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

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.

MASTERCARD INCORPORATED FORM 10-Q

TABLE OF CONTENTS

PART I	5	Item 1.	Consolidated financial statements (unaudited)
	28	Item 2.	Management’s discussion and analysis of financial condition and results of operations
	41	Item 3.	Quantitative and qualitative disclosures about market risk
	41	Item 4.	Controls and procedures
PART II	43	Item 1.	Legal proceedings
	43	Item 1A.	Risk factors
	43	Item 2.	Unregistered sales of equity securities and use of proceeds
	44	Item 5.	Other information
	44	Item 6.	Exhibits
	46	-	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
Consolidated Statement of Operations — Three and Six Months Ended June 30, 2020 and 2019	6
Consolidated Statement of Comprehensive Income — Three and Six Months Ended June 30, 2020 and 2019	7
Consolidated Balance Sheet — June 30, 2020 and December 31, 2019	8
Consolidated Statement of Changes in Equity - Three and Six Months Ended June 30, 2020 and 2019	9
Consolidated Statement of Cash Flows — Six Months Ended June 30, 2020 and 2019	11
Notes to consolidated financial statements	12

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 <