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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, 2022
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 |
| 1.0% Notes due 2029 | | MA29A | | 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 Section13 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 | ☒ | | Acceleratedfiler | ☐ | | | |
| Non-accelerated filer | ☐ | | Smallerreportingcompany | ☐ | | | |
| | | Emerging growthcompany | ☐ | | | |
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 April25, 2022, there were 964,920,839 shares outstanding of the registrant’s ClassA common stock, par value $0.0001 per share; and 7,723,884 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.
MASTERCARD INCORPORATED FORM 10-Q
TABLE OF CONTENTS
2 MASTERCARD MARCH 31, 2022 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 payments systems, and issuer and acquirer 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 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 payments 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, consolidation amongst our customers, 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
•events and resulting actions related to the Russian invasion of Ukraine
•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 ClassA 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 December31, 2021 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, 2022 FORM 10-Q 3
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Item 1. Consolidated financial statements (unaudited)
Mastercard Incorporated
Index to consolidated financial statements (unaudited)
MASTERCARD MARCH 31, 2022 FORM 10-Q 5
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | | |
Consolidated Statement of Operations (Unaudited) | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
| | | | | | (inmillions,exceptpersharedata) |
| Net Revenue | | | | | | $ | 5,167 | | | $ | 4,155 | |
| Operating Expenses: | | | | | | | | |
| General and administrative | | | | | | 1,844 | | | 1,676 | |
| Advertising and marketing | | | | | | 181 | | | 119 | |
| Depreciation and amortization | | | | | | 192 | | | 163 | |
| | | | | | | | |
| Total operating expenses | | | | | | 2,217 | | | 1,958 | |
| Operating income | | | | | | 2,950 | | | 2,197 | |
| Other Income (Expense): | | | | | | | | |
| Investment income | | | | | | 5 | | | 1 | |
| Gains (losses) on equity investments, net | | | | | | (76) | | | 94 | |
| Interest expense | | | | | | (110) | | | (107) | |
| Other income (expense), net | | | | | | 4 | | | 5 | |
| Total other income (expense) | | | | | | (177) | | | (7) | |
| Income before income taxes | | | | | | 2,773 | | | 2,190 | |
| Income tax expense | | | | | | 142 | | | 362 | |
| Net Income | | | | | | $ | 2,631 | | | $ | 1,828 | |
| Basic Earnings per Share | | | | | | $ | 2.69 | | | $ | 1.84 | |
| Basic weighted-average shares outstanding | | | | | | 977 | | | 994 | |
| Diluted Earnings per Share | | | | | | $ | 2.68 | | | $ | 1.83 | |
| Diluted weighted-average shares outstanding | | | | | | 981 | | | 998 | |
The accompanying notes are an integral part of these consolidated financial statements.
6 MASTERCARD MARCH 31, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | | |
Consolidated Statement of Comprehensive Income (Unaudited) | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
| | | | | | (in millions) |
| Net Income | | | | | | $ | 2,631 | | | $ | 1,828 | |
| Other comprehensive income (loss): | | | | | | | | |
| Foreign currency translation adjustments | | | | | | (64) | | | (198) | |
| Income tax effect | | | | | | 12 | | | 33 | |
| Foreign currency translation adjustments, net of income tax effect | | | | | | (52) | | | (165) | |
| | | | | | | | |
| Translation adjustments on net investment hedges | | | | | | 86 | | | 133 | |
| Income tax effect | | | | | | (19) | | | (30) | |
| Translation adjustments on net investment hedges, net of income tax effect | | | | | | 67 | | | 103 | |
| | | | | | | | |
| Cash flow hedges | | | | | | 1 | | | 3 | |
| Income tax effect | | | | | | — | | | (1) | |
| Reclassification adjustments for cash flow hedges | | | | | | (5) | | | 1 | |
| Income tax effect | | | | | | 1 | | | — | |
| Cash flow hedges, net of income tax effect | | | | | | (3) | | | 3 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Investment securities available-for-sale | | | | | | (2) | | | 1 | |
| Income tax effect | | | | | | 1 | | | — | |
| Investment securities available-for-sale, net of income tax effect | | | | | | (1) | | | 1 | |
| | | | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | 11 | | | (58) | |
| Comprehensive Income | | | | | | $ | 2,642 | | | $ | 1,770 | |
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD MARCH 31, 2022 FORM 10-Q 7
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | |
Consolidated Balance Sheet (Unaudited) | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | (inmillions,exceptper sharedata) |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 6,879 | | | $ | 7,421 | |
| Restricted cash for litigation settlement | | 585 | | | 586 | |
| Investments | | 449 | | | 473 | |
| Accounts receivable | | 2,889 | | | 3,006 | |
| Settlement assets | | 1,101 | | | 1,319 | |
| Restricted security deposits held for customers | | 1,730 | | | 1,873 | |
| Prepaid expenses and other current assets | | 2,320 | | | 2,271 | |
| Total current assets | | 15,953 | | | 16,949 | |
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,679 and $1,614, respectively | | 1,957 | | | 1,907 | |
| Deferred income taxes | | 795 | | | 486 | |
| Goodwill | | 7,625 | | | 7,662 | |
Other intangible assets, net of accumulated amortization of $1,819 and $1,755, respectively | | 3,675 | | | 3,671 | |
| Other assets | | 7,158 | | | 6,994 | |
| Total Assets | | $ | 37,163 | | | $ | 37,669 | |
| Liabilities, Redeemable Non-controlling Interests and Equity | | | | |
| Current liabilities: | | | | |
| Accounts payable | | $ | 666 | | | $ | 738 | |
| Settlement obligations | | 547 | | | 913 | |
| Restricted security deposits held for customers | | 1,730 | | | 1,873 | |
| Accrued litigation | | 797 | | | 840 | |
| Accrued expenses | | 5,954 | | | 6,642 | |
| Current portion of long-term debt | | 778 | | | 792 | |
| Other current liabilities | | 1,456 | | | 1,364 | |
| Total current liabilities | | 11,928 | | | 13,162 | |
| Long-term debt | | 13,868 | | | 13,109 | |
| Deferred income taxes | | 386 | | | 395 | |
| Other liabilities | | 3,851 | | | 3,591 | |
| Total Liabilities | | 30,033 | | | 30,257 | |
| Commitments and Contingencies | | | | |
| Redeemable Non-controlling Interests | | 28 | | | 29 | |
| Stockholders’ Equity | | | | |
ClassA common stock, $0.0001 par value; authorized 3,000 shares, 1,398 and 1,397 shares issued and 967 and 972 shares outstanding, respectively | | — | | | — | |
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding | | — | | | — | |
| Additional paid-in-capital | | 5,026 | | | 5,061 | |
ClassA treasury stock, at cost, 432 and 425 shares, respectively | | (44,994) | | | (42,588) | |
| Retained earnings | | 47,800 | | | 45,648 | |
| Accumulated other comprehensive income (loss) | | (798) | | | (809) | |
| Mastercard Incorporated Stockholders' Equity | | 7,034 | | | 7,312 | |
| Non-controlling interests | | 68 | | | 71 | |
| Total Equity | | 7,102 | | | 7,383 | |
| Total Liabilities, Redeemable Non-controlling Interests and Equity | | $ | 37,163 | | | $ | 37,669 | |
The accompanying notes are an integral part of these consolidated financial statements.
8 MASTERCARD MARCH 31, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statement of Changes in Equity (Unaudited) |
| | Three Months Ended March 31, 2022 |
| | 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 |
| | ClassA | | ClassB | | |
| | (in millions) |
| Balance at December 31, 2021 | | $ | — | | | $ | — | | | $ | 5,061 | | | $ | (42,588) | | | $ | 45,648 | | | $ | (809) | | | $ | 7,312 | | | $ | 71 | | | $ | 7,383 | |
| Net income | | — | | | — | | | — | | | — | | | 2,631 | | | — | | | 2,631 | | | — | | | 2,631 | |
| Activity related to non-controlling interests | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Redeemable non-controlling interest adjustments | | — | | | — | | | — | | | — | | | (2) | | | — | | | (2) | | | — | | | (2) | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | 11 | | | 11 | | | — | | | 11 | |
| Dividends | | — | | | — | | | — | | | — | | | (477) | | | — | | | (477) | | | — | | | (477) | |
| Purchases of treasury stock | | — | | | — | | | — | | | (2,411) | | | — | | | — | | | (2,411) | | | — | | | (2,411) | |
| Share-based payments | | — | | | — | | | (35) | | | 5 | | | — | | | — | | | (30) | | | — | | | (30) | |
| Balance at March 31, 2022 | | $ | — | | | $ | — | | | $ | 5,026 | | | $ | (44,994) | | | $ | 47,800 | | | $ | (798) | | | $ | 7,034 | | | $ | 68 | | | $ | 7,102 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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' Equity | | Non-
Controlling
Interests | | Total
Equity |
| | ClassA | | ClassB | | |
| | (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 | |
The accompanying notes are an integral part of these consolidated financial statements.
MASTERCARD MARCH 31, 2022 FORM 10-Q 9
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | | | | | | | | | | | | | |
Consolidated Statement of Cash Flows (Unaudited) | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| | (in millions) |
| Operating Activities | | | | |
| Net income | | $ | 2,631 | | | $ | 1,828 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Amortization of customer and merchant incentives | | 430 | | | 338 | |
| Depreciation and amortization | | 192 | | | 163 | |
| (Gains) losses on equity investments, net | | 76 | | | (94) | |
| Share-based compensation | | 74 | | | 65 | |
| Deferred income taxes | | (320) | | | 33 | |
| Other | | 5 | | | 11 | |
| Changes in operating assets and liabilities: | | | | |
| Accounts receivable | | 134 | | | (70) | |
| | | | |
| Settlement assets | | 218 | | | 28 | |
| Prepaid expenses | | (441) | | | (562) | |
| Accrued litigation and legal settlements | | (43) | | | (2) | |
| Restricted security deposits held for customers | | (144) | | | 63 | |
| Accounts payable | | (56) | | | (15) | |
| Settlement obligations | | (366) | | | (178) | |
| | | | |
| Accrued expenses | | (746) | | | (163) | |
| Net change in other assets and liabilities | | 138 | | | 18 | |
| Net cash provided by operating activities | | 1,782 | | | 1,463 | |
| Investing Activities | | | | |
| Purchases of investment securities available-for-sale | | (58) | | | (155) | |
| Purchases of investments held-to-maturity | | (37) | | | (38) | |
| Proceeds from sales of investment securities available-for-sale | | 8 | | | 23 | |
| Proceeds from maturities of investment securities available-for-sale | | 70 | | | 72 | |
| Proceeds from maturities of investments held-to-maturity | | 43 | | | 79 | |
| Purchases of property and equipment | | (146) | | | (65) | |
| Capitalized software | | (148) | | | (79) | |
| Purchases of equity investments | | (24) | | | (42) | |
| | | | |
| Acquisition of businesses, net of cash acquired | | — | | | (3,364) | |
| | | | |
| Other investing activities | | 5 | | | 9 | |
| Net cash used in investing activities | | (287) | | | (3,560) | |
| Financing Activities | | | | |
| Purchases of treasury stock | | (2,408) | | | (1,356) | |
| Dividends paid | | (479) | | | (439) | |
| Proceeds from debt, net | | 843 | | | 1,282 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Tax withholdings related to share-based payments | | (132) | | | (121) | |
| Cash proceeds from exercise of stock options | | 28 | | | 23 | |
| Other financing activities | | (6) | | | 5 | |
| Net cash used in financing activities | | (2,154) | | | (606) | |
| Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents | | (28) | | | (101) | |
| Net decrease in cash, cash equivalents, restricted cash and restricted cash equivalents | | (687) | | | (2,804) | |
| Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period | | 9,902 | | | 12,419 | |
| Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period | | $ | 9,215 | | | $ | 9,615 | |
| | | | |
| | | | |
| | | | |
| | | | |
The accompanying notes are an integral part of these consolidated financial statements.
10 MASTERCARD MARCH 31, 2022 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 marketable equity method or measurement alternative method investments and recorded in other assets on the consolidated balance sheet. At March31, 2022 and December31, 2021, 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 on which the Company has obtained a controlling financial interest. Intercompany transactions and balances have been eliminated in consolidation. The Company corrected prior period classifications of certain line items within investing activities on the consolidated statement of cash flows with no impact on total net cash used in investing activities. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December31, 2021 was derived from the audited consolidated financial statements as of December31, 2021. The consolidated financial statements for the three months ended March 31, 2022 and 2021 and as of March31, 2022 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, 2022 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 Mastercard’s Annual Report on Form 10-K for the year ended December31, 2021 for additional disclosures, including a summary of the Company’s significant accounting policies.
Key Developments
Beginning in February 2022, in response to the Russian invasion of Ukraine, the United States and other governments imposed sanctions and other restrictive measures on certain Russian-related entities and individuals and, in March 2022, the Company suspended business operations in Russia. The financial impacts related to these actions were not material to the Company’s overall financial results for the current period.
Note 2. Acquisitions
During the three months ended March 31, 2022, the Company did not acquire any businesses. In 2021, the Company acquired several businesses in separate transactions for total consideration of $4.7 billion. As of March31, 2022, the Company had finalized the purchase accounting for $3.6billion of the businesses acquired and is evaluating and finalizing the purchase accounting for the remainder of businesses acquired during 2021. 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 December31, 2021.
Pending Acquisition
As of March31, 2022, Mastercard has entered into a definitive agreement to acquire Dynamic Yield LTD. This acquisition subsequently closed in April 2022. The Company will begin consolidating the acquisition as of the date acquired.
MASTERCARD MARCH 31, 2022 FORM 10-Q 11
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, |
| | | | | | 2022 | | 2021 |
| | | | | | (in millions) |
| Revenue by source: | | | | | | | | |
| Domestic assessments | | | | | | $ | 2,134 | | | $ | 1,798 | |
| Cross-border volume fees | | | | | | 1,395 | | | 932 | |
| Transaction processing | | | | | | 2,912 | | | 2,351 | |
| Other revenues | | | | | | 1,584 | | | 1,347 | |
| Gross revenue | | | | | | 8,025 | | | 6,428 | |
| Rebates and incentives (contra-revenue) | | | | | | (2,858) | | | (2,273) | |
| Net revenue | | | | | | $ | 5,167 | | | $ | 4,155 | |
| Net revenue by geographic region: | | | | | | | | |
| North American Markets | | | | | | $ | 1,703 | | | $ | 1,491 | |
| International Markets | | | | | | 3,385 | | | 2,618 | |
Other 1 | | | | | | 79 | | | 46 | |
| Net revenue | | | | | | $ | 5,167 | | | $ | 4,155 | |
1Includes 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,
2022 | | December 31,
2021 |
| | (in millions) |
| Receivables from contracts with customers | | | | |
Accounts receivable | | $ | 2,680 | | | $ | 2,829 | |
Contract assets | | | | |
| Prepaid expenses and other current assets | | 148 | | | 134 | |
| Other assets | | 530 | | | 487 | |
Deferred revenue 1 | | | | |
| Other current liabilities | | 586 | | | 482 | |
| Other liabilities | | 203 | | | 180 | |
| | | | |
1Revenue recognized from performance obligations satisfied during the three months ended March 31, 2022 and 2021 was $335 million and $180 million, respectively.
12 MASTERCARD MARCH 31, 2022 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, |
| | | | | | 2022 | | 2021 |
| | | | | | (inmillions,exceptpersharedata) |
| Numerator | | | | | | | | |
| Net income | | | | | | $ | 2,631 | | | $ | 1,828 | |
| Denominator | | | | | | | | |
| Basic weighted-average shares outstanding | | | | | | 977 | | | 994 | |
| Dilutive stock options and stock units | | | | | | 4 | | | 4 | |
Diluted weighted-average shares outstanding 1 | | | | | | 981 | | | 998 | |
| Earnings per Share | | | | | | | | |
| Basic | | | | | | $ | 2.69 | | | $ | 1.84 | |
| Diluted | | | | | | $ | 2.68 | | | $ | 1.83 | |
1For 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,
2022 | | December 31,
2021 |
| | (in millions) |
| Cash and cash equivalents | | $ | 6,879 | | | $ | 7,421 | |
| Restricted cash and restricted cash equivalents | | | | |
| Restricted cash for litigation settlement | | 585 | | | 586 | |
| Restricted security deposits held for customers | | 1,730 | | | 1,873 | |
| Prepaid expenses and other current assets | | 21 | | | 22 | |
| | | | |
| Cash, cash equivalents, restricted cash and restricted cash equivalents | | $ | 9,215 | | | $ | 9,902 | |
| | | | |
| | |
| | | | |
| | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Note 6. Investments
The Company’s investments on the consolidated balance sheet include both available-for-sale and held-to-maturity debt 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,
2022 | | December 31,
2021 |
| | (in millions) |
Available-for-sale securities 1 | | $ | 289 | | | $ | 314 | |
Held-to-maturity securities 2 | | 160 | | | 159 | |
| Total investments | | $ | 449 | | | $ | 473 | |
1See Available-for-Sale Securities section below for further detail.
2The cost of these securities approximates fair value.
MASTERCARD MARCH 31, 2022 FORM 10-Q 13
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, 2022 | | December 31, 2021 |
| | Amortized
Cost | | Gross
Unrealized
Gain | | Gross
Unrealized
Loss | | Fair
Value | | Amortized
Cost | | Gross
Unrealized
Gain | | Gross
Unrealized
Loss | | Fair
Value |
| | (in millions) |
| Municipal securities | | $ | 1 | | | $ | — | | | $ | — | | | $ | 1 | | | $ | 2 | | | $ | — | | | $ | — | | | $ | 2 | |
| Government and agency securities | | 85 | | | — | | | — | | | 85 | | | 98 | | | — | | | — | | | 98 | |
| Corporate securities | | 205 | | | — | | | (2) | | | 203 | | | 214 | | | — | | | — | | | 214 | |
| | | | | | | | | | | | | | | | |
| Total | | $ | 291 | | | $ | — | | | $ | (2) | | | $ | 289 | | | $ | 314 | | | $ | — | | | $ | — | | | $ | 314 | |
The Company’s corporate and municipal available-for-sale investment securities held at March31, 2022 and December31, 2021 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 available-for-sale investment securities at March31, 2022 was as follows:
| | | | | | | | | | | | | | |
| | | | |
| | Amortized Cost | | FairValue |
| | (in millions) |
| Due within 1 year | | $ | 134 | | | $ | 134 | |
| Due after 1 year through 5 years | | 157 | | | 155 | |
| | | | |
| Total | | $ | 291 | | | $ | 289 | |
Investment income on the consolidated statement of operations primarily consists of interest income generated from cash, cash equivalents, time deposits and available-for-sale investment securities, as well as 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, 2022 and 2021 were not material.
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 equity interests in 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, 2021 | | Purchases | | Sales | | Changes in Fair Value 1 | | Other 2 | | Balance at March 31, 2022 |
| | (in millions) |
| Marketable securities | | $ | 627 | | | $ | — | | | $ | — | | | $ | (162) | | | $ | (5) | | | $ | 460 | |
| Nonmarketable securities | | 1,207 | | | 24 | | | — | | | 86 | | | (5) | | | 1,312 | |
| Total equity investments | | $ | 1,834 | | | $ | 24 | | | $ | — | | | $ | (76) | | | $ | (10) | | | $ | 1,772 | |
1Recorded in gains (losses) on equity investments, net on the consolidated statement of operations.
2Includes translational impact of currency.
14 MASTERCARD MARCH 31, 2022 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the components of the Company’s Nonmarketable securities:
| | | | | | | | | | | | | | |
| | March 31,
2022 | | December 31,
2021 |
| | (in millions) |
Measurement alternative | | $ | 1,038 | | | $ | 952 | |
Equity method | | 274 | | | 255 | |
| Total Nonmarketable securities | | $ | 1,312 | | | $ | 1,207 | |
The following table summarizes the total carrying value of the Company’s Measurement alternative investments, including cumulative unrealized gains and losses through March31, 2022:
| | | | | | | | |
| | March 31,
2022 |
| | (in millions) |
Initial cost basis | | $ | 457 | |
Cumulative adjustments: | | |
| Upward adjustments | | 594 | |
| Downward adjustments (including impairment) | | (13) | |
| Carrying amount, end of period | | $ | 1,038 | |
The following table summarizes the unrealized gains and losses included in the carrying value of the Company’s Measurement alternative investments and Marketable securities for the three months ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| | (in millions) |
| Measurement alternative investments: | | | | |
| Upward adjustments | | $ | 86 | | | $ | 41 | |
| Downward adjustments (including impairment) | | — | | | — | |
| Marketable securities: | | | | |
| Unrealized gains/(losses), net | | (162) | | | 54 | |
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.
MASTERCARD MARCH 31, 2022 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, 2022 | | December 31, 2021 |
| | QuotedPrices
in Active
Markets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total | | QuotedPrices
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 | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 2 | | | $ | — | | | $ | 2 | |
| Government and agency securities | | 33 | | | 52 | | | — | | | 85 | | | 35 | | | 63 | | | — | | | 98 | |
| Corporate securities | | — | | | 203 | | | — | | | 203 | | | — | | | 214 | | | — | | | 214 | |
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Derivative instruments 2: | | | | | | | | | | | | | | | | |
| Foreign exchange contracts | | — | | | 43 | | | — | | | 43 | | | — | | | 8 | | | — | | | 8 | |
| Interest rate contracts | | — | | | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
Marketable securities 3: | | | | | | | | | | | | | | | | |
| Equity securities | | 460 | | | — | | | — | | | 460 | | | |
