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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 June 30, 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 July 27, 2020, there were 992,535,773 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and 8,525,104 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 securities and use of proceeds
Item 5.
Other information
Item 6.
Exhibits
-
Signatures
 
 
 
 


2 MASTERCARD JUNE 30, 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 JUNE 30, 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 JUNE 30, 2020 FORM 10-Q 5


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Operations (Unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in millions, except per share data)
Net Revenue
 
$
3,335

 
$
4,113

 
$
7,344

 
$
8,002

Operating Expenses
 
 
 
 
 
 
 
 
General and administrative
 
1,368

 
1,369

 
2,862

 
2,736

Advertising and marketing
 
93

 
225

 
247

 
417

Depreciation and amortization
 
145

 
122

 
289

 
239

Provision for litigation
 
22

 

 
28

 

Total operating expenses
 
1,628

 
1,716

 
3,426

 
3,392

Operating income
 
1,707

 
2,397

 
3,918

 
4,610

Other Income (Expense)
 
 
 
 
 
 
 
 
Investment income
 
8

 
24

 
24

 
51

Gains (losses) on equity investments, net
 
75

 
143

 
(99
)
 
148

Interest expense
 
(101
)
 
(51
)
 
(170
)
 
(97
)
Other income (expense), net
 
1

 
6

 
4

 
10

Total other income (expense)
 
(17
)
 
122

 
(241
)
 
112

Income before income taxes
 
1,690

 
2,519

 
3,677

 
4,722

Income tax expense
 
270

 
471

 
564

 
812

Net Income
 
$
1,420

 
$
2,048

 
$
3,113

 
$
3,910

Basic Earnings per Share
 
$
1.41

 
$
2.01

 
$
3.10

 
$
3.82

Basic weighted-average shares outstanding
 
1,004

 
1,020

 
1,005

 
1,023

Diluted Earnings per Share
 
$
1.41

 
$
2.00

 
$
3.08

 
$
3.80

Diluted weighted-average shares outstanding
 
1,008

 
1,025

 
1,009

 
1,028


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


6 MASTERCARD JUNE 30, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Comprehensive Income (Unaudited)
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
(in millions)
Net Income
 
$
1,420

 
$
2,048

 
$
3,113

 
$
3,910

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
36

 
(34
)
 
(245
)
 
(23
)
Income tax effect
 
15

 

 
29

 
3

Foreign currency translation adjustments, net of income tax effect
 
51

 
(34
)
 
(216
)
 
(20
)
Translation adjustments on net investment hedge
 
(29
)
 
(28
)
 
(9
)
 
8

Income tax effect
 
6

 
6

 
2

 
(2
)
Translation adjustments on net investment hedge, net of income tax effect
 
(23
)
 
(22
)
 
(7
)
 
6

Cash flow hedges
 
1

 

 
(188
)
 

Income tax effect
 
3

 

 
42

 

Cash flow hedges, net of income tax effect
 
4

 

 
(146
)
 

Defined benefit pension and other postretirement plans
 
(1
)
 
(1
)
 
(1
)
 
(1
)
Income tax effect
 

 

 

 

Defined benefit pension and other postretirement plans, net of income tax effect
 
(1
)
 
(1
)
 
(1
)
 
(1
)
Investment securities available-for-sale
 
4

 

 
(3
)
 
4

Income tax effect
 
(2
)
 

 

 
(1
)
Investment securities available-for-sale, net of income tax effect
 
2

 

 
(3
)
 
3

Other comprehensive income (loss), net of tax
 
33

 
(57
)
 
(373
)
 
(12
)
Comprehensive Income
 
$
1,453

 
$
1,991

 
$
2,740

 
$
3,898


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



MASTERCARD JUNE 30, 2020 FORM 10-Q 7


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Balance Sheet (unaudited)
 
 
 
 
 
 
June 30, 2020
 
December 31, 2019
 
 
(in millions, except per share data)
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
11,137

 
$
6,988

Restricted cash for litigation settlement
 
587

 
584

Investments
 
390

 
688

Accounts receivable
 
2,147

 
2,514

Settlement due from customers
 
1,782

 
2,995

Restricted security deposits held for customers
 
1,548

 
1,370

Prepaid expenses and other current assets
 
1,790

 
1,763

Total current assets
 
19,381

 
16,902

Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,224 and $1,100, respectively
 
1,872

 
1,828

Deferred income taxes
 
573

 
543

Goodwill
 
4,081

 
4,021

Other intangible assets, net of accumulated amortization of $1,352 and $1,296, respectively
 
1,480

 
1,417

Other assets
 
4,740

 
4,525

Total Assets
 
$
32,127

 
$
29,236

Liabilities, Redeemable Non-controlling Interests and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
369

 
$
489

Settlement due to customers
 
1,527

 
2,714

Restricted security deposits held for customers
 
1,548

 
1,370

Accrued litigation
 
853

 
914

Accrued expenses
 
4,530

 
5,489

Other current liabilities
 
1,096

 
928

Total current liabilities
 
9,923

 
11,904

Long-term debt
 
12,498

 
8,527

Deferred income taxes
 
83

 
85

Other liabilities
 
3,075

 
2,729

Total Liabilities
 
25,579

 
23,245

Commitments and Contingencies
 

 

Redeemable Non-controlling Interests
 
50

 
74

Stockholders’ Equity
 

 

Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,394 and 1,391 shares issued and 995 and 996 shares outstanding, respectively
 

 

Class B common stock, $0.0001 par value; authorized 1,200 shares, 9 and 11 shares issued and outstanding, respectively
 

 

Additional paid-in-capital
 
4,832

 
4,787

Class A treasury stock, at cost, 399 and 395 shares, respectively
 
(33,604
)
 
(32,205
)
Retained earnings
 
36,288

 
33,984

Accumulated other comprehensive income (loss)
 
(1,046
)
 
(673
)
Mastercard Incorporated Stockholders' Equity
 
6,470

 
5,893

Non-controlling interests
 
28

 
24

Total Equity
 
6,498

 
5,917

Total Liabilities, Redeemable Non-controlling Interests and Equity
 
$
32,127

 
$
29,236


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


8 MASTERCARD JUNE 30, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited)
 
 
Three Months Ended June 30, 2020
 
 
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)
Balance at March 31, 2020
 
$

 
$

 
$
4,735

 
$
(33,531
)
 
$
35,273

 
$
(1,079
)
 
$
5,398

 
$
25

 
$
5,423

Net income
 

 

 

 

 
1,420

 

 
1,420

 

 
1,420

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
3

 
3

Redeemable non-controlling interest adjustments
 

 

 

 

 
(3
)
 

 
(3
)
 

 
(3
)
Other comprehensive income (loss)
 

 

 

 

 

 
33

 
33

 

 
33

Dividends
 

 

 

 

 
(402
)
 

 
(402
)
 

 
(402
)
Purchases of treasury stock
 

 

 

 
(75
)
 

 

 
(75
)
 

 
(75
)
Share-based payments
 

 

 
97

 
2

 

 

 
99

 

 
99

Balance at June 30, 2020
 
$

 
$

 
$
4,832

 
$
(33,604
)
 
$
36,288

 
$
(1,046
)
 
$
6,470

 
$
28

 
$
6,498

 
 
Six Months Ended June 30, 2020
 
 
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)
Balance at December 31, 2019
 
$

 
$

 
$
4,787

 
$
(32,205
)
 
$
33,984

 
$
(673
)
 
$
5,893

 
$
24

 
$
5,917

Net income
 

 

 

 

 
3,113

 

 
3,113

 

 
3,113

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
4

 
4

Redeemable non-controlling interest adjustments
 

 

 

 

 
(5
)
 

 
(5
)
 

 
(5
)
Other comprehensive income (loss)
 

 

 

 

 

 
(373
)
 
(373
)
 

 
(373
)
Dividends
 

 

 

 

 
(804
)
 

 
(804
)
 

 
(804
)
Purchases of treasury stock
 

 

 

 
(1,405
)
 

 

 
(1,405
)
 

 
(1,405
)
Share-based payments
 

 

 
45

 
6

 

 

 
51

 

 
51

Balance at June 30, 2020
 
$

 
$

 
$
4,832

 
$
(33,604
)
 
$
36,288

 
$
(1,046
)
 
$
6,470

 
$
28

 
$
6,498


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



MASTERCARD JUNE 30, 2020 FORM 10-Q 9


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited) - (Continued)
 
 
Three Months Ended June 30, 2019
 
 
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)
Balance at March 31, 2019
 
$

 
$

 
$
4,569

 
$
(27,534
)
 
$
28,806

 
$
(673
)
 
$
5,168

 
$
22

 
$
5,190

Net income
 

 

 

 

 
2,048

 

 
2,048

 

 
2,048

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
5

 
5

Redeemable non-controlling interest adjustments
 

 

 

 

 
(2
)
 

 
(2
)
 

 
(2
)
Other comprehensive income (loss)
 

 

 

 

 

 
(57
)
 
(57
)
 

 
(57
)
Dividends
 

 

 

 

 
(335
)
 

 
(335
)
 

 
(335
)
Purchases of treasury stock
 

 

 

 
(1,920
)
 

 

 
(1,920
)
 

 
(1,920
)
Share-based payments
 

 

 
106

 

 

 

 
106

 

 
106

Balance at June 30, 2019
 
$

 
$

 
$
4,675

 
$
(29,454
)
 
$
30,517

 
$
(730
)
 
$
5,008

 
$
27

 
$
5,035


 
 
Six Months Ended June 30, 2019
 
 
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)
Balance at December 31, 2018
 
$

 
$

 
$
4,580

 
$
(25,750
)
 
$
27,283

 
$
(718
)
 
$
5,395

 
$
23

 
$
5,418

Net income
 

 

 

 

 
3,910

 

 
3,910

 

 
3,910

Activity related to non-controlling interests
 

 

 

 

 

 

 

 
4

 
4

Redeemable non-controlling interest adjustments
 

 

 

 

 
(4
)
 

 
(4
)
 

 
(4
)
Other comprehensive income (loss)
 

 

 

 

 

 
(12
)
 
(12
)
 

 
(12
)
Dividends
 

 

 

 

 
(672
)
 

 
(672
)
 

 
(672
)
Purchases of treasury stock
 

 

 

 
(3,710
)
 

 

 
(3,710
)
 

 
(3,710
)
Share-based payments
 

 

 
95

 
6

 

 

 
101

 

 
101

Balance at June 30, 2019
 
$

 
$

 
$
4,675

 
$
(29,454
)
 
$
30,517

 
$
(730
)
 
$
5,008

 
$
27

 
$
5,035


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


10 MASTERCARD JUNE 30, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Cash Flows (Unaudited)
 
 
 
 
 
 
Six Months Ended June 30,
 
 
2020
 
2019
 
 
(in millions)
Operating Activities
 
 
 
 
Net income
 
$
3,113

 
$
3,910

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Amortization of customer and merchant incentives
 
468

 
623

Depreciation and amortization
 
289

 
239

(Gains) losses on equity investments, net
 
99

 
(148
)
Share-based compensation
 
127

 
130

Deferred income taxes
 
29

 
65

Other
 
(32
)
 
12

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
299

 
(327
)
Settlement due from customers
 
1,213

 
903

Prepaid expenses
 
(679
)
 
(1,015
)
Accrued litigation and legal settlements
 
(61
)
 
(641
)
Restricted security deposits held for customers
 
178

 
(19
)
Accounts payable
 
(82
)
 
(105
)
Settlement due to customers
 
(1,187
)
 
(858
)
Accrued expenses
 
(855
)
 
(13
)
Net change in other assets and liabilities
 
398

 
92

Net cash provided by operating activities
 
3,317

 
2,848

Investing Activities
 
 
 
 
Purchases of investment securities available-for-sale
 
(78
)
 
(386
)
Purchases of investments held-to-maturity
 
(82
)
 
(124
)
Proceeds from sales of investment securities available-for-sale
 
256

 
935

Proceeds from maturities of investment securities available-for-sale
 
100

 
219

Proceeds from maturities of investments held-to-maturity
 
84

 
237

Purchases of property and equipment
 
(201
)
 
(174
)
Capitalized software
 
(191
)
 
(150
)
Purchases of equity investments
 
(150
)
 
(386
)
Acquisition of businesses, net of cash acquired
 
(183
)
 
(723
<