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Mastercard reported for 2020 q1

Published: 2020-04-29 11:13:34 ET (Before Market Open)
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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, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-32877
mc_logononamea02.jpg
Mastercard Incorporated
(Exact name of registrant as specified in its charter)
Delaware
13-4172551
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification Number)
2000 Purchase Street
10577
Purchase,
NY
(Zip Code)
(Address of principal executive offices)
(914) 249-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange of which registered
Class A Common Stock, par value $0.0001 per share
MA
New York Stock Exchange
1.1% Notes due 2022
MA22
New York Stock Exchange
2.1% Notes due 2027
MA27
New York Stock Exchange
2.5% Notes due 2030
MA30
New York Stock Exchange
Indicate by check mark whether the registrant (1)has filed all reports required to be filed by 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 April24, 2020, there were 993,040,739 shares outstanding of the registrant’s ClassA common stock, par value $0.0001 per share; and 10,699,604 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.



mcsymbola02.jpg
MASTERCARD INCORPORATED FORM 10-Q
TABLE OF CONTENTS
PART I
Item 1.
Consolidated financial statements (unaudited)
Item 2.
Management’s discussion and analysis of financial condition and results of operations
Item 3.
Quantitative and qualitative disclosures about market risk
Item 4.
Controls and procedures
PART II
Item 1.
Legal proceedings
Item 1A.
Risk factors
Item 2.
Unregistered sales of equity proceeds and use of proceeds
Item 5.
Other information
Item 6.
Exhibits
-
Signatures


2 MASTERCARD MARCH 31, 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 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, 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 MARCH 31, 2020 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, 2020 FORM 10-Q 5


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Operations (Unaudited)
Three Months Ended March 31,
2020
2019
(inmillions,exceptpersharedata)
Net Revenue
$
4,009

$
3,889

Operating Expenses
General and administrative
1,494

1,367

Advertising and marketing
154

192

Depreciation and amortization
144

117

Provision for litigation
6


Total operating expenses
1,798

1,676

Operating income
2,211

2,213

Other Income (Expense)
Investment income
16

27

Gains (losses) on equity investments, net
(174
)
5

Interest expense
(69
)
(46
)
Other income (expense), net
3

4

Total other income (expense)
(224
)
(10
)
Income before income taxes
1,987

2,203

Income tax expense
294

341

Net Income
$
1,693

$
1,862

Basic Earnings per Share
$
1.68

$
1.81

Basic weighted-average shares outstanding
1,005

1,026

Diluted Earnings per Share
$
1.68

$
1.80

Diluted weighted-average shares outstanding
1,010

1,032


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


6 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Comprehensive Income (Unaudited)
Three Months Ended March 31,
2020
2019
(in millions)
Net Income
$
1,693

$
1,862

Other comprehensive income (loss):
Foreign currency translation adjustments
(281
)
11

Income tax effect
14

3

Foreign currency translation adjustments, net of income tax effect
(267
)
14

Translation adjustments on net investment hedge
20

36

Income tax effect
(4
)
(8
)
Translation adjustments on net investment hedge, net of income tax effect
16

28

Cash flow hedges
(189
)

Income tax effect
39


Cash flow hedges, net of income tax effect
(150
)

Investment securities available-for-sale
(7
)
4

Income tax effect
2

(1
)
Investment securities available-for-sale, net of income tax effect
(5
)
3

Other comprehensive income (loss), net of tax
(406
)
45

Comprehensive Income
$
1,287

$
1,907


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



MASTERCARD MARCH 31, 2020 FORM 10-Q 7


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Balance Sheet (unaudited)
March31, 2020
December31, 2019
(inmillions,exceptper sharedata)
Assets
Current assets:
Cash and cash equivalents
$
10,207

$
6,988

Restricted cash for litigation settlement
587

584

Investments
477

688

Accounts receivable
2,441

2,514

Settlement due from customers
1,164

2,995

Restricted security deposits held for customers
1,518

1,370

Prepaid expenses and other current assets
1,729

1,763

Total current assets
18,123

16,902

Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,165 and $1,100, respectively
1,901

1,828

Deferred income taxes
550

543

Goodwill
4,070

4,021

Other intangible assets, net of accumulated amortization of $1,312 and $1,296, respectively
1,447

1,417

Other assets
4,557

4,525

Total Assets
$
30,648

$
29,236

Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable
$
371

$
489

Settlement due to customers
1,149

2,714

Restricted security deposits held for customers
1,518

1,370

Accrued litigation
852

914

Accrued expenses
4,676

5,489

Other current liabilities
1,146

928

Total current liabilities
9,712

11,904

Long-term debt
12,466

8,527

Deferred income taxes
82

85

Other liabilities
2,890

2,729

Total Liabilities
25,150

23,245

Commitments and Contingencies


Redeemable Non-controlling Interests
75

74

Stockholders’ Equity


ClassA common stock, $0.0001 par value; authorized 3,000 shares, 1,392 and 1,391 shares issued and 993 and 996 shares outstanding, respectively


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


Additional paid-in-capital
4,735

4,787

ClassA treasury stock, at cost, 399 and 395 shares, respectively
(33,531
)
(32,205
)
Retained earnings
35,273

33,984

Accumulated other comprehensive income (loss)
(1,079
)
(673
)
Mastercard Incorporated Stockholders' Equity
5,398

5,893

Non-controlling interests
25

24

Total Equity
5,423

5,917

Total Liabilities, Redeemable Non-controlling Interests and Equity
$
30,648

$
29,236


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


8 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Changes in Equity (Unaudited)
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, except per share data)
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


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, except per share data)
Balance at December 31, 2018
$

$

$
4,580

$
(25,750
)
$
27,283

$
(718
)
$
5,395

$
23

$
5,418

Net income




1,862


1,862


1,862

Activity related to non-controlling interests







(1
)
(1
)
Redeemable non-controlling interest adjustments




(2
)

(2
)

(2
)
Other comprehensive income (loss)





45

45


45

Dividends




(337
)

(337
)

(337
)
Purchases of treasury stock



(1,790
)


(1,790
)

(1,790
)
Share-based payments


(11
)
6



(5
)

(5
)
Balance at March 31, 2019
$

$

$
4,569

$
(27,534
)
$
28,806

$
(673
)
$
5,168

$
22

$
5,190


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


MASTERCARD MARCH 31, 2020 FORM 10-Q 9


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Cash Flows (Unaudited)
Three Months Ended March 31,
2020
2019
(in millions)
Operating Activities
Net income
$
1,693

$
1,862

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of customer and merchant incentives
237

345

Depreciation and amortization
144

117

(Gains) losses on equity investments, net
174

5

Share-based compensation
52

57

Deferred income taxes
26

38

Other
20

1

Changes in operating assets and liabilities:
Accounts receivable
(3
)
(320
)
Settlement due from customers
1,831

1,026

Prepaid expenses
(331
)
(497
)
Accrued litigation and legal settlements
(62
)
1

Restricted security deposits held for customers
148

(35
)
Accounts payable
(102
)
(22
)
Settlement due to customers
(1,564
)
(1,000
)
Accrued expenses
(622
)
(483
)
Net change in other assets and liabilities
218

217

Net cash provided by operating activities
1,859

1,312

Investing Activities
Purchases of investment securities available-for-sale
(74
)
(305
)
Purchases of investments held-to-maturity
(45
)
(99
)
Proceeds from sales of investment securities available-for-sale
179

476

Proceeds from maturities of investment securities available-for-sale
64

139

Proceeds from maturities of investments held-to-maturity
65

155

Purchases of property and equipment
(131
)
(83
)
Capitalized software
(78
)
(59
)
Purchases of equity investments
(135
)

Settlement of interest rate derivative contracts
(175
)

Other investing activities
(177
)
(11
)
Net cash (used in) provided by investing activities
(507
)
213

Financing Activities
Purchases of treasury stock
(1,383
)
(1,824
)
Dividends paid
(403
)
(340
)
Proceeds from debt, net
3,959


Tax withholdings related to share-based payments
(131
)
(116
)
Cash proceeds from exercise of stock options
31

54

Other financing activities
27

3

Net cash provided by (used in) financing activities
2,100

(2,223
)
Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents
(88
)
(54
)
Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents
3,364

(752
)
Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
8,969

8,337

Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
$
12,333

$
7,585


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


10 MASTERCARD MARCH 31, 2020 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 March31, 2020 and December31, 2019, 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. Certain prior period amounts have been reclassified to conform to the 2020 presentation. The Company follows accounting principles generally accepted in the United States of America (“GAAP”).
The balance sheet as of December31, 2019 was derived from the audited consolidated financial statements as of December31, 2019. The consolidated financial statements for the three months ended March 31, 2020 and 2019 and as of March31, 2020 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, 2020 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 Incorporated Annual Report on Form 10-K for the year ended December31, 2019 for additional disclosures, including a summary of the Company’s significant accounting policies.
Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. These financial statements were prepared using information reasonably available as of March 31, 2020 and through the date of this Report. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from these estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors.
For the three months ended March 31, 2020 and 2019, net losses from non-controlling interests were not material and, as a result, amounts are included in the consolidated statement of operations within other income (expense).
Accounting pronouncements not yet adopted
Simplifying the accounting for income taxes -In December 2019, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance to simplify the accounting for income taxes. This guidance includes the removal of certain exceptions to the general income tax accounting principles and provides clarity and simplification to other areas of income tax accounting by amending the existing guidance. The guidance is effective for periods beginning after December 15, 2020. The Company expects to adopt this guidance effective January 1, 2021 and is in the process of evaluating the potential effects this will have on its consolidated financial statements.
Reference Rate Reform -In March 2020, the FASB issued accounting guidance to provide temporary optional expedients and exceptions to the current contract modifications and hedge accounting guidance in light of the expected market transition from LIBOR to alternative rates. The new guidance provides optional expedients and exceptions to transactions affected by reference rate reform if certain criteria are met. The transactions primarily include (1) contract modifications, (2) hedging relationships, and (3) sale or transfer of debt securities classified as held-to-maturity. The amendments were effective immediately upon issuance of the update. Companies may elect to adopt the amendments prospectively to transactions existing as of or entered from the date of adoption through December 31, 2022. The Company is in the process of evaluating the amendments, impacted contracts, and the potential effects of this will have on its consolidated financial statements.


MASTERCARD MARCH 31, 2020 FORM 10-Q 11


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Acquisitions
In 2019, the Company acquired several businesses in separate transactions for total consideration of $1.5 billion. As of March31, 2020, the Company has finalized the purchase accounting for certain businesses acquired during 2019 for total consideration of$783 million. For the final and preliminary estimated 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, 2019.
In August 2019, Mastercard entered into a definitive agreement to acquire the majority of the Corporate Services business of Nets Denmark A/S, for 2.85 billion (approximately $3.16 billion as of March31, 2020) after adjusting for cash and certain other liabilities at closing. The pending acquisition primarily comprises the clearing and instant payment services, and e-billing solutions of Nets Denmark A/S’s Corporate Services business. While the Company anticipates completing the acquisition in the third quarter of 2020, the transaction is subject to regulatory approval and other customary closing conditions.
Note 3. Revenue
The Company’s disaggregated net revenue by source and geographic region were as follows:
Three Months Ended March 31,
2020
2019
(in millions)
Revenue by source:
Domestic assessments
$
1,683

$
1,605

Cross-border volume fees
1,217

1,263

Transaction processing
2,200

1,922

Other revenues
1,062

842

Gross revenue
6,162

5,632

Rebates and incentives (contra-revenue)
(2,153
)
(1,743
)
Net revenue
$
4,009

$
3,889

Net revenue by geographic region:
North American Markets
$
1,334

$
1,347

International Markets
2,633

2,506

Other 1
42

36

Net revenue
$
4,009

$
3,889

1
Includes revenues managed by corporate functions.
Receivables from contracts with customers of $2.3 billion at both March31, 2020 and December31, 2019 are recorded within accounts receivable on the consolidated balance sheet. 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.
Contract assets are included in prepaid expenses and other current assets and other assets on the consolidated balance sheet at March31, 2020 in the amounts of $52 million and $162 million, respectively. The comparable amounts included in prepaid expenses and other current assets and other assets at December31, 2019 were $48 million and $152 million, respectively.
Deferred revenue is included in other current liabilities and other liabilities on the consolidated balance sheet at March31, 2020 in the amounts of $384 million and $161 million, respectively. The comparable amounts included in other current liabilities and other liabilities at December31, 2019 were $238 million and $106 million, respectively. Revenue recognized from performance obligations satisfied during the three months ended March 31, 2020 and 2019 was $189 million and $185 million, respectively.


12 MASTERCARD MARCH 31, 2020 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,
2020
2019
(inmillions,exceptpersharedata)
Numerator
Net income
$
1,693

$
1,862

Denominator
Basic weighted-average shares outstanding
1,005

1,026

Dilutive stock options and stock units
5

6

Diluted weighted-average shares outstanding1
1,010

1,032

Earnings per Share
Basic
$
1.68

$
1.81

Diluted
$
1.68

$
1.80


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.
December 31,
2019
2018
(in millions)
Cash and cash equivalents
$
6,988

$
6,682

Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement
584

553

Restricted security deposits held for customers
1,370

1,080

Prepaid expenses and other current assets
27

22

Cash, cash equivalents, restricted cash and restricted cash equivalents - beginning of period
$
8,969

$
8,337

March 31,
2020
2019
(in millions)
Cash and cash equivalents
$
10,207

$
5,857

Restricted cash and restricted cash equivalents
Restricted cash for litigation settlement
587

662

Restricted security deposits held for customers
1,518

1,044

Prepaid expenses and other current assets
21

22

Cash, cash equivalents, restricted cash and restricted cash equivalents - end of period
$
12,333

$
7,585




MASTERCARD MARCH 31, 2020 FORM 10-Q 13


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:
March31,
2020
December31,
2019
(in millions)
Available-for-sale securities
$
414

$
591

Held-to-maturity securities
63

97

Total investments
$
477

$
688


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:
March31, 2020
December31, 2019
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in millions)
Municipal securities
$
18

$

$

$
18

$
15

$

$

$
15

Government and agency securities
18



18

108



108

Corporate securities
315


(5
)
310

381

1


382

Asset-backed securities
68



68

85

1


86

Total
$
419

$

$
(5
)
$
414

$
589

$
2

$

$
591


The Company’s available-for-sale investment securities held at March31, 2020 and December31, 2019 primarily carried a credit rating of A- or better with unrealized gains and losses recorded as a separate component of other comprehensive income (loss) on the consolidated statement of comprehensive income. The 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 with similar credit quality to that of the U.S. government bonds. Corporate securities are comprised of commercial paper and corporate bonds. The asset-backed securities are investments in bonds which are collateralized primarily by automobile loan receivables.
The maturity distribution based on the contractual terms of the Company’s investment securities at March31, 2020 was as follows:
Available-For-Sale
Amortized Cost
FairValue
(in millions)
Due within 1 year
$
105

$
105

Due after 1 year through 5 years
314

309

Total
$
419

$
414


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 debt securities. The realized gains and losses from the sales of available-for-sale securities for the three months ended March 31, 2020 and 2019 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.


14 MASTERCARD MARCH 31, 2020 FORM 10-Q


PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2019
Purchases (Sales), net
Changes in Fair Value 1
Other 2
Balance at March 31, 2020
(in millions)
Marketable securities
$
479

$

$
(177
)
$
(20
)
$
282

Nonmarketable securities
435

137

3

13

588

Total equity investments
$
914

$
137

$
(174