Mastercard 10-Q 2022-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

Or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32877

Mastercard Incorporated

(Exact name of registrant as specified in its charter)

Delaware						13-4172551
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification Number)
2000 Purchase Street						10577
Purchase,			NY			(Zip Code)
(Address of principal executive offices)

(914) 249-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class						Trading Symbol						Name of each exchange of which registered
Class A Common Stock, par value $0.0001 per share						MA						New York Stock Exchange
1.1% Notes due 2022						MA22						New York Stock Exchange
2.1% Notes due 2027						MA27						New York Stock Exchange
1.0% Notes due 2029						MA29A						New York Stock Exchange
2.5% Notes due 2030						MA30						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.												Yes			☒			No			☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)												Yes			☒			No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer			☒						Accelerated filer			☐
Non-accelerated filer			☐						Smaller reporting company			☐
									Emerging growth company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.																					☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)												Yes			☐			No			☒

As of October 24, 2022, there were 953,803,041 shares outstanding of the registrant’s Class A common stock, par value $0.0001 per share; and 7,656,734 shares outstanding of the registrant’s Class B common stock, par value $0.0001 per share.

MASTERCARD INCORPORATED FORM 10-Q

TABLE OF CONTENTS

PART I			5			Item 1.			Consolidated financial statements (unaudited)
30			Item 2.			Management’s discussion and analysis of financial condition and results of operations
45			Item 3.			Quantitative and qualitative disclosures about market risk
46			Item 4.			Controls and procedures
PART II			48			Item 1.			Legal proceedings
48			Item 1A.			Risk factors
48			Item 2.			Unregistered sales of equity securities and use of proceeds
48			Item 5.			Other information
48			Item 6.			Exhibits
50			-			Signatures

2 MASTERCARD SEPTEMBER 30, 2022 FORM 10-Q

In this Report on Form 10-Q (“Report”), references to the “Company,” “Mastercard,” “we,” “us” or “our” refer to the business conducted by Mastercard Incorporated and its consolidated subsidiaries, including our operating subsidiary, Mastercard International Incorporated, and to the Mastercard brand.

Forward-Looking Statements

This Report contains forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements. When used in this Report, the words “believe”, “expect”, “could”, “may”, “would”, “will”, “trend” and similar words are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements that relate to the Company’s future prospects, developments and business strategies.

Many factors and uncertainties relating to our operations and business environment, all of which are difficult to predict and many of which are outside of our control, influence whether any forward-looking statements can or will be achieved. Any one of those factors could cause our actual results to differ materially from those expressed or implied in writing in any forward-looking statements made by Mastercard or on its behalf, including, but not limited to, the following factors:

• regulation directly related to the payments industry (including regulatory, legislative and litigation activity with respect to interchange rates and surcharging)

• the impact of preferential or protective government actions

• regulation of privacy, data, security and the digital economy

• regulation that directly or indirectly applies to us based on our participation in the global payments industry (including anti-money laundering, counter financing of terrorism, economic sanctions and anti-corruption, account-based payments systems, and issuer and acquirer practice regulation)

• the impact of changes in tax laws, as well as regulations and interpretations of such laws or challenges to our tax positions

• potential or incurred liability and limitations on business related to any litigation or litigation settlements

• the impact of the global COVID-19 pandemic and measures taken in response

• the impact of competition in the global payments industry (including disintermediation and pricing pressure)

• the challenges relating to rapid technological developments and changes

• the challenges relating to operating a real-time account-based payments system and to working with new customers and end users

• the impact of information security incidents, account data breaches or service disruptions

• issues related to our relationships with our stakeholders (including loss of substantial business from significant customers, competitor relationships with our customers, consolidation amongst our customers, merchants’ continued focus on acceptance costs and unique risks from our work with governments)

• exposure to loss or illiquidity due to our role as guarantor and other contractual obligations

• the impact of global economic, political, financial and societal events and conditions, including adverse currency fluctuations and foreign exchange controls

• events and resulting actions related to the Russian invasion of Ukraine

• reputational impact, including impact related to brand perception and lack of visibility of our brands in products and services

• the inability to attract, hire and retain a highly qualified and diverse workforce, or maintain our corporate culture

• issues related to acquisition integration, strategic investments and entry into new businesses

• issues related to our 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, 2021 and in Part II, Item 1A - Risk Factors of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 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 SEPTEMBER 30, 2022 FORM 10-Q 3

						PART I
						Item 1. Consolidated financial statements (unaudited)
						Item 2. Management’s discussion and analysis of financial condition and results of operations
						Item 3. Quantitative and qualitative disclosures about market risk
						Item 4. Controls and procedures

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Item 1. Consolidated financial statements (unaudited)

Mastercard Incorporated

Index to consolidated financial statements (unaudited)

						Page
Consolidated Statement of Operations — Three and Nine Months Ended September 30, 2022 and 2021						6
Consolidated Statement of Comprehensive Income — Three and Nine Months Ended September 30, 2022 and 2021						7
Consolidated Balance Sheet — September 30, 2022 and December 31, 2021						8
Consolidated Statement of Changes in Equity — Three and Nine Months Ended September 30, 2022 and 2021						9
Consolidated Statement of Cash Flows — Nine Months Ended September 30, 2022 and 2021						11
Notes to consolidated financial statements						12

MASTERCARD SEPTEMBER 30, 2022 FORM 10-Q 5

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Operations (Unaudited)
						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
						(in millions, except per share data)
Net Revenue						$	5,756					$	4,985					$	16,420					$	13,668
Operating Expenses:
General and administrative						2,069						1,831						5,860						5,225
Advertising and marketing						182						222						573						557
Depreciation and amortization						185						188						566						537
Provision for litigation						208						27						341						94
Total operating expenses						2,644						2,268						7,340						6,413
Operating income						3,112						2,717						9,080						7,255
Other Income (Expense):
Investment income						16						5						28						9
Gains (losses) on equity investments, net						60						197						(133)						534
Interest expense						(120)						(110)						(344)						(323)
Other income (expense), net						4						7						12						9
Total other income (expense)						(40)						99						(437)						229
Income before income taxes						3,072						2,816						8,643						7,484
Income tax expense						573						402						1,238						1,176
Net Income						$	2,499					$	2,414					$	7,405					$	6,308
Basic Earnings per Share						$	2.59					$	2.45					$	7.63					$	6.37
Basic weighted-average shares outstanding						965						986						971						990
Diluted Earnings per Share						$	2.58					$	2.44					$	7.60					$	6.35
Diluted weighted-average shares outstanding						968						990						974						994

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

6 MASTERCARD SEPTEMBER 30, 2022 FORM 10-Q

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Statement of Comprehensive Income (Unaudited)
						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
						(in millions)
Net Income						$	2,499					$	2,414					$	7,405					$	6,308
Other comprehensive income (loss):
Foreign currency translation adjustments						(743)						(219)						(1,517)						(274)
Income tax effect						62						9						105						33
Foreign currency translation adjustments, net of income tax effect						(681)						(210)						(1,412)						(241)
Translation adjustments on net investment hedges						372						90						772						162
Income tax effect						(82)						(20)						(171)						(36)
Translation adjustments on net investment hedges, net of income tax effect						290						70						601						126
Cash flow hedges						14						2						21						1
Income tax effect						(3)						—						(5)						—
Reclassification adjustments for cash flow hedges						(4)						1						(9)						5
Income tax effect						1						—						2						(1)
Cash flow hedges, net of income tax effect						8						3						9						5
Reclassification adjustments for defined benefit pension and other postretirement plans						—						—						(1)						(1)
Income tax effect						—						—						—						—
Defined benefit pension and other postretirement plans, net of income tax effect						—						—						(1)						(1)
Investment securities available-for-sale						(2)						(2)						(6)						—
Income tax effect						—						1						1						—
Investment securities available-for-sale, net of income tax effect						(2)						(1)						(5)						—
Other comprehensive income (loss), net of tax						(385)						(138)						(808)						(111)
Comprehensive Income						$	2,114					$	2,276					$	6,597					$	6,197

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

MASTERCARD SEPTEMBER 30, 2022 FORM 10-Q 7

PART I

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Balance Sheet (Unaudited)
						September 30, 2022						December 31, 2021
						(in millions, except per share data)
Assets
Current assets:
Cash and cash equivalents						$	7,633					$	7,421
Restricted cash for litigation settlement						586						586
Investments						412						473
Accounts receivable						3,167						3,006
Settlement assets						1,019						1,319
Restricted security deposits held for customers						1,531						1,873
Prepaid expenses and other current assets						2,475						2,271
Total current assets						16,823						16,949
Property, equipment and right-of-use assets, net of accumulated depreciation and amortization of $1,788 and $1,614, respectively						1,951						1,907
Deferred income taxes						1,069						486
Goodwill						7,176						7,662
Other intangible assets, net of accumulated amortization of $1,834 and $1,755, respectively						3,582						3,671
Other assets						7,011						6,994
Total Assets						$	37,612					$	37,669
Liabilities, Redeemable Non-controlling Interests and Equity
Current liabilities:
Accounts payable						$	615					$	738
Settlement obligations						1,054						913
Restricted security deposits held for customers						1,531						1,873
Accrued litigation						1,086						840
Accrued expenses						6,888						6,642
Short-term debt						957						792
Other current liabilities						1,345						1,364
Total current liabilities						13,476						13,162
Long-term debt						13,577						13,109
Deferred income taxes						346						395
Other liabilities						3,770						3,591
Total Liabilities						31,169						30,257
Commitments and Contingencies
Redeemable Non-controlling Interests						20						29
Stockholders’ Equity
Class A common stock, $0.0001 par value; authorized 3,000 shares, 1,399 and 1,397 shares issued and 955 and 972 shares outstanding, respectively						—						—
Class B common stock, $0.0001 par value; authorized 1,200 shares, 8 shares issued and outstanding						—						—
Additional paid-in-capital						5,269						5,061
Class A treasury stock, at cost, 444 and 425 shares, respectively						(48,916)						(42,588)
Retained earnings						51,625						45,648
Accumulated other comprehensive income (loss)						(1,617)						(809)
Mastercard Incorporated Stockholders' Equity						6,361						7,312
Non-controlling interests						62						71
Total Equity						6,423						7,383
Total Liabilities, Redeemable Non-controlling Interests and Equity						$	37,612					$	37,669

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

8 MASTERCARD SEPTEMBER 30, 2022 FORM 10-Q

PART I

Consolidated Statement of Changes in Equity (Unaudited)
						Three Months Ended September 30, 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 June 30, 2022						$	—					$	—					$	5,163					$	(47,359)					$	49,599					$	(1,232)					$	6,171					$	65					$	6,236
Net income						—						—						—						—						2,499						—						2,499						—						2,499
Activity related to non-controlling interests						—						—						—						—						—						—						—						(3)						(3)
Redeemable non-controlling interest adjustments						—						—						—						—						(1)						—						(1)						—						(1)
Other comprehensive income (loss)						—						—						—						—						—						(385)						(385)						—						(385)
Dividends						—						—						—						—						(472)						—						(472)						—						(472)
Purchases of treasury stock						—						—						—						(1,557)						—						—						(1,557)						—						(1,557)
Share-based payments						—						—						106						—						—						—						106						—						106
Balance at September 30, 2022						$	—					$	—					$	5,269					$	(48,916)					$	51,625					$	(1,617)					$	6,361					$	62					$	6,423

						Nine Months Ended September 30, 2022

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The following tables reconcile our reported financial measures calculated in accordance with GAAP to the respective adjusted non-GAAP financial measures:

						Three Months Ended September 30, 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						$	5,756					$	2,644					54.1		%				$	(40)					18.6		%				$	2,499					$	2.58
(Gains) losses on equity investments						**						**						**						(60)						0.6		%				(66)						(0.07)
Litigation provisions						**						(208)						3.6		%				**						0.2		%				162						0.17
Adjusted - Non-GAAP						$	5,756					$	2,437					57.7		%				$	(99)					19.4		%				$	2,595					$	2.68

						Nine Months Ended September 30, 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						$	16,420					$	7,340					55.3		%				$	(437)					14.3		%				$	7,405					$	7.60
(Gains) losses on equity investments						**						**						**						133						—		%				114						0.12
Litigation provisions						**						(341)						2.1		%				**						0.5		%				251						0.26
Russia-related impacts						(37)						(67)						0.3		%				**						—		%				24						0.02
Adjusted - Non-GAAP						$	16,383					$	6,932					57.7		%				$	(303)					14.8		%				$	7,794					$	8.00

						Three Months Ended September 30, 2021
						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						$	4,985					$	2,268					54.5		%				$	99					14.3		%				$	2,414					$	2.44
(Gains) losses on equity investments						**						**						**						(197)						(0.2)		%				(163)						(0.16)
Litigation provisions						**						$	(27)					0.6		%				**						0.1		%				22						0.02
Indirect tax matter						**						(82)						1.6		%				6						0.2		%				69						0.07
Adjusted - Non-GAAP						$	4,985					$	2,158					56.7		%				$	(92)					14.4		%				$	2,341					$	2.37

						Nine Months Ended September 30, 2021
						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						$	13,668					$	6,413					53.1		%				$	229					15.7		%				$	6,308					$	6.35
(Gains) losses on equity investments						**						**						**						(534)						(0.3)		%				(432)						(0.43)
Litigation provisions						**						(94)						0.7		%				**						0.1		%				74						0.07
Indirect tax matter						**						(82)						0.6		%				6

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