MasterCard : Quarterly Report

Table of Contents

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 September 30, 2019

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			(IRS Employer
	incorporation or organization)			Identification Number)
	2000 Purchase Street		10577
	Purchase, NY			(Zip Code)
	(Address of principal executive offices)
				[phone]
			(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	MA		New York Stock Exchange
	1.100% Notes due 2022	MA22		New York Stock Exchange
	2.100% Notes due 2027	MA27		New York Stock Exchange
	2.500% 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 ☐

Table of Contents

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 October 24, 2019, there were 997,449,179 shares outstanding of the registrant's Class A common stock, par value $0.0001 per share; and 11,414,514 shares outstanding of the registrant's Class B common stock, par value $0.0001 per share.

MASTERCARD INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	5
Consolidated Balance Sheet - September 30, 2019 and December 31, 2018	5
Consolidated Statement of Operations - Three and Nine Months Ended September 30, 2019 and 2018	6
Consolidated Statement of Comprehensive Income - Three and Nine Months Ended September 30, 2019 and 2018	7
Consolidated Statement of Changes in Equity - Three and Nine Months Ended September 30, 2019 and 2018	8
Consolidated Statement of Cash Flows - Nine Months Ended September 30, 2019 and 2018	10
Notes to Consolidated Financial Statements	11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4. CONTROLS AND PROCEDURES	44
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	45
ITEM 1A. RISK FACTORS	45
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
ITEM 5. OTHER INFORMATION	45
ITEM 6. EXHIBITS	45
SIGNATURES	47

3

Table of Contents

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, surcharging and the extension of current regulatory activity to additional jurisdictions or products)
• the impact of preferential or protective government actions
• regulation of privacy, data protection, 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 terrorist financing, economic sanctions and anti-corruption;account-based payment systems; issuer practice regulation; and regulation of internet and digital transactions)
• 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-timeaccount-based payment system and to working with new customers and end users
• the impact of information security incidents, account data breaches, fraudulent activity 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)
• the impact of our relationships with other stakeholders, including merchants and governments
• exposure to loss or illiquidity due to our role as guarantor, as well as other contractual obligations
• the impact of global economic, political, financial and societal events and conditions
• reputational impact, including impact related to brand perception
• 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, 2018. 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.

4

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MASTERCARD INCORPORATED CONSOLIDATED BALANCE SHEET (UNAUDITED)

		September 30, 2019			December 31, 2018
		(in millions, except per share data)
ASSETS
Cash and cash equivalents	$	5,101	$	6,682
Restricted cash for litigation settlement		666			553
Investments		751			1,696
Accounts receivable		2,500			2,276
Settlement due from customers		2,723			2,452
Restricted security deposits held for customers		1,173			1,080
Prepaid expenses and other current assets		1,933			1,432
Total Current Assets		14,847			16,171
Property, equipment and right-of-use assets, net of accumulated depreciation of $1,020 and $847, respectively		1,492			921
Deferred income taxes		518			570
Goodwill		3,724			2,904
Other intangible assets, net of accumulated amortization of $1,253 and $1,175, respectively		1,310			991
Other assets		4,090			3,303
Total Assets	$	25,981		$	24,860
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY
Accounts payable	$	505		$	537
Settlement due to customers		2,158			2,189
Restricted security deposits held for customers		1,173			1,080
Accrued litigation		938			1,591
Accrued expenses		4,985			4,747
Current portion of long-term debt		-			500
Other current liabilities		955			949
Total Current Liabilities		10,714			11,593
Long-term debt		7,735			5,834
Deferred income taxes		97			67
Other liabilities		2,386			1,877
Total Liabilities		20,932			19,371

Commitments and Contingencies

Redeemable Non-controlling Interests
Stockholders' Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,390 and 1,387 shares issued and 999 and 1,019
outstanding, respectively
Class B common stock, $0.0001 par value; authorized 1,200 shares, 11 and 12 issued and outstanding, respectively
Additional paid-in-capital
Class A treasury stock, at cost, 391 and 368 shares, respectively
Retained earnings
Accumulated other comprehensive income (loss)
Total Stockholders' Equity
Non-controlling interests
Total Equity
Total Liabilities, Redeemable Non-controlling Interests and Equity	$

74				71
-				-
-			-
4,725				4,580
(31,207)			(25,750)
32,289				27,283
(858)			(718)
4,949				5,395
26				23
4,975				5,418
25,981		$	24,860

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