MASTERCARD INC, 10-Q filed on 10/29/2015
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2015
Oct. 22, 2015
Class A Common Stock
Oct. 22, 2015
Class B Common Stock
Entity Registrant Name
MASTERCARD INC 
 
 
Trading Symbol
MA 
 
 
Entity Central Index Key
0001141391 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-Q 
 
 
Document Period End Date
Sep. 30, 2015 
 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
Q3 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
1,100,233,562 
22,535,195 
Consolidated Balance Sheet (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
ASSETS
 
 
Cash and cash equivalents
$ 3,877 
$ 5,137 
Restricted cash for litigation settlement
541 
540 
Investments
1,232 
1,238 
Accounts receivable
1,081 
1,109 
Settlement due from customers
912 
1,052 
Restricted security deposits held for customers
871 
950 
Prepaid expenses and other current assets
843 
671 
Deferred income taxes
268 
300 
Total Current Assets
9,625 
10,997 
Property, plant and equipment, net of accumulated depreciation of $484 and $437, respectively
641 
615 
Deferred income taxes
22 
96 
Goodwill
1,907 
1,522 
Other intangible assets, net of accumulated amortization of $786 and $663, respectively
820 
714 
Other assets
1,619 
1,385 
Total Assets
14,634 
15,329 
LIABILITIES AND EQUITY
 
 
Accounts payable
381 
419 
Settlement due to customers
883 
1,142 
Restricted security deposits held for customers
871 
950 
Accrued litigation
711 
771 
Accrued expenses
2,512 
2,439 
Other current liabilities
585 
501 
Total Current Liabilities
5,943 
6,222 
Long-term debt
1,495 
1,494 
Deferred income taxes
95 
115 
Other liabilities
803 
674 
Total Liabilities
8,336 
8,505 
Commitments and Contingencies (Note 12)
   
   
Stockholders’ Equity
 
 
Additional paid-in-capital
3,973 
3,876 
Class A treasury stock, at cost, 267,097,807 and 237,008,743 shares, respectively
(12,713)
(9,995)
Retained earnings
15,543 
13,169 
Accumulated other comprehensive income (loss)
(536)
(260)
Total Stockholders’ Equity
6,267 
6,790 
Non-controlling interests
31 
34 
Total Equity
6,298 
6,824 
Total Liabilities and Equity
14,634 
15,329 
Class A Common Stock
 
 
Stockholders’ Equity
 
 
Common stock
0 
0 
Total Equity
0 
0 
Class B Common Stock
 
 
Stockholders’ Equity
 
 
Common stock
0 
0 
Total Equity
$ 0 
$ 0 
Consolidated Balance Sheet (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Property, plant and equipment, accumulated depreciation
$ 484 
$ 437 
Other intangible assets, accumulated amortization
$ 786 
$ 663 
Class A treasury stock, shares
267,097,807 
237,008,743 
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
1,368,854,797 
1,352,378,383 
Common stock, outstanding
1,101,756,990 
1,115,369,640 
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
22,556,445 
37,192,165 
Common stock, outstanding
22,556,445 
37,192,165 
Consolidated Statement of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Income Statement [Abstract]
 
 
 
 
Net Revenue
$ 2,530 
$ 2,490 
$ 7,150 
$ 7,030 
Operating Expenses
 
 
 
 
General and administrative
883 
784 
2,343 
2,180 
Advertising and marketing
184 
203 
502 
525 
Depreciation and amortization
94 
83 
273 
237 
Provision for litigation settlement
0 
0 
61 
0 
Total operating expenses
1,161 
1,070 
3,179 
2,942 
Operating income
1,369 
1,420 
3,971 
4,088 
Other Income (Expense)
 
 
 
 
Investment income
5 
8 
20 
21 
Interest expense
(15)
(11)
(49)
(32)
Other income (expense), net
(7)
1 
(9)
(5)
Total other income (expense)
(17)
(2)
(38)
(16)
Income before income taxes
1,352 
1,418 
3,933 
4,072 
Income tax expense
375 
403 
1,015 
1,256 
Net Income
$ 977 
$ 1,015 
$ 2,918 
$ 2,816 
Basic Earnings per Share
$ 0.86 
$ 0.88 
$ 2.57 
$ 2.41 
Basic Weighted-Average Shares Outstanding
1,130 
1,157 
1,136 
1,169 
Diluted Earnings per Share
$ 0.86 
$ 0.87 
$ 2.56 
$ 2.40 
Diluted Weighted-Average Shares Outstanding
1,133 1
1,160 1
1,139 1
1,172 1
Consolidated Statement of Comprehensive Income (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Statement of Comprehensive Income [Abstract]
 
 
 
 
Net Income
$ 977 
$ 1,015 
$ 2,918 
$ 2,816 
Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
(66)
(274)
(300)1 2 3
(262)1 2
Defined benefit pension and other postretirement plans
40 
0 
53 
2 
Income tax effect
(15)
0 
(19)
0 
Defined benefit pension and other postretirement plans, net of income tax effect
25 
0 
34 1 2 3
2 1 2
Investment securities available-for-sale
(3)
(8)
(10)
(14)
Income tax effect
0 
2 
0 
4 
Investment securities available-for-sale, net of income tax effect
(3)
(6)
(10)1 2 3
(10)1 2
Other comprehensive income (loss), net of tax
(44)
(280)
(276)1 2 3
(270)1 2
Comprehensive Income
$ 933 
$ 735 
$ 2,642 
$ 2,546 
Consolidated Statement of Changes in Equity (USD $)
In Millions
Total
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Additional Paid-In Capital
Class A Treasury Stock
Non- Controlling Interests
Class A Common Stock
Class B Common Stock
Balance at Dec. 31, 2014
$ 6,824 
$ 13,169 
$ (260)
$ 3,876 
$ (9,995)
$ 34 
$ 0 
$ 0 
Net income
2,918 
2,918 
 
 
 
 
 
 
Activity related to non-controlling interests
(3)
 
 
 
 
(3)
 
 
Other comprehensive income (loss), net of tax
(276)1 2 3
 
(276)
 
 
 
 
 
Cash dividends declared on Class A and Class B common stock, $0.48 per share
(544)
(544)
 
 
 
 
 
 
Purchases of treasury stock
(2,724)
 
 
 
(2,724)
 
 
 
Share-based payments
103 
 
 
97 
6 
 
 
 
Balance at Sep. 30, 2015
$ 6,298 
$ 15,543 
$ (536)
$ 3,973 
$ (12,713)
$ 31 
$ 0 
$ 0 
Consolidated Statement of Changes in Equity (Parenthetical)
9 Months Ended
Sep. 30, 2015
Statement of Stockholders' Equity [Abstract]
 
Cash dividends declared on Class A and Class B common stock, per share
$ 0.48 
Consolidated Statement of Cash Flows (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Operating Activities
 
 
Net income
$ 2,918 
$ 2,816 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Amortization of customer and merchant incentives
560 
513 
Depreciation and amortization
273 
237 
Share-based payments
1 
(43)
Deferred income taxes
18 
(80)
Other
33 
24 
Changes in operating assets and liabilities:
 
 
Accounts receivable
(27)
(96)
Income taxes receivable
(83)
(12)
Settlement due from customers
78 
86 
Prepaid expenses
(704)
(610)
Accrued litigation and legal settlements
(60)
(97)
Accounts payable
(31)
(39)
Settlement due to customers
(192)
(124)
Accrued expenses
1 
60 
Net change in other assets and liabilities
219 
47 
Net cash provided by operating activities
3,004 
2,682 
Investing Activities
 
 
Purchases of investment securities available-for-sale
(862)
(1,977)
Purchases of other short-term investments held-to-maturity
(868)
0 
Acquisition of businesses, net of cash acquired
(584)
(336)
Purchases of property, plant and equipment
(125)
(97)
Capitalized software
(124)
(75)
Proceeds from sales of investment securities available-for-sale
666 
1,444 
Proceeds from maturities of investment securities available-for-sale
476 
1,322 
(Increase) decrease in restricted cash for litigation settlement
(1)
184 
Proceeds from maturities of investment securities held-to-maturity
576 
0 
Other investing activities
(7)
(17)
Net cash (used in) provided by investing activities
(853)
448 
Financing Activities
 
 
Purchases of treasury stock
(2,725)
(3,231)
Proceeds from debt
0 
1,487 
Dividends paid
(548)
(388)
Tax benefit for share-based payments
40 
53 
Cash proceeds from exercise of stock options
25 
23 
Other financing activities
(8)
(39)
Net cash used in financing activities
(3,216)
(2,095)
Effect of exchange rate changes on cash and cash equivalents
(195)
(172)
Net (decrease) increase in cash and cash equivalents
(1,260)
863 
Cash and cash equivalents - beginning of period
5,137 
3,599 
Cash and cash equivalents - end of period
3,877 
4,462 
Non-Cash Investing and Financing Activities
 
 
Fair value of assets acquired, net of cash acquired
625 
574 
Fair value of liabilities assumed related to acquisitions
$ 41 
$ 134 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Organization
MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated (“MasterCard International” and together with MasterCard Incorporated, “MasterCard” or the “Company”), is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks. The Company facilitates the processing of payment transactions including authorization, clearing and settlement, and delivers related products and services. The Company makes payments easier and more efficient by creating a wide range of payment solutions and services through a family of well-known brands, including MasterCard®, Maestro® and Cirrus®. The Company also provides value-added offerings such as loyalty and reward programs, information services and consulting. The Company’s network is designed to ensure safety and security for the global payments system. A typical transaction on the Company’s network involves four participants in addition to the Company: cardholder, merchant, issuer (the cardholder’s financial institution) and acquirer (the merchant’s financial institution). The Company’s customers encompass a vast array of entities, including financial institutions and other entities that act as “issuers” and “acquirers”, as well as merchants, governments, telecommunication companies and other businesses. The Company does not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to cardholders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of the Company’s branded cards.
Consolidation and basis of presentation
The consolidated financial statements include the accounts of MasterCard and its majority-owned and controlled entities, including any variable interest entities (“VIEs”) for which the Company is the primary beneficiary. As of September 30, 2015 and December 31, 2014, there were no significant VIEs which required consolidation. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2015 presentation. In addition, for the three and nine months ended September 30, 2014, contra-revenue and general and administrative expenses were revised to correctly classify $13 million and $27 million, respectively, of customer incentive expenses as contra revenue instead of general and administrative expenses. This revision had no impact on net income. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2014 was derived from the audited consolidated financial statements as of December 31, 2014. The consolidated financial statements for the three and nine months ended September 30, 2015 and 2014 and as of September 30, 2015 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission requirements for Quarterly Reports on Form 10-Q and, consequently, do not include all of the disclosures required by GAAP. Reference should be made to the MasterCard Incorporated Annual Report on Form 10-K for the year ended December 31, 2014 for additional disclosures, including a summary of the Company’s significant accounting policies.
Non-controlling interest amounts are included in the consolidated statement of operations within other income (expense). For the three and nine months ended September 30, 2015 and 2014 activity from non-controlling interests was insignificant.
Recent accounting pronouncements
Fair Value Measurements - In May 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that removes the requirement to make disclosures for certain investments that are measured at net asset value per share (or its equivalent). This standard is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company will early adopt the accounting guidance in the fourth quarter of 2015 and does not anticipate any impact on its consolidated financial statements, however, benefit plan disclosures will be impacted.
Debt Issuance Costs - In April 2015, the FASB issued accounting guidance that will change the current presentation of debt issuance costs on the balance sheet. This new guidance will move debt issuance costs from the assets section of the balance sheet to the liabilities section as a direct deduction from the carrying amount of the debt issued. The Company will adopt the accounting guidance effective January 1, 2016 and does not anticipate that they will have a material impact on its consolidated financial statements.
Revenue Recognition - In May 2014, the FASB issued accounting guidance that provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under this guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued accounting guidance that delayed the effective date of this standard by one year, making the guidance effective for fiscal years beginning after December 15, 2017. Early application is permitted as of the original effective date, December 31, 2016. The Company is in the process of evaluating the potential effects of this guidance.
Acquisitions (Notes)
Acquisitions
Acquisitions
In the nine months ended September 30, 2015, the Company acquired two businesses for $609 million in cash. For these businesses acquired, the Company recorded $465 million as goodwill representing the preliminary estimates of the aggregate excess of the purchase consideration over the fair value of net assets acquired.
The Company acquired eight businesses in 2014, five of which were acquired in the nine months ended September 30, 2014. In 2014, two of the business combinations were achieved in stages, with non-controlling interests acquired in previous years. One of the business combinations was a transaction for less than 100 percent of the equity interest. The total consideration transferred was $575 million, primarily paid in cash, of which $389 million was related to the acquisitions in the nine months ended September 30, 2014. Through September 30, 2015, the Company recorded $507 million as goodwill for businesses acquired in 2014 representing the final and preliminary estimates of the aggregate excess of the purchase consideration over the fair value of net assets acquired. A portion of the goodwill is expected to be deductible for local tax purposes.
The consolidated financial statements include the operating results of the acquired businesses from the dates of their respective acquisition. Pro forma information related to acquisitions was not included because the impact on the Company’s consolidated results of operations was not considered to be material.
Earnings Per Share
Earnings Per Share
Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common stock were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income
$
977

 
$
1,015

 
$
2,918

 
$
2,816

Denominator:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
1,130

 
1,157

 
1,136

 
1,169

Dilutive stock options and stock units
3

 
3

 
3

 
3

Diluted weighted-average shares outstanding 1
1,133

 
1,160

 
1,139

 
1,172

Earnings per Share:
 
 
 
 
 
 
 
Basic
$
0.86

 
$
0.88

 
$
2.57

 
$
2.41

Diluted
$
0.86

 
$
0.87

 
$
2.56

 
$
2.40



1 For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Fair Value
Fair Value and Investment Securities
Fair Value and Investment Securities
Financial Instruments – Recurring Measurements
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”). Except for the reclassification of U.S. government securities from Level 2 to Level 1, there were no transfers made among the three levels in the Valuation Hierarchy during the three and nine months ended September 30, 2015.
The distribution of the Company’s financial instruments which are measured at fair value on a recurring basis within the Valuation Hierarchy was as follows:
 
September 30, 2015
 
Quoted Prices
in Active
Markets
(Level 1) 1
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities
$
—

 
$
56

 
$
—

 
$
56

U.S. government and agency securities 2
22

 
45

 
—

 
67

Corporate securities
—

 
648

 
—

 
648

Asset-backed securities
—

 
60

 
—

 
60

Other
3

 
71

 
—

 
74

Total
$
25

 
$
880

 
$
—

 
$
905

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Quoted Prices
in Active
Markets
(Level 1) 1
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities
$
—

 
$
135

 
$
—

 
$
135

U.S. government and agency securities 2
85

 
114

 
—

 
199

Corporate securities
—

 
618

 
—

 
618

Asset-backed securities
—

 
178

 
—

 
178

Other
13

 
56

 
—

 
69

Total
$
98

 
$
1,101

 
$
—

 
$
1,199


1 During 2015, U.S. government securities were reclassified from Level 2 to Level 1 due to a reassessment of the availability of quoted prices. Prior period amounts have been revised to conform to the 2015 presentation.
2 Excludes amounts held in escrow related to the U.S. merchant class litigation settlement of $541 million and $540 million at September 30, 2015 and December 31, 2014, which would be included in Level 1 of the Valuation Hierarchy. See Note 6 (Accrued Expenses and Accrued Litigation) and Note 11 (Legal and Regulatory Proceedings) for further details.
The fair value of the Company’s available-for-sale municipal securities, U.S. government agency securities, corporate securities, asset-backed securities and other fixed income securities included in the Other category are based on quoted prices for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy. The Company’s foreign currency derivative contracts have also been classified within Level 2 in the Other category of the Valuation Hierarchy, as the fair value is based on broker quotes for the same or similar derivative instruments. See Note 13 (Foreign Exchange Risk Management) for further details. The Company’s U.S. government securities and marketable equity securities are classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices for identical assets in active markets.
Financial Instruments - Non-Recurring Measurements
Certain financial instruments are carried on the consolidated balance sheet at cost, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, restricted cash, time deposits, accounts receivable, settlement due from customers, restricted security deposits held for customers, prepaid expenses, accounts payable, settlement due to customers and accrued expenses. In addition, nonmarketable equity investments are measured at fair value on a nonrecurring basis for purposes of initial recognition and impairment testing.
Investments on the Consolidated Balance Sheet include both available-for-sale and held-to-maturity securities. Available-for-sale securities are measured at fair value on a recurring basis and are included in the Valuation Hierarchy table above. Held-to-maturity securities are made up of time deposits with maturities of greater than three months and less than one year and are classified as Level 2 of the Valuation Hierarchy, but are not included in the table above due to their non-recurring nature. At September 30, 2015 and December 31, 2014, the cost, which approximates fair value, of the Company’s held-to-maturity securities was $364 million and $70 million, respectively.
Debt
The Company estimates the fair value of its long-term debt using the market pricing approach which applies market assumptions for relevant though not directly comparable undertakings. Long-term debt is classified as Level 2 of the Valuation Hierarchy. At September 30, 2015 and December 31, 2014, the carrying value and fair value of long-term debt was $1.5 billion.
Settlement and Other Guarantee Liabilities
The Company estimates the fair value of its settlement and other guarantees using the market pricing approach which applies market assumptions for relevant though not directly comparable undertakings, as the latter are not observable in the market given the proprietary nature of such guarantees. At September 30, 2015 and December 31, 2014, the carrying value and fair value of settlement and other guarantee liabilities were not material. Settlement and other guarantee liabilities are classified as Level 3 of the Valuation Hierarchy as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market. For additional information regarding the Company’s settlement and other guarantee liabilities, see Note 12 (Settlement and Other Risk Management).
Non-Financial Instruments
Certain assets are measured at fair value on a nonrecurring basis for purposes of initial recognition and impairment testing. The Company’s non-financial assets measured at fair value on a nonrecurring basis include property, plant and equipment, goodwill and other intangible assets. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment.
Amortized Costs and Fair Values – Available-for-Sale Investment Securities
The major classes of the Company’s available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income on the consolidated statement of comprehensive income, and their respective amortized cost basis and fair values as of September 30, 2015 and December 31, 2014 were as follows:
 
 
September 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
(in millions)
Municipal securities
$
56

 
$
—

 
$
—

 
$
56

U.S. government and agency securities
67

 
—

 
—

 
67

Corporate securities
650

 
—

 
(2
)
 
648

Asset-backed securities
60

 
—

 
—

 
60

Other
50

 
2

 
(15
)
 
37

Total
$
883

 
$
2

 
$
(17
)
 
$
868

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
(in millions)
Municipal securities
$
135

 
$
—

 
$
—

 
$
135

U.S. government and agency securities
199

 
—

 
—

 
199

Corporate securities
619

 
—

 
(1
)
 
618

Asset-backed securities
178

 
—

 
—

 
178

Other
41

 
1

 
(4
)
 
38

Total
$
1,172

 
$
1

 
$
(5
)
 
$
1,168


The municipal securities are primarily comprised of tax-exempt bonds and are diversified across states and sectors. The U.S. government and agency securities are primarily invested in U.S. government bonds and U.S. government sponsored agency bonds. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables.
Investment Maturities
The maturity distribution based on the contractual terms of the Company’s investment securities at September 30, 2015 was as follows:
 
Available-For-Sale
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due within 1 year
$
264

 
$
264

Due after 1 year through 5 years
596

 
594

Due after 5 years through 10 years
—

 
—

Due after 10 years
7

 
7

No contractual maturity 1
16

 
3

Total
$
883

 
$
868


1 Equity securities have been included in the No contractual maturity category, as these securities do not have stated maturity dates.
Gross realized gains and losses
Gross realized gains and losses are recorded within investment income on the Company’s consolidated statement of operations. The gross realized gains and losses from the sales of available-for-sale securities for the nine months ended September 30, 2015 and 2014 were not significant.
Prepaid Expenses and Other Assets
Prepaid Expenses and Other Assets
Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
347

 
$
260

Prepaid income taxes
273

 
237

Other
223

 
174

Total prepaid expenses and other current assets
$
843

 
$
671


Other assets consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
746

 
$
556

Nonmarketable equity investments
234

 
245

Prepaid income taxes
368

 
407

Income taxes receivable
174

 
89

Other
97

 
88

Total other assets
$
1,619

 
$
1,385


Customer and merchant incentives represent payments made or amounts to be paid to customers and merchants under business agreements. Costs directly related to entering into such an agreement are generally deferred and amortized over the life of the agreement. Amounts to be paid for these incentives and the related liability were included in accrued expenses and other liabilities.
Non-current prepaid income taxes, included in the other asset table above, primarily consists of taxes paid in the fourth quarter of 2014 relating to the deferred charge resulting from the reorganization of our legal entity and tax structure to better align with our business footprint of our non-U.S. operations.
Accrued Expenses
Accrued Expenses and Accrued Litigation
Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
1,695

 
$
1,433

Personnel costs
377

 
531

Advertising
69

 
154

Income and other taxes
158

 
105

Other
213

 
216

Total accrued expenses
$
2,512

 
$
2,439


In the fourth quarter of 2014, a severance charge of $87 million was recorded in general and administrative expenses. The Company restructured its organization to align with its strategic priorities and to best meet the Company’s continued growth. The Company is substantially complete with these restructuring activities. As of September 30, 2015 and December 31, 2014, personnel costs included an accrual of $36 million and $84 million, respectively, related to this severance charge. The decrease in the balance was primarily due to payments and lower than expected severance actions.
As of September 30, 2015 and December 31, 2014, the Company’s provision related to U.S. merchant litigations was $711 million and $771 million, respectively. These amounts are not included in the accrued expenses table above and are separately reported as accrued litigation on the consolidated balance sheet. As of September 30, 2015, MasterCard executed settlement agreements with a number of opt-out merchants and no adjustment to the amount previously recorded was deemed necessary. See Note 11 (Legal and Regulatory Proceedings) for further discussion of the U.S. merchant class litigation.
Stockholders' Equity
Stockholders' Equity
Stockholders’ Equity
In February 2013, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $2 billion of its Class A common stock (the “February 2013 Share Repurchase Program”).  The program became effective in March 2013 at the completion of the Company’s previously announced $1.5 billion Class A share repurchase program.
In December 2013, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $3.5 billion of its Class A common stock (the “December 2013 Share Repurchase Program”). This program became effective in January 2014 at the completion of the Company’s February 2013 Share Repurchase Program.
In December 2014, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $3.75 billion of its Class A common stock (the “December 2014 Share Repurchase Program”). This program became effective in January 2015 at the completion of the Company’s December 2013 Share Repurchase Program.
The following table summarizes the Company’s share repurchase authorizations of its Class A common stock through September 30, 2015, as well as historical purchases:
 
Authorization Dates
 
December 2014
 
December
2013
 
February
2013
 
Total
 
(in millions, except average price data)
Board authorization
$
3,750

 
$
3,500

 
$
2,000

 
$
9,250

Dollar value of shares repurchased during the nine months ended September 30, 2014
$
—

 
$
3,070

 
$
161

 
$
3,231

Remaining authorization at December 31, 2014
$
3,750

 
$
275

 
$
—

 
$
4,025

Dollar value of shares repurchased during the nine months ended September 30, 2015
$
2,450

 
$
275

 
$
—

 
$
2,725

Remaining authorization at September 30, 2015
$
1,300

 
$
—

 
$
—

 
$
1,300

Shares repurchased during the nine months ended September 30, 2014
—

 
40.5

 
1.9

 
42.4

Average price paid per share during the nine months ended September 30, 2014
$
—

 
$
75.96

 
$
83.22

 
$
76.30

Shares repurchased during the nine months ended September 30, 2015
27.0

 
3.2

 
—

 
30.2

Average price paid per share during the nine months ended September 30, 2015
$
90.87

 
$
84.31

 
$
—

 
$
90.16

Cumulative shares repurchased through September 30, 2015
27.0

 
45.8

 
31.1

 
103.9

Cumulative average price paid per share
$
90.87

 
$
76.42

 
$
64.26

 
$
76.53

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2015 and 2014 were as follows:
 
Foreign Currency Translation Adjustments
 
Defined Benefit Pension and Other Postretirement Plans
 
Investment Securities Available-for-Sale
 
Accumulated Other Comprehensive Income (Loss)
 
(in millions)
Balance at December 31, 2013
$
206

 
$
(29
)
 
$
1

 
$
178

Current period other comprehensive income (loss) 1,2
(262
)
 
2

 
(10
)
 
(270
)
Balance at September 30, 2014
$
(56
)
 
$
(27
)
 
$
(9
)

$
(92
)
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(230
)
 
$
(26
)
 
$
(4
)
 
$
(260
)
Current period other comprehensive income (loss) 1,2,3
(300
)
 
34

 
(10
)
 
(276
)
Balance at September 30, 2015
$
(530
)
 
$
8

 
$
(14
)
 
$
(536
)
 
 
 
 
 
 
 
 

1 During the nine months ended September 30, 2014, insignificant deferred costs related to the Company’s defined benefit pension and other post retirement plans were reclassified to general and administrative expenses. For the nine months ended September 30, 2015 and 2014 insignificant gains and losses on available-for-sale investment securities were reclassified from accumulated other comprehensive income (loss) to investment income.
2 During the nine months ended September 30, 2015 and 2014, the increase in other comprehensive loss related to foreign currency translation adjustments was driven primarily by the devaluation of the euro.
3 During the nine months ended September 30, 2015, $41 million of deferred costs ($26 million after-tax) related to the Company’s defined benefit pension plan and other post retirement plans were reclassified to general and administrative expenses. These deferred costs are primarily due to the termination of the Company's U.S. defined benefit plan (See Note 14, Qualified U.S. Pension Plan).
Share-Based Payments
Share-Based Payments
Share-Based Payments
During the nine months ended September 30, 2015, the Company granted the following awards under the MasterCard Incorporated 2006 Long Term Incentive Plan, as amended and restated (“LTIP”). The LTIP is a shareholder-approved plan that permits the grant of various types of equity awards to employees.
 
Granted in 2015
 
Weighted-Average
Grant-Date
Fair Value
 
(in thousands)
 
 
Non-qualified stock options
1,618
 
$17
Restricted stock units
1,218
 
$88
Performance stock units
130
 
$99

Stock options generally vest in four equal annual installments beginning one year after the date of grant, and have a term of ten years. The Company used the Black-Scholes option pricing model to estimate the grant date fair value of stock options and calculated the expected term and the expected volatility based on historical MasterCard information. As a result, the expected term of stock options granted in the first quarter 2015 was five years, while the expected volatility was determined to be 20.6%.
Vesting of the shares underlying the restricted stock units and performance stock units will generally occur three years after the date of grant. The fair value of restricted stock units is determined and fixed on the grant date based on the Company’s Class A common stock price, adjusted for the exclusion of dividend equivalents. The Monte Carlo simulation valuation model was used to determine the grant date fair value of performance stock units granted.
Compensation expense is recorded net of estimated forfeitures over the shorter of the vesting period or the date the individual becomes eligible to retire under the LTIP. The Company uses the straight-line method of attribution over the requisite service period for expensing equity awards.
Income Taxes
Income Taxes
Income Taxes
The effective income tax rates were 27.7% and 28.5% for the three months ended September 30, 2015 and 2014, respectively. The effective income tax rates were 25.8% and 30.9% for the nine months ended September 30, 2015 and 2014, respectively. For the three months ended September 30, 2015, the effective tax rate was lower than the comparable period in 2014, due to a larger repatriation benefit and a more favorable mix of taxable earnings, offset by a reduction in discrete benefits. For the nine months ended September 30, 2015, the effective tax rate was lower than the comparable period in 2014, due to a larger repatriation benefit, an increase in discrete benefits, primarily relating to certain foreign taxes becoming eligible to be claimed as credits in the United States, and a more favorable mix of taxable earnings.
During the fourth quarter of 2014, in connection with an initiative to better align its legal entity and tax structure with its operational footprint outside the U.S., the Company recorded a deferred charge related to the income tax expense on intercompany profits. The deferred charge resulted from the transfer of intellectual property from Belgium to a related foreign entity in the United Kingdom. Management believes this improved alignment will result in greater flexibility and efficiency with regard to the global deployment of cash, as well as ongoing benefits in the Company’s effective tax rate. The tax associated with the transfer is deferred and amortized utilizing a 25-year life. This deferred charge is included in other current assets and other assets on the Company’s consolidated balance sheet at September 30, 2015 in the amounts of $16 million and $368 million, respectively. The comparable amounts included in other current assets and other assets were $18 million and $407 million, respectively, at December 31, 2014, with the difference driven by changes in foreign exchange rates and current period amortization.
The Company conducts operations in multiple countries and, as a result, is subjected to tax examinations in various jurisdictions, including the United States.  Uncertain tax positions are reviewed on an ongoing basis and are adjusted after considering facts and circumstances, including progress of tax audits, developments in case law and closing of statutes of limitations.  The Company has effectively settled its U.S. federal income tax obligations through 2008. With limited exception, the Company is no longer subject to state and local or foreign examinations by taxing authorities for years before 2006.  Within the next three to six months, the Company believes that the favorable resolution of certain federal, foreign and state and local tax examinations is reasonably possible and that a reduction in unrecognized tax benefits may occur. While such a change may be significant, it is not possible to provide a range of the potential change until the examinations progress further.
Legal and Regulatory Proceedings
Legal and Regulatory Proceedings
Legal and Regulatory Proceedings
MasterCard is a party to legal and regulatory proceedings with respect to a variety of matters in the ordinary course of business.  Some of these proceedings are based on complex claims involving substantial uncertainties and unascertainable damages.  Accordingly, except as discussed below, it is not possible to determine the probability of loss or estimate damages, and therefore, MasterCard has not established reserves for any of these proceedings.  When the Company determines that a loss is both probable and estimable, MasterCard records a liability and discloses the amount of the liability if it is material. When a material loss contingency is only reasonably possible, MasterCard does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Unless otherwise stated below with respect to these matters, MasterCard cannot provide an estimate of the possible loss or range of loss based on one or more of the following reasons: (1) actual or potential plaintiffs have not claimed an amount of monetary damages or the amounts are unsupportable or exaggerated, (2) the matters are in early stages, (3) there is uncertainty as to the outcome of pending appeals or motions, (4) there are significant factual issues to be resolved, (5) the existence in many such proceedings of multiple defendants or potential defendants whose share of any potential financial responsibility has yet to be determined, and/or (6) there are novel legal issues presented. Furthermore, except as identified with respect to the matters below, MasterCard does not believe that the outcome of any individual existing legal or regulatory proceeding to which it is a party will have a material adverse effect on its results of operations, financial condition or overall business.  However, an adverse judgment or other outcome or settlement with respect to any proceedings discussed below could result in fines or payments by MasterCard and/or could require MasterCard to change its business practices. In addition, an adverse outcome in a regulatory proceeding could lead to the filing of civil damage claims and possibly result in significant damage awards. Any of these events could have a material adverse effect on MasterCard’s results of operations, financial condition and overall business.
Interchange Litigation and Regulatory Proceedings
MasterCard’s interchange fees and other practices are subject to regulatory and/or legal review and/or challenges in a number of jurisdictions, including the proceedings described below. When taken as a whole, the resulting decisions, regulations and legislation with respect to interchange fees and acceptance practices may have a material adverse effect on the Company’s prospects for future growth and its overall results of operations, financial position and cash flows.
United States. In June 2005, the first of a series of complaints were filed on behalf of merchants (the majority of the complaints were styled as class actions, although a few complaints were filed on behalf of individual merchant plaintiffs) against MasterCard International, Visa U.S.A., Inc., Visa International Service Association and a number of financial institutions. Taken together, the claims in the complaints were generally brought under both Sections 1 and 2 of the Sherman Act, which prohibit monopolization and attempts or conspiracies to monopolize a particular industry, and some of these complaints contain unfair competition law claims under state law. The complaints allege, among other things, that MasterCard, Visa, and certain financial institutions conspired to set the price of interchange fees, enacted point of sale acceptance rules (including the no surcharge rule) in violation of antitrust laws and engaged in unlawful tying and bundling of certain products and services. The cases were consolidated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York in MDL No. 1720. The plaintiffs filed a consolidated class action complaint that seeks treble damages.
In July 2006, the group of purported merchant class plaintiffs filed a supplemental complaint alleging that MasterCard’s initial public offering of its Class A Common Stock in May 2006 (the “IPO”) and certain purported agreements entered into between MasterCard and financial institutions in connection with the IPO: (1) violate U.S. antitrust laws and (2) constituted a fraudulent conveyance because the financial institutions allegedly attempted to release, without adequate consideration, MasterCard’s right to assess them for MasterCard’s litigation liabilities. The class plaintiffs sought treble damages and injunctive relief including, but not limited to, an order reversing and unwinding the IPO.
In February 2011, MasterCard and MasterCard International entered into each of: (1) an omnibus judgment sharing and settlement sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa International Service Association and a number of financial institutions; and (2) a MasterCard settlement and judgment sharing agreement with a number of financial institutions.  The agreements provide for the apportionment of certain costs and liabilities which MasterCard, the Visa parties and the financial institutions may incur, jointly and/or severally, in the event of an adverse judgment or settlement of one or all of the cases in the merchant litigations.  Among a number of scenarios addressed by the agreements, in the event of a global settlement involving the Visa parties, the financial institutions and MasterCard, MasterCard would pay 12% of the monetary portion of the settlement. In the event of a settlement involving only MasterCard and the financial institutions with respect to their issuance of MasterCard cards, MasterCard would pay 36% of the monetary portion of such settlement. 
In October 2012, the parties entered into a definitive settlement agreement with respect to the merchant class litigation (including with respect to the claims related to the IPO) and the defendants separately entered into a settlement agreement with the individual merchant plaintiffs. The settlements included cash payments that were apportioned among the defendants pursuant to the omnibus judgment sharing and settlement sharing agreement described above. MasterCard also agreed to provide class members with a short-term reduction in default credit interchange rates and to modify certain of its business practices, including its No Surcharge Rule. Objections to the settlement were filed by both merchants and certain competitors, including Discover. Discover’s objections include a challenge to the settlement on the grounds that certain of the rule changes agreed to in the settlement constitute a restraint of trade in violation of Section 1 of the Sherman Act. The court granted final approval of the settlement in December 2013. Objectors to the settlement appealed the decision, and an oral argument was heard on the appeal in September 2015. Separately, the objectors filed a motion in July 2015 to set aside the approval order, contending that the merchant class was inadequately represented and the settlement was insufficient because a counsel for several individual merchant plaintiffs improperly exchanged communications with a defense counsel who at the time was representing MasterCard.
Merchants representing slightly more than 25% of the MasterCard and Visa purchase volume over the relevant period chose to opt out of the class settlement. MasterCard anticipates that most of the larger merchants who opted out of the settlement will initiate separate actions seeking to recover damages, and over 30 opt-out complaints have been filed on behalf of numerous merchants in various jurisdictions. The defendants have consolidated all of these matters (except for one state court action in New Mexico) in front of the same federal district court that is overseeing the approval of the settlement. In July 2014, the district court denied the defendants’ motion to dismiss the opt-out merchant complaints for failure to state a claim.
MasterCard recorded a pre-tax charge of $770 million in the fourth quarter of 2011 and an additional $20 million pre-tax charge in the second quarter of 2012 relating to the settlement agreements described above. In 2012, MasterCard paid $790 million with respect to the settlements, of which $726 million was paid into a qualified cash settlement fund related to the merchant class litigation. As of September 30, 2015 and December 31, 2014, MasterCard had $541 million and $540 million, in the qualified cash settlement fund classified as restricted cash on its balance sheet. The class settlement agreement provided for a return to the defendants of a portion of the class cash settlement fund, based upon the percentage of purchase volume represented by the opt-out merchants. This resulted in $164 million from the cash settlement fund being returned to MasterCard in January 2014 and reclassified at that time from restricted cash to cash and cash equivalents. In the fourth quarter of 2013, MasterCard recorded an incremental net pre-tax charge of $95 million related to the opt-out merchants, representing a change in its estimate of probable losses relating to these matters.  MasterCard has executed settlement agreements with a number of opt-out merchants and no adjustment to the amount previously recorded was deemed necessary. As of September 30, 2015, MasterCard had accrued a liability of $711 million as a reserve for both the merchant class litigation and the filed and anticipated opt-out merchant cases.
The portion of the accrued liability relating to the opt-out merchants does not represent an estimate of a loss, if any, if the opt-out merchant matters were litigated to a final outcome, in which case MasterCard cannot estimate the potential liability. MasterCard’s estimate involves significant judgment and may change depending on progress in settlement negotiations or depending upon decisions in any opt-out merchant cases. In addition, in the event that the merchant class litigation settlement approval is overturned, a negative outcome in the litigation could have a material adverse effect on MasterCard’s results of operations, financial position and cash flows.
Canada. In December 2010, a proposed class action complaint was commenced against MasterCard in Quebec on behalf of Canadian merchants. That suit essentially repeated the allegations and arguments of a previously filed application by the Canadian Competition Bureau to the Canadian Competition Tribunal (dismissed in MasterCard’s favor) related to certain MasterCard rules related to point-of-sale acceptance, including the “honor all cards” and “no surcharge” rules. The suit sought compensatory and punitive damages in unspecified amounts, as well as injunctive relief. In the first half of 2011, additional purported class action lawsuits containing similar allegations to the Quebec class action were commenced in British Columbia and Ontario against MasterCard, Visa and a number of large Canadian financial institutions. The British Columbia suit seeks compensatory damages in unspecified amounts, and the Ontario suit seeks compensatory damages of $5 billion. The British Columbia and Ontario suits also seek punitive damages in unspecified amounts, as well as injunctive relief, interest and legal costs. The Quebec suit was later amended to include the same defendants and similar claims as in the British Columbia and Ontario suits. With respect to the status of the proceedings: (1) the Quebec suit has been stayed, (2) the Ontario suit is being temporarily suspended while the British Columbia suit proceeds, and (3) the British Columbia appellate court issued an order in August 2015 allowing several of the merchants’ claims to proceed on a class basis. Additional proposed class action complaints have been filed in Saskatchewan and Alberta with claims that largely mirror those in the British Columbia and Ontario suits. If the class action lawsuits are ultimately successful, negative decisions could have a significant adverse impact on the revenue of MasterCard’s Canadian customers and on MasterCard’s overall business in Canada and could result in substantial damage awards.
Europe. In July 2015, the European Commission issued a Statement of Objections related to MasterCard’s interregional interchange fees and central acquiring rules within the European Economic Area. The Statement of Objections, which follows an investigation opened in 2013, includes preliminary conclusions concerning the anticompetitive effects of these practices. The European Commission has indicated it intends to seek fines if these conclusions are subsequently confirmed. Although the Statement of Objections does not quantify the level of fines, it is possible that they could be substantial. MasterCard would not expect fines to be imposed if it agrees with the Commission to business practice changes that address the Commission’s concerns.
In the United Kingdom, beginning in May 2012, a number of retailers filed claims against MasterCard seeking damages for alleged anti-competitive conduct with respect to MasterCard’s cross-border interchange fees and its U.K. and Ireland domestic interchange fees. More than 20 different retailers have filed claims or notice of claims.  An additional 13 potential claimant retailers have agreed to delay filing their claims in exchange for MasterCard agreeing to suspend the running of the time limitations on their damages claims.  Although the claimants have not quantified the full extent of their compensatory and punitive damages, their purported damages exceed $2 billion.  In June 2015, MasterCard entered into a settlement with one of these merchants for $61 million, recorded as a provision for litigation settlement. MasterCard has submitted statements of defense to the remaining retailers’ claims disputing liability and damages. A court in one of the actions has scheduled a trial for January 2016. In Belgium, a retailer filed claims in December 2012 for unspecified damages with respect to MasterCard’s cross-border and domestic interchange fees paid in Belgium, Greece and Luxembourg.  
ATM Non-Discrimination Rule Surcharge Complaints
In October 2011, a trade association of independent Automated Teller Machine (“ATM”) operators and 13 independent ATM operators filed a complaint styled as a class action lawsuit in the U.S. District Court for the District of Columbia against both MasterCard and Visa (the “ATM Operators Complaint”).  Plaintiffs seek to represent a class of non-bank operators of ATM terminals that operate ATM terminals in the United States with the discretion to determine the price of the ATM access fee for the terminals they operate. Plaintiffs allege that MasterCard and Visa have violated Section 1 of the Sherman Act by imposing rules that require ATM operators to charge non-discriminatory ATM surcharges for transactions processed over MasterCard’s and Visa’s respective networks that are not greater than the surcharge for transactions over other networks accepted at the same ATM.  Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.  Plaintiffs have not quantified their damages although they allege that they expect damages to be in the tens of millions of dollars. 
Subsequently, multiple related complaints were filed in the U.S. District Court for the District of Columbia alleging both federal antitrust and multiple state unfair competition, consumer protection and common law claims against MasterCard and Visa on behalf of putative classes of users of ATM services (the “ATM Consumer Complaints”).  The claims in these actions largely mirror the allegations made in the ATM Operators Complaint, although these complaints seek damages on behalf of consumers of ATM services who pay allegedly inflated ATM fees at both bank and non-bank ATM operators as a result of the defendants’ ATM rules.  Plaintiffs seek both injunctive and monetary relief equal to treble the damages they claim to have sustained as a result of the alleged violations and their costs of suit, including attorneys’ fees.  Plaintiffs have not quantified their damages although they allege that they expect damages to be in the tens of millions of dollars. 
In January 2012, the plaintiffs in the ATM Operators Complaint and the ATM Consumer Complaints filed amended class action complaints that largely mirror their prior complaints. In February 2013, the district court granted MasterCard’s motion to dismiss the complaints for failure to state a claim. On appeal, the Court of Appeals reversed the district court’s order in August 2015 and sent the case back for further proceedings.
Settlement and Other Risk Management
Settlement and Other Risk Management
Settlement and Other Risk Management
MasterCard’s rules guarantee the settlement of many of the MasterCard, Cirrus and Maestro branded transactions between its issuers and acquirers (“settlement risk”). Settlement exposure is the outstanding settlement risk to customers under MasterCard’s rules due to the difference in timing between the payment transaction date and subsequent settlement. While the term and amount of the guarantee are unlimited, the duration of settlement exposure is short term and typically limited to a few days. Gross settlement exposure is estimated using the average daily card volume during the quarter multiplied by the estimated number of days to settle. The Company has global risk management policies and procedures, which include risk standards, to provide a framework for managing the Company’s settlement risk. Customer-reported transaction data and the transaction clearing data underlying the settlement exposure calculation may be revised in subsequent reporting periods.
In the event that MasterCard effects a payment on behalf of a failed customer, MasterCard may seek an assignment of the underlying receivables of the failed customer. Customers may be charged for the amount of any settlement loss incurred during these ordinary course activities of the Company.
The Company’s global risk management policies and procedures are aimed at managing the settlement exposure. These risk management procedures include interaction with the bank regulators of countries in which it operates, requiring customers to make adjustments to settlement processes, and requiring collateral from customers. MasterCard requires certain customers that are not in compliance with the Company’s risk standards in effect at the time of review to post collateral, typically in the form of cash, letters of credit, or guarantees. This requirement is based on management’s review of the individual risk circumstances for each customer that is out of compliance. In addition to these amounts, MasterCard holds collateral to cover variability and future growth in customer programs. The Company may also hold collateral to pay merchants in the event of an acquirer failure. Although the Company is not contractually obligated under its 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 exposure are revised as necessary.
The Company’s estimated settlement exposure from MasterCard, Cirrus and Maestro branded transactions was as follows:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Gross settlement exposure
$
38,992

 
$
41,729

Collateral held for settlement exposure
(3,531
)
 
(3,415
)
Net uncollateralized settlement exposure
$
35,461

 
$
38,314


General economic and political conditions in countries in which MasterCard operates affect the Company’s settlement risk. Many of the Company’s financial institution customers have been directly and adversely impacted by political instability and uncertain economic conditions. These conditions present increased risk that the Company may have to perform under its settlement guarantee. This risk could increase if political, economic and financial market conditions deteriorate further. The Company’s global risk management policies and procedures are revised and enhanced from time to time. Historically, the Company has experienced a low level of losses from financial institution failures.
MasterCard also provides guarantees to customers and certain other counterparties indemnifying them from losses stemming from failures of third parties to perform duties. This includes guarantees of MasterCard-branded travelers cheques issued, but not yet cashed of $426 million and $465 million at September 30, 2015 and December 31, 2014, respectively, of which $336 million and $370 million at September 30, 2015 and December 31, 2014, respectively, is mitigated by collateral arrangements. In addition, the Company enters into business agreements in the ordinary course of business under which the Company agrees to indemnify third parties against damages, losses and expenses incurred in connection with legal and other proceedings arising from relationships or transactions with the Company. Certain indemnifications do not provide a stated maximum exposure. As the extent of the Company’s obligations under these agreements depends entirely upon the occurrence of future events, the Company’s potential future liability under these agreements is not determinable. Historically, payments made by the Company under these types of contractual arrangements have not been material.
Foreign Exchange Risk Management
Foreign Exchange Risk Management
Foreign Exchange Risk Management
The Company enters into foreign currency derivative 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 currency. The Company may also enter into foreign currency derivative contracts to offset possible changes in value due to foreign exchange fluctuations of earnings, assets and liabilities denominated in currencies other than its functional currency. The objective of these activities is to reduce the Company’s exposure to gains and losses resulting from fluctuations of foreign currencies against its functional currencies.
The Company does not designate foreign currency derivatives as hedging instruments pursuant to the accounting guidance for derivative instruments and hedging activities. The Company records the change in the estimated fair value of the outstanding derivatives at the end of the reporting period on its consolidated balance sheet and consolidated statement of operations.
As of September 30, 2015, the majority of derivative contracts to hedge foreign currency fluctuations had been entered into with customers of MasterCard. MasterCard’s derivative contracts are summarized below:
 
September 30, 2015
 
December 31, 2014
 
Notional
 
Estimated Fair
Value
 
Notional
 
Estimated Fair
Value
 
(in millions)
Commitments to purchase foreign currency
$
105

 
$
—

 
$
47

 
$
4

Commitments to sell foreign currency
702

 
36

 
614

 
27

Options to sell foreign currency
65

 
1

 
—

 
—

Balance sheet location:
 
 
 
 
 
 
 
Accounts receivable 1
 
 
$
41

 
 
 
$
35

Other current liabilities 1
 
 
(4
)
 
 
 
(4
)

1 The fair values of derivative contracts are presented on a gross basis on the balance sheet and are subject to enforceable master netting arrangements, which contain various netting and setoff provisions.
The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency is summarized below: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Foreign currency derivative contracts
 
 
 
 
 
 
 
General and administrative
$
35

 
$
(53
)
 
$
57

 
$
(79
)

The fair value of the foreign currency derivative contracts generally reflects the estimated amounts that the Company would receive (or pay), on a pre-tax basis, to terminate the contracts at the reporting date based on broker quotes for the same or similar instruments. The terms of the foreign currency derivative contracts are generally less than 18 months. The Company had no deferred gains or losses related to foreign exchange contracts in accumulated other comprehensive income as of September 30, 2015 and December 31, 2014, as there were no derivative contracts accounted for under hedge accounting.
The Company’s derivative financial instruments are subject to both market and counterparty credit risk. Market risk is the risk of loss due to the potential change in an instrument’s value caused by fluctuations in interest rates and other variables related to currency exchange rates. The effect of a hypothetical 10% adverse change in foreign currency rates could result in a fair value loss of approximately $81 million on the Company’s foreign currency derivative contracts outstanding at September 30, 2015 related to the hedging program. Counterparty credit risk is the risk of loss due to failure of the counterparty to perform its obligations in accordance with contractual terms. To mitigate counterparty credit risk, the Company enters into derivative contracts with selected financial institutions based upon their credit ratings and other factors. Generally, the Company does not obtain collateral related to derivatives because of the high credit ratings of the counterparties.
Qualified U.S. Pension Plan (Notes)
Qualified U.S. Pension Plan
Qualified U.S. Pension Plan
During the three months ended September 30, 2015, the Company terminated its qualified U.S. defined benefit pension plan (the “Qualified Plan”). The Qualified Plan participants had the option to receive a lump sum distribution or to participate in an annuity with a third-party insurance company. As a result of this termination, the Company settled its obligation for $287 million, which resulted in a pension settlement charge of $79 million recorded in general and administrative expense during the three and nine months ended September 30, 2015.
Subsequent Event (Notes)
Subsequent Events
Subsequent Event
On October 21, 2015, the Company entered into a committed unsecured $3.75 billion revolving credit facility (the “Credit Facility”), which expires on October 21, 2020. The Credit Facility amended and restated the Company’s prior credit facility. Borrowings under the Credit Facility are available in U.S. dollars and/or euros to provide liquidity for general corporate purposes. MasterCard had no borrowings under the Credit Facility at October 29, 2015 or the prior credit facility at September 30, 2015.
Summary of Significant Accounting Policies (Policy)
Organization 
Organization
MasterCard Incorporated and its consolidated subsidiaries, including MasterCard International Incorporated (“MasterCard International” and together with MasterCard Incorporated, “MasterCard” or the “Company”), is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments and businesses worldwide, enabling them to use electronic forms of payment instead of cash and checks. The Company facilitates the processing of payment transactions including authorization, clearing and settlement, and delivers related products and services. The Company makes payments easier and more efficient by creating a wide range of payment solutions and services through a family of well-known brands, including MasterCard®, Maestro® and Cirrus®. The Company also provides value-added offerings such as loyalty and reward programs, information services and consulting. The Company’s network is designed to ensure safety and security for the global payments system. A typical transaction on the Company’s network involves four participants in addition to the Company: cardholder, merchant, issuer (the cardholder’s financial institution) and acquirer (the merchant’s financial institution). The Company’s customers encompass a vast array of entities, including financial institutions and other entities that act as “issuers” and “acquirers”, as well as merchants, governments, telecommunication companies and other businesses. The Company does not issue cards, extend credit, determine or receive revenue from interest rates or other fees charged to cardholders by issuers, or establish the rates charged by acquirers in connection with merchants’ acceptance of the Company’s branded cards.
Consolidation and basis of presentation 
Consolidation and basis of presentation
The consolidated financial statements include the accounts of MasterCard and its majority-owned and controlled entities, including any variable interest entities (“VIEs”) for which the Company is the primary beneficiary. As of September 30, 2015 and December 31, 2014, there were no significant VIEs which required consolidation. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2015 presentation. In addition, for the three and nine months ended September 30, 2014, contra-revenue and general and administrative expenses were revised to correctly classify $13 million and $27 million, respectively, of customer incentive expenses as contra revenue instead of general and administrative expenses. This revision had no impact on net income. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2014 was derived from the audited consolidated financial statements as of December 31, 2014. The consolidated financial statements for the three and nine months ended September 30, 2015 and 2014 and as of September 30, 2015 are unaudited, and in the opinion of management, include all normal recurring adjustments that are necessary to present fairly the results for interim periods. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements are presented in accordance with the U.S. Securities and Exchange Commission requirements for Quarterly Reports on Form 10-Q and, consequently, do not include all of the disclosures required by GAAP. Reference should be made to the MasterCard Incorporated Annual Report on Form 10-K for the year ended December 31, 2014 for additional disclosures, including a summary of the Company’s significant accounting policies.
Non-controlling interest amounts are included in the consolidated statement of operations within other income (expense). For the three and nine months ended September 30, 2015 and 2014 activity from non-controlling interests was insignificant.
Recent Accounting Pronouncements 
Recent accounting pronouncements
Fair Value Measurements - In May 2015, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that removes the requirement to make disclosures for certain investments that are measured at net asset value per share (or its equivalent). This standard is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company will early adopt the accounting guidance in the fourth quarter of 2015 and does not anticipate any impact on its consolidated financial statements, however, benefit plan disclosures will be impacted.
Debt Issuance Costs - In April 2015, the FASB issued accounting guidance that will change the current presentation of debt issuance costs on the balance sheet. This new guidance will move debt issuance costs from the assets section of the balance sheet to the liabilities section as a direct deduction from the carrying amount of the debt issued. The Company will adopt the accounting guidance effective January 1, 2016 and does not anticipate that they will have a material impact on its consolidated financial statements.
Revenue Recognition - In May 2014, the FASB issued accounting guidance that provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. Under this guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued accounting guidance that delayed the effective date of this standard by one year, making the guidance effective for fiscal years beginning after December 15, 2017. Early application is permitted as of the original effective date, December 31, 2016. The Company is in the process of evaluating the potential effects of this guidance.
Earnings Per Share (Tables)
Schedule of Basic and Diluted Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common stock were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions, except per share data)
Numerator:
 
 
 
 
 
 
 
Net income
$
977

 
$
1,015

 
$
2,918

 
$
2,816

Denominator:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
1,130

 
1,157

 
1,136

 
1,169

Dilutive stock options and stock units
3

 
3

 
3

 
3

Diluted weighted-average shares outstanding 1
1,133

 
1,160

 
1,139

 
1,172

Earnings per Share:
 
 
 
 
 
 
 
Basic
$
0.86

 
$
0.88

 
$
2.57

 
$
2.41

Diluted
$
0.86

 
$
0.87

 
$
2.56

 
$
2.40



1 For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Fair Value and Investment Securities (Tables)
Distribution of Financial Instruments, Measured at Fair Value on a Recurring Basis 
The distribution of the Company’s financial instruments which are measured at fair value on a recurring basis within the Valuation Hierarchy was as follows:
 
September 30, 2015
 
Quoted Prices
in Active
Markets
(Level 1) 1
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities
$
—

 
$
56

 
$
—

 
$
56

U.S. government and agency securities 2
22

 
45

 
—

 
67

Corporate securities
—

 
648

 
—

 
648

Asset-backed securities
—

 
60

 
—

 
60

Other
3

 
71

 
—

 
74

Total
$
25

 
$
880

 
$
—

 
$
905

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Quoted Prices
in Active
Markets
(Level 1) 1
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair
Value
 
(in millions)
Municipal securities
$
—

 
$
135

 
$
—

 
$
135

U.S. government and agency securities 2
85

 
114

 
—

 
199

Corporate securities
—

 
618

 
—

 
618

Asset-backed securities
—

 
178

 
—

 
178

Other
13

 
56

 
—

 
69

Total
$
98

 
$
1,101

 
$
—

 
$
1,199


1 During 2015, U.S. government securities were reclassified from Level 2 to Level 1 due to a reassessment of the availability of quoted prices. Prior period amounts have been revised to conform to the 2015 presentation.
2 Excludes amounts held in escrow related to the U.S. merchant class litigation settlement of $541 million and $540 million at September 30, 2015 and December 31, 2014, which would be included in Level 1 of the Valuation Hierarchy. See Note 6 (Accrued Expenses and Accrued Litigation) and Note 11 (Legal and Regulatory Proceedings) for further details.
Available-for-Sale Investment Securities, Unrealized Gains and Losses 
The major classes of the Company’s available-for-sale investment securities, for which unrealized gains and losses are recorded as a separate component of other comprehensive income on the consolidated statement of comprehensive income, and their respective amortized cost basis and fair values as of September 30, 2015 and December 31, 2014 were as follows:
 
 
September 30, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
(in millions)
Municipal securities
$
56

 
$
—

 
$
—

 
$
56

U.S. government and agency securities
67

 
—

 
—

 
67

Corporate securities
650

 
—

 
(2
)
 
648

Asset-backed securities
60

 
—

 
—

 
60

Other
50

 
2

 
(15
)
 
37

Total
$
883

 
$
2

 
$
(17
)
 
$
868

 
 
 
 
 
 
 
 
 
December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
(in millions)
Municipal securities
$
135

 
$
—

 
$
—

 
$
135

U.S. government and agency securities
199

 
—

 
—

 
199

Corporate securities
619

 
—

 
(1
)
 
618

Asset-backed securities
178

 
—

 
—

 
178

Other
41

 
1

 
(4
)
 
38

Total
$
1,172

 
$
1

 
$
(5
)
 
$
1,168


Maturity Distribution Based on Contractual Terms of Investment Securities 
The maturity distribution based on the contractual terms of the Company’s investment securities at September 30, 2015 was as follows:
 
Available-For-Sale
 
Amortized
Cost
 
Fair Value
 
(in millions)
Due within 1 year
$
264

 
$
264

Due after 1 year through 5 years
596

 
594

Due after 5 years through 10 years
—

 
—

Due after 10 years
7

 
7

No contractual maturity 1
16

 
3

Total
$
883

 
$
868


1 Equity securities have been included in the No contractual maturity category, as these securities do not have stated maturity dates.
Prepaid Expenses and Other Assets (Tables)
Schedule of Prepaid Expenses and Other Current Assets 
Prepaid expenses and other current assets consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
347

 
$
260

Prepaid income taxes
273

 
237

Other
223

 
174

Total prepaid expenses and other current assets
$
843

 
$
671

Schedule of Other Assets, Noncurrent 
Other assets consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
746

 
$
556

Nonmarketable equity investments
234

 
245

Prepaid income taxes
368

 
407

Income taxes receivable
174

 
89

Other
97

 
88

Total other assets
$
1,619

 
$
1,385

Accrued Expenses and Accrued Litigation (Tables)
Accrued Expenses
Accrued expenses consisted of the following:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Customer and merchant incentives
$
1,695

 
$
1,433

Personnel costs
377

 
531

Advertising
69

 
154

Income and other taxes
158

 
105

Other
213

 
216

Total accrued expenses
$
2,512

 
$
2,439

Stockholders' Equity (Tables)
Schedule of share repurchases and authorizations
The following table summarizes the Company’s share repurchase authorizations of its Class A common stock through September 30, 2015, as well as historical purchases:
 
Authorization Dates
 
December 2014
 
December
2013
 
February
2013
 
Total
 
(in millions, except average price data)
Board authorization
$
3,750

 
$
3,500

 
$
2,000

 
$
9,250

Dollar value of shares repurchased during the nine months ended September 30, 2014
$
—

 
$
3,070

 
$
161

 
$
3,231

Remaining authorization at December 31, 2014
$
3,750

 
$
275

 
$
—

 
$
4,025

Dollar value of shares repurchased during the nine months ended September 30, 2015
$
2,450

 
$
275

 
$
—

 
$
2,725

Remaining authorization at September 30, 2015
$
1,300

 
$
—

 
$
—

 
$
1,300

Shares repurchased during the nine months ended September 30, 2014
—

 
40.5

 
1.9

 
42.4

Average price paid per share during the nine months ended September 30, 2014
$
—

 
$
75.96

 
$
83.22

 
$
76.30

Shares repurchased during the nine months ended September 30, 2015
27.0

 
3.2

 
—

 
30.2

Average price paid per share during the nine months ended September 30, 2015
$
90.87

 
$
84.31

 
$
—

 
$
90.16

Cumulative shares repurchased through September 30, 2015
27.0

 
45.8

 
31.1

 
103.9

Cumulative average price paid per share
$
90.87

 
$
76.42

 
$
64.26

 
$
76.53

Accumulated Other Comprehensive Income (Loss) (Tables)
Schedule of Accumulated Other Comprehensive Income (Loss)
The changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2015 and 2014 were as follows:
 
Foreign Currency Translation Adjustments
 
Defined Benefit Pension and Other Postretirement Plans
 
Investment Securities Available-for-Sale
 
Accumulated Other Comprehensive Income (Loss)
 
(in millions)
Balance at December 31, 2013
$
206

 
$
(29
)
 
$
1

 
$
178

Current period other comprehensive income (loss) 1,2
(262
)
 
2

 
(10
)
 
(270
)
Balance at September 30, 2014
$
(56
)
 
$
(27
)
 
$
(9
)

$
(92
)
 
 
 
 
 
 
 
 
Balance at December 31, 2014
$
(230
)
 
$
(26
)
 
$
(4
)
 
$
(260
)
Current period other comprehensive income (loss) 1,2,3
(300
)
 
34

 
(10
)
 
(276
)
Balance at September 30, 2015
$
(530
)
 
$
8

 
$
(14
)
 
$
(536
)
 
 
 
 
 
 
 
 

1 During the nine months ended September 30, 2014, insignificant deferred costs related to the Company’s defined benefit pension and other post retirement plans were reclassified to general and administrative expenses. For the nine months ended September 30, 2015 and 2014 insignificant gains and losses on available-for-sale investment securities were reclassified from accumulated other comprehensive income (loss) to investment income.
2 During the nine months ended September 30, 2015 and 2014, the increase in other comprehensive loss related to foreign currency translation adjustments was driven primarily by the devaluation of the euro.
3 During the nine months ended September 30, 2015, $41 million of deferred costs ($26 million after-tax) related to the Company’s defined benefit pension plan and other post retirement plans were reclassified to general and administrative expenses. These deferred costs are primarily due to the termination of the Company's U.S. defined benefit plan (See Note 14, Qualified U.S. Pension Plan).
Share-Based Payments Awards Granted (Tables)
Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan
During the nine months ended September 30, 2015, the Company granted the following awards under the MasterCard Incorporated 2006 Long Term Incentive Plan, as amended and restated (“LTIP”). The LTIP is a shareholder-approved plan that permits the grant of various types of equity awards to employees.
 
Granted in 2015
 
Weighted-Average
Grant-Date
Fair Value
 
(in thousands)
 
 
Non-qualified stock options
1,618
 
$17
Restricted stock units
1,218
 
$88
Performance stock units
130
 
$99
Settlement and Other Risk Management (Tables)
Estimated Settlement Exposure and Portion of Uncollateralized Settlement Exposure for MasterCard-Branded Transactions
The Company’s estimated settlement exposure from MasterCard, Cirrus and Maestro branded transactions was as follows:
 
September 30,
2015
 
December 31,
2014
 
(in millions)
Gross settlement exposure
$
38,992

 
$
41,729

Collateral held for settlement exposure
(3,531
)
 
(3,415
)
Net uncollateralized settlement exposure
$
35,461

 
$
38,314


Foreign Exchange Risk Management (Tables)
Derivative contract summary 
MasterCard’s derivative contracts are summarized below:
 
September 30, 2015
 
December 31, 2014
 
Notional
 
Estimated Fair
Value
 
Notional
 
Estimated Fair
Value
 
(in millions)
Commitments to purchase foreign currency
$
105

 
$
—

 
$
47

 
$
4

Commitments to sell foreign currency
702

 
36

 
614

 
27

Options to sell foreign currency
65

 
1

 
—

 
—

Balance sheet location:
 
 
 
 
 
 
 
Accounts receivable 1
 
 
$
41

 
 
 
$
35

Other current liabilities 1
 
 
(4
)
 
 
 
(4
)

1 The fair values of derivative contracts are presented on a gross basis on the balance sheet and are subject to enforceable master netting arrangements, which contain various netting and setoff provisions.
Gain (loss) recognized in income for the contracts to purchase and sell foreign currency summary 
The amount of gain (loss) recognized in income for the contracts to purchase and sell foreign currency is summarized below: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(in millions)
Foreign currency derivative contracts
 
 
 
 
 
 
 
General and administrative
$
35

 
$
(53
)
 
$
57

 
$
(79
)

Summary of Significant Accounting Policies Summary of Significant Accounting Policies Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2014
Sep. 30, 2014
Accounting Policies [Abstract]
 
 
Amount of customer incentive expenses revised to be presented as contra revenue instead of general and administrative expenses
$ 13 
$ 27 
Acquisitions (Details) (USD $)
In Millions, unless otherwise specified
9 Months Ended 12 Months Ended 21 Months Ended
Sep. 30, 2015
business
Sep. 30, 2014
business
Dec. 31, 2014
business
Sep. 30, 2015
Business Combinations [Abstract]
 
 
 
 
Business combinations that were achieved in stages, with non-controlling interests acquired in previous years
 
2 
 
 
Number of Businesses Acquired
2 
5 
8 
 
Total consideration transferred
$ 609 
$ 389 
$ 575 
 
Goodwill, Acquired During Period
$ 465 
 
 
$ 507 
Earnings Per Share Schedule of Basic and Diluted Earnings Per Share (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Numerator:
 
 
 
 
Net income
$ 977 
$ 1,015 
$ 2,918 
$ 2,816 
Denominator:
 
 
 
 
Basic weighted-average shares outstanding
1,130 
1,157 
1,136 
1,169 
Dilutive stock options and stock units
3 
3 
3 
3 
Diluted weighted-average shares outstanding
1,133 1
1,160 1
1,139 1
1,172 1
Earnings per Share:
 
 
 
 
Basic
$ 0.86 
$ 0.88 
$ 2.57 
$ 2.41 
Diluted
$ 0.86 
$ 0.87 
$ 2.56 
$ 2.40 
Fair Value and Investment Securities Narrative (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Financial Instruments, Financial Liabilities, Balance Sheet Groupings [Abstract]
 
 
Long-term Debt, Fair Value
$ 1,500 
$ 1,500 
Long-term Debt, Carrying Value
1,495 
1,494 
Restricted cash for litigation settlement
541 
540 
Held-to-maturity Securities, Time Deposits
$ 364 
$ 70 
Fair Value and Investment Securities Distribution of Financial Instruments, Measured at Fair Value on a Recurring Basis (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
$ 905 
$ 1,199 
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
25 1
98 1
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
880 
1,101 
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 
0 
Municipal securities
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
56 
135 
Municipal securities |
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 1
0 1
Municipal securities |
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
56 
135 
Municipal securities |
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 
0 
U.S. government and agency securities
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
67 2
199 2
U.S. government and agency securities |
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
22 1 2
85 1 2
U.S. government and agency securities |
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
45 2
114 2
U.S. government and agency securities |
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 2
0 2
Corporate securities
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
648 
618 
Corporate securities |
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 1
0 1
Corporate securities |
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
648 
618 
Corporate securities |
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 
0 
Asset-backed securities
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
60 
178 
Asset-backed securities |
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 1
0 1
Asset-backed securities |
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
60 
178 
Asset-backed securities |
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
0 
0 
Other
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
74 
69 
Other |
Fair Value, Inputs, Level 1
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
3 1
13 1
Other |
Fair Value, Inputs, Level 2
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
71 
56 
Other |
Fair Value, Inputs, Level 3
 
 
Fair Value, Option, Quantitative Disclosures
 
 
Fair Value, Measured on Recurring Basis
$ 0 
$ 0 
Fair Value and Investment Securities Available-for-Sale Investment Securities, Unrealized Gains and Losses (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Investment Identifier
 
 
Amortized Cost
$ 883 
$ 1,172 
Gross Unrealized Gain
2 
1 
Gross Unrealized Loss
(17)
(5)
Fair Value
868 
1,168 
Municipal securities
 
 
Investment Identifier
 
 
Amortized Cost
56 
135 
Gross Unrealized Gain
0 
0 
Gross Unrealized Loss
0 
0 
Fair Value
56 
135 
U.S. government and agency securities
 
 
Investment Identifier
 
 
Amortized Cost
67 
199 
Gross Unrealized Gain
0 
0 
Gross Unrealized Loss
0 
0 
Fair Value
67 
199 
Corporate securities
 
 
Investment Identifier
 
 
Amortized Cost
650 
619 
Gross Unrealized Gain
0 
0 
Gross Unrealized Loss
(2)
(1)
Fair Value
648 
618 
Asset-backed securities
 
 
Investment Identifier
 
 
Amortized Cost
60 
178 
Gross Unrealized Gain
0 
0 
Gross Unrealized Loss
0 
0 
Fair Value
60 
178 
Other
 
 
Investment Identifier
 
 
Amortized Cost
50 
41 
Gross Unrealized Gain
2 
1 
Gross Unrealized Loss
(15)
(4)
Fair Value
$ 37 
$ 38 
Fair Value and Investment Securities Maturity Distribution Based on Contractual Terms of Investment Securities (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Available-For-Sale Amortized Cost
 
Due within 1 year
$ 264 
Due after 1 year through 5 years
596 
Due after 5 years through 10 years
0 
Due after 10 years
7 
No contractual maturity
16 1
Total
883 
Available-For-Sale Fair Value
 
Due within 1 year
264 
Due after 1 year through 5 years
594 
Due after 5 years through 10 years
0 
Due after 10 years
7 
No contractual maturity
3 1
Total
$ 868 
Prepaid Expenses and Other Assets Schedule of Prepaid Expenses (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
 
 
Customer and merchant incentives
$ 347 
$ 260 
Prepaid income taxes
273 
237 
Other
223 
174 
Total prepaid expenses and other current assets
$ 843 
$ 671 
Prepaid Expenses and Other Assets Schedule of Other Assets (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
 
 
Customer and merchant incentives
$ 746 
$ 556 
Nonmarketable equity investments
234 
245 
Prepaid income taxes
368 
407 
Income taxes receivable
174 
89 
Other
97 
88 
Total other assets
$ 1,619 
$ 1,385 
Accrued Expenses (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Accrued Liabilities [Abstract]
 
 
Customer and merchant incentives
$ 1,695 
$ 1,433 
Personnel costs
377 
531 
Advertising
69 
154 
Income and other taxes
158 
105 
Other
213 
216 
Total accrued expenses
$ 2,512 
$ 2,439 
Accrued Expenses and Accrued Litigation Accrued Expenses (Narrative) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Dec. 31, 2014
Sep. 30, 2015
Accrued Liabilities [Abstract]
 
 
Severance charge
$ 87 
 
Accrued severance charge included in personnel costs
$ 84 
$ 36 
Accrued Litigation Expense (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Accrued Liabilities, Current [Abstract]
 
 
Provision related to U.S. merchant litigations
$ 711 
$ 771 
Stockholders' Equity (Details) (Class A Common Stock, USD $)
In Millions, except Per Share data, unless otherwise specified
9 Months Ended 32 Months Ended 9 Months Ended 32 Months Ended 9 Months Ended 22 Months Ended 9 Months Ended 10 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Dec. 31, 2014
Jun. 30, 2012
2012 Repurchase Plan
Sep. 30, 2015
February 2013 Share Repurchase Plan
Sep. 30, 2014
February 2013 Share Repurchase Plan
Sep. 30, 2015
February 2013 Share Repurchase Plan
Dec. 31, 2014
February 2013 Share Repurchase Plan
Feb. 28, 2013
February 2013 Share Repurchase Plan
Sep. 30, 2015
December 2013 Share Repurchase Plan
Sep. 30, 2014
December 2013 Share Repurchase Plan
Sep. 30, 2015
December 2013 Share Repurchase Plan
Dec. 31, 2014
December 2013 Share Repurchase Plan
Dec. 31, 2013
December 2013 Share Repurchase Plan
Sep. 30, 2015
December 2014 Share Repurchase Plan
Sep. 30, 2014
December 2014 Share Repurchase Plan
Sep. 30, 2015
December 2014 Share Repurchase Plan
Dec. 31, 2014
December 2014 Share Repurchase Plan
Class of Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Board authorization
$ 9,250 
 
$ 9,250 
 
$ 1,500 
 
 
 
 
$ 2,000 
 
 
 
 
$ 3,500 
 
 
 
$ 3,750 
Dollar value of shares repurchased during period
2,725 
3,231 
 
 
 
0 
161 
 
 
 
275 
3,070 
 
 
 
2,450 
0 
 
 
Remaining authorization
$ 1,300 
 
$ 1,300 
$ 4,025 
 
$ 0 
 
$ 0 
$ 0 
 
$ 0 
 
$ 0 
$ 275 
 
$ 1,300 
 
$ 1,300 
$ 3,750 
Average price paid per share
$ 90.16 
$ 76.30 
$ 76.53 
 
 
$ 0.00 
$ 83.22 
$ 64.26 
 
 
$ 84.31 
$ 75.96 
$ 76.42 
 
 
$ 90.87 
$ 0.00 
$ 90.87 
 
Shares repurchased during period
30.2 
42.4 
103.9 
 
 
0 
1.9 
31.1 
 
 
3.2 
40.5 
45.8 
 
 
27.0 
0 
27.0 
 
Accumulated Other Comprehensive Income (Loss) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
 
 
 
 
Beginning Balance, Foreign Currency Translation Adjustments
 
 
$ (230)
$ 206 
Beginning Balance, Defined Benefit Pension and Other Postretirement Plans
 
 
(26)
(29)
Beginning Balance, Investment Securities Available-for-Sale
 
 
(4)
1 
Beginning Balance, Accumulated Other Comprehensive Income (Loss)
 
 
(260)
178 
Current period other comprehensive income (loss), Foreign Currency Translation Adjustments
(66)
(274)
(300)1 2 3
(262)1 2
Current period other comprehensive income (loss), Defined Benefit Pension and Other Postretirement Plans
25 
0 
34 1 2 3
2 1 2
Current period other comprehensive income (loss), Investment Securities Available-for-Sale
(3)
(6)
(10)1 2 3
(10)1 2
Current period other comprehensive income (loss), net of tax
(44)
(280)
(276)1 2 3
(270)1 2
Ending Balance, Foreign Currency Translation Adjustments
(530)
(56)
(530)
(56)
Ending Balance, Defined Benefit Pension and Other Postretirement Plans
8 
(27)
8 
(27)
Ending Balance, Investment Securities Available-for-Sale
(14)
(9)
(14)
(9)
Ending Balance, Accumulated Other Comprehensive Income (Loss)
(536)
(92)
(536)
(92)
Other Comprehensive (Income) Loss, Amortization Adjustment from AOCI, Pension and Other Postretirement Benefit Plans, for Net Prior Service Cost (Credit), before Tax
 
 
41 
 
Other Comprehensive (Income) Loss, Amortization Adjustment from AOCI, Pension and Other Postretirement Benefit Plans, for Net Prior Service Cost (Credit), Net of Tax
 
 
$ 26 
 
Share-Based Payments Narrative (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Share-Based Payments
 
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross
1,618 
Fair value of stock options, per share, estimated using a Black-Scholes option pricing model
$ 17 
Share-Based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term
5 years 
Share-Based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate
20.60% 
Non-qualified stock options
 
Share-Based Payments
 
Share-Based Compensation Arrangement By Share-based Payment Award Options Term
10 years 
Stock options vested, number of annual installments
4 
Share-Based Compensation Arrangement by Share-based Payment Award, Award Vesting Period
1 year 
Restricted stock units
 
Share-Based Payments
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period
1,218 
Share-Based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted-Average Grant-Date Fair Value
$ 88 
Share-Based Compensation Arrangement by Share-based Payment Award, Award Vesting Period
3 years 
Performance stock units
 
Share-Based Payments
 
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period
130 
Share-Based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted-Average Grant-Date Fair Value
$ 99 
Share-Based Compensation Arrangement by Share-based Payment Award, Award Vesting Period
3 years 
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Dec. 31, 2014
Income Tax Disclosure [Abstract]
 
 
 
 
 
Effective income tax rate
27.70% 
28.50% 
25.80% 
30.90% 
 
Amortization Period for Deferred Charge
 
 
25 years 
 
 
Prepaid taxes on intercompany profit transfer
$ 16 
 
$ 16 
 
$ 18 
Non-current prepaid taxes on intercompany profit transfer
$ 368 
 
$ 368 
 
$ 407 
Legal and Regulatory Proceedings (Details) (USD $)
3 Months Ended 9 Months Ended 1 Months Ended 9 Months Ended 3 Months Ended 12 Months Ended 1 Months Ended 12 Months Ended 3 Months Ended 9 Months Ended 1 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Dec. 31, 2014
Feb. 28, 2011
Event Involving Visa Parties, Member Banks and MasterCard
Feb. 28, 2011
Event Involving Member Banks and MasterCard
Sep. 30, 2015
Canadian Competition Bureau
Jun. 30, 2012
U.S. Merchant Lawsuit Settlement
Dec. 31, 2011
U.S. Merchant Lawsuit Settlement
Dec. 31, 2012
U.S. Merchant Lawsuit Settlement
Jan. 31, 2014
U.S. Merchant Litigation - Class Litigation
Dec. 31, 2012
U.S. Merchant Litigation - Class Litigation
Dec. 31, 2013
U.S. Merchant Litigation - Opt Out Merchants
Sep. 30, 2015
Minimum
U.S. Merchant Litigation - Class Litigation
merchant
Sep. 30, 2015
United Kingdom Cross-border Interchange and Domestic Interchange
plaintiff
Sep. 30, 2015
United Kingdom Cross-border Interchange and Domestic Interchange
Minimum
plaintiff
Jun. 30, 2015
U.K. Merchant Lawsuit Settlement
Legal And Regulatory
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted cash for litigation settlement
$ 541,000,000 
 
$ 541,000,000 
 
$ 540,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount received from the qualified cash settlement fund
 
 
 
 
 
 
 
 
 
 
 
164,000,000 
 
 
 
 
 
 
Percent of settlement MasterCard would pay
 
 
 
 
 
12.00% 
36.00% 
 
 
 
 
 
 
 
 
 
 
 
Provision for litigation settlement
0 
0 
61,000,000 
0 
 
 
 
 
20,000,000 
770,000,000 
 
 
 
95,000,000 
 
 
 
61,000,000 
Accrued litigation
711,000,000 
 
711,000,000 
 
771,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
Payments for legal settlements
 
 
 
 
 
 
 
 
 
 
790,000,000 
 
726,000,000 
 
 
 
 
 
Approximate percentage of merchants that opted out of settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
25.00% 
 
 
 
Legal proceeding complaints from merchants that have opted out of settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
30 
 
 
 
Loss Contingency, Number of Plaintiffs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13 
20 
 
Loss Contingency, Damages Sought, Value
 
 
 
 
 
 
 
$ 5,000,000,000 
 
 
 
 
 
 
 
 
$ 2,000,000,000 
 
Settlement and Other Risk Management Estimated Settlement Exposure and Portion of Uncollateralized Settlement Exposure for MasterCard-Branded Transactions (Details) (Guarantee Obligations, USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Guarantee Obligations
 
 
Risks Inherent in Servicing Assets and Servicing Liabilities
 
 
Gross settlement exposure
$ 38,992 
$ 41,729 
Collateral held for settlement exposure
(3,531)
(3,415)
Net uncollateralized settlement exposure
$ 35,461 
$ 38,314 
Settlement and Other Risk Management Narrative (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Settlement and Other Risk Management [Abstract]
 
 
Travelers cheques outstanding, notional value
$ 426 
$ 465 
Travelers cheques covered by collateral arrangements
$ 336 
$ 370 
Foreign Exchange Risk Management Classification of Outstanding Forward Contracts (Details) (USD $)
In Millions, unless otherwise specified
Sep. 30, 2015
Dec. 31, 2014
Accounts receivable
 
 
Foreign Exchange Risk Management
 
 
Forward contracts to purchase and sell foreign currency - Balance sheet location - Accounts receivable
$ 41 1
$ 35 1
Other current liabilities
 
 
Foreign Exchange Risk Management
 
 
Forward contracts to purchase and sell foreign currency - Balance sheet location - Other current liabilities
(4)1
(4)1
Commitments to purchase foreign currency |
Foreign Exchange Forward
 
 
Foreign Exchange Risk Management
 
 
Commitments to purchase/sell foreign currency, Notional
105 
47 
Commitments to purchase/sell foreign currency, Estimated Fair Value
0 
4 
Commitments/Options to sell foreign currency |
Foreign Exchange Forward
 
 
Foreign Exchange Risk Management
 
 
Commitments to purchase/sell foreign currency, Notional
702 
614 
Commitments to purchase/sell foreign currency, Estimated Fair Value
36 
27 
Commitments/Options to sell foreign currency |
Foreign Exchange Option
 
 
Foreign Exchange Risk Management
 
 
Commitments to purchase/sell foreign currency, Notional
65 
0 
Commitments to purchase/sell foreign currency, Estimated Fair Value
$ 1 
$ 0 
Foreign Exchange Risk Management (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2015
Sep. 30, 2014
Sep. 30, 2015
Sep. 30, 2014
Foreign Exchange Risk Management
 
 
 
 
Terms of the foreign currency forward contracts and foreign currency option contracts
 
 
18 months 
 
Foreign currency derivative contracts
 
 
 
 
Foreign Exchange Risk Management
 
 
 
 
Approximate effect of 10% adverse change in foreign currency rates on fair value loss
$ 81 
 
$ 81 
 
General and administrative |
Foreign currency derivative contracts
 
 
 
 
Foreign Exchange Risk Management
 
 
 
 
Gain (loss) for contracts to purchase and sell foreign currency
$ 35 
$ (53)
$ 57 
$ (79)
Qualified U.S. Pension Plan (Details) (Qualified Plan, USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2015
Qualified Plan
 
Defined Benefit Plan, Benefit Obligation
$ 287 
Defined Benefit Plan, Recognized Net Gain (Loss) Due to Settlements
$ (79)
Subsequent Event (Details) (Subsequent Event, Revolving Credit Facility, USD $)
In Billions, unless otherwise specified
Oct. 21, 2015
Subsequent Event |
Revolving Credit Facility
 
Subsequent Event
 
Line of Credit Facility, Maximum Borrowing Capacity
$ 3.75