Mastercard (MA) 10-Q 4 May 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Apr. 28, 2010 Class A common stock	Apr. 28, 2010 Class B common stock	Apr. 28, 2010 Class M common stock
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	MA
Entity Registrant Name	MASTERCARD INC
Entity Central Index Key	0001141391
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		110,830,051	19,977,657	1,864

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
ASSETS
Cash and cash equivalents	$2,119	$2,055
Investment securities available-for-sale, at fair value	831	824
Investment securities held-to-maturity	151
Accounts receivable	505	536
Settlement due from customers	410	459
Restricted security deposits held for customers	444	446
Prepaid expenses	278	313
Deferred income taxes	276	244
Other current assets	92	126
Total Current Assets	5,106	5,003
Property, plant and equipment, at cost, net of accumulated depreciation	433	449
Deferred income taxes	182	264
Goodwill	293	309
Other intangible assets, net of accumulated amortization of $436 and $422, respectively	408	415
Auction rate securities available-for-sale, at fair value	172	180
Investment securities held-to-maturity	187	338
Prepaid expenses	346	328
Other assets	159	184
Total Assets	7,286	7,470
LIABILITIES AND EQUITY
Accounts payable	251	290
Settlement due to customers	433	478
Restricted security deposits held for customers	444	446
Obligations under litigation settlements	606	607
Accrued expenses	935	1,225
Other current liabilities	153	121
Total Current Liabilities	2,822	3,167
Deferred income taxes	74	80
Obligations under litigation settlements	125	263
Long-term debt	21	22
Other liabilities	412	426
Total Liabilities	3,454	3,958
Commitments and Contingencies
Stockholders' Equity
Additional paid-in-capital	3,403	3,412
Class A treasury stock, at cost, 6,740,590 shares, respectively	(1,250)	(1,250)
Retained earnings	1,583	1,148
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustments	107	212
Defined benefit pension and other postretirement plans, net of tax	(15)	(15)
Investment securities available-for-sale, net of tax	(4)	(3)
Total accumulated other comprehensive income	88	194
Total Stockholders' Equity	3,824	3,504
Non-controlling interests	8	8
Total Equity	3,832	3,512
Total Liabilities and Equity	7,286	7,470
Class A common stock
Accumulated other comprehensive income:
Common stock
Class B common stock
Accumulated other comprehensive income:
Common stock
Class M common stock
Accumulated other comprehensive income:
Common stock

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data	Mar. 31, 2010	Dec. 31, 2009
Other intangible assets, accumulated amortization	$436	$422
Class A treasury stock, shares	6,740,590	6,740,590
Class A common stock
Common stock, par value	0.0001	0.0001
Common stock, authorized	3,000,000,000	3,000,000,000
Common stock, issued	117,560,176	116,534,029
Common stock, outstanding	110,819,586	109,793,439
Class B common stock
Common stock, par value	0.0001	0.0001
Common stock, authorized	1,200,000,000	1,200,000,000
Common stock, issued	19,977,657	19,977,657
Common stock, outstanding	19,977,657	19,977,657
Class M common stock
Common stock, par value	0.0001	0.0001
Common stock, authorized	1,000,000	1,000,000
Common stock, issued	1,846	1,812
Common stock, outstanding	1,846	1,812

CONSOLIDATED STATEMENTS OF OPER

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Revenues, net	$1,308	$1,156
Operating Expenses
General and administrative	458	448
Advertising and marketing	115	116
Depreciation and amortization	35	31
Total operating expenses	608	595
Operating income	700	561
Other Income (Expense)
Investment income	10	17
Interest expense	(15)	(36)
Other income (expense), net		8
Total other income (expense)	(5)	(11)
Income before income taxes	695	550
Income tax expense	240	183
Net income	455	367
Income attributable to non-controlling interests
Net Income Attributable to MasterCard	$455	$367
Basic Earnings per Share	3.47	2.81
Basic Weighted Average Shares Outstanding	130	130
Diluted Earnings per Share	3.46	2.8
Diluted Weighted Average Shares Outstanding	131	130

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Operating Activities
Net income	$455	$367
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	35	31
Share based payments	16	15
Stock units withheld for taxes	(122)	(7)
Tax benefit for share based compensation	(91)	(8)
Impairment of assets		15
Accretion of imputed interest on litigation settlements	11	26
Deferred income taxes	49	40
Other	3	(2)
Changes in operating assets and liabilities:
Accounts receivable	19	102
Income taxes receivable		190
Settlement due from customers	29	(69)
Prepaid expenses	4	(19)
Obligations under litigation settlements	(150)	(152)
Accounts payable	(36)	3
Settlement due to customers	(21)	32
Accrued expenses	(134)	(135)
Net change in other assets and liabilities	28	(13)
Net cash provided by operating activities	95	416
Investing Activities
Purchases of property, plant and equipment	(3)	(12)
Capitalized software	(17)	(16)
Purchases of investment securities available-for-sale	(33)	(15)
Proceeds from sales of investment securities, available-for-sale	20	12
Proceeds from maturities of investment securities, available-for-sale	11	1
Investment in affiliates	(1)	(18)
Acquisition of business, net of cash acquired		(3)
Other investing activities		1
Net cash used in investing activities	(23)	(50)
Financing Activities
Payment of debt		(149)
Dividends paid	(20)	(20)
Tax benefit for share based compensation	91	8
Cash proceeds from exercise of stock options	6	1
Redemption of non-controlling interest		(5)
Net cash provided by (used in) financing activities	77	(165)
Effect of exchange rate changes on cash and cash equivalents	(85)	(28)
Net increase in cash and cash equivalents	64	173
Cash and cash equivalents - beginning of period	2,055	1,505
Cash and cash equivalents - end of period	$2,119	$1,678

CONSOLIDATED STATEMENT OF CHANG

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD $)
In Millions	Additional Paid-In Capital	Class A Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income, net of tax	Non- Controlling Interests	Total
Beginning Balance at Dec. 31, 2009	$3,412	($1,250)	$1,148	$194	$8	$3,512
Net income			455			455
Other comprehensive loss, net of tax				(106)		(106)
Cash dividends declared on Class A and Class B common stock, $0.15 per share			(20)			(20)
Share based payments	16					16
Stock units withheld for taxes	(122)					(122)
Tax benefit for share based compensation	91					91
Exercise of stock options	6					6
Ending Balance at Mar. 31, 2010	$3,403	($1,250)	$1,583	$88	$8	$3,832

1_CONSOLIDATED STATEMENT OF CHA

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Parenthetical) (USD $)
	3 Months Ended Mar. 31, 2010
Cash dividends declared on Class A and Class B common stock, per share	0.15

CONSOLIDATED CONDENSED STATEMEN

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net income	$455	$367
Other comprehensive loss:
Foreign currency translation adjustments	(105)	(75)
Defined benefit pension and postretirement plans, net of tax		1
Unrealized gain (loss) and reclassification adjustment for realized (gain) loss on investment securities available-for-sale, net of tax	(1)	5
Other comprehensive loss	(106)	(69)
Comprehensive Income	349	298
Income attributable to non-controlling interests
Comprehensive Income Attributable to MasterCard	$349	$298

Summary of Significant Accounti

Summary of Significant Accounting Policies
	3 Months Ended Mar. 31, 2010
Summary of Significant Accounting Policies	Note 1. Summary of Significant Accounting Policies Organization MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated (MasterCard International) and MasterCard Europe sprl (MasterCard Europe) (together, MasterCard or the Company), provide payment solutions, including transaction processing and related services to customers principally in support of their credit, deposit access (debit), electronic cash and Automated Teller Machine (ATM) payment card programs, and travelers cheque programs. Our financial institution customers are generally either principal members (principal members) of MasterCard International, which participate directly in MasterCard Internationals business, or affiliate members of MasterCard International, which participate indirectly in MasterCard Internationals business through a principal member. Consolidation and basis of presentation The consolidated financial statements include the accounts of MasterCard and its majority-owned and controlled entities. The Company also evaluates its interests in variable interest entities, as applicable, to determine whether consolidation is required. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2010 presentation. The Company follows accounting principles generally accepted in the United States of America (GAAP). The balance sheet as of December31, 2009 was derived from the audited consolidated financial statements as of December31, 2009. The consolidated financial statements for the three months ended March31, 2010 and 2009 and as of March31, 2010 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 March31, 2010 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated subsequent events through the date that the consolidated financial statements were issued. 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 December31, 2009 for additional disclosures, including a summary of the Companys significant accounting policies. Recent accounting pronouncements Transfers of financial assets - In June 2009, the accounting standard for transfers and servicing of financial assets and extinguishments of liabilities was amended. The change eliminates the qualifying special purpose entity concept, establishes a new unit of account definition that must be met for the transfer of portions of financial assets to be eligible for sale accounting, clarifies and changes the derecognition criteria for a transfer to be accounted for as a sale, changes the amount of gain or

Earnings Per Share

Earnings Per Share
	3 Months Ended Mar. 31, 2010
Earnings Per Share	Note 2. Earnings Per Share Earnings per share (EPS) is calculated including the effects of certain instruments granted in share-based payment transactions under the two-class method. Unvested share-based payment awards which receive non-forfeitable dividend rights, or dividend equivalents, are considered participating securities and are required to be included in computing EPS under the two-class method.The Company declared non-forfeitable dividends on unvested restricted stock units and contingently issuable performance stock units (Unvested Units) which were granted prior to 2009. The components of basic and diluted EPS for common shares are as follows: ThreeMonthsEnded March31, 2010 2009 Numerator: Net income attributable to MasterCard $ 455 $ 367 Less: Net income allocated to Unvested Units 2 3 Net income attributable to MasterCard allocated to common shares $ 453 $ 364 Denominator: Basic EPS weighted average shares outstanding 130 130 Dilutive stock options and stock units 1 Diluted EPS weighted average shares outstanding 131 130 Earnings per Share Total Basic $ 3.47 $ 2.81 Total Diluted $ 3.46 $ 2.80 The calculation of diluted EPS for the three month periods ended March31, 2010 and 2009 excluded 88thousand and 290thousand stock options, respectively, because the effect would be antidilutive.

Non-Cash Investing and Financin

Non-Cash Investing and Financing Activities
	3 Months Ended Mar. 31, 2010
Non-Cash Investing and Financing Activities	Note 3. Non-Cash Investing and Financing Activities The following table includes non-cash investing and financing information for the three month periods ended March31: 2010 2009 Dividend declared but not yet paid $ 20 $ 20 Software licenses financed 10 Municipal bonds cancelled 154 Revenue bonds received (154 ) Building and land assets recorded pursuant to capital lease (154 ) Capital lease obligation 154 Fair value of assets acquired, net of original investment, cash paid and cash acquired 17 Fair value of liabilities assumed related to investments in affiliates 15 1 Fair value of non-controlling interest acquired 8 1 Includes $9 to be extinguished in 2013 and 2016 for future benefits to be provided by MasterCard in the establishment of a joint venture. Effective March1, 2009, MasterCard executed a new ten-year lease between MasterCard, as tenant, and the Missouri Development Finance Board (MDFB), as landlord, for MasterCards global technology and operations center located in OFallon, Missouri, called Winghaven. The lease includes a bargain purchase option and is thus classified as a capital lease. The building and land assets and capital lease obligation have been recorded at $154, which represents the lesser of the present value of the minimum lease payments and the fair value of the building and land assets. The Company received refunding revenue bonds issued by MDFB in the exact amount, $154, and with the same payment terms as the capital lease and which contain the legal right of setoff with the capital lease. The Company has netted its investment in the MDFB refunding revenue bonds and the corresponding capital lease obligation in the consolidated balance sheet.

Fair Value

Fair Value
	3 Months Ended Mar. 31, 2010
Fair Value	Note 4. Fair Value Financial Instruments Recurring Measurements In accordance with accounting requirements for financial instruments, the Company is disclosing the estimated fair values as of March31, 2010 and December31, 2009 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 March31, 2010. The distribution of the Companys financial instruments which are measured at fair value on a recurring basis within the Valuation Hierarchy is as follows: QuotedPrices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) FairValueat March 31, 2010 Municipal bonds 1 $ $ 519 $ $ 519 Taxable short-term bond funds 312 312 Auction rate securities 172 172 Foreign currency forward contracts (5 ) (5 ) Other Total $ 312 $ 514 $ 172 $ 998 Quoted Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value at December31, 2009 Municipal bonds 1 $ $ 514 $ $ 514 Taxable short-term bond funds 310 310 Auction rate securities 180 180 Foreign currency forward contracts (1 ) (1 ) Other Total $ 310 $ 513 $ 180 $ 1,003 1 Available-for-sale municipal bonds are carried at fair value and are included in the above tables. However, held-to-maturity municipal bonds are carried at amortized cost and excluded from the above tables. The fair value of the Companys available-for-sale municipal bonds are based on quoted prices for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy. The fair value of the Companys short-term bond funds are based on quoted prices and are therefore included in Level 1 of the Valuation Hierarchy. The Companys 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 uses the income approach, which included a discounted cash flow analysis of the estimated future cash flows adjusted by a risk premium for the ARS p

Investment Securities

Investment Securities
	3 Months Ended Mar. 31, 2010
Investment Securities	Note 5. Investment Securities Amortized Costs and Fair Values Available-for-Sale Investment Securities: The major categories of the Companys available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income (loss) on the consolidated statements of comprehensive income (loss), and their respective cost basis and fair values are as follows: Amortized Cost Gross Unrealized Gain Gross Unrealized Loss 1 FairValueat March31, 2010 Municipal bonds $ 500 $ 19 $ $ 519 Taxable short-term bond funds 307 5 312 Auction rate securities 202 (30 ) 172 Other Total $ 1,009 $ 24 $ (30 ) $ 1,003 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss 1 Fair Value at December31, 2009 Municipal bonds $ 492 $ 22 $ $ 514 Taxable short-term bond funds 306 4 310 Auction rate securities 212 (32 ) 180 Other Total $ 1,010 $ 26 $ (32 ) $ 1,004 1 The unrealized losses have been in an unrealized loss position longer than 12 months, but have not been deemed other-than-temporarily impaired. The municipal bond portfolio is comprised of tax exempt bonds and is diversified across states and sectors. The portfolio has an average credit quality of double-A. The short-term bond funds invest in fixed income securities, including corporate bonds, mortgage-backed securities, and asset-backed securities. The Company holds investments in ARS. Interest on these securities is exempt from U.S. federal income tax and the interest rate on the securities typically resets every 35 days. The securities 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. Beginning on February11, 2008, the auction mechanism that normally provided liquidity to the ARS investments began to fail. Since mid-February 2008, all investment positions in the Companys ARS investment portfolio have experienced failed auctions. The securities for which auctions have failed have continued to pay interest in accordance with the contractual terms of such instruments and will continue to accrue interest and be auctioned at each respective reset date until the auction succeeds, the issuer redeems the securities or they mature. As of March31, 2010, the ARS market remained illiquid but issuer call and redemption activity in the ARS student loan sector has occurred periodically since the auctions began to fail. During the three months ended March31, 2010, the Company did not sell any ARS in the auction market but there were some calls at par. The table below includes a roll-forward of the Companys ARS investments from January1, 2010 to March31, 2010. Significant Unobservable Inputs(Level3) Fair value, January1, 2010

Prepaid Expenses

Prepaid Expenses
	3 Months Ended Mar. 31, 2010
Prepaid Expenses	Note 6. Prepaid Expenses Prepaid expenses consisted of the following: March31, 2010 December31, 2009 Customer and merchant incentives $ 508 $ 445 Advertising 40 56 Income taxes 24 93 Data processing 32 29 Other 20 18 Total prepaid expenses 624 641 Prepaid expenses, current (278 ) (313 ) Prepaid expenses, long-term $ 346 $ 328 Prepaid customer and merchant incentives represent payments made to customers and merchants under business agreements.

Other Assets

Other Assets
	3 Months Ended Mar. 31, 2010
Other Assets	Note 7. Other Assets Other assets consisted of the following: March31, 2010 December31, 2009 Customer and merchant incentives $ 156 $ 216 Cost and equity method investments 36 35 Cash surrender value of keyman life insurance 25 23 Other 34 36 Total other assets 251 310 Other assets, current (92 ) (126 ) Other assets, long-term $ 159 $ 184 Certain customer and merchant business agreements provided incentives upon entering into the agreement. As of March31, 2010 and December31, 2009, other assets included amounts to be paid for these incentives and the related liability was included in accrued expenses and other liabilities. Once the payment is made, the liability is relieved and the other asset is reclassified to a prepaid expense.

Property, Plant and Equipment

Property, Plant and Equipment
	3 Months Ended Mar. 31, 2010
Property, Plant and Equipment	Note 8. Property, Plant and Equipment Property, plant and equipment consisted of the following: March31, 2010 December31, 2009 Property, plant and equipment $ 747 $ 753 Less accumulated depreciation and amortization (314 ) (304 ) Property, plant and equipment, net $ 433 $ 449 As of March31, 2010 and December31, 2009, capital leases, excluding the Winghaven facility, of $10 and $14, respectively, were included in equipment. Accumulated amortization of these capital leases was $4 and $6 as of March31, 2010 and December31, 2009, respectively. The Winghaven facility is discussed further in Note 3 (Non-Cash Investing and Financing Activities). Depreciation expense for the above property, plant and equipment, including amortization for capital leases, was $16 and $17 for the three months ended March31, 2010 and 2009, respectively.

Accrued Expenses

Accrued Expenses
	3 Months Ended Mar. 31, 2010
Accrued Expenses	Note 9. Accrued Expenses Accrued expenses consisted of the following: March31, 2010 December31, 2009 Customer and merchant incentives $ 548 $ 598 Personnel costs 203 367 Advertising 61 131 Income taxes 30 32 Other 93 97 Total accrued expenses $ 935 $ 1,225

Pension Plans

Pension Plans
	3 Months Ended Mar. 31, 2010
Pension Plans	Note 10. Pension Plans The Company maintains a non-contributory, qualified, defined benefit pension plan (the Qualified Plan) with a cash balance feature covering substantially all of its U.S. employees hired before July1, 2007. Company contributions in 2009 and favorable investment returns increased the Qualified Plans fair value of assets at December31, 2009 as compared to December31, 2008, thereby reducing net periodic pension cost for the three months ended March31, 2010 versus the same period in 2009. Additionally, the Company has an unfunded non-qualified supplemental executive retirement plan (the Non-qualified Plan) that provides certain key employees with supplemental retirement benefits in excess of limits imposed on qualified plans by U.S. tax laws. The term Pension Plans includes both the Qualified Plan and the Non-qualified Plan. The net periodic pension cost for the Pension Plans was as follows: ThreeMonthsEnded March31, 2010 2009 Service cost $ 4 $ 5 Interest cost 3 3 Expected return on plan assets (4 ) (3 ) Amortization: Actuarial loss 1 2 Prior service credit (1 ) (1 ) Net periodic pension cost $ 3 $ 6 The Company made voluntary contributions totaling $5 to the Qualified Plan during the three months ended March31, 2010 and contributed an additional $5 in April 2010. The Company currently expects to make $10 in additional contributions to the Qualified Plan during the remainder of 2010. During the three months ended March31, 2009, the Company contributed $14 to the Qualified Plan.

Postemployment and Postretireme

Postemployment and Postretirement Benefits
	3 Months Ended Mar. 31, 2010
Postemployment and Postretirement Benefits	Note 11. Postemployment and Postretirement Benefits The Company maintains a postretirement plan (the Postretirement Plan) providing health coverage and life insurance benefits for substantially all of its U.S. employees and retirees hired before July1, 2007. Net periodic postretirement benefit cost was $1 for each of the three month periods ended March31, 2010 and 2009. The cost included amounts for interest cost, service cost and amortization of the transition obligation partially offset by the amortization of the actuarial gain. The majority of the cost represented interest cost. The Company does not make any contributions to its Postretirement Plan other than funding benefits payments.

Share Based Payment and Other B

Share Based Payment and Other Benefits
	3 Months Ended Mar. 31, 2010
Share Based Payment and Other Benefits	Note 12. Share Based Payment and Other Benefits On March1, 2010, the Company granted approximately 150thousand restricted stock units, 169thousand stock options and 42thousand performance units under the MasterCard Incorporated 2006 Long-Term Incentive Plan (LTIP). The fair value of the restricted stock units and performance units, based on the closing price of the ClassA common stock, par value $.0001 per share, on the New York Stock Exchange on March1, 2010, was $232.74. The fair value of the stock options estimated on the date of grant using a Black-Scholes option pricing model was $84.79. Vesting of the shares underlying the restricted stock units and performance units will occur on February28, 2013. The stock options vest in four equal annual installments beginning on March1, 2011, and have a term of ten years. 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. With regard to the performance units granted on March1, 2010, whether and the extent to which, the performance stock units will vest will be based on the Companys performance against a predetermined return on equity goal, with an average of return on equity over the three-year period commencing January1, 2010 against threshold, target and maximum performance goals. In the event the performance units do vest on February28, 2013, the ultimate number of shares to be released on the vesting date will be based on meeting or exceeding average annual return on equity goals and achievement of quantitative and qualitative goals determined by the Companys compensation committee over the performance period, which includes performance against the corporate scorecard. These performance units have been classified as equity awards, will be settled by delivering stock to the employees and contain service and performance conditions. Given that the performance terms are subjective and not fixed on the date of grant, the performance units will be remeasured at the end of each reporting period, at fair value, until the time the performance conditions are fixed and the ultimate number of shares to be issued is determined. Estimates are adjusted as appropriate. Compensation expense is calculated using the number of performance stock units expected to vest; multiplied by the period ending price of a share of MasterCards ClassA common stock on the New York Stock Exchange; less previously recorded compensation expense.

Stockholders' Equity

Stockholders' Equity
	3 Months Ended Mar. 31, 2010
Stockholders' Equity	Note 13. Stockholders Equity In February 2010, the Companys Board of Directors authorized programs to facilitate conversions of shares of Class B common stock on a one-for-one basis into shares of ClassA common stock for subsequent sale or transfer to public investors, beginning after May31, 2010. The conversion programs follow the expiration on May31, 2010 of a 4-year post initial public offering restriction period with respect to the conversion of shares of Class B common stock. The Company currently expects that the first 2010 conversion program will consist of four one-week periods in June 2010. Holders of shares of Class B common stock will be able to make conversion elections in a program to be modeled on the Companys 2008 and 2009 programs, except that there will not be a limit on the number of shares of Class B common stock that are eligible for conversion by any one holder. Starting in early July 2010, the Company expects to run a subsequent, continuous conversion program for remaining shares of Class B common stock, featuring an open window for elections of any size. All outstanding Class M common stock will be automatically transferred to the Company and retired and unavailable for issue or reissue on the day on which the number of outstanding shares of Class B common stock represent less than 15% of the total outstanding shares of ClassA common stock and Class B common stock.

Commitments

Commitments
	3 Months Ended Mar. 31, 2010
Commitments	Note 14. Commitments At March31, 2010, the Company had the following future minimum payments due under non-cancelable agreements: Total Capital Leases 1 Operating Leases Sponsorship, Licensing Other Remainder of 2010 $ 232 $ 3 $ 19 $ 210 2011 167 4 19 144 2012 113 3 16 94 2013 60 37 10 13 2014 14 8 6 Thereafter 26 23 3 Total $ 612 $ 47 $ 95 $ 470 1 Excludes non-cash transactions relating to the Companys Winghaven facility. See Note 3 (Non-Cash Investing and Financing Activities) for more information. Included in the table above are capital leases with imputed interest expense of $6 and a net present value of minimum lease payments of $41. In addition, at March31, 2010, $38 of the future minimum payments in the table above for operating leases, sponsorship, licensing and other agreements was accrued. Consolidated rental expense for the Companys leased office space, which is recognized on a straight line basis over the life of the lease, was $7 and $14 for the three months ended March31, 2010 and 2009, respectively. Consolidated lease expense for automobiles, computer equipment and office equipment was $2 for each of the three month periods ended March31, 2010 and 2009.

Obligations Under Litigation Se

Obligations Under Litigation Settlements
	3 Months Ended Mar. 31, 2010
Obligations Under Litigation Settlements	Note 15. Obligations Under Litigation Settlements On June24, 2008, MasterCard entered into a settlement agreement (the American Express Settlement) with American Express Company (American Express) relating to the U.S. federal antitrust litigation between MasterCard and American Express. The American Express Settlement ended all existing litigation between MasterCard and American Express. Under the terms of the American Express Settlement, MasterCard is obligated to make 12 quarterly payments of up to $150 per quarter beginning in the third quarter of 2008. MasterCards maximum nominal payments will total $1,800. The amount of each quarterly payment is contingent on the performance of American Expresss U.S. Global Network Services business. The quarterly payments will be in an amount equal to 15% of American Expresss U.S. Global Network Services billings during the quarter, up to a maximum of $150 per quarter. If, however, the payment for any quarter is less than $150, the maximum payment for subsequent quarters will be increased by the difference between $150 and the lesser amount that was paid in any quarter in which there was a shortfall. MasterCard has assumed American Express will achieve these financial hurdles. MasterCard recorded the present value of $1,800, at a 5.75% discount rate, or $1,649 in the quarter ended June30, 2008 with respect to the American Express Settlement. Total liabilities for the American Express Settlement and other litigation settlements changed from December31, 2009, as follows: Balance as of December31, 2009 $ 870 Interest accretion on American Express Settlement 11 Payments on American Express Settlement (150 ) Other payments, accruals and accretion, net Balance as of March31, 2010 $ 731 See Note 17 (Legal and Regulatory Proceedings) for additional discussion regarding the Companys legal proceedings.

Income Taxes

Income Taxes
	3 Months Ended Mar. 31, 2010
Income Taxes	Note 16. Income Taxes The effective income tax rates were 34.6% and 33.2% for the three months ended March31, 2010 and 2009, respectively. The rate for the three months ended March31, 2010 was higher than the comparable period in 2009 due primarily to an adjustment to the Companys balance of deferred taxes during the three months ended March31, 2009, partially offset by lower state tax rates and a more favorable geographic distribution of earnings for the three months ended March31, 2010.

Legal and Regulatory Proceeding

Legal and Regulatory Proceedings
	3 Months Ended Mar. 31, 2010
Legal and Regulatory Proceedings	Note 17. 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. Therefore, the probability of loss and an estimation of damages are not possible to ascertain at present. 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 legal or regulatory proceedings to which it is a party would have a material impact on its results of operations, financial position, or cash flows. Although MasterCard believes that it has strong defenses for the litigations and regulatory proceedings described below, it could in the future incur judgments and/or fines, enter into settlements of claims or be required to change its business practices in ways that could have a material adverse effect on its results of operations, financial position or cash flows. Notwithstanding MasterCards belief, in the event it were found liable in a large class-action lawsuit or on the basis of a claim 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 and could materially and adversely affect its results of operations, cash flow and financial condition, or, in certain circumstances, even cause MasterCard to become insolvent. Moreover, 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 and could materially and adversely affect the Companys results of operations, cash flows and financial condition. 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 MasterCards and Visas governance structure and policies violated U.S. federal antitrust laws. First, the DOJ claimed that dual governance the situation 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 associationwas anti-competitive and acted to limit innovation within the payment card industry. Second, the DOJ challenged MasterCards 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). The DOJ alleged that MasterCards CPP and Visas bylaw provision acted to restrain competition. On October9, 2001, District Court Judge Barbara Jones issued an opinion upholding the legality and

Settlement and Travelers Cheque

Settlement and Travelers Cheque Risk Management
	3 Months Ended Mar. 31, 2010
Settlement and Travelers Cheque Risk Management	Note 18. Settlement and Travelers Cheque Risk Management MasterCard Internationals rules generally guarantee the payment of certain MasterCard, Cirrus and Maestro branded transactions between its principal members. The term and amount of the guarantee are unlimited. Settlement risk is the exposure to members under MasterCard Internationals rules (Settlement Exposure), due to the difference in timing between the payment transaction date and subsequent settlement. Settlement Exposure is estimated using the average daily card volumes 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 Companys settlement risk. Member-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 International effects a payment on behalf of a failed member, MasterCard International may seek an assignment of the underlying receivables. Subject to approval by the Board of Directors, members may be charged for the amount of any settlement loss incurred during the ordinary activities of the Company. MasterCard requires certain members that are not in compliance with the Companys risk standards in effect at the time of review to post collateral, typically in the form of cash, letters of credit, or bank guarantees. This requirement is based on management review of the individual risk circumstances for each member that is out of compliance. In addition to these amounts, MasterCard holds collateral to cover variability and future growth in member programs. The Company also holds collateral to pay merchants in the event of merchant bank/acquirer failure. Although it is not contractually obligated under MasterCard Internationals rules to effect such payments to merchants, the Company 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. Estimated Settlement Exposure, and the portion of the Companys uncollateralized Settlement Exposure for MasterCard-branded transactions that relates to members that are deemed not to be in compliance with, or that are under review in connection with, the Companys risk management standards, were as follows: March31, 2010 December31, 2009 MasterCard-branded transactions: Gross Settlement Exposure $ 25,669 $ 26,373 Collateral held for Settlement Exposure (3,444 ) (2,759 ) Net uncollateralized Settlement Exposure $ 22,225 $ 23,614 Uncollateralized Settlement Exposure attributable to non-compliant members $ 195 $ 211 Cirrus and Maestro transactions: Gross Settlement Exposure $ 2,851 $ 3,433 Although

Foreign Exchange Risk Managemen

Foreign Exchange Risk Management
	3 Months Ended Mar. 31, 2010
Foreign Exchange Risk Management	Note 19. 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 Companys exposure to transaction gains and losses resulting from fluctuations of foreign currencies against its functional currencies. The Company does not designate foreign currency forward contracts 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 forward contracts at the end of the reporting period to its consolidated balance sheet and consolidated statement of operations. As of March31, 2010, all contracts to purchase and sell foreign currency had been entered into with customers of MasterCard International. MasterCards outstanding forward contracts are classified by functional currency as summarized below: U.S. Dollar Functional Currency March31,2010 December31,2009 Notional EstimatedFair Value 1 Notional EstimatedFair Value 1 Commitments to purchase foreign currency $ 36 $ $ 38 $ Commitments to sell foreign currency 230 (2 ) 1 50 (1 ) 1 Balance Sheet Location: Accounts Receivable $ 2 $ 1 Other Current Liabilities (4 ) (2 ) Euro Functional Currency March31,2010 December31,2009 Notional EstimatedFair Value 1 Notional EstimatedFair Value 1 Commitments to purchase foreign currency $ 6 $ $ 16 $ Commitments to sell foreign currency 92 (3 ) 1 45 Balance Sheet Location: Accounts Receivable $ $ Other Current Liabilities (3 ) AmountandLocationof Gain (Loss)RecognizedinIncome ThreeMonthsEndedMarch31, 2010 2009 Derivatives Not Designated As Hedging Instruments Foreign Currency Forward Contracts General and administrative $ (5 ) $ (8 ) Revenues (1 ) 4 Total $ (6 ) $ (4 ) 1 Amounts represent gross fair value amounts while these amounts may be netted for actual balance sheet presentation. The currencies underlying the foreign currency forward contracts consist primarily of the Australian dollar, Canadian dollar, Chinese renminbi, euro, Mexican peso, Turkish lira and U.K. pound sterling. 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 qu