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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, 2021
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
ma-20210331_g1.jpg
Mastercard Incorporated
(Exact name of registrant as specified in its charter)
Delaware13-4172551
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
2000 Purchase Street10577
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 26, 2021, there were 982,905,062 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and 8,142,424 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.



ma-20210331_g2.jpg
MASTERCARD INCORPORATED FORM 10-Q
TABLE OF CONTENTS
PART I
PART II
-

2 MASTERCARD MARCH 31, 2021 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 the global coronavirus (COVID-19) pandemic and measures taken in response
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 a 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 stakeholders (including loss of substantial business from significant customers, competitor relationships with our customers, banking industry consolidation, merchants’ continued focus on acceptance costs and unique risks from our work with 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
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, 2020. 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, 2021 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, 2021 FORM 10-Q 5


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Operations (Unaudited)
 Three Months Ended March 31,
 20212020
 (in millions, except per share data)
Net Revenue$4,155 $4,009 
Operating Expenses
General and administrative1,676 1,494 
Advertising and marketing119 154 
Depreciation and amortization163 144 
Provision for litigation 6 
Total operating expenses1,958 1,798 
Operating income2,197 2,211 
Other Income (Expense)
Investment income1 16 
Gains (losses) on equity investments, net94 (174)
Interest expense(107)(69)
Other income (expense), net5 3 
Total other income (expense)(7)(224)
Income before income taxes2,190 1,987 
Income tax expense362 294 
Net Income$1,828 $1,693 
Basic Earnings per Share$1.84 $1.68 
Basic weighted-average shares outstanding994 1,005 
Diluted Earnings per Share$1.83 $1.68 
Diluted weighted-average shares outstanding998 1,010 

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

6 MASTERCARD MARCH 31, 2021 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Comprehensive Income (Unaudited)
 Three Months Ended March 31,
 20212020
 (in millions)
Net Income$1,828 $1,693 
Other comprehensive income (loss):
Foreign currency translation adjustments(198)(281)
Income tax effect33 14 
Foreign currency translation adjustments, net of income tax effect(165)(267)
Translation adjustments on net investment hedges133 20 
Income tax effect(30)(4)
Translation adjustments on net investment hedge, net of income tax effect103 16 
Cash flow hedges3 (189)
Income tax effect(1)39 
Reclassification adjustments for cash flow hedges1  
Income tax effect  
Cash flow hedges, net of income tax effect3 (150)
Investment securities available-for-sale
1 (7)
Income tax effect 2 
Investment securities available-for-sale, net of income tax effect1 (5)
Other comprehensive income (loss), net of tax(58)(406)
Comprehensive Income$1,770 $1,287 

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


MASTERCARD MARCH 31, 2021 FORM 10-Q 7


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet (unaudited)
March 31, 2021December 31, 2020
 (in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents$7,246 $10,113 
Restricted cash for litigation settlement586 586 
Investments489 483 
Accounts receivable2,648 2,646 
Settlement due from customers1,678 1,706 
Restricted security deposits held for customers1,759 1,696 
Prepaid expenses and other current assets1,999 1,883 
Total current assets16,405 19,113 
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization
of $1,441 and $1,390, respectively
1,850 1,902 
Deferred income taxes459 491 
Goodwill7,051 4,960 
Other intangible assets, net of accumulated amortization of $1,551 and $1,489, respectively
3,321 1,753 
Other assets5,714 5,365 
Total Assets$34,800 $33,584 
Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable$476 $527 
Settlement due to customers1,297 1,475 
Restricted security deposits held for customers1,759 1,696 
Accrued litigation841 842 
Accrued expenses5,200 5,430 
Current portion of long-term debt649 649 
Other current liabilities1,253 1,228 
Total current liabilities11,475 11,847 
Long-term debt13,221 12,023 
Deferred income taxes391 86 
Other liabilities3,260 3,111 
Total Liabilities28,347 27,067 
Commitments and Contingencies
Redeemable Non-controlling Interests28 29 
Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,397 and 1,396 shares issued and 984 and 987 shares outstanding, respectively
  
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding
  
Additional paid-in-capital4,949 4,982 
Class A treasury stock, at cost, 413 and 409 shares, respectively
(38,024)(36,658)
Retained earnings40,140 38,747 
Accumulated other comprehensive income (loss)(738)(680)
Mastercard Incorporated Stockholders' Equity6,327 6,391 
Non-controlling interests98 97 
Total Equity6,425 6,488 
Total Liabilities, Redeemable Non-controlling Interests and Equity$34,800 $33,584 

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

8 MASTERCARD MARCH 31, 2021 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 31, 2021
Stockholders’ Equity
  
Common Stock
Additional
Paid-In
Capital
Class A
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Mastercard Incorporated Stockholders' EquityNon-
Controlling
Interests
Total
Equity
 Class AClass B
 (in millions)
Balance at December 31, 2020$ $ $4,982 $(36,658)$38,747 $(680)$6,391 $97 $6,488 
Net income— — — — 1,828 — 1,828 — 1,828 
Activity related to non-controlling interests— — — — — — — 1 1 
Redeemable non-controlling interest adjustments — — — — (1)— (1)— (1)
Other comprehensive income (loss)— — — — — (58)(58)— (58)
Dividends— — — — (434)— (434)— (434)
Purchases of treasury stock— — — (1,370)— — (1,370)— (1,370)
Share-based payments— — (33)4 — — (29)— (29)
Balance at March 31, 2021$ $ $4,949 $(38,024)$40,140 $(738)$6,327 $98 $6,425 
Three Months Ended March 31, 2020
Stockholders’ Equity
  
Common Stock
Additional
Paid-In
Capital
Class A
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Mastercard Incorporated Stockholders' EquityNon-
Controlling
Interests
Total
Equity
 Class AClass B
 (in millions)
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 

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

MASTERCARD MARCH 31, 2021 FORM 10-Q 9


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statement of Cash Flows (Unaudited)
 Three Months Ended March 31,
 20212020
 (in millions)
Operating Activities
Net income$1,828 $1,693 
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives338 237 
Depreciation and amortization163 144 
(Gains) losses on equity investments, net(94)174 
Share-based compensation65 52 
Deferred income taxes33 26 
Other11 20 
Changes in operating assets and liabilities:
Accounts receivable(70)(3)
Settlement due from customers28 1,831 
Prepaid expenses(562)(331)
Accrued litigation and legal settlements(2)(62)
Restricted security deposits held for customers63 148 
Accounts payable(15)(102)
Settlement due to customers(178)(1,564)
Accrued expenses(163)(622)
Net change in other assets and liabilities18 218 
Net cash provided by operating activities1,463 1,859 
Investing Activities
Purchases of investment securities available-for-sale(155)(74)
Purchases of investments held-to-maturity(38)(45)
Proceeds from sales of investment securities available-for-sale72 179 
Proceeds from maturities of investment securities available-for-sale23 64 
Proceeds from maturities of investments held-to-maturity79 65 
Purchases of property and equipment(65)(131)
Capitalized software(79)(78)
Purchases of equity investments(42)(135)
Acquisition of businesses, net of cash acquired(3,364) 
Settlement of interest rate derivative contracts (175)
Other investing activities9 (177)
Net cash used in investing activities(3,560)(507)
Financing Activities
Purchases of treasury stock(1,356)(1,383)
Dividends paid(439)(403)
Proceeds from debt, net1,282 3,959 
Tax withholdings related to share-based payments(121)(131)
Cash proceeds from exercise of stock options23 31 
Other financing activities5 27 
Net cash (used in) provided by financing activities(606)2,100 
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents(101)(88)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents(2,804)3,364 
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period12,419 8,969 
Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period$9,615 $12,333 

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

10 MASTERCARD MARCH 31, 2021 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, 2021 and December 31, 2020, 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. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2020 was derived from the audited consolidated financial statements as of December 31, 2020. The consolidated financial statements for the three months ended March 31, 2021 and 2020 and as of March 31, 2021 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, 2021 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’s Annual Report on Form 10-K for the year ended December 31, 2020 for additional disclosures, including a summary of the Company’s significant accounting policies.
Note 2. Acquisitions
On March 5, 2021, Mastercard acquired a majority of the Corporate Services business of Nets Denmark A/S for €3.0 billion (approximately $3.6 billion as of the date of acquisition) in cash consideration based on a €2.85 billion enterprise value, adjusted for cash and net working capital at closing. The business acquired is primarily comprised of clearing and instant payment services and e-billing solutions.
In relation to this acquisition, the Company’s preliminary estimate of net assets acquired has been recorded and primarily relates to intangible assets, including goodwill of $2.1 billion, of which $0.8 billion is expected to be deductible for local tax purposes. The goodwill arising from the acquisition is primarily attributable to the synergies expected to arise through geographic, product and customer expansion, the underlying technology and workforce acquired. Refer to Note 1 (Summary of Significant Accounting Policies) 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, 2020 for the valuation techniques Mastercard utilizes to fair value the respective components of business combinations.

MASTERCARD MARCH 31, 2021 FORM 10-Q 11


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is in the process of obtaining additional information necessary to finalize the valuation of the acquired assets and liabilities assumed as of the acquisition date. Therefore, the preliminary fair values set forth below use information available as of March 31, 2021 and are subject to adjustment as additional information is obtained and the valuations are completed. The initial purchase price allocation, as of the acquisition date, is noted below:
(in millions)
Assets:
Cash and cash equivalents$203 
Other current assets15 
Other intangible assets1,622 
Goodwill2,116 
Total assets3,956 
Liabilities:
Other current liabilities70 
Deferred income taxes 319 
Total liabilities389 
Net assets acquired$3,567 
The following table summarizes the identified intangible assets acquired during the three months ended March 31, 2021:
Acquisition Date Fair ValueWeighted-Average Useful Life
(in millions)(in years)
Developed technologies$208 14.7
Customer relationships1,393 19.5
Other21 8.0
Other intangible assets$1,622 18.7
Proforma information related to the acquisition was not included because the impact on the Company’s consolidated results of operations was not considered to be material.
In 2020, the Company acquired several businesses in separate transactions for total consideration of $1.1 billion. As of March 31, 2021, the Company had finalized the purchase accounting for $185 million of the businesses acquired and is evaluating and finalizing the purchase accounting for the remainder of businesses acquired during 2020. For the preliminary estimated and final 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, 2020.
Pending Acquisition
In April 2021, Mastercard entered into a definitive agreement to acquire Ekata, Inc. for $850 million. The acquisition will advance our digital identity verification capabilities. Subject to regulatory review and other customary closing conditions, the acquisition is expected to close within the next six months.

12 MASTERCARD MARCH 31, 2021 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Revenue
The Company’s disaggregated net revenue by source and geographic region were as follows:
Three Months Ended March 31,
20212020
(in millions)
Revenue by source:
Domestic assessments$1,798 $1,683 
Cross-border volume fees932 1,217 
Transaction processing2,351 2,200 
Other revenues1,347 1,062 
Gross revenue6,428 6,162 
Rebates and incentives (contra-revenue)(2,273)(2,153)
Net revenue$4,155 $4,009 
Net revenue by geographic region:
North American Markets$1,491 $1,334 
International Markets2,618 2,633 
Other 1
46 42 
Net revenue$4,155 $4,009 
1    Includes revenues managed by corporate functions.
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. The following table sets forth the location of the amounts recognized on the consolidated balance sheet from contracts with customers:
March 31,
2021
December 31,
2020
(in millions)
Receivables from contracts with customers
Accounts receivable
$2,480 $2,505 
Contract assets
Prepaid expenses and other current assets7259 
Other assets269245 
Deferred revenue 1
Other current liabilities432355 
Other liabilities169143 
1    Revenue recognized from performance obligations satisfied during the three months ended March 31, 2021 and 2020 was $180 million and $189 million, respectively.

MASTERCARD MARCH 31, 2021 FORM 10-Q 13


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,
20212020
(in millions, except per share data)
Numerator
Net income$1,828 $1,693 
Denominator
Basic weighted-average shares outstanding994 1,005 
Dilutive stock options and stock units4 5 
Diluted weighted-average shares outstanding 1
998 1,010 
Earnings per Share
Basic$1.84 $1.68 
Diluted$1.83 $1.68 
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.
March 31,
2021
December 31,
2020
(in millions)
Cash and cash equivalents$7,246 $10,113 
Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement586 586 
Restricted security deposits held for customers1,759 1,696 
Prepaid expenses and other current assets24 24 
Cash, cash equivalents, restricted cash and restricted cash equivalents$9,615 $12,419 
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,
2021
December 31,
2020
(in millions)
Available-for-sale securities $371 $321 
Held-to-maturity securities 118 162 
Total investments $489 $483 

14 MASTERCARD MARCH 31, 2021 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2021December 31, 2020
 Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions)
Municipal securities$9 $ $ $9 $10 $ $ $10 
Government and agency securities124   124 64   64 
Corporate securities237 1  238 246 1  247 
Total$370 $1 $ $371 $320 $1 $ $321 
The Company’s corporate and municipal available-for-sale investment securities held at March 31, 2021 and December 31, 2020 primarily carried a credit rating of A- or better. Corporate securities are comprised of commercial paper and corporate bonds. 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 which are denominated in the national currency of the issuing country. Unrealized gains and losses are recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income.
The maturity distribution based on the contractual terms of the Company’s investment securities at March 31, 2021 was as follows:
 Available-For-Sale
 Amortized CostFair Value
 (in millions)
Due within 1 year$180 $180 
Due after 1 year through 5 years190 191 
Total$370 $371 
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 investment securities. The realized gains and losses from the sales of available-for-sale securities for the three months ended March 31, 2021 and 2020 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.
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, 2020Purchases (Sales), net
Changes in Fair Value 1
Other 2
Balance at March 31, 2021
(in millions)
Marketable securities $476 $ $54 $2 $532 
Nonmarketable securities696 40 40 (3)773 
Total equity investments $1,172 $40 $94 $(1)$1,305 
1Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.
2Includes translational impact of currency.


MASTERCARD MARCH 31, 2021 FORM 10-Q 15


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the components of our Nonmarketable securities:
March 31,
2021
December 31,
2020
(in millions)
Measurement alternative 1
$606 $539 
Equity method
167 157 
Total Nonmarketable securities$773 $696 
1    Cumulative impairments and downward fair value adjustments on measurement alternative investments were $14 million and cumulative upward fair value adjustments were $117 million as of March 31, 2021.
Note 7. Fair Value Measurements
The Company classifies its fair value measurements of financial instruments into a three-level hierarchy (the “Valuation Hierarchy”). Financial instruments are categorized for fair value measurement purposes as recurring or non-recurring in nature. There were no transfers made among the three levels in the Valuation Hierarchy for the three months ended March 31, 2021.
Financial Instruments - Recurring Measurements
The distribution of the Company’s financial instruments measured at fair value on a recurring basis within the Valuation Hierarchy were as follows:
 March 31, 2021December 31, 2020
 Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
TotalQuoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
(in millions)
Assets
Investment securities available for sale 1:
Municipal securities$ $9 $ $9 $ $10 $ $10 
Government and agency securities36 88  124 26 38  64 
Corporate securities 238  238  247  247 
Derivative instruments 2:
Foreign exchange contracts 56  56  19  19 
Marketable securities 3:
Equity securities532   532 476   476 
Deferred compensation plan 4:
Deferred compensation assets80   80 78   78 
Liabilities
Derivative instruments 2:
Foreign exchange derivative liabilities$ $(7)$ $(7)$ $(28)$ $(28)
Deferred compensation plan 5:
Deferred compensation liabilities(79)  (79)(81)  (81)

16 MASTERCARD MARCH 31, 2021 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1The Company’s U.S. government 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. The fair value of the Company’s available-for-sale municipal securities, non-U.S. government and agency securities and corporate securities are based on observable inputs such as quoted prices, benchmark yields and issuer spreads for similar assets in active markets and are therefore included in Level 2 of the Valuation Hierarchy.
2The Company’s foreign exchange derivative asset and liability contracts have been classified within Level 2 of the Valuation Hierarchy as the fair value is based on observable inputs such as broker quotes relating to foreign exchange for similar derivative instruments. See Note 17 (Derivative and Hedging Instruments) for further details.
3The Company’s Marketable securities are publicly held and classified within Level 1 of the Valuation Hierarchy as the fair values are based on unadjusted quoted prices in their respective active markets.
4The Company has a nonqualified deferred compensation plan where assets are invested primarily in mutual funds held in a rabbi trust, which is restricted for payments to participants of the plan. The Company has elected to use the fair value option for these mutual funds, which are measured using quoted prices of identical instruments in active markets and are included in prepaid expenses and other current assets on the consolidated balance sheet.
5The deferred compensation liabilities are measured at fair value based on the quoted prices of identical instruments to the investment vehicles selected by the participants. These are included in other liabilities on the consolidated balance sheet.
Financial Instruments - Non-Recurring Measurements
Nonmarketable Securities
The Company’s Nonmarketable securities are recorded at fair value on a non-recurring basis in periods after initial recognition under the equity method or measurement alternative method. Nonmarketable securities are classified within Level 3 of the Valuation Hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. The Company uses discounted cash flows and market assumptions to estimate the fair value of its Nonmarketable securities when certain events or circumstances indicate that impairment may exist. See Note 6 (Investments) for further details.
Debt
The Company estimates the fair value of its long-term debt based on market quotes. These debt securities are classified as Level 2 of the Valuation Hierarchy as they are not traded in active markets. At March 31, 2021, the carrying value and fair value of total long-term debt (including the current portion) was $13.9 billion and $15.1 billion, respectively. At December 31, 2020, the carrying value and fair value of long-term debt (including the current portion) was $12.7 billion and $14.8 billion, respectively. See Note 10 (Debt) for further details.
Other Financial Instruments
Certain other financial instruments are carried on the consolidated balance sheet at cost or amortized cost basis, 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, accounts payable, settlement due to customers and other accrued liabilities.
Note 8. Prepaid Expenses and Other Assets