1

 
2

 
80

Balance at March 31, 2012
 
$
107

 
$
(31
)
 
$
2

 
$
78

 
 
 
 
 
 
 
 
 
Settlement and Other Risk Management (Tables)
Estimated Settlement Exposure and Portion of Uncollateralized Settlement Exposure for MasterCard-Branded Transactions
The Company's estimated Settlement Exposure from MasterCard, Cirrus and Maestro-branded transactions was as follows:
 
March 31,
2012
 
December 31, 2011
 
(in millions)
Gross Settlement Exposure
$
39,000

 
$
39,102

Collateral held for Settlement Exposure 1
(4,229
)
 
(3,482
)
Net uncollateralized Settlement Exposure
$
34,771

 
$
35,620


1 Represents collateral held against MasterCard-branded exposure.
Foreign Exchange Risk Management (Tables)
MasterCard’s derivative contracts are summarized below: 
 
March 31, 2012
 
December 31, 2011
 
Notional
 
Estimated Fair
Value
 
Notional
 
Estimated Fair
Value
 
(in millions)
Commitments to purchase foreign currency
$
52

 
$

 
$
21

 
$

Commitments to sell foreign currency
1,205

 
(6
)
 
279

 
2

Balance Sheet Location: 1
 
 
 
 
 
 
 
Accounts Receivable
 
 
$
5

 
 
 
$
4

Other Current Liabilities
 
 
(11
)
 
 
 
(2
)


1 Amounts represent gross fair value amounts while these amounts may be netted for actual balance sheet presentatio

The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency are summarized below: 
 
Three Months Ended
March 31,
 
2012
 
2011
 
(in millions)
Foreign currency derivative contracts 1
 
 
 
General and administrative
$
(6
)
 
$
(11
)
Revenues
(4
)
 
(2
)
Total
$
(10
)
 
$
(13
)
    
1 Derivatives are not designated as hedging instruments pursuant to the accounting standards for derivative instruments and hedging activities
Earnings Per Share Schedule of Basic and Diluted Earnings Per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Numerator [Abstract]
 
 
Net Income attributable to Mastercard
$ 682 
$ 562 
Denominator [Abstract]
 
 
Basic EPS weighted average shares outstanding
127 
130 
Dilutive stock options and stock units
Dilutive EPS weighted average shares outstanding
127 1
131 1
Total Basic
$ 5.38 
$ 4.31 
Total Diluted
$ 5.36 
$ 4.29 
Fair Value and Investment Securities Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Dec. 31, 2011
Fair Value By Balance Sheet Grouping [Line Items]
 
 
 
Investment Income, Net
$ 9 
$ 12 
 
Percentage of fair value of investments using discounted cash flow pricing model
10.00% 
 
10.00% 
Portion at Fair Value, Fair Value Disclosure [Member]
 
 
 
Fair Value By Balance Sheet Grouping [Line Items]
 
 
 
Estimated fair value of settlement and other guarantee liabilities
$ 75 
 
$ 95 
Minimum [Member]
 
 
 
Fair Value By Balance Sheet Grouping [Line Items]
 
 
 
Collateral Requirements Minimum Percentage Collateral To Fair Value Of Securities Loaned Under Security Lending Transactions
95.00% 
 
 
Maximum [Member]
 
 
 
Fair Value By Balance Sheet Grouping [Line Items]
 
 
 
Collateral Requirements Minimum Percentage Collateral To Fair Value Of Securities Loaned Under Security Lending Transactions
98.00% 
 
 
Fair Value and Investment Securities Distribution of Financial Instruments, Measured at Fair Value on a Recurring Basis (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
$ 1,521 
$ 1,287 
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
206 
203 
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
1,245 
1,014 
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
70 
70 
Municipal Securities [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
401 1
393 1
Municipal Securities [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
1
1
Municipal Securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
401 1
393 1
Municipal Securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
1
1
US Government and Agency securities [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
249 
205 
US Government and Agency securities [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
US Government and Agency securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
249 
205 
US Government and Agency securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Taxable Short Term Bond Funds [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
206 
203 
Taxable Short Term Bond Funds [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
206 
203 
Taxable Short Term Bond Funds [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Taxable Short Term Bond Funds [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Corporate securities [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
464 
325 
Corporate securities [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Corporate securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
464 
325 
Corporate securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Asset-backed Securities [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
116 
69 
Asset-backed Securities [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Asset-backed Securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
116 
69 
Asset-backed Securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Auction Rate Securities [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
70 
70 
Auction Rate Securities [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Auction Rate Securities [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Auction Rate Securities [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
70 
70 
Other [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
15 
22 
Other [Member] |
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
Other [Member] |
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
15 
22 
Other [Member] |
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Option, Quantitative Disclosures [Line Items]
 
 
Fair Value, Measured on Recurring Basis
$ 0 
$ 0 
Fair Value and Investment Securities Available-for-Sale Investment Securities, Unrealized Gains and Losses (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Investment Identifier [Line Items]
 
 
Amortized Cost
$ 1,524 
$ 1,285 
Gross Unrealized Gain
12 
11 
Gross Unrealized Loss
(9)1
(11)1
Fair Value
1,527 
1,285 
Municipal Securities [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
390 
382 
Gross Unrealized Gain
11 
11 
Gross Unrealized Loss
1
1
Fair Value
401 
393 
US Government Corporations and Agencies Securities [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
249 
205 
Gross Unrealized Gain
Gross Unrealized Loss
1
1
Fair Value
249 
205 
Taxable Short-Term Bond Funds [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
207 
206 
Gross Unrealized Gain
Gross Unrealized Loss
(1)1
(3)1
Fair Value
206 
203 
Corporate securities [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
463 
325 
Gross Unrealized Gain
Gross Unrealized Loss
1
1
Fair Value
464 
325 
Asset-backed Securities [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
116 
69 
Gross Unrealized Gain
Gross Unrealized Loss
1
1
Fair Value
116 
69 
Auction Rate Securities [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
78 2
78 2
Gross Unrealized Gain
2
2
Gross Unrealized Loss
(8)1 2
(8)1 2
Fair Value
70 2
70 
Other [Member]
 
 
Investment Identifier [Line Items]
 
 
Amortized Cost
21 
20 
Gross Unrealized Gain
Gross Unrealized Loss
1
1
Fair Value
$ 21 
$ 20 
Fair Value and Investment Securities Maturity Distribution Based on Contractual Terms of Investment Securities (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Available-For-Sale Amortized cost
 
Due within 1 year
$ 618 
Due after 1 year through 5 years
574 
Due after 5 years through 10 years
48 
Due after 10 years
77 
No contractual maturity
207 
Total
1,524 
Available-For-Sale Fair Value
 
Due within 1 year
618 
Due after 1 year through 5 years
584 
Due after 5 years through 10 years
49 
Due after 10 years
70 
No contractual maturity
206 
Total
$ 1,527 
Prepaid Expenses and Other Assets Narrative (Details)
Mar. 31, 2012
Prepaid Expenses and Other Assets [Abstract]
 
Equity Method Investment, Ownership Percentage
20.00% 
Historical Cost Method Ownership Percentage
20.00% 
Prepaid Expenses and Other Assets Schedule of Prepaid Expenses (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Prepaid Expenses [Abstract]
 
 
Customer and merchant incentives
$ 257 
$ 190 
Investment securities held-to-maturity
36 
Prepaid income taxes
35 
Income taxes receivable
35 
35 
Other
175 
144 
Total prepaid expense and other currents assets
$ 510 
$ 404 
Prepaid Expenses and Other Assets Schedule of Other Assets (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Prepaid Expenses [Abstract]
 
 
Customer and merchant incentives
$ 447 
$ 409 
Nonmarketable equity investments
162 
160 
Auction rate securities available-for-sale, at fair value
70 
70 
Investment securities held-to-maturity
36 
Income taxes receivable
15 
15 
Other
57 
46 
Total other assets
$ 751 
$ 736 
Property, Plant and Equipment (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Property, Plant and Equipment [Abstract]
 
 
Property, Plant and Equipment, Gross
$ 835 
$ 819 
Less accumulated depreciation and amortization
385 
370 
Property, plant and equipment, net
$ 450 
$ 449 
Accrued Expenses (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Accrued Liabilities [Abstract]
 
 
Customer and merchant incentives
$ 928 
$ 889 
Personnel costs
159 
345 
Advertising
87 
144 
Income and other taxes
255 
82 
Other
146 
150 
Total accrued expenses
$ 1,575 
$ 1,610 
Accrued Expenses Accrued Litigation Expense (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Accrued Expenses [Abstract]
 
 
Accrued US merchant litigation liability
$ 770 
$ 770 
Stockholders' Equity (Narrative) (Details) (Class A Common Stock [Member], USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended 12 Months Ended 16 Months Ended
Mar. 31, 2011
Dec. 31, 2011
Apr. 26, 2012
Class A Common Stock [Member]
 
 
 
Equity [Line Items]
 
 
 
Authorized plan to repurchase stock, maximum repurchase amount
 
$ 2,000,000,000 
 
Common stock repurchased during period, shares
2.6 
0.7 
5.2 
Common stock repurchased during period, value
$ 654,000,000 
$ 248,000,000 
$ 1,400,000,000 
Stock Repurchased During Period Average Price Per Share
 
 
$ 277.82 
Accumulated Other Comprehensive Income (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Balance, Foreign Currency Translation Adjustment, Net of Tax Beginning Balance
$ 30 
 
Balance, Pension and Other Postretirement Benefit Plans, Net of Tax Beginning Balance
(32)
 
Balance, Available-for-sale Securities Adjustment, Net of Tax Beginning Balance
 
Accumulated Other Comprehensive Income (Loss), Net of Tax Beginning Balance
(2)
 
Current period other comprehensive income, Foreign Currency Transaction and Translation Adjustment, Net of Tax
77 
105 
Current period other comprehensive income, Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax
Current period other comprehensive income, Unrealized Holding Gain (Loss) on Securities Arising During Period, Net of Tax
Current period other comprehensive income, Accumulated Other Comprehensive Income (Loss), Net of Tax
80 
106 
Balance, Foreign Currency Translation Adjustment, Net of Tax Ending Balance
107 
 
Balance, Pension and Other Postretirement Benefit Plans, Net of Tax Ending Balance
(31)
 
Balance, Available-for-sale Securities Adjustment, Net of Tax Ending Balance
 
Accumulated Other Comprehensive Income (Loss), Net of Tax Ending Balance
$ 78 
 
Share Based Payment and Other Benefits (Narrative) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended 3 Months Ended
Mar. 31, 2012
Class A Common Stock [Member]
Dec. 31, 2011
Class A Common Stock [Member]
Mar. 31, 2012
Restricted Stock Units [Member]
Mar. 31, 2012
Stock Option [Member]
numberofinstallments
years
Mar. 31, 2012
Performance-Based Restricted Stock [Member]
Mar. 31, 2012
Performance Units [Member]
Share based Compensation [Line Items]
 
 
 
 
 
 
Stock granted under Long-Term Incentive Plan (LTIP)
 
 
149 
133 
 
21 
Class A common stock, par value
$ 0.0001 
$ 0.0001 
 
 
 
 
Fair value of restricted stock units and performance units
 
 
 
 
$ 420.43 
 
Fair value of stock options, per share
 
 
 
$ 148.45 
 
 
Stock options vested, number of annual installments
 
 
 
 
 
Stock options term (in years)
 
 
 
10 
 
 
Income Taxes (Details)
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Income Tax Expense (Benefit) [Abstract]
 
 
Effective income tax rate
31.80% 
32.80% 
Legal and Regulatory Proceedings (Details)
1 Months Ended 3 Months Ended 6 Months Ended 1 Months Ended 3 Months Ended
Feb. 7, 2011
Event Involving Visa Parties, Member Banks and MasterCard [Member]
Feb. 7, 2011
Event Involving Member Banks and MasterCard [Member]
Dec. 31, 2009
Hungarian Competition Authority [Member]
USD ($)
Mar. 31, 2008
Cross Border [Member]
USD ($)
Jun. 30, 2008
Cross Border [Member]
Nov. 3, 2010
Italian Competition Authority [Member]
USD ($)
Nov. 3, 2010
Italian Competition Authority [Member]
EUR (€)
Mar. 31, 2012
Canadian Competition Bureau [Member]
USD ($)
Sep. 30, 2009
State Unfair Competition [Member]
USD ($)
Mar. 31, 2009
Undertakings to European Commission [Member]
Debit Card Transactions [Member]
Mar. 31, 2009
Undertakings to European Commission [Member]
Credit Card Transactions [Member]
Mar. 31, 2012
Scenario, Forecast [Member]
USD ($)
Legal And Regulatory [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
Compensatory damages sought, Canadian Competition Bureau
 
 
 
 
 
 
 
$ 5,000,000,000 
 
 
 
 
Percent of settlement MasterCard would pay
12.00% 
36.00% 
 
 
 
 
 
 
 
 
 
 
Provision for litigation settlement
 
 
 
 
 
 
 
 
 
 
 
770,000,000 
Estimated Charge For Financial Portion Of Potential Claims Settlement After Tax
 
 
 
 
 
 
 
 
 
 
 
495,000,000 
Daily penalty upon failure to comply European Commission's decision, percentage
 
 
 
 
3.50% 
 
 
 
 
 
 
 
Daily penalty upon failure to comply European Commission's decision
 
 
 
600,000 
 
 
 
 
 
 
 
 
Weighted Average Interchange Fee Transaction Basis Point
 
 
 
 
 
 
 
 
 
0.20% 
0.30% 
 
Payments for Legal Settlements
 
 
3,000,000 
 
 
 
 
 
 
 
 
 
Accrued litigation payment
 
 
 
 
 
 
 
 
6,000,000 
 
 
 
Amount of fine
 
 
 
 
 
$ 4,000,000 
€ 2,700,000 
 
 
 
 
 
Settlement and Other Risk Management Narrative (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Legal And Regulatory [Line Items]
 
 
MasterCard-branded travelers cheques guarantee exposure
$ 288 
$ 325 
Obtained unlimited guarantee on MasterCard branded travelers cheques
221 
250 
Obtained limited guarantee on MasterCard branded travelers cheques
11 
13 
Italy Greece Portugal Spain [Member]
 
 
Legal And Regulatory [Line Items]
 
 
Percentage Of Mastercards Total Aggregate Gross Settlement Exposure
5.00% 
 
Other Guarantees Issued [Member]
 
 
Legal And Regulatory [Line Items]
 
 
MasterCard-branded travelers cheques guarantee exposure
$ 56 
$ 59 
Settlement and Other Risk Management Estimated Settlement Exposure and Portion of Uncollateralized Settlement Exposure for MasterCard-Branded Transactions (Details) (Guarantee Obligations [Member], USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Guarantee Obligations [Member]
 
 
Legal And Regulatory [Line Items]
 
 
Gross Settlement Exposure
$ 39,000 
$ 39,102 
Collateral held for Settlement Exposure
(4,229)1
(3,482)1
Net uncollateralized Settlement Exposure
$ 34,771 
$ 35,620 
Foreign Exchange Risk Management Classification of Outstanding Forward Contracts by Functional Currency (Details) (Functional Currency [Member], USD $)
In Millions, unless otherwise specified
Mar. 31, 2012
Dec. 31, 2011
Accounts Receivable [Member]
 
 
Foreign Exchange Risk Management [Line Items]
 
 
Balance Sheet Location: Accounts Receivable
$ 5 1
$ 4 1
Other Current Liabilities [Member]
 
 
Foreign Exchange Risk Management [Line Items]
 
 
Balance Sheet Location: Other Current Liabilities
(11)1
(2)1
Commitments [Member]
 
 
Foreign Exchange Risk Management [Line Items]
 
 
Commitments to purchase foreign currency - notional amount
52 
21 
Commitments to sell foreign currency - notional amount
1,205 
279 
Commitments to purchase foreign currency - estimated fair value
1
1
Commitments to sell foreign currency - estimated fair value
$ (6)1
$ 2 1
Foreign Exchange Risk Management Foreign Exchange Risk Management (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2012
Mar. 31, 2011
Derivatives Not Designated As Hedging Instruments
 
 
Terms of the foreign currency forward contracts and foreign currency option contracts
18 months 
 
effect of 10% adverse change in foreign currency rates
$ 140 
 
Foreign Currency Derivative Contracts [Member]
 
 
Derivatives Not Designated As Hedging Instruments
 
 
Total
(10)1
(13)1
Foreign Currency Derivative Contracts [Member] |
General and Administrative [Member]
 
 
Derivatives Not Designated As Hedging Instruments
 
 
Foreign Currency Derivative Contracts
(6)1
(11)1
Foreign Currency Derivative Contracts [Member] |
Revenues [Member]
 
 
Derivatives Not Designated As Hedging Instruments
 
 
Foreign Currency Derivative Contracts
$ (4)1
$ (2)1