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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
Or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-32877
mc_logononamea02.jpg
Mastercard Incorporated
(Exact name of registrant as specified in its charter)
Delaware
13-4172551
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
 
 
 
2000 Purchase Street
10577
Purchase,
NY
(Zip Code)
(Address of principal executive offices)
 
(914) 249-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange of which registered
Class A Common Stock, par value $0.0001 per share
 
MA
 
New York Stock Exchange
1.1% Notes due 2022
 
MA22
 
New York Stock Exchange
2.1% Notes due 2027
 
MA27
 
New York Stock Exchange
2.5% Notes due 2030
 
MA30
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Yes

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer
 
Accelerated filer
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)
Yes
No
As of April 24, 2020, there were 993,040,739 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and 10,699,604 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.
 



mcsymbola02.jpg
MASTERCARD INCORPORATED FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
PART I
Item 1.
Consolidated financial statements (unaudited)
Item 2.
Management’s discussion and analysis of financial condition and results of operations
Item 3.
Quantitative and qualitative disclosures about market risk
Item 4.
Controls and procedures
 
 
 
 
 
 
 
 
PART II
Item 1.
Legal proceedings
Item 1A.
Risk factors
Item 2.
Unregistered sales of equity proceeds and use of proceeds
Item 5.
Other information
Item 6.
Exhibits
-
Signatures
 
 
 
 


2 MASTERCARD MARCH 31, 2020 FORM 10-Q


In this Report on Form 10-Q (“Report”), references to the “Company,” “Mastercard,” “we,” “us” or “our” refer to the business conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International Incorporated, and to the Mastercard brand.
Forward-Looking Statements
This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company’s future prospects, developments and business strategies.
Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:
regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates and surcharging)
the impact of preferential or protective government actions
regulation of privacy, data, security and the digital economy
regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-money laundering, counter financing of terrorism, economic sanctions and anti-corruption; account-based payment systems; and issuer practice regulation)
the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions
potential or incurred liability and limitations on business related to any litigation or litigation settlements
the impact of competition in the global payments industry (including disintermediation and pricing pressure)
the challenges relating to rapid technological developments and changes
the challenges relating to operating real-time account-based payment system and to working with new customers and end users
the impact of information security incidents, account data breaches or service disruptions
issues related to our relationships with our financial institution customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation), merchants and governments
exposure to loss or illiquidity due to our role as guarantor and other contractual obligations
the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and foreign exchange controls
the impact of the coronavirus (COVID-19) outbreak and measures taken in response to the outbreak
reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services
the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture
issues related to acquisition integration, strategic investments and entry into new businesses
issues related to our Class A common stock and corporate governance structure
Please see a complete discussion of these risk factors in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A - Risk Factors of this Report. We caution you that the important factors referenced above may not contain all of the factors that are important to you. Our forward-looking statements speak only as of the date of this Report or as of the date they are made, and we undertake no obligation to update our forward-looking statements.


MASTERCARD MARCH 31, 2020 FORM 10-Q 3


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART I
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Item 1. Consolidated financial statements (unaudited)
Mastercard Incorporated
Index to consolidated financial statements (unaudited)
 
 
Page
 
 
 
 
 
 


MASTERCARD MARCH 31, 2020 FORM 10-Q 5


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Operations (Unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in millions, except per share data)
Net Revenue
 
$
4,009

 
$
3,889

Operating Expenses
 
 
 
 
General and administrative
 
1,494

 
1,367

Advertising and marketing
 
154

 
192

Depreciation and amortization
 
144

 
117

Provision for litigation
 
6

 

Total operating expenses
 
1,798

 
1,676

Operating income
 
2,211

 
2,213

Other Income (Expense)
 
 
 
 
Investment income
 
16

 
27

Gains (losses) on equity investments, net
 
(174
)
 
5

Interest expense
 
(69
)
 
(46
)
Other income (expense), net
 
3

 
4

Total other income (expense)
 
(224
)
 
(10
)
Income before income taxes
 
1,987

 
2,203

Income tax expense
 
294

 
341

Net Income
 
$
1,693

 
$
1,862

Basic Earnings per Share
 
$
1.68

 
$
1.81

Basic weighted-average shares outstanding
 
1,005

 
1,026

Diluted Earnings per Share
 
$
1.68

 
$
1.80

Diluted weighted-average shares outstanding
 
1,010

 
1,032


The accompanying notes are an integral part of these consolidated financial statements.


6 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Comprehensive Income (Unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in millions)
Net Income
 
$
1,693

 
$
1,862

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
 
(281
)
 
11

Income tax effect
 
14

 
3

Foreign currency translation adjustments, net of income tax effect
 
(267
)
 
14

Translation adjustments on net investment hedge
 
20

 
36

Income tax effect
 
(4
)
 
(8
)
Translation adjustments on net investment hedge, net of income tax effect
 
16

 
28

Cash flow hedges
 
(189
)
 

Income tax effect
 
39

 

Cash flow hedges, net of income tax effect
 
(150
)
 

Investment securities available-for-sale
 
(7
)
 
4

Income tax effect
 
2

 
(1
)
Investment securities available-for-sale, net of income tax effect
 
(5
)
 
3

Other comprehensive income (loss), net of tax
 
(406
)
 
45

Comprehensive Income
 
$
1,287

 
$
1,907


The accompanying notes are an integral part of these consolidated financial statements.



MASTERCARD MARCH 31, 2020 FORM 10-Q 7


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Balance Sheet (unaudited)
 
 
 
 
 
 
March 31, 2020
 
December 31, 2019
 
 
(in millions, except per share data)
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
10,207

 
$
6,988

Restricted cash for litigation settlement
 
587

 
584

Investments
 
477

 
688

Accounts receivable
 
2,441

 
2,514

Settlement due from customers
 
1,164

 
2,995

Restricted security deposits held for customers
 
1,518

 
1,370

Prepaid expenses and other current assets
 
1,729

 
1,763

Total current assets
 
18,123

 
16,902

Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,165 and $1,100, respectively
 
1,901

 
1,828

Deferred income taxes
 
550

 
543

Goodwill
 
4,070

 
4,021

Other intangible assets, net of accumulated amortization of $1,312 and $1,296, respectively
 
1,447

 
1,417

Other assets
 
4,557

 
4,525

Total Assets
 
$
30,648

 
$
29,236

Liabilities, Redeemable Non-controlling Interests and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
371

 
$
489

Settlement due to customers
 
1,149

 
2,714

Restricted security deposits held for customers
 
1,518

 
1,370

Accrued litigation
 
852

 
914

Accrued expenses
 
4,676

 
5,489

Other current liabilities
 
1,146

 
928

Total current liabilities
 
9,712

 
11,904

Long-term debt
 
12,466

 
8,527

Deferred income taxes
 
82

 
85

Other liabilities
 
2,890

 
2,729

Total Liabilities
 
25,150

 
23,245

Commitments and Contingencies
 

 

Redeemable Non-controlling Interests
 
75

 
74

Stockholders’ Equity
 

 

Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,392 and 1,391 shares issued and 993 and 996 shares outstanding, respectively
 

 

Class B common stock, $0.0001 par value; authorized 1,200 shares, 11 shares issued and outstanding
 

 

Additional paid-in-capital
 
4,735

 
4,787

Class A treasury stock, at cost, 399 and 395 shares, respectively
 
(33,531
)
 
(32,205
)
Retained earnings
 
35,273

 
33,984

Accumulated other comprehensive income (loss)
 
(1,079
)
 
(673
)
Mastercard Incorporated Stockholders' Equity
 
5,398

 
5,893

Non-controlling interests
 
25

 
24

Total Equity
 
5,423

 
5,917

Total Liabilities, Redeemable Non-controlling Interests and Equity
 
$
30,648

 
$
29,236


The accompanying notes are an integral part of these consolidated financial statements.


8 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited)
 
 
Stockholders’ Equity
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Class A
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Mastercard Incorporated Stockholders’ Equity
 
Non-
Controlling
Interests
 
Total Equity
 
 
Class A
 
Class B
 
 
 
 
 
 
(in millions, except per share data)
Balance at December 31, 2019
 
$

 
$

 
$
4,787

 
$
(32,205
)
 
$
33,984

 
$
(673
)
 
$
5,893

 
$
24

 
$
5,917

Net income
 

 

 

 

 
1,693

 

 
1,693

 

 
1,693

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
1

 
1

Redeemable non-controlling interest adjustments
 

 

 

 

 
(2
)
 

 
(2
)
 

 
(2
)
Other comprehensive income (loss)
 

 

 

 

 

 
(406
)
 
(406
)
 

 
(406
)
Dividends
 

 

 

 

 
(402
)
 

 
(402
)
 

 
(402
)
Purchases of treasury stock
 

 

 


 
(1,330
)
 

 

 
(1,330
)
 

 
(1,330
)
Share-based payments
 

 

 
(52
)
 
4

 

 

 
(48
)
 

 
(48
)
Balance at March 31, 2020
 
$

 
$

 
$
4,735

 
$
(33,531
)
 
$
35,273

 
$
(1,079
)
 
$
5,398

 
$
25

 
$
5,423


 
 
Stockholders’ Equity

 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Class A
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Mastercard Incorporated Stockholders’ Equity
 
Non-
Controlling
Interests
 
Total Equity
 
 
Class A
 
Class B
 
 
 
 
 
 
(in millions, except per share data)
Balance at December 31, 2018
 
$

 
$

 
$
4,580

 
$
(25,750
)
 
$
27,283

 
$
(718
)
 
$
5,395

 
$
23

 
$
5,418

Net income
 

 

 

 

 
1,862

 

 
1,862

 

 
1,862

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
(1
)
 
(1
)
Redeemable non-controlling interest adjustments
 

 

 

 

 
(2
)
 

 
(2
)
 

 
(2
)
Other comprehensive income (loss)
 

 

 

 

 

 
45

 
45

 

 
45

Dividends
 

 

 

 

 
(337
)
 

 
(337
)
 

 
(337
)
Purchases of treasury stock
 

 

 

 
(1,790
)
 

 

 
(1,790
)
 

 
(1,790
)
Share-based payments
 

 

 
(11
)
 
6

 

 

 
(5
)
 

 
(5
)
Balance at March 31, 2019
 
$

 
$

 
$
4,569

 
$
(27,534
)
 
$
28,806

 
$
(673
)
 
$
5,168

 
$
22

 
$
5,190


The accompanying notes are an integral part of these consolidated financial statements.


MASTERCARD MARCH 31, 2020 FORM 10-Q 9


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Cash Flows (Unaudited)
 
 
 
 
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in millions)
Operating Activities
 
 
 
 
Net income
 
$
1,693

 
$
1,862

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Amortization of customer and merchant incentives
 
237

 
345

Depreciation and amortization
 
144

 
117

(Gains) losses on equity investments, net
 
174

 
5

Share-based compensation
 
52

 
57

Deferred income taxes
 
26

 
38

Other
 
20

 
1

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(3
)
 
(320
)
Settlement due from customers
 
1,831

 
1,026

Prepaid expenses
 
(331
)
 
(497
)
Accrued litigation and legal settlements
 
(62
)
 
1

Restricted security deposits held for customers
 
148

 
(35
)
Accounts payable
 
(102
)
 
(22
)
Settlement due to customers
 
(1,564
)
 
(1,000
)
Accrued expenses
 
(622
)
 
(483
)
Net change in other assets and liabilities
 
218

 
217

Net cash provided by operating activities
 
1,859

 
1,312

Investing Activities
 
 
 
 
Purchases of investment securities available-for-sale
 
(74
)
 
(305
)
Purchases of investments held-to-maturity
 
(45
)
 
(99
)
Proceeds from sales of investment securities available-for-sale
 
179

 
476

Proceeds from maturities of investment securities available-for-sale
 
64

 
139

Proceeds from maturities of investments held-to-maturity
 
65

 
155

Purchases of property and equipment
 
(131
)
 
(83
)
Capitalized software
 
(78
)
 
(59
)
Purchases of equity investments
 
(135
)
 

Settlement of interest rate derivative contracts
 
(175
)
 

Other investing activities
 
(177
)
 
(11
)
Net cash (used in) provided by investing activities
 
(507
)
 
213

Financing Activities
 
 
 
 
Purchases of treasury stock
 
(1,383
)
 
(1,824
)
Dividends paid
 
(403
)
 
(340
)
Proceeds from debt, net
 
3,959

 

Tax withholdings related to share-based payments
 
(131
)
 
(116
)
Cash proceeds from exercise of stock options
 
31

 
54

Other financing activities
 
27

 
3

Net cash provided by (used in) financing activities
 
2,100

 
(2,223
)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
 
(88
)
 
(54
)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
 
3,364

 
(752
)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
 
8,969

 
8,337

Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
 
$
12,333

 
$
7,585


The accompanying notes are an integral part of these consolidated financial statements.


10 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes to consolidated financial statements (unaudited)
Note 1. 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, digital partners, businesses and other organizations worldwide, enabling them to use electronic forms of payment instead of cash and checks.
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. Investments in VIEs for which the Company is not considered the primary beneficiary are not consolidated and are accounted for as equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet. At March 31, 2020 and December 31, 2019, there were no significant VIEs which required consolidation and the investments were not considered material to the consolidated financial statements. The Company consolidates acquisitions as of the date in which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2020 presentation. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements as of December 31, 2019. The consolidated financial statements for the three months ended March 31, 2020 and 2019 and as of March 31, 2020 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 months ended March 31, 2020 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 (“SEC”) requirements for Quarterly Reports on Form 10-Q. Reference should be made to the Mastercard Incorporated Annual Report on Form 10-K for the year ended December 31, 2019 for additional disclosures, including a summary of the Company’s significant accounting policies.
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available as of March 31, 2020 and through the date of this Report. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors.
For the three months ended March 31, 2020 and 2019, net losses from non-controlling interests were not material and, as a result, amounts are included in the consolidated statement of operations within other income (expense).
Accounting pronouncements not yet adopted
Simplifying the accounting for income taxes - In December 2019, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance to simplify the accounting for income taxes. This guidance includes the removal of certain exceptions to the general income tax accounting principles and provides clarity and simplification to other areas of income tax accounting by amending the existing guidance. The guidance is effective for periods beginning after December 15, 2020. The Company expects to adopt this guidance effective January 1, 2021 and is in the process of evaluating the potential effects this will have on its consolidated financial statements.
Reference Rate Reform - In March 2020, the FASB issued accounting guidance to provide temporary optional expedients and exceptions to the current contract modifications and hedge accounting guidance in light of the expected market transition from LIBOR to alternative rates.  The new guidance provides optional expedients and exceptions to transactions affected by reference rate reform if certain criteria are met.  The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale or transfer of debt securities classified as held-to-maturity.  The amendments were effective immediately upon issuance of the update.  Companies may elect to adopt the amendments prospectively to transactions existing as of or entered from the date of adoption through December 31, 2022. The Company is in the process of evaluating the amendments, impacted contracts, and the potential effects of this will have on its consolidated financial statements.


MASTERCARD MARCH 31, 2020 FORM 10-Q 11


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Acquisitions
In 2019, the Company acquired several businesses in separate transactions for total consideration of $1.5 billion. As of March 31, 2020, the Company has finalized the purchase accounting for certain businesses acquired during 2019 for total consideration of $783 million. For the final and preliminary estimated fair values of the purchase price allocations, as of the acquisition dates, refer to Note 2 (Acquisitions) to the consolidated financial statements included in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
In August 2019, Mastercard entered into a definitive agreement to acquire the majority of the Corporate Services business of Nets Denmark A/S, for 2.85 billion (approximately $3.16 billion as of March 31, 2020) after adjusting for cash and certain other liabilities at closing. The pending acquisition primarily comprises the clearing and instant payment services, and e-billing solutions of Nets Denmark A/S’s Corporate Services business. While the Company anticipates completing the acquisition in the third quarter of 2020, the transaction is subject to regulatory approval and other customary closing conditions.
Note 3. Revenue
The Company’s disaggregated net revenue by source and geographic region were as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in millions)
Revenue by source:
 
 
 
 
Domestic assessments
 
$
1,683

 
$
1,605

Cross-border volume fees
 
1,217

 
1,263

Transaction processing
 
2,200

 
1,922

Other revenues
 
1,062

 
842

Gross revenue
 
6,162

 
5,632

Rebates and incentives (contra-revenue)
 
(2,153
)
 
(1,743
)
Net revenue
 
$
4,009

 
$
3,889

Net revenue by geographic region:
 
 
 
 
North American Markets
 
$
1,334

 
$
1,347

International Markets
 
2,633

 
2,506

Other 1
 
42

 
36

Net revenue
 
$
4,009

 
$
3,889

1 
Includes revenues managed by corporate functions.
Receivables from contracts with customers of $2.3 billion at both March 31, 2020 and December 31, 2019 are recorded within accounts receivable on the consolidated balance sheet. The Company’s customers are generally billed weekly, however the frequency is dependent upon the nature of the performance obligation and the underlying contractual terms. The Company does not typically offer extended payment terms to customers.
Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet at March 31, 2020 in the amounts of $52 million and $162 million, respectively. The comparable amounts included in prepaid expenses and other current assets and other assets at December 31, 2019 were $48 million and $152 million, respectively.
Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet at March 31, 2020 in the amounts of $384 million and $161 million, respectively. The comparable amounts included in other current liabilities and other liabilities at December 31, 2019 were $238 million and $106 million, respectively. Revenue recognized from performance obligations satisfied during the three months ended March 31, 2020 and 2019 was $189 million and $185 million, respectively.


12 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Earnings Per Share
The components of basic and diluted earnings per share (“EPS”) for common shares were as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
 
(in millions, except per share data)
Numerator
 
 
 
 
Net income
 
$
1,693

 
$
1,862

Denominator
 
 
 
 
Basic weighted-average shares outstanding
 
1,005

 
1,026

Dilutive stock options and stock units
 
5

 
6

Diluted weighted-average shares outstanding 1
 
1,010

 
1,032

Earnings per Share
 
 
 
 
Basic
 
$
1.68

 
$
1.81

Diluted
 
$
1.68

 
$
1.80


1 
For the periods presented, the calculation of diluted EPS excluded a minimal amount of anti-dilutive share-based payment awards.
Note 5. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported on the consolidated balance sheet that total to the amounts shown on the consolidated statement of cash flows.
 
 
December 31,
 
 
2019
 
2018
 
 
(in millions)
Cash and cash equivalents
 
$
6,988

 
$
6,682

Restricted cash and restricted cash equivalents
 
 
 
 
Restricted cash for litigation settlement
 
584

 
553

Restricted security deposits held for customers
 
1,370

 
1,080

Prepaid expenses and other current assets
 
27

 
22

Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
 
$
8,969

 
$
8,337

 
 
 
 
 
 
 
March 31,
 
 
2020
 
2019
 
 
(in millions)
Cash and cash equivalents
 
$
10,207

 
$
5,857

Restricted cash and restricted cash equivalents
 
 
 
 
Restricted cash for litigation settlement
 
587

 
662

Restricted security deposits held for customers
 
1,518

 
1,044

Prepaid expenses and other current assets
 
21

 
22

Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
 
$
12,333

 
$
7,585




MASTERCARD MARCH 31, 2020 FORM 10-Q 13


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Investments
The Company’s investments on the consolidated balance sheet include both available-for-sale and held-to-maturity securities (see Investments section below). The Company classifies its investments in equity securities of publicly traded and privately held companies within other assets on the consolidated balance sheet (see Equity Investments section below).
Investments
Investments on the consolidated balance sheet consisted of the following:
 
 
March 31,
2020
 
December 31,
2019
 
 
(in millions)
Available-for-sale securities
 
$
414

 
$
591

Held-to-maturity securities
 
63

 
97

Total investments
 
$
477

 
$
688


Available-for-Sale-Securities
The major classes of the Company’s available-for-sale investment securities and their respective amortized cost basis and fair values were as follows:
 
 
March 31, 2020
 
December 31, 2019
 
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Gross
Unrealized
Loss
 
Fair
Value
 
 
(in millions)
Municipal securities
 
$
18

 
$

 
$

 
$
18

 
$
15

 
$

 
$

 
$
15

Government and agency securities
 
18

 

 

 
18

 
108

 

 

 
108

Corporate securities
 
315

 

 
(5
)
 
310

 
381

 
1

 

 
382

Asset-backed securities
 
68

 

 

 
68

 
85

 
1

 

 
86

Total
 
$
419

 
$

 
$
(5
)
 
$
414

 
$
589

 
$
2

 
$

 
$
591


The Company’s available-for-sale investment securities held at March 31, 2020 and December 31, 2019 primarily carried a credit rating of A- or better with unrealized gains and losses recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income. The municipal securities are comprised of state tax-exempt bonds and are diversified across states and sectors. Government and agency securities include U.S. government bonds, U.S. government sponsored agency bonds and foreign government bonds with similar credit quality to that of the U.S. government 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.
The maturity distribution based on the contractual terms of the Company’s investment securities at March 31, 2020 was as follows:
 
 
Available-For-Sale
 
 
Amortized Cost
 
Fair Value
 
 
(in millions)
Due within 1 year
 
$
105

 
$
105

Due after 1 year through 5 years
 
314

 
309

Total
 
$
419

 
$
414


Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits, and realized gains and losses on the Company’s debt securities. The realized gains and losses from the sales of available-for-sale securities for the three months ended March 31, 2020 and 2019 were not significant.
Held-to-Maturity Securities
The Company classifies time deposits with maturities greater than three months but less than one year as held-to-maturity. Time deposits are carried at amortized cost on the consolidated balance sheet and are intended to be held until maturity. The cost of these securities approximates fair value.


14 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Investments
Included in other assets on the consolidated balance sheet are equity investments with readily determinable fair values (“Marketable securities”) and equity investments without readily determinable fair values (“Nonmarketable securities”). Marketable securities are publicly traded companies and are measured using unadjusted quoted prices in their respective active markets. Nonmarketable securities that do not qualify for equity method accounting are measured at cost, less any impairment and adjusted for changes resulting from observable price changes in orderly transactions for the identical or similar investments of the same issuer (“measurement alternative”).
The following table is a summary of the activity related to the Company’s equity investments:
 
 
Balance at December 31, 2019
 
Purchases (Sales), net
 
Changes in Fair Value 1
 
Other 2
 
Balance at March 31, 2020
 
 
(in millions)
Marketable securities
 
$
479

 
$

 
$
(177
)
 
$
(20
)
 
$
282

Nonmarketable securities
 
435

 
137

 
3

 
13

 
588

Total equity investments
 
$
914

 
$
137

 
$
(174
)
 
$
(7
)
 
$
870

1 
Recorded in gains (losses) on equity investments, net on the consolidated statement of operations
2 
Includes the translational impact of currency
At March 31, 2020, the total carrying value of Nonmarketable securities included $464 million of measurement alternative investments and $124 million of equity method investments. At December 31, 2019, the total carrying value of Nonmarketable securities included $317 million of measurement alternative investments and $118 million of equity method investments. Cumulative impairments and downward fair value adjustments on measurement alternative investments were $11 million and cumulative upward fair value adjustments were $68 million as of March 31, 2020.
Note 7. Fair Value Measurements
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”). Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature. There were no transfers made among the three levels in the Valuation Hierarchy for the three months ended March 31, 2020.


MASTERCARD MARCH 31, 2020 FORM 10-Q 15


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Recurring Measurements
The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:
 
 
March 31, 2020
 
December 31, 2019
 
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal securities
 
$

 
$
18

 
$

 
$
18

 
$

 
$
15