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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2023
Or
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☐
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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)
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Delaware |
13-4172551 |
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(State or other jurisdiction of incorporation or
organization) |
(IRS Employer Identification Number) |
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2000 Purchase Street |
10577 |
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Purchase, |
NY |
(Zip Code) |
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(Address of principal executive offices) |
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(914) 249-2000
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading Symbol
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Name of each exchange of which registered
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Class A Common Stock, par value $0.0001 per share
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MA
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New York Stock Exchange
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2.1% Notes due 2027 |
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MA27
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New York Stock Exchange
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1.0% Notes due 2029 |
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MA29A
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New York Stock Exchange
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2.5% Notes due 2030 |
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MA30
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New York Stock Exchange
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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.
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Yes
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☒
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No
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☐
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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)
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Yes
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☒
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No
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☐
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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):
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| Large
accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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Emerging growth company |
☐ |
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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.
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☐ |
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act)
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Yes |
☐ |
No |
☒ |
As of April 24, 2023, there were 940,404,217 shares
outstanding of the registrant’s Class A common stock, par
value $0.0001 per share; and 7,448,384 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, 2023 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 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)
•the
impact of global economic, political, financial and societal events
and conditions, including adverse currency fluctuations and foreign
exchange controls as well as events and resulting actions related
to the Russian invasion of Ukraine
•the
impact of the global COVID-19 pandemic and measures taken in
response
•reputational
impact, including impact related to brand perception and lack of
visibility of our brands in products and services
•the
impact of environmental, social and governance matters and related
stakeholder reaction
•the
inability to attract 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
•exposure
to loss or illiquidity due to our role as guarantor and other
contractual obligations
•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, 2022. 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, 2023 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, 2023 FORM 10-Q
5
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Consolidated Statement of Operations (Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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(in millions, except per share data) |
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Net Revenue |
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$ |
5,748 |
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$ |
5,167 |
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Operating Expenses: |
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General and administrative |
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2,043 |
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1,844 |
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Advertising and marketing |
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167 |
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181 |
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Depreciation and amortization |
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191 |
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192 |
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Provision for litigation |
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211 |
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— |
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Total operating expenses |
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2,612 |
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|
2,217 |
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Operating income |
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3,136 |
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|
2,950 |
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Other Income (Expense): |
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Investment income |
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55 |
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5 |
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Gains (losses) on equity investments, net |
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(212) |
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(76) |
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Interest expense |
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(132) |
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(110) |
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Other income (expense), net |
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6 |
|
|
4 |
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Total other income (expense) |
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(283) |
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|
(177) |
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Income before income taxes |
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2,853 |
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|
2,773 |
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Income tax expense |
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|
492 |
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|
142 |
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Net Income |
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$ |
2,361 |
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$ |
2,631 |
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Basic Earnings per Share |
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$ |
2.48 |
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$ |
2.69 |
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Basic weighted-average shares outstanding |
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|
953 |
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|
977 |
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Diluted Earnings per Share |
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$ |
2.47 |
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$ |
2.68 |
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Diluted weighted-average shares outstanding |
|
|
|
|
|
956 |
|
|
981 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
6
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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Consolidated Statement of Comprehensive Income
(Unaudited)
|
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Three Months Ended March 31, |
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2023 |
|
2022 |
|
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|
|
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|
(in millions) |
|
Net Income |
|
|
|
|
|
$ |
2,361 |
|
|
$ |
2,631 |
|
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Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
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Foreign currency translation adjustments |
|
|
|
|
|
94 |
|
|
(64) |
|
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Income tax effect |
|
|
|
|
|
(14) |
|
|
12 |
|
|
Foreign currency translation adjustments, net of income tax
effect |
|
|
|
|
|
80 |
|
|
(52) |
|
|
|
|
|
|
|
|
|
|
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Translation adjustments on net investment hedges |
|
|
|
|
|
(74) |
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|
86 |
|
|
Income tax effect |
|
|
|
|
|
17 |
|
|
(19) |
|
|
Translation adjustments on net investment hedges, net of income tax
effect |
|
|
|
|
|
(57) |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges |
|
|
|
|
|
(10) |
|
|
1 |
|
|
Income tax effect |
|
|
|
|
|
— |
|
|
— |
|
|
Reclassification adjustments for cash flow hedges |
|
|
|
|
|
8 |
|
|
(5) |
|
|
Income tax effect |
|
|
|
|
|
1 |
|
|
1 |
|
|
Cash flow hedges, net of income tax effect |
|
|
|
|
|
(1) |
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
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|
|
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|
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Investment securities available-for-sale
|
|
|
|
|
|
2 |
|
|
(2) |
|
|
Income tax effect |
|
|
|
|
|
— |
|
|
1 |
|
|
Investment securities available-for-sale, net of income tax
effect |
|
|
|
|
|
2 |
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of income tax
effect |
|
|
|
|
|
24 |
|
|
11 |
|
|
Comprehensive Income |
|
|
|
|
|
$ |
2,385 |
|
|
$ |
2,642 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
MASTERCARD MARCH 31, 2023 FORM 10-Q
7
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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|
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|
Consolidated Balance Sheet (Unaudited)
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
|
(in millions, except per
share data) |
|
Assets |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,566 |
|
|
$ |
7,008 |
|
|
Restricted cash for litigation settlement |
|
596 |
|
|
589 |
|
|
Investments |
|
402 |
|
|
400 |
|
|
Accounts receivable |
|
3,511 |
|
|
3,425 |
|
|
Settlement assets |
|
1,236 |
|
|
1,270 |
|
|
Restricted security deposits held for customers |
|
1,608 |
|
|
1,568 |
|
|
Prepaid expenses and other current assets |
|
2,501 |
|
|
2,346 |
|
|
Total current assets |
|
16,420 |
|
|
16,606 |
|
|
Property, equipment and right-of-use assets, net of accumulated
depreciation and amortization
of $2,002 and $1,904, respectively
|
|
2,006 |
|
|
2,006 |
|
|
Deferred income taxes |
|
1,267 |
|
|
1,151 |
|
|
Goodwill |
|
7,575 |
|
|
7,522 |
|
|
Other intangible assets, net of accumulated amortization of $2,018
and $1,960, respectively
|
|
4,027 |
|
|
3,859 |
|
|
Other assets |
|
7,641 |
|
|
7,580 |
|
|
Total Assets |
|
$ |
38,936 |
|
|
$ |
38,724 |
|
|
Liabilities, Redeemable Non-controlling Interests and
Equity |
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
|
$ |
735 |
|
|
$ |
926 |
|
|
Settlement obligations |
|
870 |
|
|
1,111 |
|
|
Restricted security deposits held for customers |
|
1,608 |
|
|
1,568 |
|
|
Accrued litigation |
|
1,107 |
|
|
1,094 |
|
|
Accrued expenses |
|
7,310 |
|
|
7,801 |
|
|
Short-term debt |
|
276 |
|
|
274 |
|
|
Other current liabilities |
|
1,745 |
|
|
1,397 |
|
|
Total current liabilities |
|
13,651 |
|
|
14,171 |
|
|
Long-term debt |
|
15,292 |
|
|
13,749 |
|
|
Deferred income taxes |
|
389 |
|
|
393 |
|
|
Other liabilities |
|
4,197 |
|
|
4,034 |
|
|
Total Liabilities |
|
33,529 |
|
|
32,347 |
|
|
Commitments and Contingencies |
|
|
|
|
|
Redeemable Non-controlling Interests |
|
21 |
|
|
21 |
|
|
Stockholders’ Equity |
|
|
|
|
|
Class A common stock, $0.0001 par value; authorized 3,000
shares, 1,400 and 1,399 shares issued and 941 and 948 shares
outstanding, respectively
|
|
— |
|
|
— |
|
|
Class B common stock, $0.0001 par value; authorized 1,200 shares, 7
and 8 shares issued and outstanding, respectively
|
|
— |
|
|
— |
|
|
Additional paid-in-capital |
|
5,376 |
|
|
5,298 |
|
|
Class A treasury stock, at cost, 459 and 451 shares,
respectively
|
|
(54,241) |
|
|
(51,354) |
|
|
Retained earnings |
|
55,424 |
|
|
53,607 |
|
|
Accumulated other comprehensive income (loss) |
|
(1,229) |
|
|
(1,253) |
|
|
Mastercard Incorporated Stockholders' Equity |
|
5,330 |
|
|
6,298 |
|
|
Non-controlling interests |
|
56 |
|
|
58 |
|
|
Total Equity |
|
5,386 |
|
|
6,356 |
|
|
Total Liabilities, Redeemable Non-controlling Interests and
Equity |
|
$ |
38,936 |
|
|
$ |
38,724 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
8
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Changes in Equity
(Unaudited)
|
|
|
|
Three Months Ended March 31, 2023 |
|
|
Stockholders’ Equity |
|
|
|
|
|
|
|
Common Stock |
|
Additional
Paid-In
Capital |
|
Class A
Treasury
Stock |
|
Retained
Earnings |
|
Accumulated
Other
Comprehensive
Income (Loss) |
|
Mastercard Incorporated Stockholders' Equity |
|
Non-
Controlling
Interests |
|
Total
Equity |
|
|
|
Class A |
|
Class B |
|
|
|
|
|
(in millions) |
|
Balance at December 31, 2022 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,298 |
|
|
$ |
(51,354) |
|
|
$ |
53,607 |
|
|
$ |
(1,253) |
|
|
$ |
6,298 |
|
|
$ |
58 |
|
|
$ |
6,356 |
|
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,361 |
|
|
— |
|
|
2,361 |
|
|
— |
|
|
2,361 |
|
|
Activity related to non-controlling interests |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2) |
|
|
(2) |
|
|
Redeemable non-controlling interest adjustments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
— |
|
|
(3) |
|
|
— |
|
|
(3) |
|
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
24 |
|
|
24 |
|
|
— |
|
|
24 |
|
|
Dividends |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(541) |
|
|
— |
|
|
(541) |
|
|
— |
|
|
(541) |
|
|
Purchases of treasury stock |
|
— |
|
|
— |
|
|
— |
|
|
(2,894) |
|
|
— |
|
|
— |
|
|
(2,894) |
|
|
— |
|
|
(2,894) |
|
|
Share-based payments |
|
— |
|
|
— |
|
|
78 |
|
|
7 |
|
|
— |
|
|
— |
|
|
85 |
|
|
— |
|
|
85 |
|
|
Balance at March 31, 2023 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,376 |
|
|
$ |
(54,241) |
|
|
$ |
55,424 |
|
|
$ |
(1,229) |
|
|
$ |
5,330 |
|
|
$ |
56 |
|
|
$ |
5,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
Class A |
|
Class B |
|
|
|
|
|
(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 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
MASTERCARD MARCH 31, 2023 FORM 10-Q
9
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
2022 |
|
|
|
(in millions) |
|
Operating Activities |
|
|
|
|
|
Net income |
|
$ |
2,361 |
|
|
$ |
2,631 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
Amortization of customer and merchant incentives |
|
378 |
|
|
430 |
|
|
Depreciation and amortization |
|
191 |
|
|
192 |
|
|
(Gains) losses on equity investments, net |
|
212 |
|
|
76 |
|
|
Share-based compensation |
|
108 |
|
|
74 |
|
|
Deferred income taxes |
|
(129) |
|
|
(320) |
|
|
Other |
|
2 |
|
|
5 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
|
(38) |
|
|
134 |
|
|
|
|
|
|
|
Settlement assets |
|
35 |
|
|
218 |
|
|
Prepaid expenses |
|
(761) |
|
|
(441) |
|
|
Accrued litigation and legal settlements |
|
9 |
|
|
(43) |
|
|
Restricted security deposits held for customers |
|
40 |
|
|
(144) |
|
|
Accounts payable |
|
(184) |
|
|
(56) |
|
|
Settlement obligations |
|
(241) |
|
|
(366) |
|
|
|
|
|
|
|
Accrued expenses |
|
(506) |
|
|
(746) |
|
|
|
|
|
|
|
Net change in other assets and liabilities |
|
442 |
|
|
138 |
|
|
Net cash provided by operating activities |
|
1,919 |
|
|
1,782 |
|
|
Investing Activities |
|
|
|
|
|
Purchases of investment securities available-for-sale |
|
(50) |
|
|
(58) |
|
|
Purchases of investments held-to-maturity |
|
(26) |
|
|
(37) |
|
|
Proceeds from sales of investment securities
available-for-sale |
|
4 |
|
|
8 |
|
|
Proceeds from maturities of investment securities
available-for-sale |
|
51 |
|
|
70 |
|
|
Proceeds from maturities of investments
held-to-maturity |
|
24 |
|
|
43 |
|
|
Purchases of property and equipment |
|
(110) |
|
|
(146) |
|
|
Capitalized software |
|
(242) |
|
|
(148) |
|
|
Purchases of equity investments |
|
(22) |
|
|
(24) |
|
|
Proceeds from sales of equity investments |
|
44 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Other investing activities |
|
(70) |
|
|
5 |
|
|
Net cash used in investing activities |
|
(397) |
|
|
(287) |
|
|
Financing Activities |
|
|
|
|
|
Purchases of treasury stock |
|
(2,878) |
|
|
(2,408) |
|
|
Dividends paid |
|
(545) |
|
|
(479) |
|
|
Proceeds from debt, net |
|
1,489 |
|
|
843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withholdings related to share-based payments |
|
(76) |
|
|
(132) |
|
|
Cash proceeds from exercise of stock options |
|
53 |
|
|
28 |
|
|
Other financing activities |
|
2 |
|
|
(6) |
|
|
Net cash used in financing activities |
|
(1,955) |
|
|
(2,154) |
|
|
Effect of exchange rate changes on cash, cash equivalents,
restricted cash and restricted cash equivalents |
|
37 |
|
|
(28) |
|
|
Net decrease in cash, cash equivalents, restricted cash and
restricted cash equivalents |
|
(396) |
|
|
(687) |
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents - beginning of period |
|
9,196 |
|
|
9,902 |
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents - end of period |
|
$ |
8,800 |
|
|
$ |
9,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
10
MASTERCARD MARCH 31, 2023 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. Mastercard connects consumers, financial
institutions, merchants, governments, digital partners, businesses
and other organizations worldwide by enabling electronic forms of
payment instead of cash and checks and making those payment
transactions safe, simple, smart and accessible.
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 March 31, 2023
and December 31, 2022, 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.
During the fourth quarter of 2022, the Company updated its
disaggregated net revenue presentation by category and geography to
reflect the nature of its payment services and to align such
information with the way in which management views its categories
of net revenue. Prior period amounts have been reclassified to
conform to the 2022 presentation. The reclassification had no
impact on previously reported total net revenue, operating income
or net income. The Company follows accounting principles generally
accepted in the United States of America (“GAAP”).
The balance sheet as of December 31, 2022 was derived from the
audited consolidated financial statements as of December 31,
2022. The consolidated financial statements for the three months
ended March 31, 2023 and 2022 and as of March 31, 2023 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, 2023 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 December 31, 2022 for additional
disclosures, including a summary of the Company’s significant
accounting policies.
Note 2. Acquisitions
In April 2022, Mastercard acquired 100% equity interest in Dynamic
Yield LTD. As of March 31, 2023, the Company finalized the
purchase price accounting of $325 million for this
acquisition. For the
preliminary estimated fair value of the purchase price allocation
as of the acquisition date, 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, 2022.
MASTERCARD MARCH 31, 2023 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 category and geographic
region were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(in millions) |
|
Net revenue by category: |
|
|
|
|
|
|
|
|
|
Payment network |
|
$ |
3,650 |
|
|
$ |
3,399 |
|
|
|
|
|
|
Value-added services and solutions |
|
2,098 |
|
|
1,768 |
|
|
|
|
|
|
Net revenue |
|
$ |
5,748 |
|
|
$ |
5,167 |
|
|
|
|
|
|
Net revenue by geographic region: |
|
|
|
|
|
|
|
|
|
North American Markets |
|
$ |
1,896 |
|
|
$ |
1,730 |
|
|
|
|
|
|
International Markets |
|
3,852 |
|
|
3,437 |
|
|
|
|
|
|
Net revenue |
|
$ |
5,748 |
|
|
$ |
5,167 |
|
|
|
|
|
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,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Receivables from contracts with customers |
|
|
|
|
|
Accounts receivable
|
|
$ |
3,271 |
|
|
$ |
3,213 |
|
|
Contract assets
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
142 |
|
|
118 |
|
|
Other assets |
|
511 |
|
|
442 |
|
|
Deferred revenue
1
|
|
|
|
|
|
Other current liabilities |
|
634 |
|
|
434 |
|
|
Other liabilities |
|
266 |
|
|
248 |
|
|
|
|
|
|
1 Revenue
recognized from performance obligations satisfied during the three
months ended March 31, 2023 was $371 million.
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, |
|
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(in millions, except per share data) |
|
Numerator |
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
$ |
2,361 |
|
|
$ |
2,631 |
|
|
Denominator |
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding |
|
|
|
|
|
953 |
|
|
977 |
|
|
Dilutive stock options and stock units |
|
|
|
|
|
3 |
|
|
4 |
|
|
Diluted weighted-average shares outstanding
1
|
|
|
|
|
|
956 |
|
|
981 |
|
|
Earnings per Share |
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
$ |
2.48 |
|
|
$ |
2.69 |
|
|
Diluted |
|
|
|
|
|
$ |
2.47 |
|
|
$ |
2.68 |
|
Note: Table may not sum due to rounding.
1 For
the periods presented, the calculation of diluted EPS excluded a
minimal amount of anti-dilutive share-based payment
awards.
12
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Cash and cash equivalents |
|
$ |
6,566 |
|
|
$ |
7,008 |
|
|
Restricted cash and restricted cash equivalents |
|
|
|
|
|
Restricted cash for litigation settlement |
|
596 |
|
|
589 |
|
|
Restricted security deposits held for customers |
|
1,608 |
|
|
1,568 |
|
|
Prepaid expenses and other current assets |
|
30 |
|
|
31 |
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash and restricted cash
equivalents |
|
$ |
8,800 |
|
|
$ |
9,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Available-for-sale securities
1
|
|
$ |
271 |
|
|
$ |
272 |
|
|
Held-to-maturity securities
2
|
|
131 |
|
|
128 |
|
|
Total investments |
|
$ |
402 |
|
|
$ |
400 |
|
1See
Available-for-Sale Securities section below for further
detail.
2The
cost of these securities approximates fair value.
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, 2023 |
|
December 31, 2022 |
|
|
|
Amortized
Cost |
|
Gross
Unrealized
Gain |
|
Gross
Unrealized
Loss |
|
Fair
Value |
|
Amortized
Cost |
|
Gross
Unrealized
Gain |
|
Gross
Unrealized
Loss |
|
Fair
Value |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and agency securities |
|
$ |
96 |
|
|
$ |
— |
|
|
$ |
(1) |
|
|
$ |
95 |
|
|
$ |
91 |
|
|
$ |
— |
|
|
$ |
(2) |
|
|
$ |
89 |
|
|
Corporate securities |
|
179 |
|
|
— |
|
|
(3) |
|
|
176 |
|
|
187 |
|
|
— |
|
|
(4) |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
275 |
|
|
$ |
— |
|
|
$ |
(4) |
|
|
$ |
271 |
|
|
$ |
278 |
|
|
$ |
— |
|
|
$ |
(6) |
|
|
$ |
272 |
|
The Company’s 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. Corporate available-for-sale
investment securities held at March 31, 2023 and
December 31, 2022 primarily carried a credit rating of A- or
better. Corporate securities are comprised of commercial paper and
corporate bonds. Unrealized gains and losses are recorded as a
separate component of other comprehensive income (loss) on the
consolidated statement of comprehensive income.
MASTERCARD MARCH 31, 2023 FORM 10-Q
13
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The maturity distribution based on the contractual terms of the
Company’s available-for-sale investment securities at
March 31, 2023 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
Fair Value |
|
|
|
(in millions) |
|
Due within 1 year |
|
$ |
156 |
|
|
$ |
155 |
|
|
Due after 1 year through 5 years |
|
119 |
|
|
116 |
|
|
|
|
|
|
|
Total |
|
$ |
275 |
|
|
$ |
271 |
|
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, 2023 and 2022 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, 2022 |
|
Purchases |
|
Sales |
|
Changes in Fair Value
1
|
|
Other
2
|
|
Balance at March 31, 2023 |
|
|
(in millions) |
|
Marketable securities |
|
$ |
399 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(66) |
|
|
$ |
3 |
|
|
$ |
336 |
|
|
Nonmarketable securities |
|
1,331 |
|
|
22 |
|
|
(44) |
|
|
(146) |
|
|
4 |
|
|
1,167 |
|
|
Total equity investments |
|
$ |
1,730 |
|
|
$ |
22 |
|
|
$ |
(44) |
|
|
$ |
(212) |
|
|
$ |
7 |
|
|
$ |
1,503 |
|
1Recorded
in gains (losses) on equity investments, net on the consolidated
statement of operations.
2Includes
translational impact of currency.
The following table sets forth the components of the Company’s
Nonmarketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Measurement alternative
|
|
$ |
958 |
|
|
$ |
1,087 |
|
|
Equity method
|
|
209 |
|
|
244 |
|
|
Total Nonmarketable securities |
|
$ |
1,167 |
|
|
$ |
1,331 |
|
The following table summarizes the total carrying value of the
Company’s Measurement alternative investments, including cumulative
unrealized gains and losses through March 31,
2023:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
Initial cost basis
|
|
$ |
504 |
|
|
Cumulative adjustments
1:
|
|
|
|
Upward adjustments |
|
620 |
|
|
Downward adjustments (including impairment) |
|
(166) |
|
|
Carrying amount, end of period |
|
$ |
958 |
|
|
|
|
1
Includes immaterial translational impact of currency.
14
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(in millions) |
|
Measurement alternative investments: |
|
|
|
|
|
|
|
|
|
Upward adjustments |
|
|
|
|
|
$ |
— |
|
|
$ |
86 |
|
|
Downward adjustments (including impairment) |
|
|
|
|
|
(133) |
|
|
— |
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
Unrealized gains (losses), net |
|
|
|
|
|
(66) |
|
|
(162) |
|
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, 2023 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, 2023 |
|
December 31, 2022 |
|
|
|
Quoted Prices
in Active
Markets
(Level 1) |
|
Significant
Other
Observable
Inputs
(Level 2) |
|
Significant
Unobservable
Inputs
(Level 3) |
|
Total |
|
Quoted 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government and agency securities |
|
$ |
31 |
|
|
$ |
64 |
|
|
$ |
— |
|
|
$ |
95 |
|
|
$ |
35 |
|
|
$ |
54 |
|
|
$ |
— |
|
|
$ |
89 |
|
|
Corporate securities |
|
— |
|
|
176 |
|
|
— |
|
|
176 |
|
|
— |
|
|
183 |
|
|
— |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
— |
|
|
47 |
|
|
— |
|
|
47 |
|
|
— |
|
|
108 |
|
|
— |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
336 |
|
|
— |
|
|
— |
|
|
336 |
|
|
399 |
|
|
— |
|
|
— |
|
|
399 |
|
|
Deferred compensation plan
4:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets |
|
81 |
|
|
— |
|
|
— |
|
|
81 |
|
|
74 |
|
|
— |
|
|
— |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
— |
|
|
$ |
43 |
|
|
$ |
— |
|
|
$ |
43 |
|
|
$ |
— |
|
|
$ |
21 |
|
|
$ |
— |
|
|
$ |
21 |
|
|
Interest rate contracts |
|
— |
|
|
89 |
|
|
— |
|
|
89 |
|
|
— |
|
|
105 |
|
|
— |
|
|
105 |
|
|
Deferred compensation plan
5:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liabilities |
|
80 |
|
|
— |
|
|
— |
|
|
80 |
|
|
73 |
|
|
— |
|
|
— |
|
|
73 |
|
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 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 and interest rate 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 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 - Nonrecurring Measurements
Nonmarketable Securities
The Company’s Nonmarketable securities are recorded at fair value
on a nonrecurring 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.
16
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Debt
The Company estimates the fair value of its debt based on either
market quotes or observable market data. Debt is classified as
Level 2 of the Valuation Hierarchy as it is generally not traded in
active markets. At March 31, 2023, the carrying value and fair
value of debt was $15.6 billion and $14.6 billion, respectively. At
December 31, 2022, the carrying value and fair value of debt
was $14.0 billion and $12.7 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 assets, restricted
security deposits held for customers, accounts payable, settlement
obligations and other accrued liabilities.
Note 8. Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Customer and merchant incentives |
|
$ |
1,448 |
|
|
$ |
1,392 |
|
|
Prepaid income taxes |
|
25 |
|
|
34 |
|
|
Other |
|
1,028 |
|
|
920 |
|
|
Total prepaid expenses and other current assets |
|
$ |
2,501 |
|
|
$ |
2,346 |
|
Other assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Customer and merchant incentives |
|
$ |
4,715 |
|
|
$ |
4,578 |
|
|
Equity investments |
|
1,503 |
|
|
1,730 |
|
|
Income taxes receivable |
|
691 |
|
|
633 |
|
|
Other |
|
732 |
|
|
639 |
|
|
Total other assets |
|
$ |
7,641 |
|
|
$ |
7,580 |
|
Customer and merchant incentives represent payments made to
customers and merchants under business agreements. Payments made
directly related to entering into such an agreement are generally
capitalized and amortized over the life of the
agreement.
Note 9. Accrued Expenses and Accrued Litigation
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
|
|
(in millions) |
|
Customer and merchant incentives |
|
$ |
5,619 |
|
|
$ |
5,600 |
|
|
Personnel costs |
|
589 |
|
|
1,322 |
|
|
Income and other taxes |
|
588 |
|
|
279 |
|
|
Other |
|
514 |
|
|
600 |
|
|
Total accrued expenses |
|
$ |
7,310 |
|
|
$ |
7,801 |
|
Customer and merchant incentives represent amounts to be paid to
customers under business agreements. As of March 31, 2023 and
December 31, 2022, long-term customer and merchant incentives
included in other liabilities were $2,433 million and $2,293
million, respectively.
As of March 31, 2023 and December 31, 2022, the Company’s
provision for litigation was $1,107 million and $1,094 million,
respectively. These amounts are not included in the accrued
expenses table above and are separately reported as accrued
litigation on the consolidated balance sheet. See Note 15 (Legal
and Regulatory Proceedings) for additional information regarding
the Company’s accrued litigation.
MASTERCARD MARCH 31, 2023 FORM 10-Q
17
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
Effective
Interest Rate |
|
|
|
|
|
(in millions) |
|
|
|
Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 USD Notes |
|
4.875 |
% |
Senior Notes due March 2028 |
|
$ |
750 |
|
|
$ |
— |
|
|
5.003 |
% |
|
|
4.850 |
% |
Senior Notes due March 2033 |
|
750 |
|
|
— |
|
|
4.923 |
% |
|
|
|
|
|
|
|
|
|
|
|
2022 EUR Notes
1
|
|
1.000 |
% |
Senior Notes due February 2029 |
|
815 |
|
|
800 |
|
|
1.138 |
% |
|
|
|
|
|
|
|
|
|
|
|
2021 USD Notes |
|
2.000 |
% |
Senior Notes due November 2031 |
|
750 |
|
|
750 |
|
|
2.112 |
% |
|
|
1.900 |
% |
Senior Notes due March 2031 |
|
600 |
|
|
600 |
|
|
1.981 |
% |
|
|
2.950 |
% |
Senior Notes due March 2051 |
|
700 |
|
|
700 |
|
|
3.013 |
% |
|
|
|
|
|
|
|
|
|
|
|
2020 USD Notes |
|
3.300 |
% |
Senior Notes due March 2027 |
|
1,000 |
|
|
1,000 |
|
|
3.420 |
% |
|
|
3.350 |
% |
Senior Notes due March 2030 |
|
1,500 |
|
|
1,500 |
|
|
3.430 |
% |
|
|
3.850 |
% |
Senior Notes due March 2050 |
|
1,500 |
|
|
1,500 |
|
|
3.896 |
% |
|
|
|
|
|
|
|
|
|
|
|
2019 USD Notes |
|
2.950 |
% |
Senior Notes due June 2029 |
|
1,000 |
|
|
1,000 |
|
|
3.030 |
% |
|
|
3.650 |
% |
Senior Notes due June 2049 |
|
1,000 |
|
|
1,000 |
|
|
3.689 |
% |
|
|
2.000 |
% |
Senior Notes due March 2025 |
|
750 |
|
|
750 |
|
|
2.147 |
% |
|
|
|
|
|
|
|
|
|
|
|
2018 USD Notes |
|
3.500 |
% |
Senior Notes due February 2028 |
|
500 |
|
|
500 |
|
|
3.598 |
% |
|
|
3.950 |
% |
Senior Notes due February 2048 |
|
500 |
|
|
500 |
|
|
3.990 |
% |
|
|
|
|
|
|
|
|
|
|
|
2016 USD Notes |
|
2.950 |
% |
Senior Notes due November 2026 |
|
750 |
|
|
750 |
|
|
3.044 |
% |
|
|
3.800 |
% |
Senior Notes due November 2046 |
|
600 |
|
|
600 |
|
|
3.893 |
% |
|
|
|
|
|
|
|
|
|
|
|
2015 EUR Notes
2
|
|
2.100 |
% |
Senior Notes due December 2027 |
|
870 |
|
|
854 |
|
|
2.189 |
% |
|
|
2.500 |
% |
Senior Notes due December 2030 |
|
163 |
|
|
160 |
|
|
2.562 |
% |
|
|
|
|
|
|
|
|
|
|
|
2014 USD Notes |
|
3.375 |
% |
Senior Notes due April 2024 |
|
1,000 |
|
|
1,000 |
|
|
3.484 |
% |
|
|
|
|
|
|
|
|
|
|
|
Other Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 INR Term Loan
3
|
|
8.640 |
% |
Term Loan due July 2023 |
|
277 |
|
|
275 |
|
|
9.090 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,775 |
|
|
14,239 |
|
|
|
|
Less: Unamortized discount and debt issuance costs |
(118) |
|
|
(111) |
|
|
|
|
Less: Cumulative hedge accounting fair value adjustments
4
|
|
(89) |
|
|
(105) |
|
|
|
|
Total debt outstanding |
15,568 |
|
|
14,023 |
|
|
|
|
Less: Short-term debt
5
|
|
(276) |
|
|
(274) |
|
|
|
|
Long-term debt |
$ |
15,292 |
|
|
$ |
13,749 |
|
|
|
1
€750 million euro-denominated debt issued in February
2022.
2
€950 million euro-denominated debt remaining of the
€1.650 billion issued in December 2015.
3
INR22.7 billion Indian rupee-denominated loan issued in July
2022.
4
The Company has an interest rate swap which is accounted for as a
fair value hedge. See Note 17 (Derivative and Hedging Instruments)
for additional information.
5
The INR Term Loan due July 2023 is classified as short-term debt on
the consolidated balance sheet as of March 31, 2023 and
December 31, 2022.
Senior Notes
In March 2023, the Company issued $750 million principal amount of
notes due March 2028 and $750 million principal amount of notes due
March 2033 (collectively the “2023 USD Notes”). The net proceeds
from the issuance of the 2023 USD Notes, after deducting the
original issue discount, underwriting discount and offering
expenses, were $1.489 billion.
18
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The Senior Notes described above are not subject to any financial
covenants and may be redeemed in whole, or in part, at the
Company’s option at any time for a specified make-whole amount.
These notes are senior unsecured obligations and would rank equally
with any future unsecured and unsubordinated
indebtedness.
Indian Rupee (“INR”) Term Loan
In July 2022, the Company entered into an unsecured INR22.7 billion
($277 million as of March 31, 2023) term loan due July 2023
(the “2022 INR Term Loan”). The net proceeds of the 2022 INR Term
Loan, after deducting issuance costs, were INR22.6 billion ($284
million as of the date of settlement).
In April 2023, the Company entered into an additional unsecured
INR4.97 billion ($61 million as of the date of settlement) term
loan, also due July 2023 (the “2023 INR Term Loan”). The net
proceeds of the 2023 INR Term Loan, after deducting issuance costs,
were INR4.96 billion ($61 million as of the date of
settlement).
The Company obtained the INR Term Loans to serve as economic hedges
to offset possible changes in the value of INR-denominated monetary
assets due to foreign exchange fluctuations. The INR Term Loans are
not subject to any financial covenants and they may be repaid in
whole at the Company’s option at any time for a specified
make-whole amount.
Note 11. Stockholders' Equity
Dividends
The Company declared quarterly cash dividends on its Class A and
Class B common stock as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(in millions, except per share data) |
|
Dividends declared per share |
|
|
|
|
|
$ |
0.57 |
|
|
$ |
0.49 |
|
|
Total dividends declared |
|
|
|
|
|
$ |
541 |
|
|
$ |
477 |
|
Common Stock Activity
The following table presents the changes in the Company’s
outstanding Class A and Class B common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
|
Outstanding Shares |
|
Outstanding Shares |
|
|
|
Class A |
|
Class B |
|
Class A |
|
Class B |
|
|
(in millions) |
|
Balance at beginning of period |
|
948.4 |
|
|
7.6 |
|
|
972.1 |
|
|
7.8 |
|
|
Purchases of treasury stock |
|
(8.0) |
|
|
— |
|
|
(6.8) |
|
|
— |
|
|
Share-based payments |
|
0.9 |
|
|
— |
|
|
1.1 |
|
|
— |
|
|
Conversion of Class B to Class A common stock |
|
0.1 |
|
|
(0.1) |
|
|
0.1 |
|
|
(0.1) |
|
|
Balance at end of period |
|
941.4 |
|
|
7.5 |
|
|
966.5 |
|
|
7.7 |
|
MASTERCARD MARCH 31, 2023 FORM 10-Q
19
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In December 2022 and November 2021, the Company’s Board of
Directors approved share repurchase programs of its Class A common
stock authorizing the Company to repurchase up to $9.0 billion and
$8.0 billion, respectively. The following table summarizes the
Company’s share repurchases of its Class A common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
(in millions, except per share data) |
|
Dollar-value of shares repurchased
1
|
|
$ |
2,878 |
|
|
$ |
2,408 |
|
|
Shares repurchased |
|
8.0 |
|
|
6.8 |
|
|
Average price paid per share |
|
$ |
361.70 |
|
|
$ |
355.13 |
|
1The
three months ended March 31, 2023 dollar-value of shares
repurchased does not include a 1% excise tax on share repurchases
that became effective January 1, 2023. The incremental tax is
recorded in treasury stock on the consolidated balance sheet and is
payable annually beginning in 2024.
As of March 31, 2023, the remaining authorization under the
share repurchase programs approved by the Company’s Board of
Directors was $9.3 billion.
Note 12. Accumulated Other Comprehensive Income (Loss)
The changes in the balances of each component of accumulated other
comprehensive income (loss), net of tax, for the three months ended
March 31, 2023 and 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
Increase / (Decrease) |
|
Reclassifications |
|
March 31, 2023 |
|
|
(in millions) |
|
Foreign currency translation adjustments
1
|
|
$ |
(1,414) |
|
|
$ |
80 |
|
|
$ |
— |
|
|
$ |
(1,334) |
|
|
Translation adjustments on net investment hedges
2
|
|
309 |
|
|
(57) |
|
|
— |
|
|
252 |
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
3
|
|
(8) |
|
|
(10) |
|
|
8 |
|
|
(10) |
|
|
Interest rate contracts |
|
(123) |
|
|
— |
|
|
1 |
|
|
(122) |
|
|
Defined benefit pension and other postretirement plans |
|
(11) |
|
|
— |
|
|
— |
|
|
(11) |
|
|
Investment securities available-for-sale |
|
(6) |
|
|
2 |
|
|
— |
|
|
(4) |
|
|
Accumulated other comprehensive income (loss) |
|
$ |
(1,253) |
|
|
$ |
15 |
|
|
$ |
9 |
|
|
$ |
(1,229) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Increase / (Decrease) |
|
Reclassifications |
|
March 31, 2022 |
|
|
(in millions) |
|
Foreign currency translation adjustments
1
|
|
$ |
(739) |
|
|
$ |
(52) |
|
|
$ |
— |
|
|
$ |
(791) |
|
|
Translation adjustments on net investment hedges
2
|
|
34 |
|
|
67 |
|
|
— |
|
|
101 |
|
|
Cash flow hedges |
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
3
|
|
4 |
|
|
1 |
|
|
(5) |
|
|
— |
|
|
Interest rate contracts |
|
(128) |
|
|
— |
|
|
1 |
|
|
(127) |
|
|
Defined benefit pension and other postretirement plans |
|
21 |
|
|
— |
|
|
— |
|
|
21 |
|
|
Investment securities available-for-sale |
|
(1) |
|
|
(1) |
|
|
— |
|
|
(2) |
|
|
Accumulated other comprehensive income (loss) |
|
$ |
(809) |
|
|
$ |
15 |
|
|
$ |
(4) |
|
|
$ |
(798) |
|
1During
the three months ended March 31, 2023, the decrease in
the
accumulated other comprehensive
loss related
to foreign currency translation adjustments
was driven primarily by the appreciation of the euro and British
pound against the U.S. dollar. During
the three months ended March 31, 2022, the
increase in the accumulated other comprehensive loss related to
foreign currency translation adjustments was driven
primarily
by the depreciation of the euro
and British pound against
the U.S. dollar, partially offset by the appreciation of the
Brazilian real against the U.S. dollar.
2During
the three months ended March 31, 2023,
the decrease in the
accumulated other comprehensive
gain
related to the net investment hedges was
driven by the appreciation of the euro against the U.S. dollar.
During the three months ended March 31, 2022,
the
increase in the accumulated other comprehensive gain related to the
net investment hedges was driven
by the depreciation of the euro against the U.S.
dollar.
See Note 17 (Derivative and Hedging Instruments) for additional
information.
3Certain
foreign exchange derivative contracts are designated as cash flow
hedging instruments. Gains and losses resulting from changes in the
fair value of these contracts are deferred in accumulated other
comprehensive income (loss) and subsequently reclassified to the
consolidated statement of operations when the underlying hedged
transactions impact earnings. See Note 17 (Derivative and Hedging
Instruments) for additional information.
20
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Share-Based Payments
During the three months ended March 31, 2023, the Company granted
the following awards under the Mastercard Incorporated 2006 Long
Term Incentive Plan, amended and restated as of June 22, 2021 (the
“LTIP”). The LTIP is a stockholder-approved plan that permits the
grant of various types of equity awards to employees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants in 2023 |
|
Weighted-Average
Grant-Date
Fair Value |
|
|
(in millions) |
|
(per option/unit) |
|
Non-qualified stock options |
|
0.3 |
|
$ |
123 |
|
|
Restricted stock units |
|
1.1 |
|
$ |
349 |
|
|
Performance stock units |
|
0.2 |
|
$ |
365 |
|
The Company used the Black-Scholes option pricing model to
determine the grant-date fair value of stock options and calculated
the expected life and the expected volatility based on historical
Mastercard information. The expected life of stock options granted
in 2023 was estimated to be six years, while the expected
volatility was determined to be 29.6%. These awards expire ten
years from the date of grant and vest ratably over three
years.
The fair value of restricted stock units (“RSUs”) is determined and
fixed on the grant date based on the Company’s Class A common stock
price, adjusted for the exclusion of dividend equivalents. For RSUs
granted in 2023, the awards generally vest ratably over three
years.
The Company used the Monte Carlo simulation valuation model to
determine the grant-date fair value of performance stock units
(“PSUs”) granted. PSUs vest after three years from the date of
grant and are subject to a mandatory one-year deferral period,
during which vested PSUs are eligible for dividend
equivalents.
Compensation expense is recorded net of estimated forfeitures over
the shorter of the vesting period or the date the individual
becomes eligible to retire under the LTIP. The Company uses the
straight-line method of attribution over the requisite service
period for expensing equity awards.
Note 14. Income Taxes
The effective income tax rates were 17.2% and 5.1% for the three
months ended March 31, 2023 and 2022, respectively. The higher
effective income tax rate for the three months ended March 31,
2023, versus the comparable period in 2022, was primarily due to a
prior year discrete tax benefit related to final U.S. tax
regulations published in the first quarter of 2022, which resulted
in a valuation allowance release of $333 million associated with
the U.S. foreign tax credit carryforward deferred tax asset.
Additionally, the U.K. statutory tax rate increase, effective in
2023, contributed to the higher effective income tax
rate.
The Company is subject to tax in the United States, Belgium,
Singapore, the United Kingdom and various other foreign
jurisdictions, as well as state and local jurisdictions. Uncertain
tax positions are reviewed on an ongoing basis and are adjusted
after considering facts and circumstances, including progress of
tax audits, developments in case law and closing of statutes of
limitation. Within the next twelve months, the Company believes
that the resolution of certain federal, foreign and state and local
examinations is reasonably possible and that a change in estimate,
reducing unrecognized tax benefits, may occur. While such a change
may be significant, it is not possible to provide a range of the
potential change until the examinations progress further or the
related statutes of limitation expire. The Company has effectively
settled its U.S. federal income tax obligations through 2014. With
limited exception, the Company is no longer subject to state and
local or foreign examinations by tax authorities for years before
2011.
Note 15. Legal and Regulatory Proceedings
Mastercard is a party to legal and regulatory proceedings with
respect to a variety of matters in the ordinary course of
business. Some of these proceedings are based on complex
claims involving substantial uncertainties and unascertainable
damages. Accordingly, except as discussed below, it is not
possible to determine the probability of loss or estimate damages,
and therefore, Mastercard has not established reserves for any of
these proceedings. When the Company determines that a loss is both
probable and reasonably estimable, Mastercard records a liability
and discloses the amount of the liability if it is material. When a
material loss contingency is only reasonably possible, Mastercard
does not record a liability, but instead discloses the nature and
the amount of the claim, and an estimate of the loss or range of
loss, if such an estimate can be made. Unless otherwise stated
below with respect to these matters, Mastercard cannot provide an
estimate of the possible loss or range of loss based on one or more
of the following reasons: (1) actual or potential plaintiffs have
not claimed an amount of monetary damages or the amounts are
unsupportable or exaggerated, (2) the matters are in early stages,
(3) there is uncertainty as to the outcome of pending appeals or
motions, (4) there are significant factual issues to be resolved,
(5) the existence in many such proceedings of multiple defendants
or potential defendants whose share of any potential financial
responsibility has yet to be determined and/or (6) there are novel
legal issues presented. Furthermore, except as identified with
respect to the matters below, Mastercard does not believe that the
outcome of any individual existing legal or regulatory proceeding
to which it is a party will have a material adverse effect on its
results of operations, financial condition and overall business.
However, an adverse judgment or other outcome or settlement
with
MASTERCARD MARCH 31, 2023 FORM 10-Q
21
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
respect to any proceedings discussed below could result in fines or
payments by Mastercard and/or could require Mastercard to change
its business practices. In addition, an adverse outcome in a
regulatory proceeding could lead to the filing of civil damage
claims and possibly result in significant damage awards. Any of
these events could have a material adverse effect on Mastercard’s
results of operations, financial condition and overall
business.
Interchange Litigation and Regulatory Proceedings
Mastercard’s interchange fees and other practices are subject to
regulatory, legal review and/or challenges in a number of
jurisdictions, including the proceedings described below. When
taken as a whole, the resulting decisions, regulations and
legislation with respect to interchange fees and acceptance
practices may have a material adverse effect on the Company’s
prospects for future growth and its overall results of operations,
financial position and cash flows.
United States.
In June 2005, the first of a series of complaints were filed on
behalf of merchants (the majority of the complaints were styled as
class actions, although a few complaints were filed on behalf of
individual merchant plaintiffs) against Mastercard International,
Visa U.S.A., Inc., Visa International Service Association and a
number of financial institutions. Taken together, the claims in the
complaints were generally brought under both Sections 1 and 2 of
the Sherman Act, which prohibit monopolization and attempts or
conspiracies to monopolize a particular industry, and some of these
complaints contain unfair competition law claims under state law.
The complaints allege, among other things, that Mastercard, Visa,
and certain financial institutions conspired to set the price of
interchange fees, enacted point of sale acceptance rules (including
the “no surcharge” rule) in violation of antitrust laws and engaged
in unlawful tying and bundling of certain products and services,
resulting in merchants paying excessive costs for the acceptance of
Mastercard and Visa credit and debit cards. The cases were
consolidated for pre-trial proceedings in the U.S. District Court
for the Eastern District of New York in MDL No. 1720. The
plaintiffs filed a consolidated class action complaint seeking
treble damages.
In July 2006, the group of purported merchant class plaintiffs
filed a supplemental complaint alleging that Mastercard’s initial
public offering of its Class A Common Stock in May 2006 (the “IPO”)
and certain purported agreements entered into between Mastercard
and financial institutions in connection with the IPO: (1) violate
U.S. antitrust laws and (2) constituted a fraudulent conveyance
because the financial institutions allegedly attempted to release,
without adequate consideration, Mastercard’s right to assess them
for Mastercard’s litigation liabilities. The class plaintiffs
sought treble damages and injunctive relief including, but not
limited to, an order reversing and unwinding the IPO.
In February 2011, Mastercard and Mastercard International entered
into each of: (1) an omnibus judgment sharing and settlement
sharing agreement with Visa Inc., Visa U.S.A. Inc. and Visa
International Service Association and a number of financial
institutions; and (2) a Mastercard settlement and judgment sharing
agreement with a number of financial institutions. The
agreements provide for the apportionment of certain costs and
liabilities which Mastercard, the Visa parties and the financial
institutions may incur, jointly and/or severally, in the event of
an adverse judgment or settlement of one or all of the merchant
litigation cases. Among a number of scenarios addressed by the
agreements, in the event of a global settlement involving the Visa
parties, the financial institutions and Mastercard, Mastercard
would pay 12% of the monetary portion of the settlement. In the
event of a settlement involving only Mastercard and the financial
institutions with respect to their issuance of Mastercard cards,
Mastercard would pay 36% of the monetary portion of such
settlement.
In October 2012, the parties entered into a definitive settlement
agreement with respect to the merchant class litigation (including
with respect to the claims related to the IPO) and the defendants
separately entered into a settlement agreement with the individual
merchant plaintiffs. The settlements included cash payments that
were apportioned among the defendants pursuant to the omnibus
judgment sharing and settlement sharing agreement described above.
Mastercard also agreed to provide class members with a short-term
reduction in default credit interchange rates and to modify certain
of its business practices, including its no surcharge rule. The
court granted final approval of the settlement in December 2013,
and objectors to the settlement appealed that decision to the U.S.
Court of Appeals for the Second Circuit. In June 2016, the court of
appeals vacated the class action certification, reversed the
settlement approval and sent the case back to the district court
for further proceedings. The court of appeals’ ruling was based
primarily on whether the merchants were adequately represented by
counsel in the settlement. As a result of the appellate court
ruling, the district court divided the merchants’ claims into two
separate classes - monetary damages claims (the “Damages Class”)
and claims seeking changes to business practices (the “Rules Relief
Class”). The court appointed separate counsel for each
class.
In September 2018, the parties to the Damages Class litigation
entered into a class settlement agreement to resolve the Damages
Class claims. The time period during which Damages Class members
were permitted to opt out of the class settlement agreement ended
in July 2019 with merchants representing slightly more than 25% of
the Damages Class interchange volume choosing to opt out of the
settlement. The district court granted final approval of the
settlement in December 2019, which was upheld by the appellate
court in March 2023. The objectors to the settlement currently have
the opportunity to petition the U.S. Supreme Court to hear an
appeal of this order. Mastercard has commenced settlement
negotiations with a number of the opt-out merchants and has reached
settlements and/or agreements in principle to settle a number of
these claims.
Separately, settlement negotiations with the Rules Relief Class are
ongoing. Briefing on summary judgment motions in the Rules Relief
Class and opt-out merchant cases was completed in December 2020. In
September 2021, the district court granted the Rules Relief Class’s
motion for class certification.
22
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2023 and December 31, 2022, Mastercard
had accrued a liability of $1,094 million and $894 million,
respectively, as a reserve for both the Damages Class litigation
and the opt-out merchant cases. During the first quarter of 2023,
Mastercard recorded an additional accrual of $211 million as a
result of a change in estimate with respect to the claims of
merchants who opted out of the Damages Class litigation. As of
March 31, 2023 and December 31, 2022, Mastercard had $596
million and $589 million, respectively, in a qualified cash
settlement fund related to the Damages Class litigation and
classified as restricted cash on its consolidated balance sheet.
The reserve as of March 31, 2023 for both the Damages Class
litigation and the opt-out merchants represents Mastercard’s best
estimate of its probable liabilities in these matters. The portion
of the accrued liability relating to both the opt-out merchants and
the Damages Class litigation settlement does not represent an
estimate of a loss, if any, if the matters were litigated to a
final outcome. Mastercard cannot estimate the potential liability
if that were to occur.
Europe.
Since May 2012, a number of United Kingdom (“U.K.”) merchants filed
claims or threatened litigation against Mastercard seeking damages
for excessive costs paid for acceptance of Mastercard credit and
debit cards arising out of alleged anti-competitive conduct with
respect to, among other things, Mastercard’s cross-border
interchange fees and its U.K. and Ireland domestic interchange fees
(the “U.K. Merchant claimants”). In addition, Mastercard, has faced
similar filed or threatened litigation by merchants with respect to
interchange rates in other countries in Europe (the “Pan-European
Merchant claimants”). Mastercard has resolved a substantial amount
of these damages claims through settlement or judgment. Following
these settlements, approximately £0.6 billion (approximately $0.7
billion as of March 31, 2023) of unresolved damages claims
remain.
Mastercard continues to litigate with the remaining U.K. and
Pan-European Merchant claimants and it has submitted statements of
defense disputing liability and damages claims. A number of those
matters are now progressing with motion practice and discovery. In
one of the actions involving multiple merchant plaintiff claims,
the U.K. trial court in November 2021 denied the plaintiffs’ motion
for summary judgment on certain liability issues. In October 2022,
the appellate court rejected the plaintiffs’ appeal. In a separate
matter filed in Belgium involving multiple merchants from the Czech
Republic and Slovakia, the trial court held a hearing in June 2022
on liability issues, and the decision is pending.
During the third quarter of 2022, Mastercard and Visa were served
with a proposed collective action complaint in the U.K. on behalf
of merchants seeking damages for commercial card transactions and
inter-regional consumer card transactions in both the U.K. and the
European Union. The plaintiffs have claimed damages against
Mastercard of approximately £0.5 billion (approximately $0.6
billion as of March 31, 2023). The court held a hearing on the
plaintiffs’ collective action application in April
2023.
In September 2016, a proposed collective action was filed in the
United Kingdom on behalf of U.K. consumers seeking damages for
intra-EEA and domestic U.K. interchange fees that were allegedly
passed on to consumers by merchants between 1992 and 2008. The
complaint, which seeks to leverage the European Commission’s 2007
decision on intra-EEA interchange fees, claims damages in an amount
that exceeds £14 billion (approximately $17 billion as of
March 31, 2023). Following various hearings since July 2017
regarding collective action and scope, in August 2021, the trial
court issued a decision in which it granted class certification to
the plaintiffs but narrowed the scope of the class. In January
2023, the trial court held a hearing on Mastercard’s request to
narrow the number of years of damages sought by the plaintiffs on
statute of limitations grounds. The trial court has scheduled an
additional hearing for July 2023 regarding Mastercard’s request to
preclude the plaintiffs from seeking damages with respect to U.K.
domestic interchange fees.
Mastercard has been named as a defendant in a proposed consumer
collective action filed in Portugal on behalf of Portuguese
consumers. The complaint, which seeks to leverage the 2019
resolution of the European Commission’s investigation of
Mastercard’s central acquiring rules and interregional interchange
fees, claims damages of approximately €0.4 billion
(approximately $0.4 billion as of March 31, 2023) for
interchange fees that were allegedly passed on to consumers by
Portuguese merchants for a period of approximately 20 years.
Mastercard has submitted a statement of defense that disputes both
liability and damages.
In April 2023, the Serbian Competition Commission issued a
Statement of Objections (“SO”) against Mastercard. The SO covers
historic domestic interchange fees from 2013 to 2018. The SO seeks
monetary fines and costs but no business practices
changes.
Australia.
In May 2022, the Australian Competition & Consumer Commission
(“ACCC”) filed a complaint targeting certain agreements entered
into by Mastercard and certain Australian merchants related to
Mastercard’s debit program. The ACCC alleges that by entering into
such agreements, Mastercard engaged in conduct with the purpose of
substantially lessening competition in the supply of debit card
acceptance services. The ACCC seeks both declaratory relief and
monetary fines and costs. A hearing on liability issues has been
scheduled for July 2024.
ATM Non-Discrimination Rule Surcharge Complaints
United States.
In October 2011, a trade association of independent Automated
Teller Machine (“ATM”) operators and 13 independent ATM operators
filed a complaint styled as a class action lawsuit in the U.S.
District Court for the District of Columbia against both Mastercard
and Visa (the “ATM Operators Complaint”). Plaintiffs seek to
represent a class of non-bank operators of ATM terminals that
operate in the United States with the discretion to determine the
price of the ATM access fee for the terminals they operate.
Plaintiffs allege that Mastercard and Visa have violated Section 1
of the Sherman Act by imposing rules that require ATM operators to
charge non-discriminatory ATM surcharges for transactions processed
over Mastercard’s and Visa’s respective networks that are not
greater than the surcharge for
MASTERCARD MARCH 31, 2023 FORM 10-Q
23
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
transactions over other networks accepted at the same ATM.
Plaintiffs seek both injunctive and monetary relief equal to
treble the damages they claim to have sustained as a result of the
alleged violations and their costs of suit, including attorneys’
fees.
Subsequently, multiple related complaints were filed in the U.S.
District Court for the District of Columbia alleging both federal
antitrust and multiple state unfair competition, consumer
protection and common law claims against Mastercard and Visa on
behalf of putative classes of users of ATM services (the “ATM
Consumer Complaints”). The claims in these actions largely mirror
the allegations made in the ATM Operators Complaint, although these
complaints seek damages on behalf of consumers of ATM services who
pay allegedly inflated ATM fees at both bank and non-bank ATM
operators as a result of the defendants’ ATM rules. Plaintiffs seek
both injunctive and monetary relief equal to treble the
damages they claim to have sustained as a result of the alleged
violations and their costs of suit, including attorneys’
fees.
In January 2012, the plaintiffs in the ATM Operators Complaint and
the ATM Consumer Complaints filed amended class action complaints
that largely mirror their prior complaints. In September 2019, the
plaintiffs filed with the district court their motions for class
certification in which the plaintiffs, in aggregate, allege over $1
billion in damages against all of the defendants. In August 2021,
the trial court issued an order granting the plaintiffs’ request
for class certification. Visa and Mastercard subsequently appealed
the certification decision to the appellate court and oral argument
on the appeal was heard in September 2022.
Europe.
Mastercard has been named as a defendant in an action brought by
Euronet 360 Finance Limited, Euronet Polska Spolka z.o.o. and
Euronet Services spol. s.r.o. (“Euronet”) alleging that certain
rules affecting ATM access fees in Poland, the Czech Republic and
Greece by Visa and Mastercard, and certain of their subsidiaries,
breach various competition laws. Euronet seeks damages, costs and
injunctive relief to prevent the defendants from enforcing these
rules. A trial has been scheduled for October 2023.
U.S. Liability Shift Litigation
In March 2016, a proposed U.S. merchant class action complaint was
filed in federal court in California alleging that Mastercard,
Visa, American Express and Discover (the “Network Defendants”),
EMVCo, and a number of issuing banks (the “Bank Defendants”)
engaged in a conspiracy to shift fraud liability for card present
transactions from issuing banks to merchants not yet in compliance
with the standards for EMV chip cards in the United States (the
“EMV Liability Shift”), in violation of the Sherman Act and
California law. Plaintiffs allege damages equal to the value of all
chargebacks for which class members became liable as a result of
the EMV Liability Shift on October 1, 2015. The plaintiffs seek
treble damages, attorney’s fees and costs and an injunction against
future violations of governing law, and the defendants filed a
motion to dismiss. In September 2016, the district court denied the
Network Defendants’ motion to dismiss the complaint, but granted
such a motion for EMVCo and the Bank Defendants. In May 2017, the
district court transferred the case to New York so that discovery
could be coordinated with the U.S. merchant class interchange
litigation described above. In August 2020, the district court
issued an order granting the plaintiffs’ request for class
certification and in January 2021, the Network Defendants’ request
for permission to appeal that decision was denied. The plaintiffs
have submitted expert reports that allege aggregate damages in
excess of $1 billion against the four Network Defendants. The
Network Defendants have submitted expert reports rebutting both
liability and damages. Briefing on summary judgment is scheduled to
conclude in July 2023.
Telephone Consumer Protection Class Action
Mastercard is a defendant in a Telephone Consumer Protection Act
(“TCPA”) class action pending in Florida. The plaintiffs are
individuals and businesses who allege that approximately 381,000
unsolicited faxes were sent to them advertising a Mastercard
co-brand card issued by First Arkansas Bank (“FAB”). The TCPA
provides for uncapped statutory damages of $500 per fax. Mastercard
has asserted various defenses to the claims, and has notified FAB
of an indemnity claim that it has (which FAB has disputed). In
December 2019, the Federal Communications Commission (“FCC”) issued
a declaratory ruling clarifying that the TCPA does not apply to
faxes sent to online fax services that are received online via
email. In December 2021, the trial court granted plaintiffs’
request for class certification, but narrowed the scope of the
class to stand alone fax recipients only. Mastercard’s request to
appeal that decision was denied.
U.S. Federal Trade Commission Investigation
In June 2020, the U.S. Federal Trade Commission’s Bureau of
Competition (“FTC”) informed Mastercard that it has initiated a
formal investigation into compliance with the Durbin Amendment to
the Dodd-Frank Wall Street Reform and Consumer Protection Act. In
particular, the investigation focused on Mastercard’s compliance
with the debit routing provisions of the Durbin Amendment. In
December 2022, the FTC voted to issue an administrative complaint
and accept a consent agreement with Mastercard. Pursuant to this
agreement, Mastercard agreed to provide primary account numbers
(PANs) so that merchants can route tokenized online debit
transactions to alternative networks. The consent agreement does
not include any monetary penalty. The comment period has concluded
and the Company is awaiting the FTC’s decision on finalizing the
proposed consent agreement.
24
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
U.S. Department of Justice Investigation
In March 2023, Mastercard received a Civil Investigative Demand
(“CID”) from the U.S. Department of Justice Antitrust Division
(“DOJ”) seeking documents and information regarding a potential
violation of Sections 1 or 2 of the Sherman Act. The CID focuses on
Mastercard’s U.S. debit program and competition with other payment
networks and technologies. Mastercard is cooperating with the DOJ
in connection with the CID.
Note 16. Settlement and Other Risk Management
Mastercard’s rules guarantee the settlement of many of the
transactions between its customers (“settlement risk”). Settlement
exposure is the settlement risk to customers under Mastercard’s
rules due to the difference in timing between the payment
transaction date and subsequent settlement. For those transactions
the Company guarantees, the guarantee will cover the full amount of
the settlement obligation to the extent the settlement obligation
is not otherwise satisfied. Settlement is generally completed on a
same-day basis, however, in some circumstances, funds may not
settle until subsequent business days creating a short-term
settlement exposure.
Gross settlement exposure is estimated using the average daily
payment volume during the three months prior to period end
multiplied by the estimated number of days of exposure. The Company
has global risk management policies and procedures, which include
risk standards, to provide a framework for managing the Company’s
settlement risk and exposure. In the event of failed settlement by
a customer, Mastercard may pursue one or more remedies available
under the Company’s rules to recover potential losses.
Historically, the Company has experienced a low level of losses
from customer settlement failures.
As part of its policies, Mastercard requires certain customers that
are not in compliance with the Company’s risk standards to enter
into risk mitigation arrangements, including cash collateral and/or
other forms of credit enhancement such as letters of credit and
guarantees. This requirement is based on a review of the individual
risk circumstances for each customer. Mastercard monitors its
credit risk portfolio and the adequacy of its risk mitigation
arrangements on a regular basis. Additionally, from time to time,
the Company reviews its risk management methodology and standards.
As such, the amounts of estimated settlement exposure are revised
as necessary.
The Company’s estimated settlement exposure was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2023 |
|
December 31,
2022 |
|
|
(in millions) |
|
Gross settlement exposure
|
|
$ |
64,833 |
|
|
$ |
64,885 |
|
|
Risk mitigation arrangements applied to settlement
exposure
|
|
(9,587) |
|
|
(10,697) |
|
|
Net settlement exposure
|
|
$ |
55,246 |
|
|
$ |
54,188 |
|
Mastercard also provides guarantees to customers and certain other
counterparties indemnifying them from losses stemming from failures
of third parties to perform duties. This includes guarantees of
Mastercard-branded travelers cheques issued, but not yet cashed of
$342 million at March 31, 2023 and December 31, 2022, of
which the Company has risk mitigation arrangements for $273 million
at March 31, 2023 and December 31, 2022. In addition, the
Company enters into agreements in the ordinary course of business
under which the Company agrees to indemnify third parties against
damages, losses and expenses incurred in connection with legal and
other proceedings arising from relationships or transactions with
the Company. Certain indemnifications do not provide a stated
maximum exposure. As the extent of the Company’s obligations under
these agreements depends entirely upon the occurrence of future
events, the Company’s potential future liability under these
agreements is not determinable. Historically, payments made by the
Company under these types of contractual arrangements have not been
material.
Note 17. Derivative and Hedging Instruments
The Company monitors and manages its foreign currency and interest
rate exposures as part of its overall risk management program which
focuses on the unpredictability of financial markets and seeks to
reduce the potentially adverse effects that the volatility of these
markets may have on its operating results. A primary objective of
the Company’s risk management strategies is to reduce the financial
impact that may arise from volatility in foreign currency exchange
rates principally through the use of both foreign exchange
derivative contracts and foreign currency denominated debt. In
addition, the Company may enter into interest rate derivative
contracts to manage the effects of interest rate movements on the
Company’s aggregate liability portfolio, including potential future
debt issuances.
Cash Flow Hedges
The Company may enter into foreign exchange derivative contracts,
including forwards and options, to manage the impact of foreign
currency variability on anticipated revenues and expenses, which
fluctuate based on currencies other than the functional currency of
the entity. The objective of these hedging activities is to reduce
the effect of movement in foreign exchange rates for a portion of
revenues and expenses forecasted to occur. As these contracts are
designated as cash flow hedging instruments, gains and losses
resulting from changes in fair value of these contracts are
deferred in accumulated other comprehensive income (loss) and
subsequently reclassified to the consolidated statement of
operations when the underlying hedged transactions impact
earnings.
MASTERCARD MARCH 31, 2023 FORM 10-Q
25
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Company may enter into interest rate derivative
contracts to manage the effects of interest rate movements on the
Company’s aggregate liability portfolio, including potential future
debt issuances, and designate such derivatives as hedging
instruments in a cash flow hedging relationship. Gains and losses
resulting from changes in fair value of these contracts are
deferred in accumulated other comprehensive income (loss) and are
subsequently reclassified as an adjustment to interest expense over
the respective terms of the hedged debt issuances.
Fair Value Hedges
The Company may enter into interest rate derivative contracts,
including interest rate swaps, to manage the effects of interest
rate movements on the fair value of the Company's fixed-rate debt
and designate such derivatives as hedging instruments in a fair
value hedging relationship. Changes in fair value of these
contracts and changes in fair value of fixed-rate debt attributable
to changes in the hedged benchmark interest rate generally offset
each other and are recorded in interest expense on the consolidated
statement of operations. Gains or losses related to the net
settlements of interest rate swaps
are also
recorded in interest expense on the consolidated statement of
operations. The periodic cash settlements are included in operating
activities on the consolidated statement of cash
flows.
In 2021, the Company entered into an interest rate swap designated
as a fair value hedge related to $1.0 billion of the 3.850%
Senior Notes due March 2050. In effect, the interest rate swap
synthetically converts the fixed interest rate on this debt to a
variable interest rate based on the Secured Overnight Financing
Rate (“SOFR”) Overnight Index Swap Rate. The net impact to interest
expense for the three months ended March 31, 2023 and 2022 was not
material.
Net Investment Hedges
The Company may use foreign currency denominated debt and/or
foreign exchange derivative contracts to hedge a portion of its net
investment in foreign subsidiaries against adverse movements in
exchange rates. The effective portion of the net investment hedge
is recorded as a currency translation adjustment in accumulated
other comprehensive income (loss). Forward points are excluded from
the effectiveness assessment and are recognized in general and
administrative expenses on the consolidated statement of operations
over the hedge period. The amounts recognized in earnings related
to forward points for the three months ended March 31, 2023 and
2022 were not material.
As of March 31, 2023 and December 31, 2022, the Company
had €1.7 billion euro-denominated debt outstanding designated as
hedges of a portion of its net investment in its European
operations. For the three months ended March 31, 2023 and 2022, the
Company recorded pre-tax net foreign currency gains (losses) of
$(35) million and $51 million, respectively, in other comprehensive
income (loss).
As of March 31, 2023 and December 31, 2022, the Company
had net foreign currency gains of $252 million and $309 million,
respectively, after tax, in accumulated other comprehensive income
(loss) associated with this hedging activity.
Non-designated Derivatives
The Company may also enter into foreign exchange derivative
contracts to serve as economic hedges, such as to offset possible
changes in the value of monetary assets and liabilities due to
foreign exchange fluctuations, without designating these derivative
contracts as hedging instruments. In addition, the Company is
subject to foreign exchange risk as part of its daily settlement
activities. This risk is typically limited to a few days between
when a payment transaction takes place and the subsequent
settlement with customers. To manage this risk, the Company may
enter into short duration foreign exchange derivative contracts
based upon anticipated receipts and disbursements for the
respective currency position. The objective of these activities is
to reduce the Company’s exposure to volatility arising from gains
and losses resulting from fluctuations of foreign currencies
against its functional currencies. Gains and losses resulting from
changes in fair value of these contracts are recorded in general
and administrative expenses on the consolidated statement of
operations, net, along with the foreign currency gains and losses
on monetary assets and liabilities.
26
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the fair value of the Company’s
derivative financial instruments and the related notional
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
|
Notional |
|
Derivative assets |
|
Derivative liabilities |
|
Notional |
|
Derivative assets |
|
Derivative liabilities |
|
|
(in millions) |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts in a cash flow hedge
1
|
|
$ |
709 |
|
|
$ |
5 |
|
|
$ |
19 |
|
|
$ |
642 |
|
|
$ |
4 |
|
|
$ |
15 |
|
|
Interest rate contracts in a fair value hedge
2
|
|
1,000 |
|
|
— |
|
|
89 |
|
|
1,000 |
|
|
— |
|
|
105 |
|
|
Foreign exchange contracts in a net investment hedge
1
|
|
2,229 |
|
|
16 |
|
|
16 |
|
|
1,814 |
|
|
103 |
|
|
4 |
|
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
1
|
|
1,988 |
|
|
26 |
|
|
8 |
|
|
521 |
|
|
1 |
|
|
2 |
|
|
Total derivative assets/liabilities |
|
$ |
5,926 |
|
|
$ |
47 |
|
|
$ |
132 |
|
|
$ |
3,977 |
|
|
$ |
108 |
|
|
$ |
126 |
|
1Foreign
exchange derivative assets and liabilities are included within
prepaid expenses and other current assets and other current
liabilities, respectively, on the consolidated balance
sheet.
2Interest
rate derivative liabilities are included within other current
liabilities and other liabilities on the consolidated balance
sheet.
The pre-tax gain (loss) related to the Company's derivative
financial instruments designated as hedging instruments are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized in OCI |
|
|
|
Gain (Loss)
Reclassified from AOCI |
|
|
Three Months Ended March 31, |
|
Location of Gain (Loss) Reclassified from AOCI into
Earnings |
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
|
(in millions) |
|
|
(in millions) |
|
Derivative financial instruments in a cash flow hedge
relationship: |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(10) |
|
|
$ |
1 |
|
|
Net revenue |
|
$ |
(6) |
|
|
$ |
7 |
|
|
Interest rate contracts |
|
$ |
— |
|
|
$ |
— |
|
|
Interest expense |
|
$ |
(2) |
|
|
$ |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments in a net investment hedge
relationship: |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
(39) |
|
|
$ |
35 |
|
|
|
|
|
|
|
The Company estimates that $21 million, pre-tax, of the net
deferred loss on cash flow hedges recorded in accumulated other
comprehensive income (loss) at March 31, 2023 will be
reclassified into the consolidated statement of operations within
the next 12 months. The term of the foreign exchange derivative
contracts designated in hedging relationships are generally less
than 18 months.
The amount of gain (loss) recognized on the consolidated statement
of operations for non-designated derivative contracts is summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
(in millions) |
|
Foreign exchange derivative contracts |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
|
|
|
$ |
15 |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s derivative financial instruments are subject to both
market and counterparty credit risk. Market risk is the potential
for economic losses to be incurred on market risk sensitive
instruments arising from adverse changes in market factors such as
foreign currency exchange rates, interest rates and other related
variables. Counterparty credit risk is the risk of loss due to
failure of the counterparty to perform its obligations in
accordance with contractual terms. The Company’s derivative
contracts are subject to enforceable master netting arrangements,
which contain various netting and setoff provisions. To mitigate
counterparty credit risk, the Company enters into derivative
contracts with a diversified group of selected financial
institutions based upon their credit ratings and other factors.
Generally, the Company does not obtain collateral related to
derivatives because of the high credit ratings of the
counterparties.
MASTERCARD MARCH 31, 2023 FORM 10-Q
27
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. Management’s discussion and analysis of financial condition
and results of operations
The following supplements management's discussion and analysis of
Mastercard Incorporated for the year ended December 31, 2022
as contained in the Company's Annual Report on Form 10-K filed with
the U.S. Securities and Exchange Commission on February 14,
2023. It also should be read in conjunction with the consolidated
financial statements and notes of Mastercard Incorporated and its
consolidated subsidiaries, including Mastercard International
Incorporated (together, “Mastercard” or the “Company”), included
elsewhere in this Report. Percentage changes provided throughout
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” were calculated on amounts rounded to the
nearest thousand. During the fourth quarter of 2022, the Company
updated its disaggregated net revenue presentation by category and
geography to reflect the nature of its payment services and to
align such information with the way in which management views its
categories of net revenue. Prior period amounts have been
reclassified to conform to the updated presentation. The
reclassification had no impact on previously reported total net
revenue, operating income or net income.
Financial Results Overview
The following table provides a summary of our key GAAP operating
results, as reported:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Increase/(Decrease) |
|
|
|
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
($ in millions, except per share data) |
|
Net revenue |
|
|
|
|
|
|
|
$ |
5,748 |
|
|
$ |
5,167 |
|
|
11% |
|
Operating expenses |
|
|
|
|
|
|
|
$ |
2,612 |
|
|
$ |
2,217 |
|
|
18% |
|
Operating income |
|
|
|
|
|
|
|
$ |
3,136 |
|
|
$ |
2,950 |
|
|
6% |
|
Operating margin |
|
|
|
|
|
|
|
54.6 |
% |
|
57.1 |
% |
|
(2.5) ppt |
|
Income tax expense |
|
|
|
|
|
|
|
$ |
492 |
|
|
$ |
142 |
|
|
** |
|
Effective income tax rate |
|
|
|
|
|
|
|
17.2 |
% |
|
5.1 |
% |
|
12.1 ppt |
|
Net income |
|
|
|
|
|
|
|
$ |
2,361 |
|
|
$ |
2,631 |
|
|
(10)% |
|
Diluted earnings per share |
|
|
|
|
|
|
|
$ |
2.47 |
|
|
$ |
2.68 |
|
|
(8)% |
|
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
956 |
|
|
981 |
|
|
(3)% |
** Not meaningful.
The following table provides a summary of our key non-GAAP
operating results1,
adjusted to exclude the impact of gains and losses on our equity
investments, Special Items (which represent litigation judgments
and settlements and certain one-time items) and the related tax
impacts on our non-GAAP adjustments. In addition, we have presented
growth rates, adjusted for the impact of currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Increase/(Decrease) |
|
|
|
|
|
|
|
|
|
2023 |
|
2022 |
|
As adjusted |
|
Currency-neutral |
|
|
|
|
|
|
|
|
|
($ in millions, except per share data) |
|
Adjusted net revenue |
|
|
|
|
|
|
|
|
$ |
5,748 |
|
|
$ |
5,136 |
|
|
12% |
|
15% |
|
Adjusted operating expenses |
|
|
|
|
|
|
|
|
$ |
2,401 |
|
|
$ |
2,182 |
|
|
10% |
|
12% |
|
Adjusted operating margin |
|
|
|
|
|
|
|
|
58.2 |
% |
|
57.5 |
% |
|
0.7 ppt |
|
1.0 ppt |
|
Adjusted effective income tax rate |
|
|
|
|
|
|
|
|
18.3 |
% |
|
5.3 |
% |
|
13.0 ppt |
|
13.3 ppt |
|
Adjusted net income |
|
|
|
|
|
|
|
|
$ |
2,678 |
|
|
$ |
2,702 |
|
|
(1)% |
|
2% |
|
Adjusted diluted earnings per share |
|
|
|
|
|
|
|
|
$ |
2.80 |
|
|
$ |
2.76 |
|
|
1% |
|
4% |
1 See
“Non-GAAP Financial Information” for further information on our
non-GAAP adjustments and the reconciliation to GAAP reported
amounts.
28
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Key highlights for the three months ended March 31, 2023, versus
the comparable period in 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
Adjusted net revenue |
|
|
Three Months Ended March 31, 2023 |
Adjusted net revenue increased 15% on a currency-neutral basis. The
increase was attributable to growth in both our payment network and
value-added services and solutions.
|
|
GAAP |
|
Non-GAAP
(currency-neutral) |
|
up 11% |
|
up 15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
Adjusted
operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
Adjusted operating expenses increased 12% on a currency-neutral
basis, which includes 2 percentage points of growth due to
acquisitions. The remaining increase was primarily due to higher
personnel costs.
|
|
GAAP |
|
Non-GAAP
(currency-neutral)
|
|
up 18% |
|
up 12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income
tax rate
|
|
Adjusted effective
income tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
The adjusted effective income tax rate of 18.3% was higher than the
prior year rate of 5.3% due to a prior year discrete tax benefit
related to final U.S. tax regulations published in the first
quarter of 2022, which resulted in a valuation allowance release of
$333 million, as well as an increase in the U.K. statutory tax rate
effective in 2023.
|
|
GAAP |
|
Non-GAAP |
|
17.2% |
|
18.3% |
Other financial highlights for the three months ended March 31,
2023 were as follows:
•We
generated net cash flows from operations of $1.9
billion.
•We
repurchased 8.0 million shares of our common stock for $2.9 billion
and paid dividends of $0.5 billion.
•We
completed a debt offering for an aggregate principal amount of
$1.5 billion.
Non-GAAP Financial Information
Non-GAAP financial information is defined as a numerical measure of
a company’s performance that excludes or includes amounts so as to
be different than the most comparable measure calculated and
presented in accordance with accounting principles generally
accepted in the United States (“GAAP”). Our non-GAAP financial
measures exclude the impact of gains and losses on our equity
investments which includes mark-to-market fair value adjustments,
impairments and gains and losses upon disposition and the related
tax impacts. Our non-GAAP financial measures also exclude the
impact of special items, where applicable, which represent
litigation judgments and settlements and certain one-time items, as
well as the related tax impacts (“Special Items”). Our non-GAAP
financial measures for the comparable periods exclude the impact of
the following:
Gains and Losses on Equity Investments
•In
the
three months ended March 31, 2023 and 2022,
we recorded net losses of $212 million ($176 million
after tax, or $0.18 per diluted share) and $76 million ($67 million
after tax, or $0.07 per diluted share), respectively, primarily
related to unrealized fair market value adjustments on marketable
and nonmarketable equity securities.
Special Items
Litigation provisions
•In
the three months ended March 31, 2023, we recorded charges of
$211 million ($140 million after tax, or $0.15 per
diluted share) as a result of a change in estimate related to the
claims of merchants who opted out of the U.S. merchant class
litigation.
MASTERCARD MARCH 31, 2023 FORM 10-Q
29
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Russia-related impacts
•In
the three months ended March 31, 2022, we recorded a net charge of
$4 million ($3 million after tax, or an immaterial impact per
diluted share), directly related to imposed sanctions and the
suspension of our business operations in Russia. The net charge is
comprised of general and administrative expenses of $34 million,
primarily related to reserves on uncollectible balances with
certain sanctioned customers, offset by net benefits of $30 million
in net revenue, primarily related to a reduction in payment network
rebates and incentives liabilities as a result of lower estimates
of customer performance for certain customer business agreements
due to the suspension of our business operations in
Russia.
See Note 6 (Investments) and Note 15 (Legal and Regulatory
Proceedings) to the consolidated financial statements included in
Part I, Item 1 of this Report and “Management Discussion and
Analysis of Financial Condition and Results of Operations - Russia
and Ukraine” in Part II, Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2022 for further discussion
related to certain of our non-GAAP financial measures. We excluded
these items because management evaluates the underlying operations
and performance of the Company separately from these recurring and
nonrecurring items.
We believe that the non-GAAP financial measures presented
facilitate an understanding of our operating performance and
provide a meaningful comparison of our results between periods. We
use non-GAAP financial measures to, among other things, evaluate
our ongoing operations in relation to historical results, for
internal planning and forecasting purposes and in the calculation
of performance-based compensation.
Currency-neutral Growth Rates
We present growth rates adjusted for the impact of currency which
is a non-GAAP financial measure. Currency-neutral growth rates are
calculated by remeasuring the prior period’s results using the
current period’s exchange rates for both the translational and
transactional impacts on operating results. The impact of currency
translation represents the effect of translating operating results
where the functional currency is different than our U.S. dollar
reporting currency. The impact of the transactional currency
represents the effect of converting revenue and expenses occurring
in a currency other than the functional currency of the entity. The
impact of the related realized gains and losses resulting from our
foreign exchange derivative contracts designated as cash flow
hedging instruments is recognized in the respective financial
statement line item on the statement of operations when the
underlying forecasted transactions impact earnings. We believe the
presentation of currency-neutral growth rates provides relevant
information to facilitate an understanding of our operating
results.
The translational and transactional impact of currency and the
related impact of our foreign exchange derivative contracts
designated as cash flow hedging instruments (“Currency impact”) has
been excluded from our currency-neutral growth rates and has been
identified in our “Drivers of Change” tables. See “Foreign Currency
- Currency Impact” for further information on our currency impacts
and “Financial Results - Net Revenue” and “Financial Results -
Operating Expenses” for our "Drivers of Change”
tables.
Net revenue, operating expenses, operating margin, other income
(expense), effective income tax rate, net income and diluted
earnings per share adjusted for the impact of gains and losses on
our equity investments, Special Items and/or the impact of
currency, are non-GAAP financial measures and should not be relied
upon as substitutes for measures calculated in accordance with
GAAP.
30
MASTERCARD MARCH 31, 2023 FORM 10-Q
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following tables reconcile our reported financial measures
calculated in accordance with GAAP to the respective adjusted
non-GAAP financial measures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2023 |
|
|
Net revenue |
|
Operating expenses |
|
Operating margin |
|
Other income (expense) |
|
Effective income tax rate |
|
Net income |
|
Diluted earnings per share |
|
|
($ in millions, except per share data) |
|
Reported - GAAP |
|
$ |
5,748 |
|
|
$ |
2,612 |
|
|
54.6 |
% |
|
$ |
(283) |
|
|
17.2 |
% |
|
$ |
2,361 |
|
|
$ |
2.47 |
|
|
(Gains) losses on equity investments |
|
** |
|
** |
|
** |
|
212 |
|
|
— |
% |
|
176 |
|
|
0.18 |
|
|
Litigation provisions |
|
** |
|
(211) |
|
|
3.7 |
% |
|
** |
|
1.1 |
% |
|
140 |
|
|
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted - Non-GAAP |
|
$ |
5,748 |
|
|
$ |
2,401 |
|
|
58.2 |
% |
|
$ |
(71) |
|
|
18.3 |
% |
|
$ |
2,678 |
|
|
$ |
2.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Net revenue |
|
Operating expenses |
|
Operating margin |
|
Other income (expense) |
|
Effective income tax rate |
|
Net income |
|
Diluted earnings per share |
|
|
($ in millions, except per share data) |
|
Reported - GAAP |
|
$ |
5,167 |
|
|
$ |
2,217 |
|
|
57.1 |
% |
|
$ |
(177) |