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Document and Entity Information (USD  $)
3 Months Ended
Mar. 31, 2011
May 02, 2011
Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name MERCADOLIBRE INC
Entity Central Index Key 0001099590
Document Type 10-Q
Document Period End Date Mar 31, 2011
Amendment Flag false
Document Fiscal Year Focus 2010
Document Fiscal Period Focus Q1
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer Yes
Entity Voluntary Filers No
Entity Current Reporting Status Yes
Entity Filer Category Large Accelerated Filer
Entity Public Float  $ 1,500,927,000
Entity Common Stock, Shares Outstanding 44,136,660
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Condensed Consolidated Balance Sheets (USD  $)
3 Months Ended 12 Months Ended
Mar. 31, 2011
Dec. 31, 2010
Current assets:
Cash and cash equivalents  $ 50,968,258  $ 56,830,466
Short-term investments 3,179,205 5,342,766
Accounts receivable, net 13,446,387 12,618,173
Funds receivable from customers 5,633,787 6,151,518
Prepaid expenses 843,908 913,262
Deferred tax assets 12,956,214 12,911,256
Other assets 7,196,704 6,867,767
Total current assets 94,224,463 101,635,208
Non-current assets:
Long-term investments 101,824,319 78,846,281
Property and equipment, net 22,672,952 20,817,712
Goodwill, net 60,480,828 60,496,314
Intangible assets, net 3,978,903 4,141,167
Deferred tax assets 2,841,633 2,975,118
Other assets 710,076 771,223
Total non-current assets 192,508,711 168,047,815
Total assets 286,733,174 269,683,023
Current liabilities:
Accounts payable and accrued expenses 17,945,181 17,232,103
Funds payable to customers 52,771,717 48,788,225
Payroll and social security payable 9,775,513 10,786,534
Taxes payable 9,777,052 11,487,574
Loans payable and other financial liabilities 92,513 100,031
Dividends payable 3,530,510 0
Total current liabilities 93,892,486 88,394,467
Non-current liabilities:
Payroll and social security payable 2,513,539 2,562,343
Loans payable and other financial liabilities 166,592 188,846
Deferred tax liabilities 5,149,708 5,167,699
Other liabilities 1,905,713 1,651,398
Total non-current liabilities 9,735,552 9,570,286
Total liabilities 103,628,038 97,964,753
Commitments and contingencies (Note 8)    
Shareholders' equity:
Common stock,  $0.001 par value, 110,000,000 shares authorized, 44,131,966 and 44,131,376 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively 44,132 44,131
Additional paid-in capital 120,426,216 120,391,622
Retained earnings 84,208,680 73,681,556
Accumulated other comprehensive loss (21,573,892) (22,399,039)
Total shareholders' equity 183,105,136 171,718,270
Total liabilities and shareholders' equity  $ 286,733,174  $ 269,683,023
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Condensed Consolidated Balance Sheets (Parenthetical) (USD  $)
Mar. 31, 2011
Dec. 31, 2010
Shareholders' equity:
Common stock, par value  $ 0.001  $ 0.001
Common stock, shares authorized 110,000,000 110,000,000
Common stock, shares issued 44,131,966 44,131,376
Common stock, shares outstanding 44,131,966 44,131,376
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Condensed Consolidated Statements of Income (Unaudited) (USD  $)
3 Months Ended
Mar. 31, 2011
Mar. 31, 2010
Condensed Consolidated Statements of Income [Abstract]
Net revenues  $ 61,459,668  $ 45,937,774
Cost of net revenues (14,331,703) (9,893,051)
Gross profit 47,127,965 36,044,723
Operating expenses:
Product and technology development (5,156,890) (3,224,775)
Sales and marketing (13,228,942) (11,108,801)
General and administrative (9,450,977) (6,206,881)
Total operating expenses (27,836,809) (20,540,457)
Income from operations 19,291,156 15,504,266
Other income (expenses):
Interest income and other financial gains 1,873,768 794,142
Interest expense and other financial charges (628,950) (2,995,418)
Foreign currency gain / (loss) (500,655) 396,972
Other income, net 20,344
Net income before income / asset tax expense 20,055,663 13,699,962
Income / asset tax expense (5,998,029) (4,079,361)
Net income  $ 14,057,634  $ 9,620,601
Basic EPS
Basic net income per common share  $ 0.32  $ 0.22
Weighted average shares 44,131,383 44,113,595
Diluted EPS
Diluted net income per common share  $ 0.32  $ 0.22
Weighted average shares 44,147,667 44,149,700
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Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD  $)
Comprehensive income
Common stock
Additional paid-in capital
Retained Earnings
Accumulated other comprehensive income / (loss)
Total
Beginning Balance at Dec. 31, 2009  $ 44,120  $ 120,257,998  $ 17,656,537  $ (23,765,418)  $ 114,193,237
Beginning Balance (in shares) at Dec. 31, 2009 44,120,269
Stock options exercised 2 1,968 1,970
Stock options exercised (in shares) 2,307
Stock-based compensation - stock options 61 61
Stock-based compensation - restricted shares 21,204 21,204
Stock-based compensation LTRP 39,303 39,303
LTRP shares issued 4 (4)
LTRP shares issued (in shares) 3,981
Net income 9,620,601 9,620,601 9,620,601
Currency translation adjustment (566,885) (566,885) (566,885)
Unrealized net gain (loss) on investments (35,151) (35,151) (35,151)
Realized net gains on investments (27,630) (27,630) (27,630)
Comprehensive income 8,990,935
Ending Balance at Mar. 31, 2010 44,126 120,320,530 27,277,138 (24,395,084) 123,246,710
Ending Balance (in shares) at Mar. 31, 2010 44,126,557
Stock options exercised 5 16,224 16,229
Stock options exercised (in shares) 4,819
Stock-based compensation - stock options 183 183
Stock-based compensation - restricted shares 16,492 16,492
Stock-based compensation LTRP 38,193 38,193
Net income 46,404,418 46,404,418 46,404,418
Currency translation adjustment 1,915,367 1,915,367 1,915,367
Unrealized net gain (loss) on investments 80,678 80,678 80,678
Comprehensive income 48,400,463
Ending Balance at Dec. 31, 2010 44,131 120,391,622 73,681,556 (22,399,039) 171,718,270
Ending Balance (in shares) at Dec. 31, 2010 44,131,376
Stock options exercised 1 884 885
Stock options exercised (in shares) 590
Stock-based compensation LTRP 33,710 33,710
Dividend distribution (3,530,510) (3,530,510)
Net income 14,057,634 14,057,634 14,057,634
Currency translation adjustment 888,874 888,874 888,874
Unrealized net gain (loss) on investments (18,200) (18,200) (18,200)
Realized net gains on investments (45,527) (45,527) (45,527)
Comprehensive income 14,882,781
Ending Balance at Mar. 31, 2011  $ 44,132  $ 120,426,216  $ 84,208,680  $ (21,573,892)  $ 183,105,136
Ending Balance (in shares) at Mar. 31, 2011 44,131,966
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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD  $)
3 Months Ended
Mar. 31, 2011
Mar. 31, 2010
Cash flows from operations:
Net income  $ 14,057,634  $ 9,620,601
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,541,143 946,873
Accrued interest (575,613) (228,151)
Stock-based compensation expense - stock options 61
Stock-based compensation expense - restricted shares 21,204
LTRP accrued compensation 1,170,710 324,607
Deferred income taxes 316,866 (407,531)
Changes in assets and liabilities:
Accounts receivable (378,620) (3,020,745)
Funds receivable from customers 479,325 441,399
Prepaid expenses 71,641 58,009
Other assets (70,095) (92,884)
Accounts payable and accrued expenses (4,736,229) 3,840,657
Funds payable to customers 3,072,102 418,066
Other liabilities 220,113 (467,618)
Net cash provided by operating activities 15,168,977 11,454,548
Cash flows from investing activities:
Purchase of investments (99,069,739) (34,354,598)
Proceeds from sale and maturity of investments 80,823,544 12,723,697
Purchases of intangible assets (73,405) (12,865)
Purchases of property and equipment (2,886,154) (1,396,672)
Net cash used in investing activities (21,205,754) (23,040,438)
Cash flows from financing activities:
Decrease in loans payable (3,213,878)
Stock options exercised 885 1,970
Net cash used in financing activities 885 (3,211,908)
Effect of exchange rate changes on cash and cash equivalents 173,684 (371,305)
Net decrease in cash and cash equivalents (5,862,208) (15,169,103)
Cash and cash equivalents, beginning of the period 56,830,466 49,803,402
Cash and cash equivalents, end of the period 50,968,258 34,634,299
Supplemental cash flow information:
Cash paid for interest 13,889 2,832,119
Cash paid for income and asset taxes  $ 7,898,283  $ 4,935,701
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Nature of Business
3 Months Ended
Mar. 31, 2011
Nature of Business [Abstract]
Nature of Business
1.  
Nature of Business
   
MercadoLibre Inc. (the “Company”) is an e-commerce enabler whose mission is to build the necessary online and technology tools to allow practically anyone to trade almost anything, helping to make inefficient markets more efficient in Latin America.
   
The Company developed a web-based marketplace in which buyers and sellers are brought together to browse, buy and sell items such as computers, electronics, collectibles, automobiles, clothing and a host of practical and miscellaneous items. Additionally, the Company introduced MercadoPago in 2004, an integrated online payments solution. MercadoPago was designed to facilitate transactions on the MercadoLibre Marketplace by providing an escrow mechanism that enables users to send and receive payments online.
   
Since 2004, the Company introduced an online classifieds platform for motor vehicles, vessels and aircrafts and since 2006 the real state online classifieds platform. In 2006, the Company launched eShops, a new platform tailored to attract lower rotation items and increase the breadth of products offered, the introduction of user generated information guides for buyers that improve the shopping experience, and the expansion of the online classifieds model by adding the services category.
   
During 2007 the Company also launched a new and improved version of its MercadoPago payments platform in Chile and Colombia as well as in Argentina during 2008. The new MercadoPago, in addition to improving the ease of use and efficiency of payments for marketplace purchases, also allows for payments outside of the Company’s marketplaces. Users are able to transfer money to other users with MercadoPago accounts and to incorporate MercadoPago as a means of payments in their independent commerce websites. In this way MercadoPago 3.0 as it has been called is designed to meet the growing demand for Internet based payments systems in Latin America. On March 30, 2010, the Company started processing off-MercadoLibre transactions through its new direct payments product to any site in Brazil which elects to adopt it. On July 16, 2010, the Company launched MercadoPago 3.0 in Brazil for all of its marketplace transactions. In February 2011, the Company started processing off-platform transactions in Mexico using its new direct payments product, MercadoPago 3.0, for any site in Mexico that elects to adopt it, while maintaining the escrow product for on-platform transactions. On April 15, 2011, the Company launched a new and improved version of its MercadoPago payments platform for all its marketplace transactions in Mexico.
   
As of March 31, 2011, the Company, through its wholly-owned subsidiaries, operated online commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay and Venezuela, and online payments solutions directed towards Argentina, Brazil, Mexico, Venezuela, Chile and Colombia. In addition, the Company operates a real estate classified platform that covers some areas of Florida, U.S.A.
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Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2011
Summary of Significant Accounting Policies [Abstract]
Summary of Significant Accounting Policies
2.  
Summary of Significant Accounting Policies
   
Basis of presentation
   
The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company and its wholly-owned subsidiaries. These financial statements are stated in US dollars. All intercompany transactions and balances have been eliminated.
   
Substantially all revenues and operating costs are generated in the Company’s foreign operations, amounting to approximately 99.7% and 99.3% of the consolidated totals during the three-month periods ended March 31, 2011 and 2010, respectively. Long-lived assets located in the foreign operations totaled  $82,626,400 and  $81,834,265 as of March 31, 2011 and December 31, 2010, respectively. Cash and cash equivalents as well as short and long-term investments, totaling  $155,971,782 and  $141,019,513 at March 31, 2011 and December 31, 2010, respectively, are mainly located in the United States of America and Brazil.
   
These unaudited interim condensed financial statements reflect the Company’s consolidated financial position as of March 31, 2011 and December 31, 2010. These statements also show the Company’s consolidated statement of income for the three-months ended March 31, 2011 and 2010, its consolidated statement of shareholders’ equity and its consolidated statement of cash flows for the three months ended March 31, 2011 and 2010. These statements include all normal recurring adjustments that management believes are necessary to fairly state the Company’s financial position, operating results and cash flows.
   
Because all of the disclosures required by generally accepted accounting principles in the United States of America for annual consolidated financial statements are not included herein, these interim financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2010, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 25, 2011. The condensed consolidated statements of income, shareholders’ equity and cash flows for the periods presented are not necessarily indicative of results expected for any future period.
   
Revenue Recognition
   
The Company generates revenues for different services provided. When more than one service is included in one single arrangement with the customer, the Company recognizes revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective selling prices.
   
Revenues are recognized when evidence of an arrangement exists, the fee is fixed or determinable, no significant obligation remains and collection of the receivable is reasonably assured.
   
Services are separately recognized as revenue according to the following criteria described for each type of services:
• Services for intermediation between on-line buyers and sellers, for which the company charges a percentage on the transaction value (“final value fees”), are recognized as revenue once the sale transaction between the buyer and seller is successfully completed (which occurs upon confirmation of the sale by the seller).
• Services for the use of the Company’s on-line payments solution, for transactions off-platform ordered by MercadoPago customers. The Company does not charge a separate fee for on-platform transactions in certain countries. The fee that we charge for all off-marketplace platform transactions is recorded as revenue once the transaction is completed, at the time when the payment is processed by the Company. For on-marketplace platform transactions, we generate revenue in the countries where we offer the service in a way that implies that the customer has to pay an additional fee for the right to use the payments solution.
• Listing and optional feature services, which fees relate to the right of a seller to have the item offered listed in a preferential way, as well as classified advertising services, are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing is uploaded onto the Company’s platform and is not subject to successful sale of the items listed.
• Advertising revenues such as the sale of banners are recognized ratably during the advertising period, and MercadoClics services or sponsorship of sites are recognized based on per-click values and as the impressions are delivered.
   
Credit Cards Receivables
   
Credit cards receivables from customers mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external payment networks or during a short period of time until those credit cards receivables are sold to financial institutions.
   
The company maintains allowances for doubtful accounts for estimated losses that may result from the inability of its customers to make required payments. Allowances are based upon several factors including, but not limited to, historical experience and the current condition of specific customers.
   
Credit cards receivables are presented net of the related allowance for doubtful accounts and chargebacks.
   
As of March 31, 2011, there are no past due credit card receivables.
   
Foreign Currency Translation
   
All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Venezuela, as described below. Accordingly, these foreign subsidiaries translate assets and liabilities from their local currencies to U.S. dollars using year end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of accumulated other comprehensive income (loss), a component of shareholders’ equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results are included in the consolidated statements of income under the caption “Foreign currency gain / (loss)” and amounted to  $(500,655) and  $396,972 for the three-month periods ended March 31, 2011 and 2010, respectively.
   
Until September 30, 2009, the Company translated its Venezuelan subsidiaries assets, liabilities, income and expense accounts at the official rate of 2.15 “Bolivares Fuertes” per US dollar.
   
Starting in the fourth quarter of 2009, as a result of the changes in facts and circumstances that affected the Company’s ability to convert currency for dividends remittances using the official exchange rate in Venezuela, the Venezuelan subsidiaries assets, liabilities, income and expense accounts were translated using the parallel exchange rate resulting in the recognition in that quarter of a currency translation loss adjustment of  $16,977,276 recorded in accumulated other comprehensive income/(loss). The average exchange rate used for translating the fourth quarter of 2009 results was 5.67 “Bolivares Fuertes” per US dollar and the year-end exchange rate used for translating assets and liabilities was 6.05 “Bolivares Fuertes” per US dollar.
   
As of the date of these interim condensed consolidated financial statements the Company did not buy US dollars at the official rate of 2.15 “Bolivares Fuertes” per US dollar.
   
According to US GAAP, we have transitioned our Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency. See “Highly inflationary status in Venezuela” below.
   
Therefore, no translation effect was accounted for in other comprehensive income since January 1, 2010 related to our Venezuelan operations.
   
Until May 13, 2010, the only way by which US dollars could be purchased outside the official currency market was using an indirect mechanism consisting in the purchase and sale of securities, including national public debt bonds (DPNs) denominated in Bolivares Fuertes and bonds issued by the government that were denominated in U.S. dollars. This mechanism for transactions in certain securities created an indirect “parallel” foreign currency exchange market in Venezuela that enabled entities to obtain foreign currency through financial brokers without going through Commission for the Administration of Foreign Exchange (“CADIVI”). Although the parallel exchange rate was higher, and accordingly less beneficial, than the official exchange rate, some entities used the “parallel” market to exchange currency because of the delays of CADIVI in approving in a timely manner the exchange of currency requested by such entities. Until May 13, 2010, our Venezuelan subsidiaries used this mechanism to buy US dollars and accordingly we used the parallel average exchange rate to re-measure those foreign currency transactions.
   
However, on May 14th, 2010, the Venezuelan government enacted reforms to its exchange regulations and close-down such parallel market by declaring that foreign-currency-denominated securities issued by Venezuelan entities were included in the definition of foreign currency, thus making the Venezuelan Central Bank (BCV) the only institution that could legally authorize the purchase or sale of foreign currency bonds, thereby excluding non-authorized brokers from the foreign exchange market.
   
Trading of foreign currencies was re-opened as a regulated market on June 9, 2010 with the Venezuelan Central Bank as the only institution through which foreign currency-denominated transactions can be brokered. Under the new system, known as the Foreign Currency Securities Transactions System (SITME), entities domiciled in Venezuela can buy U.S. dollar–denominated securities only through banks authorized by the BCV to import goods, services or capital inputs. Additionally, the SITME imposes volume restrictions on an entity’s trading activity, limiting such activity to a maximum equivalent of  $50,000 per day, not to exceed  $350,000 in a calendar month. This limitation is non-cumulative, meaning that an entity cannot carry over unused volume from one month to the next.
   
As a consequence of this new system, commencing on June 9, 2010, we have transitioned from the parallel exchange rate to the SITME rate and started re-measuring foreign currency transactions using the SITME rate published by BCV, which was 5.27 “Bolivares Fuertes” per U.S. dollar as of June 9, 2010.
   
For the period beginning on May 14, 2010 and ending on June 8, 2010 (during which there was no open foreign currency markets) we applied US GAAP guidelines, which state that if exchangeability between two currencies is temporarily lacking at the transaction date or balance sheet date, the first subsequent rate at which exchanges could be made shall be used.
   
Accordingly, the June 9, 2010 exchange rate published by the Venezuelan Central Bank has been used to re-measure transactions during the above mentioned period. As of March 31, 2011, the exchange rate used to re-measure transactions is 5.30 “Bolivares Fuertes” per U.S. dollar.
   
The following table sets forth the assets, liabilities and net assets of the Company’s Venezuelan subsidiaries, before intercompany eliminations, as of March 31, 2011 and December 31, 2010.
                 
    March 31,     December 31,  
    2011     2010  
 
               
Venezuelan operations
               
Assets
   $ 19,930,242      $ 21,928,340  
Liabilities
    (8,444,346 )     (8,212,581 )
Net Assets
    11,485,896       13,715,759  
   
As of March 31, 2011, net assets of the Venezuelan subsidiaries (before intercompany eliminations) amount to approximately 6.3% of our consolidated net assets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amount to approximately 5.1% of our consolidated cash and investments.
   
Although, the current mechanisms available to obtain US dollars for dividends distributions to shareholders outside Venezuela imply increased restrictions, the Company does not expect that the current restrictions to purchase dollars have a significant adverse effect on its business plans with regard to the investment in Venezuela.
   
Highly inflationary status in Venezuela
   
During May 2009, the International Practices Task Force discussed the highly inflationary status of the Venezuelan economy. Historically, the Task Force has used the Consumer Price Index (CPI) when considering the inflationary status of the Venezuelan economy.
   
The CPI has existed since 1984. However, the CPI covers only the cities of Caracas and Maracaibo. Commencing on January 1, 2008, the National Consumer Price Index (NCPI) has been developed to cover the entire country of Venezuela. Since inflation data is not available to compute a cumulative three year inflation rate for the entire country solely based on the NCPI, the Company uses a blended rate using the NCPI and CPI to calculate Venezuelan inflation rate.
   
The cumulative three year inflation rate as of December 31, 2009 was calculated using the CPI information for periods before January 1, 2008 and NCPI information for the period after January 1, 2008. The blended CPI/NCPI three-year inflation index (23 months of NCPI and 13 months of CPI) as of November 30, 2009 exceeded 100%. According to US GAAP, calendar year-end companies should apply highly inflationary accounting as from January 1, 2010. Therefore, the Company transitioned its Venezuelan operations to highly inflationary status as of January 1, 2010 considering the US dollar as the functional currency.
   
Taxes on revenues
   
The Company’s subsidiaries in Brazil, Argentina, Venezuela and Colombia are subject to certain taxes on revenues which are classified as cost of revenues. Taxes on revenues totaled  $4,461,547 and  $3,008,089 for the three-month periods ended March 31, 2011 and 2010, respectively.
   
Income and Asset Taxes
   
The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.
   
Income and Asset Taxes
   
From fiscal year 2008 to fiscal year 2014, the Company’s Argentine subsidiary is a beneficiary of a software development law. Part of the benefits obtained from being a beneficiary of the aforementioned law is a relief of 60% of total income tax determined in each year, until fiscal year 2014. Aggregate tax benefit totaled  $1,206,609 and  $789,686 for the three-month period ended March 31, 2011 and 2010, respectively. Aggregate per share effect of the Argentine tax holiday amounts to  $0.03 and  $0.02 for the three-month period ended March 31, 2011 and 2010, respectively. If the Company had not been granted the Argentine tax holiday, the Company would have pursued an alternative tax planning strategy and, therefore, the impact of not having this particular benefit could result in a higher effective tax rate but would not necessarily be the above mentioned dollar and per share effect.
   
As of March 31, 2011 and December 31, 2010, MercadoLibre, Inc has included in the non-current deferred tax assets line the foreign tax credits related to the dividend distributions received from its subsidiaries for a total amount of  $2,304,119 and  $2,436,224, respectively. Those foreign tax credits will be used to offset the future domestic income tax payable.
   
Use of estimates
   
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to accounting for allowance for doubtful accounts, depreciation, amortization, impairment and useful lives of long-lived assets, compensation cost related to cash and share-based compensation and restricted shares, recognition of current and deferred income taxes and contingencies. Actual results could differ from those estimates.
   
Comprehensive Income
   
Comprehensive income is comprised of two components, net income and other comprehensive income (loss), and defined as all other changes in equity of the Company that result from transactions other than with shareholders. Other comprehensive income (loss) includes the cumulative translation adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries and unrealized gains on investments classified as available-for-sale securities. Total comprehensive income for the three-month periods ended March 31, 2011 and 2010 amounted to  $14,882,781 and  $8,990,935, respectively.
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Net income per share
3 Months Ended
Mar. 31, 2011
Net income per share [Abstract]
Net income per share
3.  
Net income per share
   
Basic earnings per share for the Company’s common stock is computed by dividing net income available to common shareholders attributable to common stock for the period by the weighted average number of common shares outstanding during the period.
   
The Company’s restricted shares granted to its outside directors were participating securities. Accordingly, net income available to common stockholders for the three-month period ended March 31, 2010, was allocated between unvested restricted shares and common stock under the “two class method” for purposes of computing basic and diluted earnings per share.
   
Diluted earnings per share for the Company’s common stock assume the exercise of outstanding stock options and vesting restricted shares, additional shares and shares granted under the 2008 Long Term Retention Plan under the Company’s stock based employee compensation plans.
   
The following table shows how net income available to common shareholders is allocated using the two-class method, for the three-month periods ended March 31, 2011 and 2010:
                                 
    Three Months Ended March 31,  
    2011     2010  
    Basic     Diluted     Basic     Diluted  
 
                               
Net income
   $ 14,057,634      $ 14,057,634      $ 9,620,601      $ 9,620,601  
 
                       
 
                               
Net income available to common shareholders attributable to unvested restricted shares
                1,821       1,821  
 
                       
 
                               
Net income available to common shareholders attributable to common stock
   $ 14,057,634      $ 14,057,634      $ 9,618,780      $ 9,618,780  
 
                       
   
Net income per share of common stock is as follows for the three-month periods ended March 31, 2011 and 2010:
                                 
    Three Months Ended March 31,  
    2011     2010  
    Basic     Diluted     Basic     Diluted  
 
                               
Net income available to common shareholders per common share
   $ 0.32      $ 0.32      $ 0.22      $ 0.22  
 
                       
 
                               
Numerator:
                               
Net income available to common shareholders
   $ 14,057,634      $ 14,057,634      $ 9,618,780      $ 9,618,780  
 
                       
 
                               
Denominator:
                               
Weighted average of common stock outstanding for Basic earnings per share
    44,131,383       44,131,383       44,113,595       44,113,595  
Adjustment for stock options
          11,474             16,362  
Adjustment for additional shares
                      7,969  
Adjustment for shares granted under LTRP
            4,810               11,774  
 
                       
Adjusted weighted average of common stock outstanding for Diluted earnings per share
    44,131,383       44,147,667       44,113,595       44,149,700  
 
                       
   
The calculation of diluted net income per share excludes all anti-dilutive shares. During the three-month periods ended March 31, 2011 and 2010, there were no anti-dilutive shares.
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Goodwill and Intangible Assets
3 Months Ended
Mar. 31, 2011
Goodwill and Intangible Assets [Abstract]
Goodwill and Intangible Assets
4.  
Goodwill and Intangible Assets
   
The composition of goodwill and intangible assets is as follows:
                 
    March 31,     December 31,  
    2011     2010  
Goodwill
   $ 60,480,828      $ 60,496,314  
 
               
Intangible assets with indefinite lives
               
- Trademarks
    2,473,943       2,460,952  
Amortizable intangible assets
               
- Licenses and others
    2,638,816       2,606,402  
- Non-compete agreement
    1,249,909       1,241,357  
- Customer list
    1,602,673       1,607,097  
 
           
Total intangible assets
   $ 7,965,341      $ 7,915,808  
Accumulated amortization
    (3,986,438 )     (3,774,641 )
 
           
Total intangible assets, net
   $ 3,978,903      $ 4,141,167  
 
           
   
Goodwill
   
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2011 and the year ended December 31, 2010, are as follows:
                                                                 
    Three Months Ended March 31, 2011  
    Brazil     Argentina     Chile     Mexico     Venezuela     Colombia     Other Countries     Total  
Balance, beginning of year
   $ 13,130,649      $ 23,364,326      $ 7,296,888      $ 5,025,623      $ 4,846,030      $ 5,448,068      $ 1,384,730      $ 60,496,314  
- Effect of exchange rates changes
    302,325       (449,536 )     (174,255 )     193,827             100,035       12,118       (15,486 )
 
                                               
Balance, end of the period
   $ 13,432,974      $ 22,914,790      $ 7,122,633      $ 5,219,450      $ 4,846,030      $ 5,548,103      $ 1,396,848      $ 60,480,828  
 
                                               
                                                                 
    Year Ended December 31, 2010  
    Brazil     Argentina     Chile     Mexico     Venezuela     Colombia     Other Countries     Total  
Balance, beginning of year
   $ 12,565,062      $ 24,446,463      $ 6,734,405      $ 4,770,560      $ 4,846,030      $ 5,100,939      $ 1,359,287      $ 59,822,746  
- Effect of exchange rates changes
    565,587       (1,082,137 )     562,483       255,063             347,129       25,443       673,568  
 
                                               
Balance, end of the year
   $ 13,130,649      $ 23,364,326      $ 7,296,888      $ 5,025,623      $ 4,846,030      $ 5,448,068      $ 1,384,730      $ 60,496,314  
 
                                               
   
Amortizable intangible assets
   
Amortizable intangible assets are comprised of customer lists and user base, trademarks and trade names, non-compete agreements, acquired software licenses and other acquired intangible assets including developed technologies. Aggregate amortization expense for intangible assets totaled  $236,121 and  $172,861 for the three-month periods ended March 31, 2011 and 2010, respectively.
   
Expected future intangible asset amortization completed as of March 31, 2011 is as follows:
         
For year ended 12/31/2011
   $ 566,718  
For year ended 12/31/2012
    673,963  
For year ended 12/31/2013
    262,232  
For year ended 12/31/2014
    2,047  
 
     
 
   $ 1,504,960  
 
     
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Segments
3 Months Ended
Mar. 31, 2011
Segments [Abstract]
Segments
5.  
Segments
   
Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed, the criteria used by management to evaluate the Company’s performance, the availability of separate financial information, and overall materiality considerations.
   
Segment reporting is based on geography as the main basis of segment breakdown to reflect the evaluation of the Company’s performance defined by the management. The MercadoLibre segments include Brazil, Argentina, Mexico, Venezuela and other countries (such as Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay).
   
Direct contribution consists of net revenues from external customers less direct costs. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, headcount compensation, third party fees. All corporate related costs have been excluded from the Company’s direct contribution.
   
Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs are monitored by management through shared cost centers and are not evaluated in the measurement of segment performance.
   
The following tables summarize the financial performance of the Company’s reporting segments:
                                                 
    Three Months Ended March 31, 2011  
    Brazil     Argentina     Mexico     Venezuela     Other Countries     Total  
 
   
Net revenues
   $ 34,723,195      $ 10,579,932      $ 5,234,333      $ 6,770,453      $ 4,151,755      $ 61,459,668  
Direct costs
    (20,075,608 )     (4,427,098 )     (2,716,359 )     (3,069,739 )     (2,100,316 )     (32,389,120 )
 
                                   
Direct contribution
    14,647,587       6,152,834       2,517,974       3,700,714       2,051,439       29,070,548  
 
                                               
Operating expenses and indirect costs of net revenues
                                            (9,779,392 )
 
                                             
Income from operations
                                            19,291,156  
 
                                             
 
                                               
Other income (expenses):
                                               
Interest income and other financial gains
                                            1,873,768  
Interest expense and other financial results
                                            (628,950 )
Foreign currency losses
                                            (500,655 )
Other income, net
                                            20,344  
 
                                             
Net income before income / asset tax expense
                                           $ 20,055,663  
 
                                             
                                                 
    Three Months Ended March 31, 2010  
    Brazil     Argentina     Mexico     Venezuela     Other Countries     Total  
 
   
Net revenues
   $ 26,351,472      $ 8,354,246      $ 4,469,937      $ 3,475,490      $ 3,286,629      $ 45,937,774  
Direct costs
    (14,862,460 )     (3,945,784 )     (2,800,357 )     (1,914,056 )     (1,723,523 )     (25,246,180 )
 
                                   
Direct contribution
    11,489,012       4,408,462       1,669,580       1,561,434       1,563,106       20,691,594  
 
                                               
Operating expenses and indirect costs of net revenues
                                            (5,187,328 )
 
                                             
Income from operations
                                            15,504,266  
 
                                             
 
                                               
Other income (expenses):
                                               
Interest income and other financial gains
                                            794,142  
Interest expense and other financial results
                                            (2,995,418 )
Foreign currency gains
                                            396,972  
Other income, net
                                             
 
                                             
Net income before income / asset tax expense
                                           $ 13,699,962  
 
                                             
   
The following table summarizes the allocation of the long-lived tangible assets based on geography:
                 
    March 31,     December 31,  
    2011     2010  
 
               
US long-lived tangible assets
   $ 4,506,285      $ 3,617,420  
 
               
Other countries long-lived tangible assets
               
Argentina
    13,985,160       13,580,175  
Brazil
    3,352,655       3,264,625  
Mexico
    310,590       68,878  
Venezuela
    177,628       206,815  
Other countries
    340,634       79,799  
 
           
 
   $ 18,166,667      $ 17,200,292  
 
           
Total long-lived tangible assets
   $ 22,672,952      $ 20,817,712  
 
           
   
The following table summarizes the allocation of the goodwill and intangible assets based on geography:
                 
    March 31,     December 31,  
    2011     2010  
 
               
US intangible assets
   $      $ 3,507  
 
               
Other countries goodwill and intangible assets
               
Argentina
    24,230,203       24,825,718  
Brazil
    13,438,965       13,137,658  
Mexico
    5,234,534       5,043,335  
Venezuela
    6,595,597       6,595,866  
Other countries
    14,960,432       15,031,397  
 
           
 
   $ 64,459,731      $ 64,633,974  
 
           
Total goodwill and intangible assets
   $ 64,459,731      $ 64,637,481  
 
           
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Fair Value Measurement of Assets and Liabilities
3 Months Ended
Mar. 31, 2011
Fair Value Measurement of Assets and Liabilities [Abstract]
Fair Value Measurement of Assets and Liabilities
6.  
Fair Value Measurement of Assets and Liabilities
   
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010:
                                 
            Quoted Prices in             Quoted Prices in  
    Balances as of     active markets for     Balances as of     active markets for  
    March 31,     identical Assets     December 31,     identical Assets  
Description   2011     (Level 1)     2010     (Level 1)  
 
                               
Assets
                               
 
                               
Cash and Cash Equivalents:
                               
 
                               
Money Market Funds
   $ 10,171,913      $ 10,171,913      $ 14,578,477      $ 14,578,477  
 
                               
Investments:
                               
 
                               
Asset backed securities
    20,639,376       20,639,376       14,319,103       14,319,103  
 
                               
Sovereign Debt Securities
    12,009,357       12,009,357       13,147,239       13,147,239  
 
                               
Corporate Debt Securities
    15,063,598       15,063,598       11,381,761       11,381,761  
 
                       
 
                               
Total financial Assets
   $ 57,884,244      $ 57,884,244      $ 53,426,580      $ 53,426,580  
 
                       
   
The Company’s financial assets are valued using market prices on active markets (level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. As of March 31, 2011 and December 31, 2010, the Company did not have any assets obtained from readily-available pricing sources for comparable instruments (level 2) or without observable market values that would require a high level of judgment to determine fair value (level 3).
   
The unrealized net gains on short term and long term investments are reported as a component of accumulated other comprehensive income. The Company does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.
   
In addition, as of March 31, 2011, the Company had  $57,291,193 of short-term and long-term investments, which consisted of time deposits maintained as held to maturity investments. As of December 31, 2010, the Company had  $45,340,944 of short-term and long-term investments, which consisted of time deposits considered held to maturity securities. Those investments are accounted for at amortized cost which, as of March 31, 2011 and December 31, 2010, approximates their fair values.
   
As of March 31, 2011 and December 31, 2010, the carrying value of the Company’s cash and cash equivalents approximated their fair value which was held primarily in money markets funds and bank deposits. In addition, the carrying value of accounts receivables, funds receivables from customers, other receivables, other assets, accounts payables, social security payables, taxes payables, loans and provisions and other liabilities approximates their fair values because of its short term maturity.
   
For the three-month period ended March 31, 2011 and 2010, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles. As of March 31, 2011 and December 31, 2010, the Company does not have any non-financial assets or liabilities measured at fair value.
   
As of March 31, 2011 and December 31, 2010, the fair value of short and long-term investments classified as available for sale securities are as follows:
                                 
    March 31, 2011  
                    Gross        
    Gross     Gross Unrealized     Unrealized     Estimated  
    Amortized Cost     Gains     Losses     Fair Value  
Short-term investments
                               
Sovereign Debt Securities
   $ 443,218      $      $ (13,326 )    $ 429,892  
Corporate Debt Securities
    431,569       7,338       (11,986 )     426,921  
Asset Backed Securities (2)
    546,046             (8,734 )     537,312  
 
                       
Total Short-term investments
   $ 1,420,833      $ 7,338      $ (34,046 )    $ 1,394,125  
 
                       
 
                               
Long-term investments
                               
Sovereign Debt Securities
   $ 11,736,024      $ 79,659      $ (236,218 )    $ 11,579,465  
Corporate Debt Securities
    14,659,990       150,143       (173,456 )     14,636,677  
Asset Backed Securities (2)
    19,919,527       509,621       (327,084 )     20,102,064  
 
                       
Total Long-term investments
   $ 46,315,541      $ 739,423      $ (736,758 )    $ 46,318,206  
 
                       
 
                               
Total
   $ 47,736,374      $ 746,761      $ (770,804 )    $ 47,712,331  
 
                       
                                 
    December 31, 2010  
            Gross              
    Gross Amortized     Unrealized     Gross Unrealized     Estimated Fair  
    Cost     Gains     Losses (1)     Value  
Short-term investments
                               
Corporate Debt Securities
   $ 398,752      $ 26      $ (773 )    $ 398,005  
 
                       
Total short-term investments
   $ 398,752      $ 26      $ (773 )    $ 398,005  
 
                       
 
                               
Long-term investments
                               
Sovereign Debt Securities
   $ 13,282,207      $ 98,958      $ (233,926 )    $ 13,147,239  
Corporate Debt Securities
    10,987,910       110,521       (114,675 )     10,983,756  
Asset Backed Securities (2)
    14,107,501       439,239       (227,637 )     14,319,103  
 
                       
Total long-term investments
   $ 38,377,618      $ 648,718      $ (576,238 )    $ 38,450,098  
 
                       
 
                               
Total
   $ 38,776,370      $ 648,744      $ (577,011 )    $ 38,848,103  
 
                       
     
(1)  
Unrealized losses from securities are primarily attributable to market price movements. Management does not believe any remaining unrealized losses represent other-than-temporary impairments based on our evaluation of available evidence including the credit rating of the investments, as of March 31, 2011 and December 31, 2010.
 
(2)  
Asset backed securities have investment grade credit ratings. These investments are collateralized by real estate and they are guaranteed by the U.S. Federal Government.
   
As of March 31, 2011, the estimated fair values of short-term and long-term investments classified by its contractual maturities are as follows:
         
One year or less
   $ 1,394,124  
One year to two years
    8,312,798  
Two years to three years
    1,770,761  
Three years to four years
    4,536,279  
Four years to five years
    3,336,260  
More than five years
    28,362,109  
 
     
Total
   $ 47,712,331  
 
     
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Compensation Plan for Outside Directors
3 Months Ended
Mar. 31, 2011
Compensation Plan for Outside Directors [Abstract]
Compensation Plan for Outside Directors
7.  
Compensation Plan for Outside Directors
   
The Company compensates its outside directors through the payment of cash fees and, from time to time, through the issuance of equity awards.
   
On June 10, 2009, the Company issued an aggregate of 2,305 shares of common stock and 8,350 restricted shares of common stock (the “Restricted Shares”) to our outside directors. The Restricted Shares vested in full in June 2010. Restricted Shares awarded to directors were measured at their fair market value using the grant-date price of the Company’s shares.
   
The total accrued compensation cost for the three-month periods ended March 31, 2011 and 2010 in cash and equity awards amounts to  $129,135 and 68,546, respectively which were included in operating expenses.
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Commitments and Contingencies
3 Months Ended
Mar. 31, 2011
Commitments and Contingencies [Abstract]
Commitments and Contingencies
8.  
Commitments and Contingencies
   
Litigation and Other Legal Matters
   
The Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. The proceeding-related reserve is based on developments to date and historical information related to actions filed against the Company. As of March 31, 2011, the Company had established reserves for proceeding-related contingencies of  $1,836,533 to cover legal actions against the Company. As of March 31, 2011 no loss amount has been accrued for other legal actions considered by the Company’s legal counsels to be reasonably possible for the aggregate amount up to  $3,893,702.
   
As of March 31, 2011, 338 legal actions were pending in the Brazilian ordinary courts, 8 of which were related to alleged intellectual property infringement. In addition, as of March 31, 2011, there were more than 1,591 cases still pending in Brazilian consumer courts. Filing and pursuing of an action before Brazilian consumer courts do not require the assistance of a lawyer. In most of the cases filed against the Company, the plaintiffs asserted that the Company was responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on the Company’s website, when using MercadoPago, or when the Company invoiced them.
   
On March 17, 2006, Vintage Denim Ltda., or Vintage, sued the Company’s Brazilian subsidiaries MercadoLivre.com Atividades de Internet Ltda. and eBazar.com.br Ltda. in the 29th Civil Court of the County of São Paulo, State of São Paulo, Brazil. Vintage requested a preliminary injunction alleging that these subsidiaries were infringing Diesel trademarks and their right of exclusive distribution as a result of sellers listing allegedly counterfeit and original imported Diesel branded clothing through the Brazilian page of the Company’s website, based on Brazilian Industrial Property Law (Law 9,279/96). Vintage sought an order enjoining the sale of Diesel-branded clothing on the Company’s platform. A preliminary injunction was granted on April 11, 2006 to prohibit the offer of Diesel-branded products, and a fine for non-compliance was imposed in the approximate amount of  $5,300 per defendant per day of non-compliance. The Company appealed that fine and obtained its suspension in 2006. Because the appeal of the preliminary injunction failed, in March of 2007, Vintage presented petitions alleging the Company’s non-compliance with the preliminary injunction granted to Vintage and requested a fine of approximately  $3.3 million against the Company’s subsidiaries, which represents approximately  $5,300 per defendant per day of alleged non-compliance since April 2006. In July 2007, the judge ordered the payment of the fine mandated in the preliminary injunction, without specifying the amount. In September 2007, the judge decided that (i) the Brazilian subsidiaries were not responsible for alleged infringement of intellectual property rights by its users; and that (ii) the plaintiffs did not prove the alleged infringement of its intellectual property rights. However, the decision maintained the injunction until such ruling is non-appealable. The plaintiff appealed the judge’s ruling regarding the subsidiary’s non-responsibility and the Company appealed the decision that maintained the preliminary injunction. Both appeals are still pending. In the opinion of the Company’s legal counsel the probable loss amounts to  $259,409 and a remaining amount of  $1,828,145 was not reserved since it was considered reasonably possible but not probable.
   
State of São Paulo Fraud Claim
   
On June 12, 2007, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should be held liable for any fraud committed by sellers on the Brazilian version of the Company’s website, or responsible for damages suffered by buyers when purchasing an item on the Brazilian version of the MercadoLibre website. On June 26, 2009, the Judge of the first instance court ruled in favor of the State of São Paulo prosecutor, declaring that the Brazilian subsidiary shall be held joint and severally liable for fraud committed by sellers and damages suffered by buyers when using the website, and ordering us to remove from the Terms of Service of the Brazilian website any provision limiting the Company’s responsibility, with a penalty of approximately  $2,500 per day of non-compliance. On June 29, 2009 the Company presented a recourse to the lower court. On September 29, 2009 the Company presented an appeal and requested to suspend the effects of the ruling issued by the lower court until the appeal is decided by State Court of Appeals, which request was granted on December, 1, 2009. The decision on the appeal is still pending. In the opinion of the Company’s legal counsel the risk of loss is reasonably possible.
   
City of São Paulo Tax Claim
   
On September 13, 2007, the Company paid to tax authorities in São Paulo, Brazil approximately  $1.1 million, consisting of  $1.0 million in accrued taxes and  $0.1 million in fines, related to the Brazilian subsidiary’s activities in São Paulo for the period 2002 through 2004. The Company had reserved approximately  $1.1 million against these taxes as of December 31, 2006 so no additional provision was recorded for the payment. São Paulo tax authorities have also asserted taxes and fines against us relating to the period from 2005 to 2007 in an approximate additional amount of  $5.9 million according to the exchange rate at that moment. In January 2005, the Brazilian subsidiary had moved its operations to Santana de Parnaíba City, Brazil and began paying taxes to that jurisdiction, therefore the Company believes it has strong defenses to the claims of the São Paulo authorities with respect to this period. On August 31, 2007, the Company presented administrative defenses against the authorities’ claim. On September, 12, 2009 the tax authorities ruled against the Brazilian subsidiary. On October 13, 2009, the Company presented an appeal to the Conselho Municipal de Tributos or Sao Paulo Municipal Council of Taxes. On January 19, 2011, Sao Paulo Municipal Council of Taxes ruled on our appeal and reduced the fine to approximately  $4.7 million. On February 11, 2011, the Company appealed this decision to the Câmaras Reunidas do Egrégio Conselho Municipal de Tributos (Superior Chamber of the São Paulo Municipal Council of Taxes) and awaits a ruling on this appeal. As of the date of these financial statements, the total amount of the claim is approximately  $15.3 million including surcharges and interest. The Company believes that the risk of loss is remote, and as a result, has not reserved provisions for this claim. In the opinion of the Company’s legal advisors, it is unlikely and remote that the resolution of this matter could have a material negative effect on the Company’s results of operations and for the Company’s financial position.
   
State of São Paulo Customer Service Level Claim
   
On September 1, 2010, a state prosecutor of the State of São Paulo, Brazil presented a claim against the Company’s Brazilian subsidiary. The state prosecutor alleges that the Brazilian subsidiary should improve our customer service level and provide (among other things) a telephone number for customer support. On November 17, 2010, the Judge of the first instance court granted an injunction against the Brazilian subsidiary imposing the obligation to provide customer service over telephone means within 60 days with a penalty of approximately  $65,000 per day of non-compliance. On April 08, 2011, the Company was summoned of the lawsuit and the injunction. On April 14, 2011, the Company presented recourse to the lower court; even though, the injunction was not lifted, an extension of 30 days was granted, and the non-compliance fine would start running as of July 11, 2011. On April 20, 2011 the Company presented an appeal and requested to suspend the effects of the injunction issued by the lower court until the appeal is decided by State Court of Appeals. The decision on the appeal is still pending. In the opinion of the Company’s legal counsel the risk associated with this claim is approximately  $307,000 which considered reasonably possible.
   
Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committed against them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability of online intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additional lawsuits alleging that the Company has violated copyright or trademark laws will be filed against the Company in the future.
   
Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amounts of management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enter into costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims as the Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claims involving various aspects of the Payments businesses.
   
From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.
   
Other contingencies
   
As of March 31, 2011 the Company had reserved  $71,820 against some tax contingencies (other than income tax) identified in some of its subsidiaries.
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Long Term Retention Plan
3 Months Ended
Mar. 31, 2011
Long Term Retention Plan [Abstract]
Long Term Retention Plan
9.  
Long Term Retention Plan
   
On August 8, 2008, the Board of Directors approved an employee retention program (“the 2008 LTRP”) that will be payable 50% in cash and 50% in shares, in addition to the annual salary and bonus of certain executives. Payments will be made in the first quarter on annual basis according to the following vesting schedule:
   
Year 1 (2008): 17%
 
   
Year 2 (2009): 22%
 
   
Year 3 (2010): 27%
 
   
Year 4 (2011): 34%
   
The shares granted for the 2008 LTRP were valued at the grant-date fair market value PF  $36.8 per share.
   
For the three-month period ended March 31, 2011, the related accrued compensation expense was  $69,818 corresponding  $33,710 to the share portion of the award credited to Additional Paid-in Capital and  $36,108 to the cash portion included in the Balance Sheet as Social security payable.
   
For the three-month period ended March 31, 2010, the related accrued compensation expense was  $91,652 corresponding  $34,376 to the share portion of the award credited to Additional Paid-in Capital and  $57,276 to the cash portion included in the Balance Sheet as Social security payable.
   
On June 15, 2009, and June 25, 2010, the Board of Directors, upon the recommendation of the compensation Committee approved the 2009 and the 2010 employee retention programs (“the 2009 and 2010 LTRP”). The awards under the 2009 and 2010 LTRP are fully payable in cash in addition to the annual salary and bonus of each employee.
   
The 2009 and 2010 LTRP will be paid in 8 equal annual quotas (12.5% each) commencing on March 31, 2010 and March 31, 2011, respectively. Each quota is calculated as follows:
   
6.25% of the amount is calculated in nominal terms (“the nominal basis share”),
   
6.25% is adjusted by multiplying the nominal amount by the average closing stock price for the last 60 trading days of the year previous to the payment date and divided by the average closing stock price for the last 60 trading days of 2008 and 2009 for the 2009 and 2010 LTRP, respectively. The average closing stock price for the 2009 and 2010 LTRP amounted to  $13.81 and  $45.75, respectively (“the variable share”).
   
The 2008, 2009 and 2010 LTRP have performance and/or eligibility conditions to be achieved at each year end and also require the employee to stay in the Company at the payment date.
   
The 2008 LTRP compensation cost and the variable share compensation cost of the 2009 and 2010 LTRP are recognized in accordance with the graded-vesting attribution method and are accrued up to each payment date. The 2009 and 2010 LTRP nominal basis share are recognized in straight line bases using the equal annual accrual method.
   
As of March 31, 2011, the 2009 LTRP accrued compensation expense for the three-month period ended March 31, 2011 and March 31, 2010 were  $519,086 and  $328,012, respectively.
   
As of March 31, 2011, the 2010 LTRP accrued compensation expense for the three-month period ended March 31, 2011 was  $507,977.
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Cash Dividend Distribution
3 Months Ended
Mar. 31, 2011
Cash dividend distribution [Abstract]
Cash dividend distribution
10.  
Cash dividend distribution
   
On February 18, 2011, the Board of Directors approved the first quarterly cash dividend distribution of  $3.5 million or  $0.08 per share which was paid on April 15, 2011.
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